Mattioli Woods Regulatory News (MTW)

8 February 2022

Mattioli Woods plc

("Mattioli Woods", "the Company" or "the Group ")

Interim Results

Mattioli Woods plc (AIM: MTW.L), the specialist wealth and asset management business, today reports its interim results for the six months ended 30 November 2021.

Financial highlights for the six months ended 30 November 2021:

· Key milestone achieved with total client assets of the Group and its associate[1] increasing £4.5bn, or 43%, against the equivalent prior period to £15.1bn (1H21: £10.6bn) driven by largest acquisitions to date; Revenue increased to £49.9m (1H21: £29.5m) +69.1% driven by:

- Positive contribution from acquisitions of £19.4m (1H21: £2.0m);

- Return of strong organic growth of +11.1% (1H21: (9.6%)) adding +£3.1m revenue driven by positive performance in pension consultancy and administration and investment and asset management operating segments; and

- Increased new client wins of 515 (1H21: 316).

· Recurring revenues[2] represent 87.7% (1H21: 94.3%) of total revenue;

· Operating profit before financing £2.8m (1H21 restated[3]: £3.9m) down 26.7% due to acquisition-related costs;

· Adjusted EBITDA[4] up 76.9% to £15.8m (1H21: £8.9m);

· Adjusted EBITDA margin[5] increased to 31.6% (1H21 restated: 30.2%);

· Adjusted profit before tax[6] up 95.9% to £14.1m (1H21 restated: £7.2m);

· Basic EPS 3.5p (1H21 restated: 11.4p) down 69.3%;

· Adjusted EPS[7] up 13.3% to 23.8p (1H21 restated: 21.0p);

· Interim dividend up 10.7% to 8.3p (1H21: 7.5p);

· Strong financial position, with cash of £44.3m at 30 November 2021 (1H21: £18.2m).

Operational highlights and recent developments

· Diversifying revenue mix through integrated model with 48% fee-based revenues[8], not

correlated to market performance;

· Gross discretionary Assets under Management[9] up 55.0% to £5.1bn (31 May 2021: £3.3bn);

· Recent acquisitions performing and integrating well:

- Maven Capital Partners ("Maven") underlying trading ahead of budget, enhanced by significant Venture Capital Trust ("VCT") and Maven Investor Partner ("MIP") performance fees;

- Ludlow Wealth Management ("Ludlow") trading ahead of budget since acquisition driven by new business wins, £11m+ invested into the Groups Discretionary Portfolio Management ("DPM"); and

- Recently acquired businesses delivering revenue and cost synergies, including the fully subscribed launch of first co-investment between the Group and Maven, and acquired clients engaging with the Group's investment proposition.

· Continued investment in technology and digital platforms to support integration of acquired businesses and delivery of operational efficiencies in client administration.

Trading outlook

· Outlook for the current year remains in line with management's expectations;

· Continued focus on organic growth complemented by strategic acquisitions with strong pipeline of opportunities.

1. Group and its' associate includes £1,218.7m (31 May 2021: £1,196.0m) of funds under management by the Group's associate, Amati Global Investors Limited, excluding £95.4m (31 May 2021: £94.8m) of Mattioli Woods' client investment and £16.5m (31 May 2021: £17.2m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

2. Annual pension consultancy and administration fees; ongoing adviser charges; level and renewal commissions; banking income; property, discretionary portfolio and other annual and fund management charges.

3. Restatement to reflect revised accounting treatment of contingent consideration treated as remuneration first captured in FY21.

4. Earnings before interest, taxation, depreciation, amortisation, acquisition-related costs, gain on bargain purchase, contingent consideration treated as remuneration and including share of profit from associates (net of tax). All FY21 prior year balances all reported after restatement.

5. Adjusted EBITDA divided by revenue.

6. Calculated as profit before tax, adding back amortisation and impairment of acquired intangibles, acquisition-related costs, gain on bargain purchase, contingent consideration treated as an expense and acquisition related finance expenses.

7. Adjusted profit after tax used to derive adjusted EPS is calculated as adjusted profit before tax less income tax at the standard rate of 19.0% (1H21: 19.0%).

8. Revenue for the six months ended 30 November 2021 was split 48% (1H21: 54%) fixed, initial or time-based fees and 52% (1H21: 46%) ad valorem fees based on the value of assets under management, advice and administration.

9. Includes £1,330.5m (31 May 2021: £1.308.1m) of funds under management by Amati Global Investors Limited, including Mattioli Woods' client investment and cross-holdings between TB Amati Smaller Companies Fund and Amati AIM VCT plc.

Commenting on the results, Ian Mattioli MBE, Chief Executive Officer, said:

"The first six months of this financial year saw the Group build momentum, having shown resilience in spite of the economic and political complexities that persisted throughout 2021. During the period, we proactively balanced securing good financial outcomes for our clients with ensuring the long-term sustainability of our business, remaining true to our purpose of putting clients first in all that we do. We are pleased to report further material progress towards our strategic medium-term goals, with total client assets now up 24.4% to a record £15.1bn (31 May 2021: £12.1bn). This also sees the Group pass a significant milestone, delivering on one of our previous strategic goals to manage more than £15bn of client assets.

"Revenue of £49.9m was 69% higher than the equivalent period last year (1H21: £29.5m) driven by positive performances in our pensions consultancy and administration, and investment and asset management operating segments.

"Pleasingly, and in support of improved organic growth trends, the number of new clients on-boarded in the first half and net inflows into the Group's investment and asset management services are ahead of the equivalent period last year. This renewed momentum reflects the success of new business initiatives and strength of existing client referrals, with organic revenue growth in excess of 11% for the period, our strongest performance since 2018. These initiatives, alongside our increasingly diversified service offering, have also generated an increased pipeline of new business enquiries.

"The eight acquisitions completed since 1 June 2020, including our two largest acquisitions to date: Maven and Ludlow, contributed £19.4m (1H21: £2.0m) of revenue in the period. The contributions from these recent acquisitions, organic growth and continued cost management resulted in adjusted EBITDA up 77% to £15.8m (1H21: £8.9m). Profit before tax of £3.3m (1H21 restated: £4.2m) was down 23% driven by increased acquisition-related costs of £2.6m (1H21: £0.1m), while adjusted profit before tax was up 96% to £14.1m (1H21 restated: £7.2m) after adding back acquisition-related costs, amortisation of acquired intangible assets of £3.3m (1H21: £1.3m) and deferred consideration on acquisitions recognised as an expense under IFRS 3 of £4.6m (1H21: £nil).

"We believe the benefits of operating a responsibly integrated business allows us to secure great client outcomes, controlling clients' costs while delivering strong, sustainable shareholder returns over the long-term. The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. Accordingly, the Board is pleased to announce an increased interim dividend of 8.3p per share (1H21: 7.5p) up 10.7%.

"In addition to the positive contribution from recent acquisitions, the Group generated an increased share of profit from Amati of £0.9m (1H21: £0.4m), whose total funds under management had increased to £1,330.5m (31 May 2021: £1,308.1m) at the period end.

"Clients continue to need long-term advice and strategies more than ever before. We will continue to provide quality solutions, maintaining our focus on client service and continuing to adapt our business model to the changing market, integrating asset management and financial planning to build upon our established reputation for delivering sound advice and consistent investment performance, while providing value for clients.

"We are pleased by our performance in the first half of the financial year, which has seen the Group thrive. We plan to build on this positive momentum, advancing our key strategic initiatives: new business generation, growth through the integration of strategic acquisitions, developing new products and services, reviewing our processes and investing in technology to deliver an improved digital client interface and further operational efficiencies. Our trading outlook for the year remains in line with management's expectations and we believe the Group is well-positioned to grow, both organically and by acquisition. We are committed to delivering our ambitious growth strategy and in doing so create a business that remains responsibly integrated for the benefit of our clients and well-positioned to deliver sustainable shareholder returns" 

Analyst presentation

There will be an analyst presentation held via webinar to discuss the results at 09:30am today.

