5th Sep 2006 07:01
Mattioli Woods PLC05 September 2006 Press Release 5 September 2006 Mattioli Woods plc ("Mattioli Woods" or "the Group") Preliminary Results Mattioli Woods, the specialist pensions consultancy, reports its maidenPreliminary Results for the year ended 31 May 2006. Highlights - Turnover increased by 17.6% to £7.6 million (2005: £6.4 million) - Profit before interest and tax of £2.2 million in line with expectations (2005: £2.7 million) - Normalised profit before interest and tax increased by 20.9% to £2.2 million - Earnings per share of 10.1 pence (2005: 15.1 pence) - Final proposed dividend to shareholders of 1.4 pence per share - Client portfolios acquired from Geoffrey Bernstein and Suffolk Life performing well - Joined AIM in November 2005 and moved to new office premises - Management team strengthened with appointment of three new Directors - Successful transition to the Government's Pension Simplification legislation ("A-Day") - Leading adviser on over 1,400 SIPP and SSAS schemes - a 40% increase during year - New SIPP launched in conjunction with Bank of Scotland - Currently advising on over £728 million of funds under trusteeship - Facilitated creation of 10 new property syndicates during the year Commenting on the Preliminary Results, Bob Woods, Executive Chairman of MattioliWoods, said: "During the year, the business has made a number of significant achievements,including admission to the AIM market and the successful integration of twoacquisitions, whilst maintaining strong growth in our core business. "The Group is very confident that the new "A-Day" legislation will stronglyencourage pension planning in our core target market over the short, medium andlong term. We also believe that there will be new and exciting opportunities inthe final salary arena, which will be synergistic with our SIPP services. "We have always believed that "A-Day" would not only boost the current rate ofgrowth in the SIPP market, but also lead to rationalisation within the sector.We continue to believe this may provide Mattioli Woods with furtheropportunities for strategic acquisitions. The Group looks forward to 2007 withconfidence and enthusiasm." For further information:Mattioli Woods plcBob Woods, Executive Chairman Tel: +44 (0) 116 240 [email protected] www.mattioli-woods.com Ian Mattioli, Chief Executive Tel: +44 (0) 116 240 [email protected] www.mattioli-woods.com Nathan Imlach, Finance Director Tel: +44 (0) 116 240 [email protected] www.mattioli-woods.com Evolution Securities LimitedJoanne Lake, Corporate Finance Tel: +44 (0) 113 243 [email protected] www.evosecurities.com Media enquiries:AbchurchSarah Hollins/Neil Camp/Louise Thornhill Tel: +44 (0) 207 398 [email protected] www.abchurch-group.com Chairman's statement I am delighted to report that the historic growth trend of the business has beenmaintained, with turnover up 17.6% in the year ended 31 May 2006. During theperiod the business made two acquisitions, moved to new premises, was admittedto the AIM market of London Stock Exchange plc and successfully dealt with thetransition to the Government's Pension Simplification legislation ("A-Day").Taking into account anticipated costs relating to our new office premises andthe flotation, the Group's reported profits are in line with marketexpectations. We act for over 1,400 small self-administered pension schemes ("SSAS") and selfinvested personal pension ("SIPP") clients throughout the UK, a 40% increaseduring the year, with funds under trusteeship now totalling over £728 million. The positive financial impact of revenues from the client portfolios acquiredfrom Geoffrey Bernstein in June 2005 and Suffolk Life in January 2006 isincreasing over time. We are very pleased with the response from these clientsto date and the retention levels achieved. We continue to strengthen our investment services and the successful launch ofour first 'structured product' in June 2006, linking the performance in majoremerging market economies over a five-year period with a 100% capital guarantee,gives us the confidence to develop more products of this nature. While less well known for our group scheme consultancy, this is a developingrevenue stream for us, which is set against the background of fundamentalchanges in the final salary scheme marketplace. We expect to see a winding downof final salary schemes by employers across the UK and consequently a majorshift in the distribution of assets in the pensions arena. Trading results In the year ended 31 May 2006, increased turnover of £7.6 million (2005: £6.4million) was achieved, despite the additional responsibilities management andstaff experienced over and above the day-to-day running of our business, with animmense amount of work required to cope with the new A-Day legislation. Asanticipated, the trading results were affected by additional costs incurred inconnection with the new office premises, increased compliance costs and theappointment of three new directors. Operating profit was £2.2 million (2005: £2.7 million), with EBITDA of £2.3million (2005: £2.8 million). Earnings per share were 10.1 pence. In January 2006 the Group obtained HM Revenue & Customs approval for a newMattioli Woods SIPP scheme, established in conjunction with Bank of Scotland(part of the HBoS Group). This is the fifth SIPP we have developed togetherwith other leading financial institutions. A strong banking connection such asBank of Scotland, which has developed a specialist on-line pension fund bankingfacility, further strengthens Mattioli Woods' existing SIPP initiatives. TheBank of Scotland's technology is built upon a streamlined and efficientadministrative platform for clients, underpinned by the ability to downloadscheme transactions on a daily basis. Dividends The Board is pleased to recommend the payment of a final dividend for the yearended 31 May 2006 of 1.4 pence per Ordinary Share. It is our intention to growthe dividend distributions sensibly going forward. If approved, the finaldividend will be paid on 20 October 2006 to shareholders on the Register at theclose of business on 27 September 2006. Staff The last year has been an exceptionally busy period for Mattioli Woods, and