Those analysts wishing to attend are asked to contact Camarco on +44 (0) 20 3757 4998 or at mattioliwoods@camarco.co.uk. 

For further information please contact:

Interim business review

Introduction

The first six months of this financial year saw the Group build momentum, having shown resilience in spite of the economic and political complexities that persisted throughout 2021. During the period, we proactively balanced securing good financial outcomes for our clients with ensuring the long-term sustainability of our business, remaining true to our purpose of putting clients first in all that we do. We are pleased to report further material progress towards our strategic medium-term goals, with total client assets now up 24.4% to a record £15.1bn (31 May 2021: £12.1bn). This also sees the Group pass a significant milestone, delivering on one of our previous strategic goals to manage more than £15bn of client assets.

Revenue of £49.9m was 69% higher than the equivalent period last year (1H21: £29.5m) driven by positive performances in our pensions consultancy and administration, and investment and asset management operating segments. The Group benefits from almost half of revenues being fee-based, rather than linked to the value of assets under management, administration or advice[10], giving our business a revenue profile that is less sensitive to market performance.

10. Revenue for the six months ended 30 November 2021 was split 48% (1H21: 54%) fixed, initial or time-based fees and 52% (1H21: 46%) ad valorem fees based on the value of assets under management, advice and administration.

Pleasingly, and in support of improved organic growth trends, the number of new clients on-boarded in the first half and net inflows into the Group's investment and asset management services are ahead of the equivalent period last year. This renewed momentum reflects the success of new business initiatives and strength of existing client referrals, with organic revenue growth in excess of 11% for the period, our strongest performance since 2018. These initiatives, alongside our increasingly diversified service offering, have also generated an increased pipeline of new business enquiries.

The eight acquisitions completed since 1 June 2020, including our two largest acquisitions to date: Maven and Ludlow, contributed £19.4m (1H21: £2.0m) of revenue in the period. The contributions from these recent acquisitions, organic growth and continued cost management resulted in adjusted EBITDA up 77% to £15.8m (1H21: £8.9m). Profit before tax of £3.3m (1H21 restated: £4.2m) was down 23% driven by increased acquisition-related costs of £2.6m (1H21: £0.1m), while adjusted profit before tax was up 96% to £14.1m (1H21 restated: £7.2m) after adding back acquisition-related costs, amortisation of acquired intangible assets of £3.3m (1H21: £1.3m) and deferred consideration on acquisitions recognised as an expense under IFRS 3 of £4.6m (1H21: £nil).

We remain dedicated to our culture of putting clients first, developing our service offering and building a business that is sustainable over the long-term. Our focus remains on our clients' wellbeing and the preservation of their wealth. We took positive and decisive action to protect our clients and staff, and to ensure all our core business areas have remained operational throughout the pandemic, balancing the needs of our existing clients while creating the capacity to deal with increased levels of new business. Our investment in technology has enabled our employees to work remotely and meet with clients through alternative channels to the traditional face-to-face meetings. The wellbeing of all our staff remains a key focus with a range of workshops, educational and social forums alongside a dedicated team of support staff.

As in prior years, we anticipate that certain revenue and operating costs will be more heavily weighted towards the second half, including those associated with planned recruitment activity, marketing, and increased regulatory, compliance and professional service costs. We continue to review our remuneration structures with changes implemented during 1H22 or planned for the second half of the year, including revisions to the incentivisation of fee-generating consultants and paying discretionary bonuses to other staff. In recognising the current cost of living increases on our team, we initiated a special salary review for which most staff, excluding executives and senior management, received an additional 2% salary increase effective from 1 December 2021. The impact of these changes is not expected to be material in the current financial year and will be mitigated through continued cost management and the delivery of further operational efficiencies.

Our managed funds continue to deliver on their investment objectives, with a combined value of £5.1bn, up 55% on the equivalent prior period end. This includes more than £0.7bn managed by Maven, and £1.3bn managed by the Group's associate company, Amati Global Investors ("Amati"). The Amati team gained further recognition with the Amati AIM VCT being named winner of the VCT AIM Quoted Category at Investment Week's Investment Company of the Year Awards 2021.

We believe the benefits of operating a responsibly integrated business allows us to secure great client outcomes, controlling clients' costs while delivering strong, sustainable shareholder returns over the long-term. In meeting our clients' investment needs we generally use third parties' funds, but where we have a particular expertise and a more appropriate investment product, we look to meet those needs in-house. This has led to the innovative development of our Private Investors Club and Custodian REIT plc ("Custodian REIT"), and the new Mattioli Woods Responsible Equity ("REF") and Property Securities ("PSF") Funds launched during the period.

We achieved aggregate net inflows (before market movements) of £267.0m (1H21: £90.3m). Gross discretionary assets under management increased to £5.1bn (31 May 2021: £4.1bn) at the period end, with the value of assets held within our DPM service increasing by 29.9% to £2.5bn (31 May 2021: £2.1bn), of which £127.5m or 5.1% (31 May 2021: £136.9m or 7.0%) is invested within funds managed by the Group and its associates.

New business generated by our growing consultancy team continues to develop at pace. A total of 515 (1H21: 316) new SIPP, SSAS and personal clients with assets totalling £87m (1H21: £79m) chose to use Mattioli Woods during the period reflecting the success of new business initiatives and strength of existing client referrals.

These initiatives are also supporting our pipeline of enquiries with 589 (1H21: 580) opportunities with new business assets totalling £145m (1H21: £169m). Total client assets under management, administration and advice by the Group and its associate reached a new record of £15.1bn at the period end (31 May 2021: £10.6bn).

We believe the benefits of our responsibly integrated model, including the opportunity to secure economies of scale such as lower fund manager and platform charges, will allow us to improve client outcomes and reduce clients' total expense ratios ("TERs") over time without compromising on our service. Covid-19 has accelerated consumer awareness and adoption of technology, with on-demand portfolio visibility now considered a standard. We have partnered with Tiller Group Limited ("Tiller") to develop a streamlined digital investment solution for our discretionary investment management service and anticipate the launch of this service in the second half of the year. We plan further investment in the development of our bespoke MWeb platform and digital client interface, which we believe will attract a new client demographic as well as simplifying existing processes and improving operational efficiency. 

In June 2021, we raised £112m of new equity to fund the acquisitions of both Maven and Ludlow which completed in July 2021 and September 2021 respectively, plus a pipeline of smaller bolt-on deals including the acquisition of Richings Financial Management ("Richings"). The acquisition of Maven for up to £100m (including deferred consideration), added scale through the addition of £0.8bn of Assets under Management ("AuM") to the Group, as well as enhancing the investment proposition and product range for both existing and prospective clients through its range of VCT's, regional funds and MIPs private equity and property deals. The acquisition of Ludlow for up to £43.5m (including deferred consideration), adds a financial planning business with over £1.6bn of Assets under Advice ("AuA"), giving us critical mass in the north-west of England and extending distribution of the Group's services to existing and new clients. The acquisition of Richings in August 2021, added further financial planning and wealth management expertise and approximately £70m of AuA to the Group. Together, these acquisitions give the Group enhanced distribution, product development capability and scale.

Market overview

Growth in the UK retail savings and investment market has accelerated during the Covid-19 pandemic. It remains dominated by pension schemes but is evolving as a result of societal, economic, regulatory and technological changes with investment options covering environmental, social and governance ("ESG") and responsible investment becoming key focusses. In addition, macroeconomic changes brought about by Covid-19, several years of low interest rates and reductions in dividends are creating challenges for people seeking to generate income, while preserving and growing their capital. This provides an opportunity for greater engagement with those individuals seeking the advice and financial planning solutions the Group provides.

Recent FCA consultation papers have proposed a requirement for non-workplace pensions ('NWP') providers to offer ready-made, investment solutions or 'default options' designed to take away the need to engage with the underlying investments, to consumers. Proposals also include sending 'cash warnings' to consumers with potentially inappropriate levels of cash in their NWP. We anticipate these proposals will create new growth opportunities within our core pensions business.

There has been a growing awareness of the gap between the level of current UK savings and that which is necessary to provide a reasonable standard of living in retirement. In addition, individuals who have generated substantial personal and family wealth are increasingly seeking solutions that help them fulfil their personal ambitions, and for financial planning advice to succeed wealth across multi-generations. We believe these factors will continue to drive demand for the holistic planning and expert advice we provide.

While we saw a predicted increase in client activity and inflows into our bespoke investment services during the period, we remain conscious that the political and macro-economic situation could further impact markets and consumer confidence or raise unexpected challenges.

Recent economic data suggests inflationary pressures will be a key feature of the short- and medium-term which could lead to increased financial and liquidity pressures for individuals and households as wage increases fail to keep pace with inflation. Our business faces similar challenges with wage and cost inflation partially offset by our ability to review pricing arrangements with our clients and realisation of operational efficiencies and economies of scale.

As the demand for high-quality, personalised advice and the potential market for our products and services continues to grow, so do the costs of regulation. As a Group we remained focussed on delivering high-quality service, underpinned by strong compliance and in the last financial year, we reported significant increases in Financial Services Compensation Scheme ("FSCS") levies to £1.3m, which we expect to increase to £1.5m for the current financial year.

The Financial Conduct Authority ("FCA") has been proactive in its response to Covid-19, with a focus on firms' operational and financial resilience, including the preservation of client assets and money. The regulator expects firms to take reasonable steps to ensure they continue to meet the challenges the pandemic poses to customers and staff, particularly through their business continuity plans.

We remain confident we have the right structures in place to ensure continued operational resilience of our business and the ability to balance the needs of our existing clients with creating the capacity to deal with increased new business levels.

As regulators focus on protecting consumers, legislation is becoming increasingly stringent and the level of public scrutiny on conduct and cost is increasing, with clients able to view the cost of the services they receive following the introduction of the Markets in Financial Instruments Directive II ("MiFID II") and subsequent additional requirements.

The need to comply with changing regulation, including the new prudential regime for investment firms ("IFPR") which became effective on 1 January 2022 and applies to all UK Investment firms authorised under MiFID, means we continue to invest in our people, technology and infrastructure to meet the requirements and build upon our track record to date.

Clients continue to need long-term advice and strategies more than ever before. We will continue to provide quality solutions, maintaining our focus on client service and continuing to adapt our business model to the changing market, integrating asset management and financial planning to build upon our established reputation for delivering sound advice and consistent investment performance, while providing value for clients.

Assets under management, administration and advice

Total client assets were £15.1bn as at 30 November 2021 (31 May 2021: £12.1bn):

The £3.0bn or 24.4% increase in total client assets during the period is analysed as:

· The acquisitions of Maven, Ludlow and Richings increased personal wealth and other assets under management and advice by £2.6bn, accounting for 88.1% of the total increase in the period;

· A £150.2m (1H21: £93.5m) increase in SIPP and SSAS funds under trusteeship, with a 0.4% decrease (1H21: 1.85% increase) in the number of schemes being administered at the period end, comprising a 1.0% (1H21: 5.9%) increase in the number of direct[14] schemes to 6,980 (31 May 2021: 6,831) offset by a 2.8% decrease (1H21: 3.9% decrease) in the number of schemes the Group operates on an administration-only basis to 4,043 (31 May 2021: 4,304). In recent years, we have been appointed to operate or wind-up several SIPP portfolios following the failure of their previous operators, with the lower number of schemes due in part to the transfer of certain members of these distressed portfolios to alternative arrangements; 

· A £35.4m increase (1H21: £214.2m increase) in the value of assets held in corporate pension schemes advised by our employee benefits business. Revenues in our employee benefits business are not linked to the value of client assets in the way that certain of our wealth management revenue streams;

· A £2,005.2m (1H21: £203.4m) increase in personal wealth and other assets under management and advice, primarily driven by the £1,860.2m added on the acquisitions of Ludlow and Richings in the period. The 111 (1H21: 112) new personal clients won during the period partially offset some natural client attrition, resulting in a 1.6% (1H21: 0.4%) decrease in the number of personal clients[15] excluding the 3,585 added by Maven, Ludlow and Richings, increasing the total number of personal clients at the period end to 10,708 (1H21: 6,585) at the period end;

· A £22.6m (1H21: £172.6m) increase in Amati's funds under management (excluding Mattioli Woods' client investment), with the growth in the Strategic Metals Fund to £49.2m (31 May 2021: £25.1m), and IHT portfolio service to £50.1m (31 May 2021: £42.8m) being offset by funds under management in the Amati UK Smaller Companies Fund falling to £965.0m (31 May 2021: £980.9m) at 30 November 2021; and

· The addition of £744.5m assets under management on the acquisition of Maven.

Amati continues to perform strongly following Mattioli Woods' 49% investment which recently marked the fifth anniversary of the association, seeing gross funds under management[16] increase from circa £120m to £1,330.5m (31 May 2021: £1,308.1m) at the period end. The Group's share of its profits for the period increased to £0.9m (1H21: £0.4m) illustrating how the transaction structure has incentivised Amati's management to grow the business.

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

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

13. Includes £1,218.7m (31 May 2021: £1,196.0m) of funds under management by the Group's associate, Amati Global Investors Limited, excluding £95.4m (31 May 2021: £94.8m) of Mattioli Woods' client investment and £16.5m (31 May 2021: £17.2m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

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

15. Includes personal wealth clients with SIPP and SSAS schemes operated by third parties.

16. Includes £95.4m (31 May 2021: £94.8m) of Mattioli Woods' client investment and £16.5m (31 May 2021: £17.2m) of cross-holdings between the TB Amati Smaller Companies Fund and the Amati AIM VCT plc.

Trading results

The Group has developed a broader wealth management proposition in recent years, grown from its strong pensions advisory and administration expertise, serving the market sector predominantly comprising mass affluent and high net-worth individuals including controlling directors and owner-managers, professionals, executives, individuals, families and retirees.

In recent years, the economies of scale associated with the Group's investment operations, together with a continuing focus on improving operational efficiency within the consultancy and administration teams has driven a steady improvement in EBITDA and operating margin, resulting in achievement of our previously stated medium-term margin goal. We expect that this combined with further organic growth and the positive contribution from recent acquisitions, will result in the achievement of all three of our previously stated strategic goals to have £15bn total client assets, £100m+ revenue and 20%+ operating margin, representing a significant milestone for our business as we continue into our next phase of growth.

Revenue

Group revenue of £49.9m (1H21: £29.5m) was up 69.1% with organic revenue growth of 11.1% (1H21: (9.6%)) boosted by a full six months' contribution from the acquisitions of Hurley Partners, Montagu, Pole Arnold and Caledonia Asset Management in the prior year plus five months' of Maven and three months' of Ludlow and Richings, with total revenue from recent acquisitions totalling £19.4m (1H21: £2.0m).

Employee benefits expense

The major component of the Group's operating costs is our employee benefits expense of £27.1m (1H21: £15.2m) representing 54.2% of revenue (1H21: 51.7%). The realisation of operational efficiencies and securing economies of scale, in part through the integration of acquired businesses and clients, are key elements of our aim to reduce clients' TERs. We planned and delivered increased average consultant and client relationship manager caseloads during the period where the majority of our team continued to work remotely. This was achieved partly through the migration of acquired pension portfolios onto our bespoke MWeb administration platform, reaping some of the benefits of our historic investment in technology which facilitated increased automation of client administration, and a seamless transition to remote working for our employees supported by a small core office-based team.

A key element of the year-on-year increase relates to the impact of recent acquisitions, with employee benefits expenses increasing as a percentage of revenue following the introduction of revised remuneration arrangements for fee-generating consultants and increased staff bonus accruals. A series of profitable exits in the first half saw Maven earn £2.7m of VCT and Maven Investor Partners performance fees, with the share of performance fees payable to the Maven team offsetting lower than expected staff costs due to a number of planned recruitment roles remaining unfilled at the period end.

The impact of recent acquisitions, together with the planned recruitment of client relationship managers, consultants, IT developers, compliance and support staff resulted in the Group's total headcount increasing to 832 (1H21: 642) at 30 November 2021.