itis only through the hard work and dedication of our employees, that I am able toreport on the positive progress we have achieved, for which I am very grateful. Mattioli Woods has always enjoyed a strong camaraderie and wonderful commitmentfrom all its staff, and our admission to AIM has strengthened that culture byfacilitating wider equity participation within the organisation. Murray Smith joined the Board as Sales and Marketing Director in October 2005and, in preparation for the flotation on AIM, the Group appointed Nathan Imlachas Finance Director and John Redpath as Non-Executive Director. All have madeinvaluable contributions to the business. Shareholders I am delighted that our placing and admission to AIM on 23 November 2005 hasprovided us with a broad institutional shareholder base. We are also pleased tobe developing a wider private client shareholder base. It is your Board'sintention to communicate fully with all our shareholders, current and future,and in so doing continually build awareness of Mattioli Woods over the comingyears. It is our aim to create a growing earnings stream and to work with our brokersto increase the liquidity of shares in Mattioli Woods. Outlook Our flotation on AIM has been well received by both our clients and ourprofessional connections. Whilst it is still early days, this shows everyindication of supporting all elements of our growth strategy, not least of whichis our graduate recruitment drive. The diligence and commitment of our Pension Simplification team has enabled usto make a strong start in this new era in pension planning. We are veryconfident the legislation will strongly encourage pension planning in our coretarget market over the short, medium and long term. We also believe that there will be new and exciting opportunities in the finalsalary arena, which will be synergistic with our SIPP services. We have always believed that A-Day would not only boost the current rate ofgrowth in the SIPP market, but also lead to rationalisation within the sector.This is becoming apparent, with signs that certain small practitioners aretaking the view that they do not have the appetite, or resources, to deal withsuch massive change. We continue to believe this may provide Mattioli Woodswith further opportunities for strategic acquisitions. The Group looks forwardto 2007 with confidence and enthusiasm. Bob Woods Chairman 4 September 2006 Chief Executive's review Introduction Having established the business with Bob Woods as a partnership in 1991, I amdelighted our track record of expansion and growth has continued to progresswith the Group's admission to AIM, and move to new office premises. Theseachievements have given the entire organisation a fresh impetus to continuedriving the development of the Group while staying true to our core values ofexcellent client service and strong business ethics. We have expanded our administration and investment broking capacity during theyear, and invested in new systems, all of which enables us to advise our clientsmore efficiently and effectively. The organisation has embraced fundamental changes to the pensions market withreal enthusiasm. Many of our employees were involved in ensuring that, as of 5April 2006, we were fully A-Day compliant. This has enabled us to accessadditional opportunities for our existing clients and to attract new clients whohave benefited from changes under the new regime. Nature, objectives and strategies Mattioli Woods plc is a public limited company incorporated in England andWales, and its shares are quoted on the AIM market of London Stock Exchange plc. The Group's turnover is derived from three key revenue streams: time-basedfees, investment planning and property syndicates. Time-based fees Mattioli Woods' core business is pension consultancy, the provision andadministration of SIPPs and SSASs. Our client base for SIPP and SSAS servicesprimarily comprises owner-managers, senior executives and professional persons.However, we also provide group scheme consultancy and personal financialplanning as complementary services to our core business. Our main source of income is time-based fees earned for setting up andadministering SIPP and SSAS schemes. Additional fees are generated fromconsultancy services provided for special one-off activities. The changes in government legislation have led to an increase in consultancyfees during the second half of the year. This work has delivered real value toour clients by improving their understanding of the pensions environment andincreasing their benefits both before and after A-Day. For example, wecompleted over 30 separate property transactions on our clients' behalf in themonth leading up to 5 April 2006. Investment planning A key feature of our approach to pension consultancy is the impartial nature ofour investment advice and a focus on providing solutions tailored to eachindividual clients' needs. We develop informed investment strategies based on macro economic analysis andreview a wide range of third party investment products, selecting those produceswe believe to be most suitable for our clients' needs. The Group's income isdeliberately primarily fee-based, rather than commission driven, reinforcing ourability to remain impartial in our advice and recommendation of investments. Our investment strategies are designed to cover all asset classes, includingproperty, equities and fixed interest. In periods of volatility in one assetclass, we can continue to derive income from investments in other assets classeswhilst ensuring our clients' investment strategies are appropriately aligned tothe prevailing market conditions. Investment commissions grew by 19.9% in 2006. Whilst our revenue streams are not directly dependent on the performance offinancial markets or the value of funds under trusteeship, movements in thesecan influence the appetite of our clients to make investments to secure theirpension, which may have a positive or negative impact on future investmentrevenues. Property syndicates Mattioli Woods facilitates commercial property ownership for its clients by wayof a syndicated property initiative. Properties introduced to the Group by ourprofessional property