The number of fee-generating consultants increased to 183 (1H21: 131) at the period end driven primarily by the impact of acquisitions. We continue to invest in our people and training across the Group, with the aim of delivering further operational efficiencies by simplifying our processes and creating capacity for future growth. We investment a further £1.0m in our strategic technology partner, Tiller, increasing the Group's shareholding from 4.0% to 9.9%, as we continue to develop our digital investment platform. 

Other administrative expenses

Other administrative expenses increased by 88.5% to £9.9m (1H21: £5.3m) driven by the impact of business acquisitions plus increased professional, insurance and compliance costs being offset by savings resulting from reduced marketing activity, staff travel and office occupancy.

We continue to assess strategic opportunities to grow the Group through both smaller bolt-on acquisitions and more substantial opportunities, provided they meet our strict investment criteria and due diligence procedures. During the period we progressed a more substantial project with a partner operating in a similar market but were unable to conclude a transaction of sufficient benefit to the Group's stakeholders. Professional service costs of £1.4m were incurred during the period on this project, with total costs expected to be c.£2.0m.

Other administrative expenses in the first half included acquisition-related costs for Maven, Richings and Ludlow. These costs relate to corporate actions rather than underlying trading performance and are therefore excluded from alternative performance measures shown in this report.

Share-based payments

Share-based payment costs of £0.6m (1H21: £0.7m) were marginally lower than the prior year due to fewer new options being awarded under the Mattioli Woods 2010 Long Term Incentive Plan ("the LTIP") during the period. 

Net finance costs

The Group maintained a positive net cash position throughout the period, with net finance costs of £0.4m (1H21 restated: £0.1m) reflecting increased notional finance charges from the unwinding of discounts on deferred consideration payable of £0.4m (1H21 restated: £0.1m).

Taxation

The effective rate of taxation on profit on ordinary activities was 48.0% (1H21 restated: 25.3%), above the standard rate of tax of 19.0% (1H21: 19.0%), primarily due to certain contingent consideration arrangements on acquisitions now accounted for as remuneration and other acquisition related expenses being non-deductible for tax purposes.

The net deferred taxation liability carried forward at 30 November 2021 increased to £28.1m (1H21: £5.6m) as a result of recent acquisition activity increasing the value of intangible assets recognised, with the liability further increased following the revaluation of deferred tax balances at 31 May 2021 at the increased standard rate of tax of 25.0% which will be effective from 6 April 2023.

Restatement of acquisition accounting

As disclosed in our Annual Report for the year ended 31 May 2021, the accounting treatment for acquisitions with contingent consideration payable under certain circumstances has been retrospectively corrected. In the case of five acquisitions completed in prior periods, contingent consideration is now recognised as remuneration in the income statement, accrued over the contingent consideration period. Accordingly, we restated our prior period accounts, as shown in the comparative numbers within the financial statements. Further details are provided in our Annual Report for the year ended 31 May 2021 and in Note 2. Further, this revised accounting treatment does not have an impact on underlying performance.

Alternative performance measures

The Group has identified certain measures it believes will assist in the understanding of the performance of the business. Recurring revenues, adjusted EBITDA, adjusted EBITDA margin, adjusted profit before tax ("adjusted PBT"), adjusted profit after tax ("adjusted PAT") and adjusted EPS are non-GAAP alternative performance measures, considered by the Board to provide additional insight into business performance compared with reporting the Group's results on a statutory basis only.

These alternative performance measures may not be directly comparable with other companies' adjusted measures and are not intended to be a substitute for, or superior to, any IFRS measures of performance. However, the Board considers them to be important measures for assessing underlying performance, used widely within the business and by research analysts covering the Company.

Supporting calculations for alternative performance measures and reconciliations between alternative performance measures and their IFRS equivalents are set out in Note 18.

Profitability and earnings per share

Profit before tax of £3.3m (1H21 restated: £4.2m) was down 22.8%, with adjusted profit before tax up 95.9% to £14.1m (1H21 restated: £7.2m), driven by increased revenues together with additional efficiencies and cost savings realised. The adjusted profit before tax measure also includes adjustments made for acquisition related costs of £2.6m (1H21: £0.1m), amortisation charges on acquired intangible assets of £3.3m (1H21: £1.3m) and the recognition of contingent consideration as an expense under IFRS 3 of £4.6m (1H21: £nil). Operating profit before financing of £2.8m (1H21 restated: £3.9m) was down 26.7% whereas adjusted EBITDA, adjusted for acquisition-related costs and contingent consideration recognised as an expense, was up 76.9% to £15.8m (1H21 restated: £8.9m), with adjusted EBITDA margin of 31.6% (1H21 restated: 30.2%). We expect additional expenditure on planned recruitment, IT investment, staff bonuses, marketing and regulatory and compliance costs in the second half of the year.

The Board considers adjusted EBITDA to be a relevant measure for investors who want to understand the underlying profitability of the Group, adjusting for items that are non-cash or affect comparability between periods as follows:

17. Figures in table may not add due to rounding.

Adjusted PBT, adjusted PAT and adjusted EPS are additional measures the Board considers to be relevant for investors who want to understand the underlying earnings of the Group, excluding items that are non-cash or affect comparability between periods as follows:

18. Figures in table may not add due to rounding.

Client portfolios acquired through business combinations are recognised as intangible assets. The amortisation charge for the period of £3.3m (1H21: £1.3m) associated with these intangible assets has been excluded from adjusted PAT and adjusted EPS because the Board reviews the performance of the business before these charges, which are non-cash and do not apply evenly to all business units.

Adjusted EPS increased by 13.3% to 23.8p (1H21 restated: 21.0p), while basic EPS of 3.5p (1H21 restated: 11.4p) reduced by 69.3%. EPS was negatively impacted by a higher effective tax rate of 48.0% (1H21 restated: 25.3%), and the issue of 128,425 (1H21: 266,908) shares under the Company's share plans. There were 5,325,705 shares (1H21: 842,666) issued as consideration for acquisitions during the period, and 16,969,697 shares (1H21: nil) shares issued as part of a placing. Diluted EPS was 3.5p (1H21 restated: 11.3p).

Dividends

The Board is pleased to announce an increased interim dividend of 8.3p per share (1H21: 7.5p) up 10.7%, demonstrating our desire to deliver value to shareholders and confidence in the financial outlook for our business. The Board remains committed to growing the dividend, while maintaining an appropriate level of dividend cover. The interim dividend will be paid on 25 March 2022 to shareholders on the register at the close of business on 18 February 2022, having an ex-dividend date of 17 February 2022.

The Company offers its UK and Channel Islands' resident shareholders the option to invest their dividends in a Dividend Reinvestment Plan ("DRIP"). The DRIP is administered by the Company's registrar, Link Group ("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 interim dividend for the six months ended 30 November 2021, shareholders' instructions must be received by Link by close of business on 4 March 2022.

Cash flow

Cash balances at 30 November 2021 totalled £44.3m (1H21: £18.2m). Cash generated from operations was £4.5m or 58.4% of EBITDA (1H21 restated: £6.6m or 97.1%), driven by an increase in the Group's working capital requirement[19] of £8.4m (1H21 restated: £2.5m) comprising:

· £3.4m (1H21: £1.9m) decrease in trade and other payables primarily due to:

- £2.5m (1H21: £1.8m) decrease in accruals and deferred income including £0.1m decrease in accrued bonuses (£5.5m paid offset by £5.4m accrued), £0.4m increase of acquisition-related costs accrued, £1.0m decrease from property insurance renewal premiums invoiced in the period, £1.1m from other decreases on payment of accrued balances and £0.6m decrease in deferred income on fees issued annually in advance to certain clients;

- £1.3m (1H21: £0.2m) decrease in social security and other taxes outstanding, of which £0.9m relates to acquired liabilities of Maven and Ludlow settled post-acquisition; and

- £0.2m increase (1H21: £0.2m) in trade payables; plus

· £1.7m increase (1H21: £0.4m decrease) in trade and other receivables, primarily due to;

- £0.8m of performance fees invoiced before the end of the period;

- £0.5m increase in property management fees invoiced to Custodian REIT and other property syndicates in November 2021; and

- £0.4m increases in other invoiced revenues compared to prior year; plus

· £3.3m (1H21 restated: £1.0m) decrease in provisions, primarily due to:

- £3.5m of contingent consideration recognised as an expense paid in the period; and

- £0.2m increase across other provisions, including increases in the provisions for client claims and employers' NIC on share options.

Adjusted cash generated from operations[20], which excludes items related to the Group's acquisition activities, increased by 48% to £11.0m (1H21 restated: £7.4m), representing 69.6% of Adjusted EBITDA (1H21 restated: 83.1%).

Net cash outflows from Investing activities increased to a £66.2m (1H21 restated: £9.4m) with £64.0m (1H21: £8.4m) of initial consideration paid on acquisitions completed in the period. Investing activities also included £1.1m (1H21: £nil) of other investments, including an increased stake in the Group's technology partner Tiller.

Net cash from financing activities resulted in an £85.6m inflow (1H21: £3.8m outflow), with proceeds from the issue of share capital of £109.0m (1H21: £0.3m) following the placing of new ordinary shares in June 2021. This inflow was partially offset by the repayment of Ludlow's borrowings post-acquisition of £15.9m (1H21: £nil) and dividends paid of £6.8m (1H21: £3.5m) driven by the increased number of shares in issue following the placing and the dividend per share paid increasing in line with the Group's progressive dividend policy.

19. Working capital defined as trade and other receivables less trade and other payables.

20. Cash generated from operations before acquisition-related costs paid and contingent remuneration paid.

Regulatory capital

The Group's regulatory capital requirement has increased in recent years. In addition, the Group's capital resources are reduced when it makes acquisitions due to the requirement for intangible assets arising on acquisition to be deducted from Tier 1 Capital.

In January 2022, the introduction of the Investment Firm Prudential Regime ("IFPR") removed reliefs on the deduction of deferred tax assets and significant investments in financial services entities in the calculation of the Group's Core Equity Tier 1 ("CET1") Capital. If the IFPR had been in force at 30 November 2021 the Group's CET1 Capital would have been a reduced by £4.8m.

The Group continues to enjoy significant headroom of £29.5m at 30 November 2021 on its regulatory capital requirement of £17.6m, with completion of the fundraise in June 2021 enabling us to pursue further acquisition opportunities.

Segmental review

The mix of income derived from the Group's five key revenue streams changed during the period, summarised as follows:

· 46.9% investment and asset management (1H21: 51.7%);

· 19.9% pension consultancy and administration (1H21: 30.7%);

· 21.8% private equity management (1H21: nil);

· 6.0% property management (1H21: 8.4%); and

· 5.4% employee benefits (1H21: 9.2%).

We aim to operate a seamless structure, allowing us to cover all aspects of wealth management and employee benefits.

Investment and asset management

Investment and asset management revenues generated from advising clients on both pension and personal investments increased 53.6% to £23.4m (1H21: £15.3m).

The Group's gross discretionary AuM, including the multi asset funds which now sit at the heart of our DPM service, Custodian REIT, Individual Structured Products ("MW ISPs") and the funds managed by Maven and our associate company, Amati, increased by 25.3% to £5.1bn (31 May 2021: £4.1bn) as follows:

21. Comprises £15.1m (31 May 2021: £26.6) invested in Custodian REIT, £ nil (31 May 2021: £44.0m) in MW SPF, £31.2m (31 May 2021: £nil) in MW Property Securities Fund and £72.0m (31 May 2021: £73.3m) in Amati funds.

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

Income from both initial and ongoing portfolio management charges increased to £13.8m (1H21: £10.3m) with £417.5m (1H21: £72.4m) of inflows into our DPM service during the period.

Fees for services provided by Custodian Capital to Custodian REIT are included in the 'property management' segment. Annual management charges on the MW SPF fell to £0.1m (1H21: £0.6m) due to the closure of the fund during the period.

The new MW Property Securities Fund ("MW PSF") and Responsible Equity Fund ("MW REF") both launched in August 2021 with net inflows of £31.0m and £5.4m in the period.

Adviser charges based on gross assets under advice of £3.7bn (1H21: £2.3bn) increased to £9.5m (1H21: £4.3m), with the higher revenue margin from acquisitions partially offset by us continuing to reduce clients' charges and TERs, particularly on those assets invested in Custodian REIT, the MW PSF, MW REF and Amati funds.

Growth in total assets under management and advice continues to underpin the quality of earnings with the proportion of the Group's total revenues which are recurring being 93.5% (1H21: 94.3%) across all segments. Notwithstanding our fee-based advisory model, 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

Pension consultancy and administration revenues increased 8.5% to £9.9m (1H21: £9.1m), of which 7.2% was organic growth, with the total number of SIPP and SSAS schemes administered by the Group decreasing 0.8% to 11,023 (1H21: 11,135), with a 2.3% reduction in the number of schemes operated on an administration-only basis.

Direct[23] pension consultancy and administration fees increased by 11.8% to £8.1m (1H21: £7.2m). Retirement planning remains central to many of our clients' wealth management strategies and the number of direct schemes increased to 6,980 (1H21: 6,831), with 209 new schemes gained in the first half of the year (1H21: 170). Our focus remains on the quality of new business, with the value of a new scheme averaging £0.3m (1H21: £0.3m). We also enjoy strong client retention, with an external loss rate[24] of only 1.1% (1H21: 1.1%) and an overall attrition rate[25] of 1.8% (1H21: 1.9%).

The number of active SSAS and SIPP schemes the Group operates on an administration-only basis decreased to 4,043 (1H21: 4,304) at the period end. In prior years the Group has been appointed to administer a number of SIPPs following the previous operators' failure. Work continues in connection with schemes previously administered by Stadia Trustees Limited, HD Administrators, Pilgrim Trustees Services Limited and The Freedom SIPP Limited, but due to a lower level of transactional activity and the payment of compensation from the FSCS direct to individuals, rather than their pension schemes, third party administration fees of £1.7m (1H21: £1.8m) fell by 4.9%.

The Group's banking revenue was £0.02m (1H21: £0.02m), with the Bank of England maintaining base rate of 0.1% since March 2020. Recently announced base rate increases provides an opportunity to increase the Group's banking revenue with clients' cash balances being higher than in prior periods.

Segment margin improved to 28.8% (1H21: 25.2%) with new business, fee-based and transactional activity ahead of the same period in the prior year, supported by operational efficiencies and savings realised through continued cost management. 

We anticipate continued regulatory scrutiny of the pension market, with certain other SIPP and SSAS operators having been in the spotlight due to issues arising with DB transfers and esoteric and non-standard investments. However, the market opportunity continues to be strong, with SIPP and SSAS arrangements still benefitting from the introduction of the pension freedoms and being favoured as a way of allowing individuals to have greater access, control, flexibility and responsibility over their pension savings. SIPPs are increasingly the pension vehicle of choice for the mass affluent and having been appointed to administer SIPPs previously operated by a number of failed operators in recent years we anticipate there may be similar opportunities over the next few years.

We like to see our clients withdrawing funds to enjoy in their retirement. Following the introduction of pension freedoms, we anticipate there will be some natural outflows from our clients' SIPP and SSAS schemes, particularly as the 'baby boomer' generation reaches retirement. We expect any such decumulation to have a positive impact on the Group's results, linking-in with the provision of advice around the cascading of wealth through the generations, inheritance tax and other planning.

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

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

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

Private equity management

Private equity management represents a new business segment for the Group following the acquisition of Maven during the period. Maven AuM totalled £748.4m at the period end with revenues recognised during the period of £10.8m augmented by performance fees on exits from VCT and MIP deals being ahead of the acquisition plan financials, together with increased arrangement and monitoring fees on both VCT and MIP deals.

We have already realised a number of cross-sell revenue synergies, including our first co-investment between qualifying Mattioli Woods and Maven clients which was over subscribed, and we plan to launch further such opportunities in the second half.