contacts are referred to an independent property adviser,who either recommends or rejects the property for syndication. Full details of recommended properties are supplied to clients who havepreviously confirmed an interest in commercial property ownership. Clients forma syndicate; a newly formed company acquires the property, control of which lieswith the clients. Mattioli Woods is engaged to provide administration servicesto the property syndicates on an ongoing basis. During the year we helped to facilitate the purchase of ten properties and thesale of an existing syndicate investment, leaving 23 property syndicates usingour administrative services at the year end (2005: 14). Our property syndicate initiative has provided clients with a low volatility,high income asset-backed investment opportunity. We expect to see continueddemand for commercial property ownership as it provides a subtle balance betweenrisk, income and capital growth. Administration services provided to propertysyndicates represent an increasing source of income. During the year, thisincome stream increased by 83.6% to £244,495 (2005: £133,175). New product developments The core rationale for any new product is to enhance our clients' existingposition. New products we intend to roll-out during the next 12 months includecapital-guaranteed investment bonds, with capital growth linked to investment inmore volatile and speculative indices. We also plan to develop a secondarymarket for existing property syndicate investors, as well as new residentialproperty syndicates. Market The markets in which the Group operates are fragmented but remain competitive.Most of our chosen markets are serviced by a range of suppliers offeringservices directly to individual and corporate clients. We have been active in commenting on government proposals in the pensions arenaover the last 12 months and regard this as an important part of our role andservice to clients. Recent developments include the impending publication ofnew regulations which are expected to mean that any operator of a SIPP will needto be authorised by the Financial Services Authority ("FSA"). We see this as apositive development in one of our key markets and look forward to embracingthis change. Prior to A-Day, many commentators appeared to believe the SSAS market was indecline. However, legislative changes have given SSASs a new lease of life andwe believe the benefits of SSASs, such as the ability to lend funds to thesponsoring employer, may have been overlooked by the market. It also appears the mass market may have problems reconciling high volumeadministration with acceptable service levels, leading to poor financialperformance. We believe bespoke service providers like ourselves can maintainservice levels and profits. Environmental matters The Board believes that good environmental practices will support its strategyby enhancing the reputation of the Group. However, due to the nature of thebusiness generally, it does not have a significant environmental impact. Regulatory environment The Group is regulated by a number of different bodies. Mattioli Woods'business is authorised and regulated by the FSA, and is a member of theAssociation of Member-directed Pension Schemes. Mattioli Woods has dedicated compliance teams in place, with systems toproactively monitor client investments, consultancy and administration services,investment advice, financial standing of suppliers, pension transfer advice, FSArule book compliance and Audit & Pension Schemes Services compliance. Business objectives and strategies Our objective is to grow the organisation to increase market share and enhanceMattioli Woods' reputation in the pensions consultancy market. Meeting theseobjectives is key to achieving the financial and non-financial measures thatincrease shareholder value. Current and future developments and performance Group results We have made significant progress towards our goals of delivering qualitypersonal service that adds real value to clients, whilst maintaining highethical standards and enhancing shareholder value. Sales revenues were £7.6 million (2005: £6.4 million), up 17.6% overall and11.3% excluding acquisitions. Organic growth continues to be the main driver ofincreased turnover. In line with expectations, operating profits decreased by18.4% to £2.2 million (2005: £2.7 million), due to an anticipated increase incosts related to the new office premises and the change in status to being alisted company, including increased compliance costs and expenses associatedwith the appointment of three new directors. Cash generated from operations fell to £0.6 million (2005: £1.8 million) due tothe increase in working capital required in the short-term to fund the expansionin our syndicated property investment business. An operating margin of 28.7%(2005: 41.3%) was ahead of our expectation for the year, and normalisedoperating margin+ was maintained at 29.6% (2005: 29.5%). We believe there isroom for margin improvement and aim to achieve operational efficiencies on theback of A-Day legislation, coupled with investment in new infrastructure.Planned improvements in information systems and technology also provide scopefor increased margins and even better client service. + Normalised turnover for 2005 has been calculated by deducting £161,000 ofone-off commission income from reported turnover. Normalised operating profithas been calculated in line with Part V of the Company's AIM Admission Document,as follows: 2005 2006 as restated £ £ Reported operating profit 2,170,832 2,661,729Deduct 'deemed' directors remuneration - (429,000)Deduct additional cost of new directors (62,640) (190,000)Deduct ongoing AIM costs - (70,000)One-off commission income - (120,000)One-off costs related to admission to AIM 108,605 -Share option costs 23,406 - Normalised operating profit 2,240,203 1,852,729 Since the acquisitions of the Geoffrey Bernstein client portfolio and SuffolkLife's SSAS business occurred during the year, this set of results does notfully reflect the impact of these excellent additions to our business. We have had many trading highlights in what has been an extremely active andsatisfying year, but we believe