Property management

Property management revenues increased by 21.9% to £3.0m (1H21: £2.5m), with Custodian Capital's assets under management and administration increasing to £551.5m (1H21: £479.6m) at the period end following the increase in market values. Most of our property management revenues are derived from the services provided by Custodian Capital to Custodian REIT, which currently offers a fully covered dividend yield of 5.1%[26] coupled with the potential for capital growth from a balanced portfolio of real estate assets.

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. As previously announced we decided to pause new opportunities being offered to clients during the last financial year due to the impact of Covid-19 on risk appetites. However, there continues to be strong client interest in this initiative with new opportunities planned for launch in the second half. No new syndicates were launched (1H21: one) or funds invested (1H21: £2.5m) during the period.

26. Source: Numis Securities Limited, Investment Companies Datasheet dated 17 January 2022.

Employee benefits

Employee benefits revenues remained in line with the prior year at £2.7m (1H21: £2.7m) with new client growth of 6.7% achieved in the period to 785 (1H21: 736) clients. New client wins are spread across a number of sectors ensuring our portfolio of corporate clients remains stable and well diversified.

Employers are increasingly encouraging staff wellbeing and retirement savings, which we expect to drive sustained growth in the UK employee benefits market, and we believe the Government's emphasis on workplace advice represents an opportunity for us to realise synergies between our employee benefits and wealth management businesses.

Acquisitions

We have invested over £237m in targeted acquisitions since our admission to AIM in 2005 bringing 32 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 Maven, Ludlow and Richings businesses acquired in the period, in addition to those businesses acquired in the prior financial year, are integrating well, with all contributing positively to the Group's trading results since acquisition, increasing earnings and enhancing value.

Consolidation within the wealth management, pensions administration, asset management and financial planning sectors is expected to continue, and we are seeing many more opportunities arising from retirement sales. Our pipeline of strategic opportunities remains strong and of as high a quality as we have seen for several years. We expect to continue to assess and progress bolt-on opportunities in the nearer term as well as more substantial opportunities in the medium-to-longer-term, with all potential transactions required to meet our strict investment criteria and due diligence procedures.

Strategic vision and goals

Our strategic vision for continued growth is focussed on:

· New client wins and greater integration across the value-chain for existing clients;

· Enhancing our investment proposition;

· Owning and broadening distribution;

· Simplifying administration processes, improving productivity and margin;

· Supporting growth with investment in digital platforms;

· Accelerating growth through strategic acquisitions; and

· Incentivising, rewarding and retaining our key people

Our new strategic goals are to grow the Group's operations towards:

· £300m revenue;

· £30bn of Total client assets; and

· £100m EBITDA

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. This has been evident through our close relationships with our clients, where our primary focus has been to ensure the health and subsequent management of their financial needs. This also includes our employees and our commitment to provide a safe place to work, whether in the office or at home, and to wellbeing support throughout the period.

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 senior management and the Group's Board are clearly defined. The proper operation of the supporting processes and controls are regularly reviewed by the Audit Committee and the Risk and Compliance Committee and take into account ethical considerations, including procedures for 'whistle-blowing'.

Our people

We again extend our thanks and appreciation to all our staff for their continued commitment, enthusiasm and professionalism in dealing with our clients' affairs during the first half of this financial year and for continuing to operate in an agile manner in new and evolving environments. This includes the acquisitions and integration of Maven, Ludlow, Richings and the acquisitions announced in the prior year, where the majority were transacted almost entirely in a remote working environment. Our culture is based on professionalism, putting clients first and adopting an ethical and collegiate approach. Retaining the integrity, expertise and passion of our staff remains a priority of the Board and at the heart of our success. We are committed to developing our people and maintaining the capacity to deliver sustainable growth.

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 end of the period 64% (1H21: 65%) of eligible staff had invested in the Plan and we continue to encourage broader staff participation.

In May 2019 the Mattioli Woods Employee Benefit Trust ("the Trust") commenced making market purchases of the Company's shares. The Trust holds shares for the benefit of the Group's employees and, in particular, to satisfy the vesting of awards made under the Company's various share schemes. The acquisition of shares by the Trust helps to avoid dilution of shareholders by reducing the need for the Company to issue new shares remains important to the Board, which plans to recommence monthly share purchases by the Trust in the second half of the financial year.

Our Board

We made a number of changes to our PLC Board composition in the prior year to ensure we continue to have a diverse and balanced Board. In October 2021 we announced the decision to appoint David Kiddie to the role of Non-Executive Chairman, succeeding Joanne Lake, effective from the conclusion of a managed handover period and receipt of regulatory approval. Following this appointment, the Company will continue to have a balanced Board which we believe represents the right governance structure for the Company. 

The Board is committed to regular reviews of our corporate governance structures, making changes as deemed appropriate to support the Group's growth. Key focus areas under consideration include strategic and commercial growth, integration of acquisitions and delivery of revenue and cost synergies, oversight and compliance, risk management, and retaining and attracting people talent through increased levels of employee engagement.

Shareholders

During the period we have engaged with shareholders through various channels, including company-hosted events, webinars, virtual 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, including those new investors added to the register on the completion of our £112m fundraise in June 2021. We welcome opportunities to talk to all our shareholders, large and small and we will continue to maintain a regular and constructive dialogue with them, while seeking to broaden our shareholder base.

Outlook

The first half of the financial year has seen the Group thrive, and we plan to build on this positive momentum, advancing our key strategic initiatives: new business generation, growth through the integration of strategic acquisitions, developing new products and services, reviewing our processes and investing in technology to deliver an improved digital client interface and further operational efficiencies. Our trading outlook for the year remains in line with management's expectations and we believe the Group is well-positioned to grow, both organically and by acquisition. We are committed to delivering our ambitious growth strategy and in doing so create a business that remains responsibly integrated for the benefit of our clients and well-positioned to deliver sustainable shareholder returns.

Joanne Lake

Non-Executive Chairman

Ian Mattioli MBE

Chief Executive Officer

7 February 2022

Independent review report to Mattioli Woods plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2021 which comprises the interim condensed consolidated statement of comprehensive income, interim condensed consolidated statement of financial position, interim condensed consolidated statement of changes in equity, interim condensed consolidated statement of cash flows and associated Notes 1 to 18. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in Note 2, the annual financial statements of the Group will be prepared in accordance with United Kingdom adopted international accounting standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with United Kingdom adopted International Accounting Standard 34, "Interim Financial Reporting".

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 November 2021 is not prepared, in all material respects, in accordance with United Kingdom adopted International Accounting Standard 34 and the AIM Rules of the London Stock Exchange.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

Birmingham, United Kingdom

7 February 2022

Interim condensed consolidated statement of comprehensive income

For the six months ended 30 November 2021

The operating profit before financing for each period arises from the Group's continuing operations.

Interim condensed consolidated statement of financial position

As at 30 November 2021

Registered number: 03140521

Details of the restatement to comparative financial information are disclosed in Note 2.

Interim condensed consolidated statement of changes in equity

For the six months ended 30 November 2021

Details of the restatement to comparative financial information are disclosed in Note 2.

Details of the restatement to comparative financial information are disclosed in Note 2.

Interim condensed consolidated statement of cash flows

For the six months ended 30 November 2021

Details of the restatement to comparative financial information are disclosed in Note 2.

Notes to the interim condensed consolidated financial statements

1 Corporate information

Mattioli Woods plc ("the Company") is a public limited company incorporated and domiciled in England and Wales, whose shares are publicly traded on the AIM market of the London Stock Exchange. The nature of the Group's operations and its principal activities are set out in the Corporate Statement and in Note 6.

2 Basis of preparation and accounting policies

2.1 Basis of preparation

The interim condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'. The interim condensed consolidated financial statements comprise the Company and its subsidiaries ("the Group"). The interim condensed consolidated financial statements were authorised for issue in accordance with a resolution of the Directors on 7 February 2022.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's financial statements for the year ended 31 May 2021, which were prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ("IASB") and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB (together "IFRS"), and in accordance with the requirements of the Companies Act applicable to companies reporting under IFRS.