the aspects of our business which havecontributed most to our strong performance include: - Our readiness to deliver pre and post A-Day planning to existing and new clients; - Our clients' positive response to the provision of a secure, low volatility investment portfolio; - Growth in our administration of syndicated property investments; - The resurgence of SSAS planning post A-Day; and - The successful integration of both recent acquisitions into our business. Acquisitions I am pleased to advise that after a period of 'bedding in', both acquisitionsare fully integrated within our core business and are performing in line withour aspirations. We are very pleased with the strong retention of new clientsacquired during the year and are encouraged by their enthusiastic response tothe wider service offering Mattioli Woods can offer them. These acquisitionscontributed towards time-based fees in the second half of the year of £1.9million, substantially ahead of the first half (£1.4 million). We are delightedto have the opportunity to offer our full range of services to these and theother new clients we have welcomed over the last 12 months. Excellent consultancy opportunities post A-Day mean that organic growth islikely to maintain our momentum. However, we continue to review opportunitiesto make acquisitions that can progress our strategic objectives and may enableus to improve or broaden our services. Resources, risks and relationships Resources The Group aims to safeguard the assets that give it a competitive advantage,including its reputation for quality and proactive advice, its technicalcompetency and its people. Our core values provide a framework for responsible, innovative and ethical yetcommercial business practices. Structures for accountability from ouradministration teams through to the operational board and then the Group boardare clearly defined. The proper operation of the supporting processes andcontrols are regularly reviewed by the Audit Committee and take into accountethical considerations, including procedures for "whistle-blowing". Employees We are committed to continually developing the people in our business and thelast year has seen all our employees perform magnificently during a period ofsubstantial change. We have added a number of key people to the business whichwill give us the capacity to continue building the Group and we continue toinvest significant resources in our graduate recruitment campaign, with six newgraduates joining in 2006 (2005: seven). Another three graduates have joined ussince the year end. The quality, knowledge and commitment of our people are key to providing ourclients with a consistently high level of personal service and attention todetail. We now employ 86 people at our Leicester base and we would like tothank everyone for their support, energy and commitment over the past year. Ourprogress would not have been possible without a high level of belief andteamwork throughout the business. Principal risks and uncertainties We believe the most significant risk we face is damage to our reputation as aresult of poor client service. We mitigate this through ongoing quality controltesting and the provision of regular training of all our staff. Of course, pension regulations will continue to be reviewed and future changesmay not produce an environment that is advantageous to the Group. Markets andprospects may deteriorate and any changes in regulation may be retrospective.To address this risk, we are committed to ensuring that our views are expressedduring consultation exercises, and that we respond positively and rapidly to newregulations. We also recognise that a significant skills shortage would represent a risk togrowth. We are mitigating this risk through investment in our graduaterecruitment programme, and a focus on providing incentives to motivate andretain our existing employees. Relationships In addition to our shareholders, the Group's performance and value areinfluenced by other stakeholders, principally our clients, suppliers andemployees; Government; and our strategic partners. Our approach with all theseparties is founded on the principles of open and honest dialogue based on amutual understanding of needs and objectives. Relationships are managed on an individual basis through our account managersand consultants for clients and performance development reviews for employees.Employee forums also provide a communication route between employees andmanagement. Mattioli Woods participates in trade associations and industrygroups where these give us genuine access to client and supplier groups anddecision makers in Government and other regulatory bodies. Financial position Financial costs Net interest charges payable during the year were £94,010 (2005: £560)reflecting interest payable on borrowings, including directors' subordinatedloans of £3.0 million and a £1.2 million bank loan drawn down to facilitate theredemption of preference shares prior to the Group's admission to AIM. Theseloans were subsequently repaid out of the float proceeds. Taxation The effective rate of taxation in the year on profit on ordinary activities is30.9% (2005: 30.9%). The deferred taxation asset carried forward at 31 May 2006was £2,676 (2005: liability of £8,225). Earnings per share and dividend The FRS 3 basic earnings per share in the year as per note 9 was 10.1 pence(2005: 15.1 pence). The diluted earnings per share was 10.1 pence (2005: 15.1pence). The proposed dividend of 1.4 pence per share is in line with our expectationsset out at the time of our admission to AIM. Cash flow The net cash inflow from operating activities fell to £646,827 (2005:£1,750,903) due to our increased working capital requirements, despite strongearnings before interest, taxation, depreciation and amortisation ("EBITDA") of£2.3 million (2005: £2.8 million). The Group converted 27.6% of EBITDA intooperating cash flow, as a number of short-term loans were made on commercialterms to new property syndicates just prior to the year-end. As at 31 May 2006the Group was owed £1.9 million by property syndicates, of which £1.8 millionhas been repaid following the year-end. The cash out flow from working capital was £1.7 million. Trade debtor days were65 days (2005: 51 days) and trade creditors were eight days (2005: 28 days).Trade debtor days were higher at 31 May 2006 primarily due to significantbalances owed in respect of initial administration fees on new propertysyndicates. Capital expenditure in the year was £267,423, significantly ahead of last year'slevels (2005: £148,135), but in line with our expectations following the move tonew office premises in August 2005. We plan to continue investing in theGroup's infrastructure during the next year. Net proceeds from new equity raised in the year were £5.4 million of which £1.1million was spent on acquisitions with the balance funding loan repayments andworking capital. Bank facilities The Group has bank overdraft facilities totalling £600,000. These facilitiesconsist of an overdraft facility of £500,000 provided by the Royal Bank ofScotland at 1.5% over the bank's base rate (currently 4.75%) and an overdraftfacility of £100,000 provided by Lloyds TSB at 1.5% over the bank's base rate(currently 4.75%). These facilities are renewable on 30 and 31 January 2007respectively. During the year the Group drew down and repaid borrowings of £1.2million to the Royal Bank of Scotland. At 31 May 2006 the Group had unused borrowing facilities of £600,000 (2005:£100,000). Capital structure The Group's capital structure is as follows: 2006 2005 £ £ Net (funds)/debt (85,630) 1,731,750Non-equity shareholders' funds (liability element) - 2,000,000 (85,630) 3,731,750 Shareholders' equity 9,683,685 2,730,694 Capital employed 9,598,055 6,462,444 On 15 November 2005, the Company placed 4,545,455 ordinary shares of 1p at£1.32, raising £6,000,001 to repay directors' subordinated loans, and to provideresources for potential further acquisitions and working capital. The costs ofthe share issue were £633,396 (which includes £57,011 of share option costs). Gearing has fallen from 187.2% to 3.7%, as a result of the repayment of loansduring the year. The acquisitions during the year were funded out of existing cash resources. Treasury policies The objectives of the Finance Director are to manage the Group's financial risk;secure cost-effective funding for the Group's operations and to minimise theadverse effects of fluctuations in the financial markets on the value of theGroup's financial assets and liabilities, on reported profitability and on thecash flows of the Group. The Group has financed its activities with a combination of bank loans,redeemable preference shares, finance leases and hire purchase contracts, cashand short-term deposits, as disclosed in note 21. Overdrafts are used tosatisfy short-term cash flow requirements. Other financial assets andliabilities, such as trade debtors and trade creditors, arise directly from theGroup's operating activities. The Group does not enter into derivativetransactions and does not trade in financial instruments. The main risks associated with the Group's financial assets and liabilities areset out below, as are the policies agreed by the Board for their management. Interest rate risk The Group's policy is to manage its cost of borrowing using a mix of fixed andvariable rate debt. Whilst fixed rate interest bearing debt is not exposed tocash flow interest rate risk, there is no opportunity for the Group to enjoy areduction in borrowing costs in markets where rates are falling. In addition,the fair value risk inherent in fixed rate borrowing means that the Group isexposed to unplanned costs should debt be restructured or repaid early as partof the liquidity management process. In contrast, whilst floating rateborrowings are not exposed to changes in fair value, the Group is exposed tocash flow risk as costs increase if market rates rise. Credit risk The risk of financial loss due to a counterparty's failure to honour itsobligations arises principally in relation to transactions where the Groupprovides goods and services on deferred terms, deposits surplus cash, oradvances short-term unsecured loans to new property syndicates. Group policies are aimed at minimising such losses, and require that deferredterms are granted only to customers who demonstrate an appropriate paymenthistory and satisfy creditworthiness procedures. Individual exposures aremonitored with clients to ensure that the Group's exposure to bad debts is notsignificant. In agreeing annual budgets, the Board sets limits for debtors' days and doubtfuldebts expense against which performance is monitored. Loans are only advanced to new property syndicates to facilitate the purchase ofcommercial property. In the event that a syndicate fails to raise sufficientfunds to complete the property purchase, the Group may either take up ownershipof part of the property or lose some or all of the loan. However, to mitigatethis risk, loans are only approved by the Board under strict criteria, whichinclude independent professional advice confirming the market value of theunderlying property. Liquidity risk The Group aims to mitigate liquidity risk by managing cash generation by itsoperations. Investments are carefully controlled, with authorisation limitsoperating up to Board level and cash payback periods applied as part of theinvestment appraisal process. In this way the Group aims to maintain a goodcredit rating to facilitate fund raising. In its funding strategy, the Group's objective is to maintain a balance betweencontinuity of funds and flexibility through the use of overdrafts, bank loans,finance leases and hire purchase contracts. Excess cash used in managing liquidity is only invested in financial instrumentsexposed to insignificant risk of changes in market value, being placed oninterest-bearing deposit with maturities fixed at no more than six months.Short term flexibility is achieved by overdraft facilities. Liquidity The business is inherently a net generator of cash at the operating level.Despite some capital investment being scheduled for next year, it is notanticipated there will be any significant Group borrowing requirements duringthe next 12 months, unless a new commercial opportunity is identified thatrequires substantial capital investment. Conclusion The past year has been full