The information relating to the six months ended 30 November 2021 and the six months ended 30 November 2020 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 May 2021 have been reported on by its auditor and delivered to the Registrar of Companies. The report of the auditor was unqualified and did not draw attention to any matters by way of emphasis or contain a statement under section 498(2) or (3) of the Companies Act 2006.

The interim condensed consolidated financial statements have been reviewed by the auditor and their report to the Board of Mattioli Woods plc is included within this interim report.

2.2 Restatement of comparative financial information

Accounting for contingent deferred consideration on acquisitions

Following a review carried out in FY21 a decision was made to change the accounting treatment for acquisitions with contingent earn out consideration payable under certain circumstances. As a result of the review, we have restated comparative financial information to reflect a revised allocation of contingent consideration on certain business combinations between acquisition costs and non-underlying remuneration, to ensure compliance with IFRS 3.

We have reviewed the legal documentation and acquisition accounting for every acquisition made by the Group since the adoption of IFRS 3, which for the Group is the period commencing 1 June 2010, and the following six were found to contain clauses where rights to contingent consideration are forfeited on termination of employment:

· TCF Global Independent Financial Services Limited acquired in August 2011;

· Thoroughbred Wealth Management Limited acquired in July 2013;

· Boyd Coughlan Limited acquired in June 2015;

· Taylor Patterson Group Limited acquired in September 2015;

· SSAS Solutions (UK) Ltd acquired in March 2019; and

· Hurley Partners Limited acquired in July 2020.

In these cases, we have treated the contingent consideration payable to those management sellers as remuneration, in line with IFRS 3. Further details are documented in our 2021 Annual Report.

The impact of the restatement on the comparative financial statements of the Group is as follows:

2.3 Going concern

The Directors have, at the time of approving the interim condensed consolidated financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence. In forming this view, the Directors have considered the Company's and the Group's prospects for a period of at least 12 months from the date of approval. Thus, they continue to adopt the going concern basis of accounting in preparing the interim condensed consolidated financial statements.

2.4 Significant accounting policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 May 2021.

Standards not affecting the financial statements

The following new and revised standards and interpretations have been adopted in the current period:

Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements or give rise to additional disclosures.

Future new standards and interpretations

A number of new standards and amendments to standards and interpretations will be effective for future annual and interim periods and, therefore, have not been applied in preparing these interim condensed consolidated financial statements. At the date of authorisation of these financial statements, the following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective:

The Directors do not expect the adoption of these standards and interpretations listed above to have a material impact on the annual financial statements or the interim condensed consolidated financial statements of the Group in future periods.

Financial statements for the year ending 31 May 2022

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements will be consistent with those to be followed in the preparation of the Group's annual financial statements for the year ending 31 May 2022, except for the adoption of new standards and interpretations not yet issued.

2.5 Basis of consolidation

The interim condensed consolidated financial statements consolidate the financial statements of the Company and its subsidiary undertakings as at 30 November each year.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.

2.6 Critical accounting judgements and sources of estimation uncertainty

The Group has reviewed the judgements and estimates that affect its accounting policies and amounts reported in its financial statements. Although these are unchanged from those reported in the Group's financial statements for the year ended 31 May 2021, we have disclosed the sensitivities to the key areas impacted the acquisitions completed in the six months to 30 November 2021 due to their significance to the interim results reported.

Critical accounting judgements

Contingent payments to selling shareholders arising from a business combination

Contingent consideration payable to employees or selling shareholders arising on business combination is assessed as to whether it should be classified as part of acquisition costs or remuneration for post-acquisition services, using the criteria as defined in IFRS 3 Business Combinations to identify the appropriate treatment. Where contingent consideration payable to employees or selling shareholders is treated as acquisition costs, its fair value at acquisition forms part of the intangible assets arising on acquisition. Where it is treated as remuneration, it is recognised as an expense over the period over which the contingent consideration is earned.

Two acquisitions were completed in the six months ended 30 November 2021 which include contingent consideration classified as remuneration. If these had been classified as part of acquisition cost, overhead expenses would be lower by £2,057,000, finance costs would be higher by £775,000, therefore profit before tax would be higher by £1,282,000. In addition, goodwill would be higher by £14,718,000 and provisions would be higher by £15,494,000.

Sources of significant estimation uncertainty

Acquisitions and business combinations

When an acquisition arises, the Group is required under IFRS 3 to determine the Purchase Price Allocation ("PPA"). The PPA requires companies to report the fair value of assets and liabilities acquired and it establishes useful lives for identified assets. The identification and the valuation of the assets and liabilities acquired involves estimation and judgement when determining whether the recognition criteria are met. The classification of deferred contingent consideration payable as either purchase consideration or remuneration is an area of judgement and estimate.

Subjectivity is also involved in the PPA with the estimation of the future values of brands, technology, customer relationships and goodwill. The fair value of separately identifiable intangible assets acquired during the period was £79.1m (1H21: £11.6m), with the key assumptions used to calculate these fair values being those around the estimated useful lives of the acquired customer relationships, the estimated future cash flows expected to arise from these relationships and the appropriate discount rate to be used to discount these cash flows to their present value.

The sensitivity of the fair value of customer relationships acquired during the year to changes in the key assumptions is as follows:

Other areas of focus

The Group also notes the following other areas of estimation uncertainty, which are not considered areas of significant estimation uncertainty:

Contingent consideration and contingent remuneration payable on acquisitions

Whether contingent consideration is classified as acquisition cost or remuneration, provisions for contingent consideration and contingent remuneration require an assessment of the future values expected to be paid out.

Using forecasts approved by the Board covering the period of contingency, provisions for consideration and remuneration are recognised based on the maximum expected value expected to fall due. A material change to the carrying value would only occur if the acquired business fell significantly short of the target earnings, or if termination of employment of a management seller results in forfeiture of rights to future contingent payments. The carrying amount of contingent consideration provided for at 30 November 2021 was £9.5m (1H21 restated: £1.2m) and contingent remuneration provided for at 30 November 2021 was £5.1m (1H21 restated: £1.7m).

The key assumption used in determining the value of these provisions is the forecast financial performance as applied in the terms of the contingent consideration arrangement. For all acquisitions that have completed their contingent payment period, contingent consideration has been paid in full.

Impairment of intangible assets

Management has determined that an updated intangible asset impairment review as at 30 November 2021 is not required. The key assumptions inherent in the impairment review performed at 31 May 2021 have been reviewed to ensure they remain appropriate. The key reasons management determine an impairment update is not required is as follows:

· Financial performance and outlook remain in line with the forecasts used in the 31 May 2021 impairment assessment;

· WACC discount rate has increased +0.3% but the impact on the value in use is not material;

· Intangible assets from May-21 have been amortised for 6 months, reducing their value and increasing headroom;

· Intangible assets arising from FY22 acquisitions are supported by acquired cashflows; and

· No other indicators of impairment have been identified.

Sensitivities remain in line with those disclosed in the Annual Report for the year ended 31 May 2021. No impairment has been made during the period (1H21: £nil) based upon the Directors' review.

Recoverability of accrued time costs and disbursements

The nature of the accounting estimate remains unchanged, and the sensitivity in the valuation of accrued time costs and disbursements remains in line with sensitivities disclosed in the Annual Report for the year ended 31 May 2021.

Provisions

The nature of the accounting estimate remains unchanged, and the sensitivity in the valuation of accrued time costs and disbursements remains in line with sensitivities disclosed in the Annual Report for the year ended 31 May 2021.

3. Business combinations

The Group completed three (1H21: one) acquisitions during the period. Transaction costs of £2.6m (1H21: £0.1m) incurred during the period to 30 November 2021 have been expensed and are included in administrative expenses in the consolidated statement of comprehensive income and operating cash flows in the consolidated statement of cash flows in the period in which they were incurred.

Acquisition of Maven Capital Partners UK LLP

On 30 June 2021 the Company completed the acquisition of 100% of the membership interests in Maven Capital Partners UK LLP ("Maven") for an aggregate maximum consideration of up to £100.0m (including, subject to certain conditions being satisfied, up to £20.0m of deferred consideration), comprised of a combination of cash and new Ordinary Shares.