of excitement and our achievements during the periodgive us a great platform to continue implementing our business plan well intothe future. I am very satisfied that the business has met the financial andbusiness targets we set before our admission to AIM. Ian Mattioli Chief Executive 4 September 2006 Consolidated profit and loss account For the year ended 31 May 2006 Notes 2005 2006 as restated £ £ TurnoverFrom continuing operations 7,170,911 6,442,104From acquisitions 401,934 - 7,572,845 6,442,104 Administration expensesFrom continuing operations 5,346,392 3,780,375From acquisitions 55,621 - Operating profitFrom continuing operations 1,824,519 2,661,729From acquisitions 346,313 - 2,170,832 2,661,729 Interest receivable and similar income 103,731 62,567Interest payable 94,010 560 Profit on ordinary activities before taxation 2,180,553 2,723,736Tax on profit on ordinary activities 3 674,585 840,580 Retained profit for the financial period 1,505,968 1,883,156 Basic earnings per share 4 10.1p 15.1p Diluted earnings per share 4 10.1p 15.1p Dividend per share 5 1.4p 2.0p Balance sheets As at 31 May 2006 2006 2005 as restated Notes Group Company Group Company £ £ £ £ Fixed assetsIntangible assets 6 5,816,630 5,816,630 4,695,220 4,695,220Tangible assets 398,566 398,566 224,630 224,630Investments - 1,164 - - 6,215,196 6,216,360 4,919,850 4,919,850 Current assetsDebtors 5,092,503 5,092,488 2,765,864 2,765,864Cash at bank and in hand 441,160 440,011 1,381,461 1,381,461 5,533,663 5,532,499 4,147,325 4,147,325Creditors: amounts falling due 1,915,008 1,915,008 6,280,290 6,280,290within one year Net current assets/(liabilities) 3,618,655 3,617,491 (2,132,965) (2,132,965) Total assets less current 9,833,851 9,833,851 2,786,885 2,786,885liabilitiesCreditors: amounts falling due - - - -after more than one year Provisions for liabilities and 150,166 150,166 56,191 56,191charges Net assets 9,683,685 9,683,685 2,730,694 2,730,694 Capital and reservesCalled up share capital 11 170,455 170,455 50,000 50,000Equity - share based payments 80,417 80,417 - -Share premium account 12 5,321,151 5,321,151 - -Capital redemption reserve 12 2,000,000 2,000,000 - -Profit and loss account 12 2,111,662 2,111,662 2,680,694 2,680,694 Shareholders' funds 9,683,685 9,683,685 2,730,694 2,730,694 Consolidated cash flow statement For the year ended 31 May 2006 Notes 2006 2005 £ £ Net cash in flow from operating activities 8 646,827 1,750,903 Returns on investment and servicing of financeInterest received 103,731 57,887Interest paid (94,010) (560) Net cash flow from investments and servicing of finance 9,721 57,327 TaxationCorporation tax (904,045) (795,000) Capital expenditurePurchase of fixed assets (267,423) (148,135)Sale of fixed assets - 6,900 AcquisitionsPurchase of subsidiary undertakings 7 (1,164) -Purchase of businesses 7 (1,090,152) - Net cash flow from capital expenditure and financial investment (1,358,739) (141,235) Equity dividends paid - (250,000) Cash flow before financing (1,606,236) 621,995 FinancingGross proceeds of share issue 6,000,001 -Costs of share issue (576,385) -Movement on Directors' loan accounts (3,011,473) (353,925)New borrowings 1,200,000 -Repayment of borrowings (1,200,000) -Redemption of preference shares (2,000,000) - Net cash flow from financing 412,143 (353,925) (Decrease)/Increase in cash (1,194,093) 268,070 Consolidated statement of total recognised gains and losses For the year ended 31 May 2006 Notes 2005 2006 as restated £ £ Profit for the financial year 1,505,968 1,883,156 Total recognised gains and losses relating to the year 1,505,968 1,883,156 Prior year adjustment 2 (151,910) - Total gains and losses recognised since last annual report 1,354,058 - Notes to the financial statements 1. Accounting policies Basis of preparation The preliminary financial statements have been prepared on the basis of theaccounting policies set out in the Group's 31 May 2005 statutory financialstatements, except for the treatment of redeemable preference shares, which aredisclosed in accordance with FRS25, and the treatment of goodwill, which is nowamortised as explained in note 2. During the year, a number of new Financial Reporting Standards ("FRS") becameapplicable: • FRS 20 - Share based payments • FRS 21 - Events after the balance sheet date • FRS 22 - Earnings per share • FRS 25 - Financial Instruments: disclosure and presentation • FRS 28 - Corresponding Amounts The impact on the financial statements as a result of adopting these new FRS issummarised as follows: • FRS 20 requires the effective cost of share options to be recognisedin the profit and loss account in the year where the options are relevant.Consequently, the Group is required to formally value the share options to allowthe relevant accounting entries to be made; • FRS 21 sets out the requirements for recognition and disclosure ofadjusting and non-adjusting events after the balance sheet date. The definitionof an adjusting event is stricter than in SSAP17 and is not extended to includestatutory or conventional requirements previously reflected in financialstatements. This impacts the treatment of dividends as it means that a dividendpayable is not recognised until it becomes a liability of the Group; • FRS22 requires that basic and diluted earnings per share should bedisclosed on the face of the profit and loss account both for net profit for theperiod and also for profit from continuing operations; • FRS 25 requires the classification of financial instruments, from theperspective of the issuer, into financial assets, financial liabilities andequity instruments. This impacts the treatment of redeemable preference shares,which are now disclosed as a financial liability; and • FRS 28 requires appropriate disclosure of corresponding amounts shownin the Group's primary financial statements and the notes to the financialstatements. Comparative figures Comparative figures are for the year 1 June 2004 to 31 May 2005. Goodwill Goodwill represents the excess of the cost of acquisition over the fair value ofthe identifiable net assets of the business acquired. After initialrecognition, goodwill is stated at cost less any accumulated amortisation, withthe carrying value being reviewed for impairment, at least annually and wheneverevents or changes in circumstances indicate that the carrying value may beimpaired. For the purpose of impairment testing, goodwill is allocated to the relatedcash-generating units monitored by management, usually at business segmentlevel. Where the recoverable amount of the cash-generating unit is less thanits carrying amount, including goodwill, an impairment loss is recognised in theprofit and loss account. 2. Prior year adjustment In previous years the Group adopted a policy of not charging amortisation ongoodwill. This policy departed from the Companies Act 1985 legislation for theoverriding purposes of giving a true and fair view. The directors now consider that a policy of amortising the element of goodwillthat relates to client portfolios acquired from other entities, on the basis ofclients lost from the portfolio during the period, would more accurately reflectthe value of goodwill. The comparative figures in the financial statements and notes are restated toreflect the new policy. The effect of this change is as follows: 2005 £Profit and loss accountIncrease in administrative expenses 75,955 Balance sheetDecrease in value of goodwill (151,910) Decrease in net assets (151,910) The effect of the policy change for the current year is to increaseadministrative expenses and decrease profits by £75,697. 3. Taxation 2006 2005 £ £Corporation tax:Current tax 686,107 832,355Adjustment in respect of earlier years (621) - Total current tax 685,486 832,355 Deferred taxation:Current year (10,901) 9,040Prior year - (815) Total deferred tax (10,901) 8,225 Tax on profit on ordinary activities 674,585 840,580 Factors affecting the tax charge for the period: The tax charge assessed for the period is higher than the standard rate ofcorporation tax in the UK (30%). The differences are explained below: 2006 2005 £ £ Profit on ordinary activities before tax 2,180,553 2,723,736 Profit on ordinary activities multiplied by the standard rate of corporation 654,166 817,121 tax in the UK of 30% (2005: 30%) Effects of:Expenses not deductible for tax purposes 21,040 26,322Capital allowances in excess of depreciation (9,039) (9,249)Other short term timing differences 19,940 (1,839)Adjustment in respect of earlier years (621) - Current tax charge for the period 685,486 832,355 4. Earnings per ordinary share Basic earnings per share amounts are calculated by dividing net profit for theyear attributable to ordinary equity holders of the Company by the weightedaverage number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profitattributable to ordinary equity holders of the Company by the weighted averagenumber of ordinary shares outstanding during the year plus the weighted averagenumber of ordinary shares that would be issued on the conversion of all thedilutive potential ordinary shares into ordinary shares. The following reflects the income and share data used in the basic and dilutedearnings per share computations: 2006 2005 as restated £ £ Net profit and diluted net profit attributable to equity holders of the Company 1,505,968 1,883,156 2006 2005 Thousands Thousands Basic weighted average number of shares 14,866 12,500Dilutive potential ordinary shares:- non-employee share options 28 - Diluted weighted average number of shares 14,894 12,500 There have been no other transactions involving ordinary shares or potentialordinary shares between the reporting date and the date of completion of thesefinancial statements. 5. Dividends paid and proposed 2006 2005 £ £ Declared and paid during the year:Equity dividends on ordinary shares:- final dividend for 2006: nil (2005: 2.00p) - 250,000- interim for 2006: nil (2005: nil) - - Dividends paid - 250,000 Proposed for approval by shareholders at the AGM:Final dividend for 2006: 1.40p (2005: nil) 238,636 - 6. Intangible fixed assets Goodwill £ Cost:At 1 June 2004 4,847,130Additions - At 31 May 2005 4,847,130Acquisition of Geoffrey Bernstein SSAS portfolio 448,087Acquisition of Suffolk Life SSAS portfolio 749,020 At 31 May 2006 6,044,237 Amortisation:At 1 June 2004 - as restated 75,955Amortisation during the year 75,955 At 31 May 2005 - as restated 151,910Amortisation during the year 75,697 At 31 May 2006 227,607 Net book value at 31 May 2006 5,816,630 Net book value at 31 May 2005 - as restated 4,695,220 Net book value at 1 June 2004 - as restated 4,771,175 Goodwill arose on the purchase of the unincorporated business Mattioli WoodsPension Consultants ("the Partnership") on 2 September 2003. Amortisation ischarged on £2,500,000 of goodwill relating to the client portfolio acquired, onthe basis of clients lost from the portfolio during the period. No amortisationis charged on that element of goodwill that relates to other intangible assetsacquired from the Partnership. This policy departs from the Companies Act 1985legislation for the overriding purpose of giving a true and fair view. In the opinion of the directors the lifespan of the other intangible assetsacquired is indefinite due to the necessity of providing for retirement. It isbelieved the goodwill attaching to the other intangible assets acquired can becontinually measured. During the year, goodwill arose on the purchase of the client portfolio ofGeoffrey Bernstein on 20 June 2005, and the purchase of Suffolk Life's portfolioof small self-administered pension scheme clients on 27 January 2006. Amortisation of £19,273 represents the write-down of goodwill arising on theacquisition of the Geoffrey Bernstein portfolio in respect of clients acquiredas part of the portfolio, which have subsequently transferred away from theGroup. As from 1 June 2006, the date of transition to IFRS, goodwill arising onbusiness combinations will be subject to annual impairment testing. 7. Acquisitions 2006 2005 £ £Purchase of subsidiariesNet assets acquired:Cash 1,149 -Other debtors 15 - 1,164 -Purchase of businessesGoodwill 1,197,107 - 1,198,271 - On 20 June 2005, the Group acquired the entire issued share capital of GBPension Trustees Limited for a cash consideration of £6 and the entire issuedshare capital of Great Marlborough Street Pension Trustees Limited for a cashconsideration of £7. Also on 20 June 2005, the Group acquired the clientportfolio of Geoffrey Bernstein, a small practice providing pensioneertrusteeship in London and the Home Counties. The total cost of the purchase ofthe business was a cash consideration of £379,987 paid on completion, plus legalfees of £3,804. In addition, the acquisition agreement provides for deferred consideration to bepaid by an earn-out based on an amount equal to 20% of all investmentcommissions paid to the Group from contracts entered into by the Group duringthe five years from 20 June 2005. The earn-out is payable at 12-monthlyintervals following completion of the acquisition. Whilst it is not possible todetermine the exact amount of the deferred consideration (as this will depend oncommission earned on contracts), the Group estimates the net present value ofthe earn-out to be £64,294, using cash flow projections approved by the Boardcovering the earn-out period. The discount rate applied to the cash flowprojections is 4.4%. On 16 September 2005, the Group acquired the entire issued share capital of MWTrustees Limited for a cash consideration of £2. On 27 January 2006, the Group acquired the entire issued share capital ofSuffolk Life Trustee Company Limited ("SLT"), together with the Suffolk LifeGroup plc's ("Suffolk Life") portfolio of small self-administered pension schemeclients for an initial cash consideration of £701,149. The acquisitionagreement also provides for deferred consideration to be paid to Suffolk Life byway of an earn-out based on investment commissions earned by the Group duringthe three years from 27 January 2006. Whilst it is not possible to determinethe exact amount of deferred consideration (as this will depend on commissionearned on contracts), the Group estimates the net present value of the earn-outto be £95,519, using cash flow projections approved by the board covering theearn-out period. The discount rate applied to the cash flow projections is4.4%. 8. Reconciliation of operating profit to operating cash flows Group and Company 2006 2005 as restated £ £ Profit on ordinary activities before interest 2,170,832 2,661,729Amortisation of intangible assets 75,697 75,955Depreciation of fixed assets 93,487 42,432Share based payments 23,406 -Loss on disposal of fixed assets - 13,330(Increase) in debtors (2,326,639) (1,029,808)Increase/(decrease) in creditors 610,044 (12,735) Net cash inflow from operating activities 646,827 1,750,903 9. Analysis of changes in net debt Group and Company As at As at 1 June Non-cash changes 31 May 2006 2005 Cash flow £ £ £ £ Cash at bank and in hand 1,381,461 (940,301) - 441,160Overdraft (93,913) (253,792) - (347,705) 1,287,548 (1,194,093) - 93,455Debt due within one year (5,019,298) 5,011,473 - (7,825) Total (3,731,750) 3,817,380 - 85,630 10. Reconciliation of net cash flow to movement in net debt Group and Company 2006 2005 £ £ Movement in cash in the period (1,194,093) 268,070Movement on Directors' loans 11,473 305,459Repayment of subordinated loan 3,000,000 -New bank borrowings 1,200,000 -Repayment of bank borrowings (1,200,000) -Cash out flow from redemption of preference shares 2,000,000 - Movement in net debt in period 3,817,380 573,529 Opening net debt (3,731,750) (4,305,279) Closing net funds/(debt) 85,630 (3,731,750) 11. Called up share capital 2006 2005 £ £ Authorised100,000 Ordinary Shares of £1 each - 100,00025,000,000 Ordinary Shares of 1p each 250,000 - 250,000 100,000 Allotted, called up and fully paid50,000 Ordinary Shares of £1 each - 50,00017,045,455 Ordinary Shares of 1p each 170,455 - 170,455 50,000 On 10 November 2005, the share capital of the Company was altered by theconversion and subdivision of each of the issued and unissued Ordinary Shares of£1 in the capital of the Company into 100 Ordinary Shares of 1p. On the samedate, the authorised share capital of the Company was increased from £100,000 to£250,000 by the creation of 15,000,000 Ordinary Shares of 1p, and £75,000 of theamount standing to the credit of the Company's profit and loss account wascapitalised and used by the Directors in paying up and distributing by way of abonus issue 7,500,000 Ordinary Shares of 1p each on the basis of 11/2 newOrdinary Shares of 1p for each Ordinary Share in issue. On 15 November 2005, 4,545,455 Ordinary Shares of 1p were issued at £1.32 pershare pursuant to a placing. 12. Reserves Share premium Capital Profit and loss account redemption account reserve £ £ £ Group and Company At 1 June 2004 - as previously reported - - 1,123,493Prior year adjustment - - (75,955) At 1 June 2004 - as restated 1,047,538Profit for the financial year - as restated - - 1,883,156Dividends - - (250,000) At 31 May 2005 - as restated - - 2,680,694Capitalised on bonus issue - - (75,000)Capitalised on redemption of preference shares - 2,000,000 (2,000,000)Arising on share issue 5,954,547 - -Costs of share issue (633,396) - -Profit for the financial year - - 1,505,968 At 31 May 2006 5,321,151 2,000,000 2,111,662 13. Events after the balance sheet date Following completion of the acquisition of Williams de Broe plc ("WdB") byEvolution Securities Limited ("Evolution"), Evolution has been the Company'snominated adviser and broker since 1 August 2006. 14. Distribution of the annual report and accounts to members The announcement set out above does not constitute a full financial statement ofthe Group's affairs for the year ended 31 May 2005 or 2006. The Group'sauditors have reported on the full accounts of each year and have accompaniedthem with an unqualified report which does not include any statement underSection 237 of the Companies Act 1985. The accounts have yet to be delivered tothe Registrar of Companies. The annual report and accounts will be posted to shareholders in due course, andwill be available on our web site (www.mattioli-woods.com) and for inspection bythe public at the Group's Head Office address: MW House, 1 Penman Way, GrovePark, Enderby, Leicester LE19 1SY during normal business hours on any weekday.Further copies will be available on request. The Annual General Meeting will take place at 10.00am on Thursday 19 October2006 at the Group's head office. 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