Maven is one of the UK's leading private equity and alternative asset managers, providing funding options to UK SMEs, and offering investment opportunities in VCTs, private equity and property. The owner-led business comprises 12 partners, with a regionally based team of 91 investment executives and support professionals. Maven operates across 10 offices in Glasgow, Edinburgh, Manchester, Birmingham, London, Newcastle, Bristol, Nottingham, Durham and Reading.

Maven and its indirect subsidiary company Maven Property Investments Limited ("MPIL") are authorised and regulated by the FCA as Alternative Investment Fund Managers ("AIFMs"). Maven Capital Investments Limited ("MCIL"), a direct subsidiary of Maven, is an investment holding company with co-investment commitments into a number of regional funds. MCIL also generates management fees from property deals. MPIL is a subsidiary of MCIL and is the regulated manager for property deals and generates monitoring and accounting fees from those transactions.

Maven manages approximately £772m in AuM, comprising:

· Four evergreen VCTs, listed on the London Stock Exchange, providing growth capital for UK based younger companies.

· Seven regional funds, providing equity and debt growth capital for SMEs in specific UK regions

· An MBO fund, supporting management buyouts in the UK smaller and lower mid-market

· MIP, funding individual private equity and property deals, on a deal by deal basis:

o Equity capital for smaller MBO transactions of later stage SMEs across the UK

o Equity capital for the development of hotels, purpose-built student accommodation, offices, residential construction and strategic land transactions

Maven primarily generates revenue from management fees and general partner's priority share which are annual management charges generated on the VCTs, regional funds, MBO fund and MIP deals.

Performance fees may be generated on the VCT funds based on increases in net asset value and is structured as carried interest for MIP deals.

Other income is generated from director and monitoring fees, third party administration and investment income.

The provisional fair values of the assets and liabilities of Maven as at the date of acquisition are set out in the table below: 

In addition to the acquisition cost, management sellers will receive remuneration of up to £19.2m over a four year earn out to 30 June 2025, subject to the achievement of certain performance conditions including the financial performance of Maven meeting financial targets.

Acquisition of Richings Financial Management

On 26 August 2021 the Company completed the acquisition of 100% of the share capital of Richings Financial Management Ltd ("Richings") for an initial consideration of £0.9m and potential further consideration of up to £0.9m dependent on the attainment of specified performance targets in the two years after completion.

Founded in 1991, Richings is an established financial planning and wealth management business, working with over 270 private client families with approximately £70m of assets under advice. Richings is based in Iver and employs an experienced team of four staff, all of whom will remain with Mattioli Woods following completion.

In the year ended 30 April 2021, Richings generated revenues of £0.66m with a profit before taxation of £0.34m. At 30 April 2021 Richings' gross assets were £0.35m and net assets were £0.26m. The acquisition is expected to be earnings enhancing in the first full year of ownership.

The total consideration comprises:

· An initial consideration of £0.9m cash on a cash-free, debt-free basis (subject to adjustment for the value of net assets acquired); and

· Contingent consideration of up to £0.9m payable in cash on the first and second anniversaries of completion, subject to certain profit targets being met.

The provisional fair values of the assets and liabilities of Richings Financial Management Ltd as at the date of acquisition are set out in the table below: 

In addition to the acquisition cost, management sellers will receive remuneration of up to £459,000 over a two year earn out to 26 August 2023, subject to the achievement of certain performance conditions including the financial performance of Maven meeting financial targets.

Acquisition of Ludlow Wealth Management

On 3 September 2021 the Company completed the acquisition of 100% of the issued share capital of LWMG Topco Limited (the holding company of Ludlow Wealth Management Group Ltd) ("Ludlow Wealth Management"), for an aggregate consideration and other deferred payments of up to £43.5m on a cash free, debt free basis as at the agreed 'locked box' balance sheet date of 30 September 2020. The amount payable in respect of the Ludlow Wealth Management acquisition includes, subject to the satisfaction of certain performance conditions following completion of the Ludlow Wealth Management acquisition, up to £6.4m of deferred consideration and up to £1.0m of bonuses payable to non-shareholder employees. In addition, in accordance with the locked box adjustment mechanism, in respect of the period commencing on the locked box date of 30 September 2020 and ending on the date of completion of the Ludlow Wealth Management acquisition, the Company will pay to the sellers of Ludlow Wealth Management an amount in respect of the estimated cash profits of Ludlow Wealth Management during such post-locked box date period calculated at a daily rate of £6,173.24 for the total number of days during such period. The consideration for the Ludlow Wealth Management acquisition will be satisfied by a combination of cash and new ordinary shares.

Established in 1993, Ludlow Wealth Management is one of the largest providers of investment, financial planning and pension advice in the North-West of England. Ludlow Wealth Management has 61 employees, including 22 advisers operating from offices in Fylde, Preston, Burnley, Liverpool and Southport.

Ludlow Wealth Management manages £1,622m of AuA as at 31 March 2021 for 3,371 clients, with an average of £74m AuA per adviser and an average client size of £0.48m AuA. Ludlow Wealth Management has delivered growth, organically and by acquisition; completing 16 acquisitions in the last 12 years, adding £588m of AuA and £2.4m of recurring revenue. Ludlow Wealth Management currently outsources investment management.

In the year ended 30 September 2020, Ludlow Wealth Management generated revenue of £9.4m, of which 91% was recurring. Adjusted EBITDA for the period was approximately £3.3m (adding back monitoring and directors' fees incurred to oversee private equity investment in business), with an associated adjusted EBITDA margin of 35% and a high cash conversion. As at 30 September 2020, Ludlow Wealth Management had gross assets of £16.8m and net liabilities of £0.5m (including net debt of £13.7m). Ludlow Wealth Management has maintained momentum despite adverse market conditions and management expects material profit growth for the year ending 30 September 2021.

The total consideration comprises:

· An initial consideration of £36.1m, calculated on a cash free, debt free basis as at the agreed locked box balance sheet date of 30 September 2020, and which will be satisfied as follows:

o an aggregate amount of £30.3m will be payable in cash on Ludlow Wealth Management completion in respect of consideration for the acquisition of Ludlow Wealth Management and repayment of indebtedness and borrowings of Ludlow Wealth Management; and

o £5.8m will be satisfied by the issue of new Ordinary Shares to certain individual sellers who are members of the Ludlow Wealth Management management team; and, in addition

o in accordance with the locked box adjustment mechanism, in respect of the period commencing on the locked box date of 30 September 2020 and ending on the date of completion of the Ludlow Wealth Management acquisition, the Company has agreed to pay to the sellers of Ludlow Wealth Management an amount in respect of the estimated cash profits of Ludlow Wealth Management during such post-locked box date period calculated at a daily rate of £6,173.24 for the total number of days during such period; and

· Deferred consideration, subject to the satisfaction of certain performance conditions, up to £6.4m and up to £1.0m of bonuses payable to non-shareholder employees of Ludlow Wealth Management, in each case, payable in cash and calculated on the basis of (a) the amount of the adjusted EBITDA of Ludlow Wealth Management for the 12 months ending 30 September 2023 multiplied by 8.25; less (b) the amount of the Initial Ludlow Wealth Management Consideration; and less (c) the aggregate value of all consideration paid or payable by Mattioli Woods in respect of any eligible acquisition of any company or business that is integrated into Ludlow Wealth Management and which completes between Ludlow Wealth Management Completion and 30 September 2023.

Ludlow Wealth Management's experienced management team have been retained by Mattioli Woods following the Ludlow Wealth Management acquisition, which is expected to be earnings-enhancing in the first full year of ownership. In addition, the Company expects to realise revenue and cost synergies from first full year onwards, including investment in Mattioli Woods' discretionary portfolio management service and alternative investment strategies by certain of Ludlow Wealth Management's clients.

The provisional fair values of the assets and liabilities of Ludlow Wealth Management as at the date of acquisition are set out in the table below: