TIDMKGH
RNS Number : 4189F
Knights Group Holdings PLC
10 July 2023
Knights Group Holdings plc
("Knights" or the "Group")
Full Year Results
A resilient performance against a challenging backdrop;
foundations to drive organic growth established
Knights, a fast-growing legal and professional services business
in the UK, today announces its full year results for the year ended
30 April 2023
Financial highlights
-- Revenue increased by 13.1% to GBP142.1m (FY22: GBP125.6m)
-- Gross margin of 48.5% (FY22: 49.3%)
-- Underlying PBT (1) up 19.1% to GBP21.6m (FY22: GBP18.1m);
underlying PBT margin increased to 15.2% (FY22: 14.4%)
-- Reported PBT increased to GBP11.5m (FY22: GBP1.1m)
-- Underlying EPS increased to 20.20p (FY22: 17.23p). Basic EPS 9.28p (FY22: loss of 3.02p)
-- Lock up(2) was 87 days (FY22: 86), with debtor days at 30 (FY22: 31)
-- Cash conversion (3) of 117% (FY22: 109%)
-- Net debt(4) of GBP29.2m (30 April 22: GBP28.9m), in line with the Board's expectations
-- Final dividend of 2.50p recommended (FY22: 2.04p), giving a
15% increase in the total dividend to 4.03p (FY22: 3.50p)
Strategic and operational highlights
Resilient performance and bolstered position as one of the UK's
largest regional commercial law firms
-- Delivered profitable, cash generative growth from a
diversified service offering and expanded client base with a
noticeable increase in the interest income earned on client monies,
net of interest paid out to clients which we expect to continue
with interest rates having reverted to higher historic norms.
Should interest rates soften, we expect this to stimulate higher
levels of activity in the transactional parts of our business, such
as M&A and residential property
-- Continued to scale the business, strengthening our presence
in key markets across the UK and our position as one of the largest
legal and professional services businesses outside London
-- Continued to attract top-tier professionals. Average number
of full time equivalent fee earners employed during the period was
1,077 (FY22: 1,015)
Significantly expanded regional footprint, providing a strong
platform for organic growth
-- Successfully integrated prior year acquisitions, Keebles,
Archers Law and Langleys, which are performing well
-- Acquired two well reputed law firms, Coffin Mew and Meade
King, in the South of England, expanding our reach and adding c.100
fee earners. Both are integrating and performing well
-- Acquisitions of Baines Wilson and St James' Law post period
end provide entry into important growth markets in the North of
England, significantly strengthening our reputation in the
region
Current trading and Outlook
-- Solid start to the current year as we navigate continuing
macroeconomic uncertainty and rising interest rates, with growth in
less cyclical areas, new client wins and an increase in recruitment
activity
-- Confident of a return to organic growth in FY24 as we realise the benefits of:
-- our pricing strategy, with rate increases from 1 May 2023
-- recruitment momentum, with eight partners hired already in FY24 (total for FY23: 13)
-- recent client wins including EuroFinance, World Rugby, Marie
Curie and TTI Inc., demonstrating the success of our large, and
international, corporate client initiatives
-- good early organic recruitment into recently acquired
locations, particularly Bristol, Newcastle and Brighton
-- strong momentum in non-cyclical services such as private wealth and clinical negligence
-- A more favourable market for attracting professionals as well
as acquisition opportunities and valuations
-- Confident of an unchanged outlook for the current financial
year with recent recruitment expected to drive second half
weighting
David Beech, CEO of Knights, commented:
"This has been an important year for Knights, during which we
placed a particular focus on strengthening our management team and
developing our operating model to support the execution of our
strategy and accelerate growth. "
"Given the sharp rises in interest rates as we started the
current financial year, we are seeing a softening of work in some
transactional and debt-reliant activity such as Residential
Property, M&A, and our volume re-mortgage business, Integrar.
However, this is being mitigated by a combination of growth in
other areas which are less cyclical, such as Private Wealth and CL
Medilaw (our specialist clinical negligence team), new client wins
and our pricing strategy. "
" As we move through the year, we expect to benefit
incrementally from recent positive recruitment momentum, a
heightened focus on growth and business development and the
strengthening of our operational management. "
"We will continue carefully to consider acquisition
opportunities which will consolidate or expand our existing
footprint and provide a strong platform for future organic
growth."
"Our outlook for the current financial year is therefore
unchanged, with recent recruitment expected to drive a second half
weighting, and we remain confident in our strategy and our ability
to deliver profitable, cash generative growth. We will continue to
leverage our position as one of the largest commercial law firms
located outside London, to grow our client and fee earner base
organically and to drive operational improvements, complemented by
acquisitive growth."
Enquiries
Knights
David Beech, CEO Via MHP
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank 020 7260 1000
MHP (Media enquiries)
Katie Hunt, Eleni Menikou, Rob 020 3128 8100
Collett-Creedy +44 (0)7736 464749
knights@mhpgroup.com
Notes to Editors
Knights is a fast-growing, legal and professional services
business, ranked within the UK's top 50 largest law firms by
revenue. Knights was one of the first law firms in the UK to move
from the traditional partnership model to a corporate structure in
2012 and has since grown rapidly. Knights has specialists in all
key areas of corporate and commercial law so that it can offer
end-to-end support to businesses of all sizes and in all sectors.
It is focussed on key UK markets outside London and currently
operates from 25 offices located in Birmingham, Brighton, Bristol,
Carlisle, Cheltenham, Chester, Crawley, Exeter, KingsHill,
Lancaster, Leeds, Leicester, Lincoln, Manchester, Newcastle,
Newbury, Nottingham, Oxford, Portsmouth, Sheffield, Stoke,
Teesside, Weybridge, Wilmslow and York.
(1) Underlying PBT is before amortisation of acquired
intangibles, non-underlying costs relating to acquisitions,
non-recurring finance costs, restructuring costs in the reporting
period, and non-underlying share based payments. Underlying EPS
excludes these items and the tax related to these items. The Board
believes that these underlying figures provide a more meaningful
measure of the Group's underlying performance
(2) Lock up is calculated as the combined debtor and WIP days as
at a point in time. Debtor days are calculated on a count back
basis using the gross debtors at the period end and compared with
total fees raised over prior months. WIP days are calculated based
on the gross work in progress (excluding that relating to clinical
negligence claims, insolvency, and ground rents, as these matters
operate mainly on a conditional fee arrangement and a different
profile to the rest of the business) and calculating how many days
billing this relates to, based on average fees (again excluding
clinical negligence claims, insolvency, and ground rents fees) per
month for the last 3 months
Lock up days excludes the impact of acquisitions in the last
quarter of the reporting period
(3) Cash conversion is calculated as the total of net cash from
operations, tax paid and payments of lease interest and lease
finance liabilities under IFRS 16, divided by the underlying profit
after tax, which is calculated from profit after tax by adding back
amortisation of acquired intangibles, non-underlying costs relating
to acquisitions, non-recurring finance costs, restructuring costs
in the reporting period, and non-underlying share based payments
and the tax in respect of these costs
(4) Net debt excludes lease liabilities
(5) Largest firm by revenues outside London. Source: The
Lawyer's Top 100 report, October 2022
These footnotes apply throughout the RNS
Chair's statement
I am pleased to introduce Knights' 2023 Annual Results.
Since Knights moved to a corporate structure in 2012, we have
expanded the business considerably, growing from two offices to
become a business with a national presence. During that time, our
organic growth has been complemented by over 20 acquisitions of
quality independent legal and professional services businesses,
which have expanded Knights' geographical reach and range of
services and expertise, cementing our position as a leading
provider across the country.
Knights' unique model was born of recognition of the fact that
regional professionals can provide 'City' calibre services without
relocating to London to do so, bringing benefits to our clients,
people and communities. We have continued to support and develop
this model by investing in technology systems and capability,
facilitating more seamless integration, collaboration and greater
efficiency.
A highly commercial approach, established early on, is now
deeply embedded across the Group, instated and maintained across
our offices by our highly effective and experienced Client Services
Directors, many of whom have now been with the business for a
number of years. This team, which has expanded during the year,
focuses on delivering operational improvements and productivity,
creating the base for future organic growth the benefits of which
are expected to be realised incrementally in the current financial
year.
Knights has grown to become one of the largest fully
collaborative legal and professional services businesses in the
UK(5) , employing 1,464 colleagues, including 1,165 fee earning
professionals at the end of the financial year. This journey has
not been without its challenges and I am proud of what we have
achieved, which is testament to the hard work of all our people.
Knights' strategy, reputation, unique model based on a 'one-team'
culture across all our offices, together with the tireless drive
and focus of an experienced and talented management team, have
underpinned this growth.
Against an unsettled backdrop in FY23, which was characterised
by the residual challenges of the pandemic, followed by the
macroeconomic uncertainty and steeply rising interest rates
prompted by the mini-budget weighing on broader business sentiment,
the Group delivered a solid performance. Revenue was up 13% on the
prior year to GBP142.1m, driven by contributions from acquisitions
completed in the financial year and the full year effect of prior
year acquisitions.
The ever-increasing calibre of our national, and now
international, client base includes names such as Marie Curie and
World Rugby, both of which became clients during the year following
our strategic focus on attracting such companies. This continued
evolution of our client base reflects Knights' strong market
positioning, quality offering and reputation among large corporate
clients alongside our core regional client base.
Strategy
Knights' strategy has provided good resilience in challenging
economic conditions, due to its increasingly diverse service
offering and ever-widening range of clients. I am confident that
the Group has the right approach and vision in place to deliver
results for its stakeholders. Our growth has further enhanced our
ability to attract high quality professionals, both from leading
law firms and other professions. Additionally, in the uncertainty
currently prevailing, our unique model is increasingly attractive
for many compared with higher risk equity based businesses,
encouraging more individuals to choose a career with Knights.
This year, we continued to scale the business in a considered
way. While we remain focussed on optimising and building our Group
to deliver organic growth, acquisitions remain a key component of
Knights' overall growth strategy. We added two high quality firms
during the year, Coffin Mew LLP and Meade King LLP, both of which
are closely aligned culturally and strategically with our goals,
taking us into new key regional locations. We also successfully
integrated prior year acquisitions, strengthening our presence in
regions where we already operate. These acquisitions provide a
platform for future organic growth and complement the existing
business, in terms of culture, service offering and geographical
coverage.
While the macroeconomic outlook is expected to remain uncertain
into FY24, we believe that, as well as supporting recruitment
momentum, this will also present further acquisition opportunities
for the Group.
ESG
Over the year, we have maintained our focus on ESG priorities,
and it is pleasing to report that we not only continue to make good
progress against our commitments but have also added new
objectives, including targeting net-zero in our own operations and
across our entire value chain by 2050. We go to great lengths to
ensure we remain respectful of the world around us, and that our
business has a positive impact - on the environment, and also
within the communities in which we operate.
We continue to make our offices, and the way in which they
operate, more energy efficient as part of the ongoing optimisation
of our real estate portfolio, focusing on modernisation,
right-sizing and off-loading excess space. We are pleased to be
announcing a new set of targets focused on reducing energy usage
and increasing support to our local communities through our 4 Our
Community programme.
We have a good gender balance across the business. Our Board is
60% female, and 43% of our Partners are female. Looking at the
business more broadly, 66% of our fee earning professionals are
female.
Dividend
The Group's progressive dividend policy seeks to maintain a
balance between retaining profits to execute our strategy, and
delivering value for shareholders as our strategy yields positive
performances.
The Board is this year proposing a final dividend of 2.50p,
which, together with the interim dividend of 1.53p per share gives
a total dividend for the year of 4.03p (FY22:3.5p), an increase of
15%. The dividend will be payable on 29 September 2023 to
shareholders on the register at 1 September 2023, subject to
shareholder approval at the Group's AGM.
Summary
I am proud of what has been achieved by the business. Driven by
a passionate and experienced management team and guided by a sound
strategy, the resilience of our unique model has enabled the Group
successfully to navigate recent challenges while continuing to
develop its strong platform. This year has been no exception, with
clear progress being delivered against our strategy and positioning
the Group well to deliver organic revenue growth in the current
financial year.
CEO Statement
It has been an important year of solid progress for Knights,
during which we placed a particular focus on strengthening our
management team and developing our operating model to support the
execution of our strategy and accelerate the future growth of our
business.
By continuing to scale the business, establishing and bolstering
our presence in key markets across the UK, we have now become one
of the largest, fully collaborative legal and professional services
groups in the country(5) . The evolution of, and investment in, our
organisational structure, reflected in the continued expansion of
our team of Client Services Directors, is driving operational and
productivity improvements across the Group, the benefits of which
are expected to be realised in the new financial year and
beyond.
Recognition of our size and ever-growing reputation as a premium
provider of professional services, together with our unique
collaborative culture, has underpinned our ability to recruit and
retain high quality professionals, including senior executives
responsible for driving and implementing operational
excellence.
The execution of our strategy means that, with further
acquisitions made in the current year, Knights now spans the
country. It has a broad client base which continues to grow and now
includes, not only blue-chip clients in the UK, but also an
increasing number of significant international companies, all of
which value the Group's extensive capabilities, collaborative ethos
and high-quality service.
A resilient performance against a challenging backdrop
During the year, challenges associated with the COVID-19
pandemic gave way to those associated with macroeconomic
uncertainty, rising interest rates, and the subsequent impact on
business confidence. Despite this backdrop, we delivered
profitable, cash generative growth, with total revenue up 13% to
GBP142.1m, as the legal services market outside London, and our
diversified services offering and client base, provided a good
level of resilience complemented by contributions from recent
acquisitions. From a flat organic growth rate in FY23, we have put
in place the building blocks for organic growth to improve
incrementally as we move through the current financial year,
through a combination of pricing, productivity, net recruitment and
client wins.
In the year, an additional two Client Services Directors joined
an already strong and established team, a role which is
instrumental in driving strategic progress, embedding our 'one
team' culture, and delivering performance across the Group through
highly engaged and present leadership in each of our offices. Our
Client Services Directors have now been with us for an average
tenure of more than three years, with six having been with the
Group for over five years, meaning that we have real strength in
the depth of their collective experience in the business. An
example of the success of this team in embedding Knights'
commercially driven approach and focus on cash management is in the
Group's market-leading working capital performance, with debtor
days of just 30 in FY23 (FY22: 31 days), significantly fewer than
the industry average of 66 days (Source: PWC Law Firms Survey
2022). They have also been instrumental in driving the larger new
business wins we have secured in recent months.
Andrew Pilkington, previously Group Client Services Director,
has now been appointed as COO, a natural step up which reflects his
strong track record in delivering progress. His appointment also
enables us to bring our operational and client service teams, who
will all work closely with Andrew, closer together creating greater
alignment and supporting enhanced performance across the business.
Building on his experience of identifying, delivering and
integrating acquisitions to date, James Sheridan has become our
Group M&A Director, overseeing the execution of our acquisition
strategy, including the early introduction of Knights' working
practices to maximise the organic growth we can achieve from newly
acquired businesses.
Knights is committed to talent acquisition and retention and we
recognise fully the value of our people as the bedrock of the
Group. We had an average of 1,077 full time equivalent fee earning
professionals during the year (FY22: 1,015). As previously
announced, during the year, we experienced higher churn than
expected in one of the Group's 2020 acquisitions. In addition, the
recruitment market was particularly competitive during calendar
year 2022 following the re-opening of the market post-COVID, a
period that became widely known as the 'great resignation' across
many sectors, including our own. We are pleased that this higher
level of churn has now moderated in the office in question and we
are now seeing good future growth opportunities both in that office
and across the business.
Furthermore, we have seen a significant uplift in the hiring of
high calibre professionals since the start of calendar year 2023,
with eight partners already hired in FY24 (compared to 13 for the
whole of FY23), reflecting the attractiveness of our secure
corporate model in a macro environment where people have become
more alert to the financial risk associated with partnership-based
models. We have also been delighted to welcome back 17 people who
have returned to Knights since the beginning of the last financial
year, following a period at other firms, many of whom have wanted
to be part of a team with a greater office presence.
Most of our people have now returned to working in our network
of offices. Knights' presence across the UK means that many of our
people live within a short commute of a Knights office, supporting
a healthier work-life balance. Our culture and collaborative way of
working are most powerful when our people are together, exchanging
ideas and supporting each other, which in turn drives more
opportunity for our people, and better outcomes for our
clients.
We remain committed to making carefully considered acquisitions
which align with our strategy and culture and which provide a
platform from which to build future organic growth. During the
year, we acquired two high quality, independent and
well-established regional law firms, Coffin Mew LLP and Meade King
LLP, both of which are integrating and performing well, further
expanding our reach in the South and South West and adding c.100
fee earning professionals to the Group. The acquisitions
demonstrate the Group's attractiveness to businesses and
professionals seeking to be part of a larger Group with national
scale and a premium reputation, without the financial risk of
equity partnerships.
The Group's enhanced size, capability and reputation for
delivering high quality work has also resulted in some clear
success with our new large corporate client focus, such that we
have won a number of significant new UK, European and US clients
including World Rugby, Marie Curie, EuroFinance and TTI, a
Berkshire Hathaway company, which we expect will aid the Group's
organic growth as we move through the current financial year. These
wins resulted from a number of dedicated initiatives, including
raising awareness of the quality and breadth of our service
offering, combined with the cost benefits of a regional base,
through European roadshows. The range and level of services we
deliver to our existing large corporate clients also continues to
increase.
In addition, we are benefitting from the resilience afforded by
the Group's diversity of services, with momentum building in
non-cyclical offerings including private wealth and clinical
negligence. Our continued focus on, and commitment to, being the
premium provider of legal and professional services in all of our
sectors and locations continues to build momentum and underpins our
confidence in pricing appropriately for the quality of service and
value we deliver.
A considered approach to acquisitions
The regional legal services market remains fragmented, and
Knights has a strong track record of unlocking value from the
acquisition of high-quality regional firms constrained by their
ownership model and other barriers to growth. As economic
challenges in the UK persist, many legal professionals and firms
are looking for an alternative to the higher-risk traditional
equity partnership model and to be part of a larger, more
diversified, Group.
We know it is important to integrate such businesses properly
and quickly, so remain considered in our approach to acquisitions,
seeking businesses which share a similar culture with Knights and
which have clear potential to facilitate future organic growth. We
are well-placed to capitalise on our exciting pipeline of
acquisition opportunities and compelling valuations as they arise,
given the significant headroom available in our revolving credit
facility.
Enhanced presence in Yorkshire, the North East and the East of
England
During the year, we successfully integrated and developed the
businesses we acquired the previous year, Keebles LLP, Archers Law
LLP and Langleys LLP, resulting in an enhanced presence in
Yorkshire, the North East (one of the largest markets for legal and
professional services in the UK(5) ) and the East of England. All
are performing as anticipated, with no unexpected attrition of
people or clients.
New entry into key markets in the South and South West
We strengthened our presence in the South of England, an
attractive growth market for our services, with the acquisition of
Coffin Mew LLP and Meade King LLP.
The acquisition of Coffin Mew provided entry into Portsmouth,
Southampton, Brighton and Newbury, significantly expanding Knights'
presence in the South. Meade King facilitated our entry into
Bristol, the regional financial centre of the South West,
complementing Knights' existing Exeter office. Both acquisitions
are integrating well.
Continued momentum with acquisitions strengthening our presence
in the North
This momentum continued into the current financial year, with
two further acquisitions announced post year end. St James' Square
brings to the Group an independent full service commercial law firm
based in Newcastle, and Baines Wilson LLP brings one of the leading
independent law firms in the North West, offering Corporate, Real
Estate, Dispute Resolution and Employment services. The
acquisitions demonstrate our ability to identify opportunities to
welcome new businesses to the Group at attractive valuations in the
current environment.
Both acquisitions align with Knights' strategy to bolster its
future organic growth through selective, considered acquisitions.
They provide access to new important regional markets and platforms
for further growth through the recruitment of local professionals
and potential further bolt-on acquisitions. Following these
acquisitions, Knights now has five offices in the North West and
two offices in the North East of England which, alongside Knights'
three existing offices in Yorkshire, significantly strengthens the
Group's presence and brand reputation across the region.
ESG
Throughout the year we continued to evolve our ESG strategy
focused on building a responsible and sustainable business for all
our stakeholders, continuously reviewing and developing our
commitments and targets. Highlights include investment in our
Employee Value Proposition, an important and valuable exercise in
capturing our purpose, values and culture following our rapid
growth, and the continued success of our '4 Our Community' scheme,
which sits at the heart of our various national and local
community-based initiatives. Although we are a low impact, low
carbon intensive business, we are committed to reducing emissions
and ensuring efficient use of all our resources.
Current trading and outlook
There has been a solid start to the current year as we navigate
the continuing macroeconomic uncertainty and rising interest rates,
with growth in less cyclical areas, new client wins and an increase
in recruitment activity.
We are confident of a return to organic growth in FY24 as we
realise the benefits of:
-- our pricing strategy, with rate increases from 1 May 2023
-- recruitment momentum, with eight partners hired already in FY24 (total for FY23: 13)
-- recent client wins including EuroFinance, World Rugby, Marie
Curie and TTI Inc., demonstrating the success of our large, and
international, corporate client initiatives
-- good early organic recruitment into recently acquired
locations, particularly Bristol, Newcastle and Brighton
-- strong momentum in non-cyclical services such as private wealth and clinical negligence
We are also seeing a more favourable market for attracting
professionals as well as acquisition opportunities and
valuations.
Given the sharp rises in interest rates as we started the
current financial year, we are seeing a softening of work in some
transactional and debt-reliant activity such as Residential
Property, M&A, and our volume re-mortgage business, Integrar.
However, this is being mitigated by a combination of growth in
other areas which are less cyclical, such as Private Wealth and CL
Medilaw (our specialist clinical negligence team) new client wins
and our pricing strategy.
As we move through the year, we expect to benefit incrementally
from recent positive recruitment momentum, a heightened focus on
growth and business development and the strengthening of our
operational management.
We will continue carefully to consider acquisition opportunities
which will consolidate or expand our existing footprint and provide
a strong platform for future organic growth.
Our outlook for the current financial year is therefore
unchanged, with recent recruitment expected to drive a second half
weighting, and we remain confident in our strategy and our ability
to deliver profitable, cash generative growth. We will continue to
leverage our position as one of the largest commercial law firms
located outside London, to grow our client and fee earner base
organically and to drive operational improvements, complemented by
acquisitive growth.
CFO Statement
I am pleased to report a year of profitable, cash generative
growth. Despite challenges relating to current macroeconomic
uncertainty, the subsequent impact on business confidence and the
impact of slightly higher fee earner attrition than expected, we
have delivered strong growth in revenues and underlying
profits.
Two complementary acquisitions during the year, and good
development and growth within certain service lines, increased the
diversification of the Group's revenue. We continued to invest in
our business to provide a sustainable base for continued revenue
growth, and have managed our costs and treasury resources to
deliver increased profitability in the year.
During the year, the Group completed the disposal of Home
Property Lawyers Limited (HPL) which was acquired as part of the
Langleys acquisition in FY22 but was non-core.
We continue to deliver excellent cash conversion(3) , which has
resulted in a strong Balance Sheet and significant headroom within
our banking facilities to fund organic growth and acquisitions.
With interest rates reverting to historic norms, we have seen a
noticeable increase in the interest income earned on client monies,
net of interest paid out to clients which we expect to continue.
Should interest rates soften, we expect this to stimulate higher
levels of activity in the transactional parts of our business, such
as M&A and residential property.
Financial results
Total Group Total Group % change
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Revenue 142,080 125,604 13.1%
Other operating income 6,718 1,270 429.0%
Staff costs (88,412) (76,863) (15.0%)
Other operating charges (26,539) (22,077) (20.2%)
Impairment of trade receivables
and contract assets (468) (498) 6.0%
-------------- -------------- -----------------------------------------
Underlying EBITDA 33,379 27,436 21.7%
Underlying EBITDA % 23.5% 21.8%
Depreciation and amortisation
charges (excluding amortisation
on acquired intangibles) (8,175) (6,963) (17.4%)
Underlying finance charges (3,661) (2,364) (54.9%)
Underlying finance income 52 22 136.4%
Underlying profit before tax 21,595 18,131 19.1%
Underlying profit before tax
margin 15.2% 14.4%
Underlying tax charge (excluding
impact of non-recurring deferred
tax) (4,304) (3,709) (16.0%)
Underlying profit after tax 17,291 14,422 19.9%
-------------- -------------- -----------------------------------------
Basic underlying EPS (pence) 20.20p 17.23p 17.2%
Revenue
Reported revenue for the year is GBP142.1m compared to GBP125.6m
in FY22, an increase of 13.1%.
Of this increase, GBP8.8m was from acquisitions made during the
financial year and GBP8.3m represents the full year impact of
acquisitions made part way through FY22. The disposal of HPL in
July 2022, which was part of the Langleys acquisition in FY22 has
resulted in a decrease in revenues of GBP0.4m year on year, with
the balance of this movement being due to organic revenue decline
of GBP0.2m (0.1%).
Organic revenues
The challenges associated with the COVID-19 pandemic during FY22
were followed in FY23 by political and economic uncertainty, as
well as higher interest rates, which have impacted business
confidence in certain areas. The diversity and resilience of our
business has meant that despite a reduction in instructions in some
transactional areas of the business such as Residential Property
and M&A, there has been growth in other areas, less impacted by
the macro-economic environment, such as Private Wealth and CL
Medilaw (our specialist clinical negligence team). In addition our
volume re-mortgage business, Integrar, also performed strongly in
FY23, expanding its client base following investment in delivery
capability. Together these factors resulted in broadly flat overall
organic growth for the Group.
Our organic growth for the year was also impacted by the
strategic decision to exit the volume debt recovery business in
FY22 and higher-than-expected staff churn in an acquisition
completed in FY20. The effect of these factors, which negatively
impacted organic growth by circa 4.4%, has now worked through, and
the Group is well placed to deliver good organic growth in the
future.
Revenue from acquisitions
Acquisitions completed during FY22
The acquisitions of Keebles LLP, Archers Law LLP and Langleys
LLP completed during FY22. These acquisitions are performing ahead
of expectations with combined revenues of GBP23.1m in FY23. We
typically budget to retain 80% of acquired revenues, whereas these
acquisitions have delivered 98% of acquired revenues in the
financial year (after adjusting for the strategic sale of the HPL
business from Langleys and GBP2.5m of non-core Legal Aid, Personal
Injury, volume debt and conveyancing work from Keebles).
Acquisitions completed during FY23
During the year, the Group acquired Coffin Mew LLP, Globe
Consultants Limited, and Meade King LLP. These acquisitions have
contributed GBP8.8m of revenue in the period, as anticipated and
initial integration has gone well. The New Homes business within
the Coffin Mew acquisition has been impacted by the macro-economic
environment and a slowdown in mortgage approvals meaning this
acquisition is currently delivering c 70% of acquired revenue,
slightly lower than the 80% we would typically assume. However, the
business is well-integrated, and it is anticipated that revenues
will return to expected levels as the housing market improves. The
Meade King acquisition in Bristol is performing particularly well
with current run-rate revenue being marginally above acquired
revenue.
As well as driving acquisition revenues, these acquisitions are
also proving to be an excellent platform for future organic growth
across the business with several new partner hires already made
into the acquired offices.
Staff costs
Total staff costs as a percentage of revenue were 62.2% for the
year (FY22: 61.2%) reflecting the impact that the challenging
economic environment has had on revenue in some areas and the
continual investment in management and support staff to create a
sustainable base for growth going forward.
Direct staff costs
Fee earning staff costs have increased to 51.5% of revenue (FY22
50.7%), reflecting our continuing investment in high quality senior
recruits who bring client relationships and networks. This has been
impacted by some challenges associated with a softening in
productivity due to macroeconomic conditions. This also includes
investment in 17 partner and senior associate recruits in the
second half of the financial year, which although a net cost to the
business in FY23, are expected to generate organic growth in the
next financial year due to the typical lag in achieving full run
rate revenues.
Support staff costs
Support staff costs increased marginally to 10.7% of revenue in
the year, compared to 10.5% in the prior year reflecting our
investment in two additional Client Services Directors to manage
the growing business.
Our return to office-based working has also required investment
in our team of Office Hosts and administrators to manage the
offices. As we continue to develop our IT infrastructure further to
maximise opportunities and efficiencies in the business, we have
also invested in additional in-house IT capability.
Other operating charges
Overall, other operating charges have increased to 18.7% of
revenue (FY22: 17.6%) as more colleagues returned to work in our
offices and the easing of COVID-related restrictions has allowed
increased networking and collaboration across our 23 offices,
including our first, in person, all staff annual conference since
the pandemic. As we continue to invest in the future growth of the
business, there has also been renewed focus on business development
activity, including attendance at overseas events for the first
time in a number of years. The cost base is now considered to be at
a normalised post-COVID run rate.
Depreciation and amortisation charges
Depreciation and amortisation charges (excluding amortisation on
acquired intangibles) increased marginally to 5.8% of revenue
(FY22: 5.5%) reflecting increased depreciation due to capital
expenditure in FY22 and the expanded office network as a result of
acquisitions, increasing the depreciation on right of use (ROU)
assets. FY23 has been a year of consolidation. During the year, and
post year-end we have identified several opportunities to reduce
our office capacity by subletting excess space. This will allow us
to 'right-size' parts of our property portfolio and leverage the
portfolio as we grow to enable the Group to benefit from some
margin improvement in FY24, with the full benefits being achieved
in FY25.
Other operating income
Other operating income has increased to GBP6.7m from GBP1.3m,
primarily due to increased interest income earned on client monies
held as a result of higher interest rates, net of interest paid out
to clients.
Underlying profit before tax (PBT)(1)
Underlying profit before tax excludes amortisation of acquired
intangibles, transaction and onerous lease costs in relation to
acquisitions, disposals of acquired assets, one off restructuring
and professional costs incurred mainly as a result of the
streamlining of the support function in acquisitions or strategic
reorganisations.
Underlying profit before tax has been calculated as an
alternative performance measure (see note 37 of the financial
statements) to provide a more meaningful measure and year on year
comparison of the profitability of the underlying business.
FY23 FY22
GBP'000 GBP'000
Profit before tax 11,529 1,056
Amortisation (excluding computer software) 3,441 3,815
Non-underlying costs (net of gain on disposals
and finance costs) 6,625 13,260
-------- -----------------
Underlying profit before tax 21,595 18,131
-------- -----------------
Total Group underlying profit before tax has increased 19.1% to
GBP21.6 million (FY22: GBP18.1m).
The underlying profit before tax(1) margin increased to 15.2%
from 14.4% last year, benefitting from an increase in other
operating income as a result of increased interest income earned on
client monies held, due to higher interest rates. This increase in
interest receivable more than offsets the increase in interest
charges on Group borrowings which has increased our finance charges
by GBP1.3m (54.9%) compared to the prior year.
Reported profit before tax (PBT)
Reported profit before tax for the year has increased to
GBP11.5m (FY22: GBP1.1m) reflecting increased profit in the
underlying business and reduction in non-underlying costs from
GBP13.3m to GBP6.6m in the period. Of the GBP6.6m of non-underlying
costs, GBP4.4m (FY22: GBP6.3m) relates to the contingent
consideration element of the purchase cost of acquisitions
recognised in the Statement of Comprehensive Income in accordance
with IFRS accounting conventions, with the balance relating to
one-off redundancy, transaction and other costs offset by the gain
of GBP0.3m from the sale of HPL.
Earnings per share (EPS)
Basic EPS in the year increased to 9.28p from a loss of 3.02p in
FY22. To aid comparison of EPS on a like for like basis, underlying
EPS has also been calculated based on underlying PAT. The
underlying EPS has increased by 17.2% to 20.20p in FY23 (FY22:
17.23p). The weighted average number of shares used to calculate
the undiluted EPS in the year to 30 April 2023 was 85,597,833
(FY22: 83,717,952).
Considering the dilutive impact of potential share options, the
basic Diluted EPS for FY23 is 9.19p (FY22: loss of 3.02p).
Underlying Diluted EPS has increased by 16.7% to 20.00p (FY22:
17.14p).
Corporation tax
The Group's tax charge for the year is GBP3.6m (2022: GBP3.6m),
made up of a current corporation tax charge of GBP4.1m (2022:
GBP1.5m), partially offset by a deferred tax credit of GBP0.5m
(2022: deferred tax charge of GBP2.1m). The increase in the current
tax charge relates mainly to the increase in pre-tax profits in the
year and also the increase in the corporation tax rate to 25% (from
19%) in April 2023.
The deferred tax credit principally arises due to: the unwinding
of the benefit of significant capital allowances claimed in FY22
due to the higher level of capital expenditure in FY22, and the
availability of the capital allowance super-deduction and the
annual investment allowance; a one-off credit in relation to
deferred tax on acquisitions; offset by the deferred tax impact on
lapsed share schemes and an IFRS16 tax adjustment.
The total effective rate of tax is 31% (FY22:340%) based on
reported profit before tax. The effective tax rate in FY22 was
adversely affected by the impact of increasing the rate used to
calculate the deferred tax to 25% from 19%. The effective rate of
tax on the underlying profit of the business is 20% (FY22: 21%). As
the basic corporation tax rate has increased from 19% to 25% from
April 2023, we expect Group underlying tax rates to increase by a
similar percentage in FY24.
The net deferred taxation liability increased to GBP8.4m (FY22:
GBP8.3m) with the deferred tax credits highlighted above offsetting
increases in provisions from acquisitions and IFRS 16 leases.
Dividend
The Board continues to adopt a progressive dividend policy,
balanced with its commitment to continue to reinvest the profits of
the Group to fund future strategic growth plans.
Subject to approval at the Annual General Meeting in September
2023, the Board proposes a final dividend for the year of 2.50p per
share representing a dividend of circa 20% of post-tax profits for
the year. This, together with the interim dividend of 1.53p per
share brings the total dividend in respect of FY23 to 4.03p per
share (FY22:3.50p), an increase of 15%.
30 April 30 April
23 22
Balance sheet GBP'000 GBP'000
Goodwill and intangible assets 88,021 82,172
Right of use assets 38,200 40,663
Working capital 48,404 44,302
Other net liabilities (2,833) (3,028)
Lease liabilities (44,916) (46,528)
Assets held for resale - 635
-------- --------
126,876 118,216
Cash and cash equivalents 4,045 4,227
Borrowings (33,265) (33,153)
-------- --------
Net debt(4) (29,220) (28,926)
Deferred consideration (4,849) (3,631)
-------- --------
Net assets 92,807 85,659
-------- --------
The Group's net assets as at 30 April 2023 increased by GBP7.1m
(FY22: GBP3.0m) to GBP92.8m reflecting new equity issued for
acquisitions and the profit for the year, net of dividends paid in
the period. The key movements in the Balance Sheet are discussed in
more detail below.
Assets held for resale
The assets held for resale as at 30 April 2022 related to the
HPL business which was sold during the year.
Goodwill and intangible assets
Goodwill and intangible assets included GBP28.1m of intangible
assets relating to brand and customer relationships for current and
prior year acquisitions. Purchased computer software accounted for
GBP0.2m with the remaining balance of GBP59.7m relating to goodwill
from acquisitions.
The Board carries out an impairment review of goodwill each year
to ensure the carrying value in the financial statements is
supportable. The value in use of the goodwill was calculated using
a number of different scenarios, some of which assumed a
considerably more negative outcome than is anticipated by the
Directors. In all instances, the future trading of the business was
more than sufficient to justify the carrying value of goodwill.
Therefore, as at 30 April 2023, the Board is satisfied that the
goodwill was not impaired.
Working capital
Working capital is calculated as follows:
30 April 30 April
2023 2022
GBP'000 GBP'000
Current assets
Contract assets 38,215 31,777
Trade and other receivables` 31,087 32,309
Corporation tax receivable 152 1,815
---------- ----------
Total current assets 69,454 65,901
---------- ----------
Trade and other payables 20,832 21,362
Contract liabilities 218 237
Total current liabilities 21,050 21,599
---------- ----------
Net working capital 48,404 44,302
---------- ----------
Net working capital has increased to GBP48.4m at 30 April 2023
(April 22: GBP44.3m), an increase of GBP4.1m (c.9%). Based on
run-rate revenues for FY23 of GBP146m and GBP132m for FY22 (taking
account of the full year impact of acquisitions) working capital
represents 33.1% of revenue in FY23 compared to 33.5% in FY22.
Although net working capital has reduced as a percentage of
revenue, the value of contract assets in the year has increased to
26.2% of run rate revenue (FY22: 24.1%). The reason for this
increase is mainly due to the growth of our CL Medilaw business.
Due to the time taken to convert these matters given the nature of
such cases and ongoing delays in the court system, this has
resulted in an increase in total work in progress in this area to
GBP17m (FY22: GBP13m). For the remainder of the business, work in
progress remains a comparable percentage of revenue as last
year.
The management of working capital is a key performance indicator
for the Group, with strong controls and systems in place to monitor
the level of receivables and work in progress across the business.
The number of lock up days (2) (the time taken to convert a unit of
time incurred into cash) continues to be a key focus for the Board,
Client Services Directors and wider management team. As at 30 April
2023 lock up(2) was 87 days (April 22: 86 days) broken down as 30
debtor days and 57 WIP days (April 22: 31 and 55 days).
The bad debt charge for the year has decreased slightly to 0.3%
of turnover (FY22: 0.4%) reflecting the strong controls over debt
collection in place across the Group.
Right of use assets and lease liabilities
The right of use assets capitalised in the Statement of
Financial Position represent the present value of property,
equipment and vehicle leases. The decrease in right of use assets
during the year to GBP38.2m (FY22: GBP40.7m) was the net result of
an increase in assets of GBP4.2m relating to new leases acquired
through acquisitions, less disposals of leases with a value of
GBP1.0m and depreciation of GBP5.7m for the year.
The lease disposal predominantly relates to the sublease of part
of one office related to the sale of the HPL business.
The lease liabilities represented the present value of the total
liabilities recognised in respect of the right of use assets. The
decrease in lease liabilities during the year to GBP44.9m (FY22:
GBP46.5m) reflected lease liabilities acquired with acquisitions
offset by the disposals of leases and repayments made in the
period.
The sublease mentioned above has also resulted in the Group
recognising a lease receivable of GBP1.0m in the Statement of
Financial Position, representing the total present value of amounts
receivable under the sub-lease.
Cash conversion(3) , net debt(4) , financing and leverage
Cash generation continues to be a key focus for management. The
Group measures cash conversion(3) by comparing the free cash flow
from operations as a percentage of its underlying profit after tax.
Due to a continued focus on management of working capital and lock
up(2) , the Group has delivered strong cash conversion(3) of 117%
(2022:109%) demonstrating robust cash controls. Cash generation in
FY23 benefited from the corporation tax receivable of GBP1.8m at
the end of FY22. Excluding this, cash conversion(3) for the year
would be 107%.
Cash Flow
FY23 FY22
GBP'000 GBP'000
Underlying profit before tax 21,595 18,131
Depreciation and amortisation 8,175 6,963
Change in working capital (4,458) (2,985)
Net finance charges 3,609 2,068
Cash outflow for IFRS 16 leases (6,728) (5,302)
Movement in provisions and other sundry
items 510 883
--------- ---------
Cash generated from underlying operations
pre-tax (note 37) 22,703 19,758
Tax paid (2,424) (4,095)
--------- ---------
Net cash generated from underlying
operating activities 20,279 15,663
--------- ---------
Underlying profit after tax 17,291 14,422
--------- ---------
Underlying cash conversion (note
37) 117% 109%
This strong cash generation in the year has resulted in net
debt(4) of GBP29.2m at the year-end (30 April 22: GBP28.9m) despite
a cash outlay of GBP11.4m relating to consideration for
acquisitions in the year along with deferred and contingent
consideration paid in relation to acquisitions in prior years. A
further cash outlay of GBP0.4m for debt repaid from acquisitions in
prior years, results in a total cash outflow in relation to
acquisitions of GBP11.8m (net debt impact GBP11.4m).
The table below shows a reconciliation of the key cash flows
impacting the movement in net debt(4) .
GBPm
Net debt(4) as at 30 April 2022 28.9
Deferred and contingent consideration paid 5.1
Consideration paid for acquisitions in the year
(including acquired debt and cash) 6.3
Receipt from disposal of subsidiary (HPL) (1.1)
Non-underlying costs paid 3.1
Interest on borrowings 2.1
Capital expenditure 1.9
Dividends paid 3.1
Other net cash (inflows) from underlying operating
activities (20.2)
Net debt(4) as at 30 April 2023 29.2
The Group has a revolving credit facility (RCF) of GBP60m
committed until October 2024. Interest is payable on the loan at a
margin of between 1.65% and 2.40% above SONIA dependent on the
current level of leverage. For banking purposes our leverage at the
year-end was 1.18 against a covenant of up to 2.5. At this low
level of leverage our interest margin is 1.85% above SONIA and we
have headroom of over GBP30m in our RCF facility giving significant
headroom to continue to support the growth strategy into 2024
through organic recruitment and strategic acquisitions. Due to the
net inflow of interest earned on client monies held, any future
increases in interest rates would result in increased profits and
cashflows based on current arrangements in place.
Capital Expenditure
Capital expenditure during the year was GBP1.9m (FY22: GBP2.5m)
excluding right of use assets as the Group continued to invest in
its systems and premises to expand capacity and ensure staff
continue to benefit from a high-quality working environment. The
main investment during the year was in IT equipment and systems
with c. GBP0.2m of this relating specifically to acquisitions
completed in the year.
Acquisitions
During the year we signed and completed three acquisitions. The
table below summarises the net impact of these acquisitions on
cashflows during the year and in future years. This shows the
impact of consideration payable net of any cash in the acquired
businesses.
The table also shows the net cash impact of the two acquisitions
post year end of Baines Wilson LLP which completed on 2 June 2023,
and St James' Square which completed on 16 June 2023.
Acquisition Repayment Net cash impact
of subsids of debt acquired Contingent Net cash impact of acquisitions
(net of acquired with subsids & deferred of acquisitions post year end
Financial cash) GBPm acq'n payments pre year end GBPm
year ended GBPm GBPm GBPm
----------------- ----------------- --------------- ----------------
2023 6.0 0.7 5.1 11.8 -
2024 - 0.2 6.2 6.4 2.9
2025 - 0.1 4.7 4.8 1.0
2026 - 0.1 1.2 1.3 0.9
2027 - - - - 0.3
------------ ----------------- ----------------- --------------- ---------------- ----------------
The above includes estimated contingent consideration charged as
remuneration in the Consolidated Statement of Comprehensive
Income.
Summary
Results for the year to 30 April 2023 reflect a year of
acquisitive growth, consolidation and building on our core business
platform. Although overall organic growth was flat, normalisation
after one-off factors such as strategic exits from non-core service
lines and higher than expected churn, together with strong organic
growth in certain areas of the business and investment in
recruitment and business development, place the Group in a strong
position to leverage costs as the business continues to grow. We
have maintained a strong Balance Sheet and have significant
headroom within our existing banking facilities to fund further
growth both organically and through acquisitions.
Kate Lewis
Chief Financial Officer
1. Consolidated Statement of Comprehensive Income
For the year ended 30 April 2023
Year ended Year ended
30 April 2023 30 April 2022
Note GBP'000 GBP'000
Revenue 5 142,080 125,604
Other operating income 7 6,718 1,270
Staff costs 8 (88,412) (76,863)
Depreciation and amortisation charges 11 (11,616) (10,778)
Impairment of trade receivables and contract
assets (468) (498)
Other operating charges 12 (26,539) (22,077)
--------------------------------------------- ---- --------------- ---------------
Operating profit before non-underlying
charges 21,763 16,658
Non-underlying operating costs 13 (6,791) (13,260)
Non-underlying gains on disposals 13 318 -
--------------------------------------------- ---- --------------- ---------------
Operating profit 15,290 3,398
Finance costs 14 (3,661) (2,364)
Finance income 15 52 22
Non recurring finance costs 13 (152) -
Profit before tax 11,529 1,056
--------------------------------------------- ---- --------------- ---------------
Taxation 17 (3,175) (1,840)
Non-underlying tax charge 17 (410) (1,747)
--------------------------------------------- ---- --------------- ---------------
Profit/(loss) and total comprehensive
income for the year attributable to equity
owners of the parent 7,944 (2,531)
--------------- ---------------
Earnings per share Pence Pence
Basic earnings per share 18 9.28 (3.02)
Diluted earnings per share 18 9.19 (3.02)
--------------- ---------------
The above results were derived from the Group's continuing
operations. Options are not dilutive in prior periods in view of
the loss incurred in that period.
Consolidated Statement of Financial Position
As at 30 April 2023
30 April
30 April 2023 2022
Note GBP'000 GBP'000
Assets
Non-current assets
Intangible assets and goodwill 20 88,021 82,172
Property, plant and equipment 22 10,004 10,240
Right-of-use assets 22 38,200 40,663
Finance lease receivables 26 1,671 1,091
--------------------------- -------------
137,896 134,166
--------------------------- -------------
Current assets
Contract assets 23 38,215 31,777
Trade and other receivables 24 31,087 32,309
Finance lease receivables 26 315 76
Corporation tax asset 152 1,815
Cash and cash equivalents 4,045 4,097
Assets held for sale 27 - 1,195
--------------------------- -------------
73,814 71,269
--------------------------- -------------
Total assets 211,710 205,435
--------------------------- -------------
Equity and liabilities
Equity
Share capital 25 171 169
Share premium 75,262 74,264
Merger reserve (3,506) (3,536)
Retained earnings 20,880 14,762
--------------------------- -------------
Equity attributable to owners of
the parent 92,807 85,659
--------------------------- -------------
Non-current liabilities
Lease liabilities 28 38,585 41,183
Borrowings 29 33,076 32,798
Deferred consideration 30 2,482 2,421
Deferred tax 31 8,388 8,332
Provisions 33 4,090 4,331
--------------------------- -------------
86,621 89,065
--------------------------- -------------
Current liabilities
Lease liabilities 28 6,331 5,345
Borrowings 29 189 355
Trade and other payables 32 20,832 21,362
Deferred consideration 30 2,367 1,210
Contract liabilities 23 218 237
Provisions 33 2,345 1,772
Liabilities held for sale 27 - 430
--------------------------- -------------
32,282 30,711
--------------------------- -------------
Total liabilities 118,903 119,776
--------------------------- -------------
Total equity and liabilities 211,710 205,435
--------------------------- -------------
The financial statements were approved by the board and
authorised for issue on 7 July 2023 and are signed on its behalf
by:
Kate Lewis
Director Registered No. 11290101
Consolidated Statement of Changes in Equity
For the year ended 30 April 2023
Share Share Merger Retained
capital premium reserve earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2021 165 68,369 (3,536) 17,691 82,689
Loss for the period
and total comprehensive
income - - - (2,531) (2,531)
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - 835 835
Issue of shares 25 4 5,895 - 5,899
Dividends 19 - - (1,233) (1,233)
Balance at 30 April
2022 169 74,264 (3,536) 14,762 85,659
Profit for the period
and total comprehensive
income - - - 7,944 7,944
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - - - 1,265 1,265
Issue of shares 25 2 998 - - 1,000
Transfer - - 30 (30) -
Dividends 19 - - - (3,061) (3,061)
-------- -------- --------- --------- --------
Balance at 30 April
2023 171 75,262 (3,506) 20,880 92,807
-------- -------- --------- --------- --------
Consolidated Statement of Cash Flows
For the year ended 30 April 2023
Year ended
30 April 2023 Year ended
30 April 2022
Note GBP'000 GBP'000
Operating activities
Cash generated from operations 35 29,431 25,060
Non-underlying operating costs paid 13 (3,142) (3,691)
Interest received - 274
Tax paid (2,424) (4,095)
Contingent acquisition payments (3,870) (5,383)
--------------- ---------------
Net cash from operating activities 19,995 12,165
Investing activities
Acquisition of subsidiaries (net of
cash acquired) 21 (6,018) (6,801)
Purchase of intangible fixed assets 20 (71) (62)
Purchase of property, plant and equipment 22 (1,853) (2,526)
Proceeds from lease receivables 30 - 237 30
Disposal of subsidiaries (net of cash
disposed) 1,068 -
Landlord capital contribution - 146
Associated lease costs - (23)
Payment of deferred consideration (1,210) (1,095)
Net cash used in investing activities (7,847) (10,331)
Financing activities
Proceeds of borrowings 34,425 47,350
Repayment of borrowings (33,900) (38,600)
Proceeds from exercise of share options - 798
Repayment of debt acquired with current
year subsidiaries 21 (256) (2,903)
Repayment of debt acquired with prior
year subsidiaries (438) -
Repayment of lease liabilities (5,439) (3,890)
Interest and other finance costs paid (3,661) (2,060)
Dividends paid (3,061) (1,233)
--------------- ---------------
Net cash used in financing activities (12,330) (538)
Net (decrease)/increase in cash and
cash equivalents (182) 1,296
Cash and cash equivalents at the beginning
of the period 4,227 2,931
------------------------------------------- ---- --------------- ---------------
Cash - continuing operations 4,045 4,097
Cash - assets held for disposal (note
27) - 130
------------------------------------------- ---- --------------- ---------------
Total cash and cash equivalents at
end of period 4,045 4,227
--------------- ---------------
2. Notes to the Consolidated Financial Statements
For the year ended 30 April 2023
1. General Information
Knights Group Holdings plc ("the Company") is a public company
limited by shares and is registered, domiciled and incorporated in
England.
The Group consists of Knights Group Holdings plc and all of its
subsidiaries.
The principal activity and nature of operations of the Group is
the provision of legal and professional services. The address of
its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
2. Accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with
UK-adopted International Accounting Standards.
Applying these standards requires the directors to exercise
judgement and use certain critical accounting estimates, the
judgments and estimates that the directors deem significant in the
preparation of these financial statements are explained in note
4.
The financial statements have been prepared on the historical
cost basis. Historical cost is generally based on the fair value of
the consideration given in exchange for goods and services.
Monetary amounts are presented in sterling, being the functional
currency of the Group's subsidiaries, rounded to the nearest
thousand except where otherwise indicated.
The principal accounting policies adopted are set out below.
These policies have been consistently applied to all periods
presented in the financial statements, unless otherwise stated.
2.2 Going concern
The accounts are prepared on a going concern basis as, at the
time of approving the financial statements, the Directors have a
reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable
future. The Group has a strong trading performance, generates
strong operational cashflows and has banking facilities of
GBP60,000,000 available until October 2024. The Group's forecasts
show sufficient cash generation and headroom in banking facilities
and covenants by comparison to anticipated future requirements to
support the Directors' conclusion that the assumption of the going
concern basis of accounting in preparing the financial statements
is appropriate.
The Group continues to trade profitably and cash generation at
an operating cashflow level has remained strong and in line with
expectation. In order to satisfy the validity of the going concern
assumption, a number of different trading scenarios including a
reduction in revenues and costs and an increase in interest rate
and lockup have been modelled and reviewed. Some of these scenarios
forecast a significantly more negative trading performance than is
expected. In all of these scenarios the Group remained profitable
and with significant headroom in its cash resources for the 12
months from the date of approval of the accounts.
2.3 Basis of consolidation
The consolidated financial statements incorporate the results of
Knights Group Holdings plc and all of its subsidiaries.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights that are currently exercisable. The acquisition date
is the date on which control is transferred to the acquirer which
is the date of exchange of the sale and purchase agreement. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Transactions eliminated on consolidation
All intra-group transactions, balances and unrealised gains on
transactions between group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred.
Where necessary, adjustments are made to the financial
information of subsidiaries to bring the accounting policies used
into line with those used by the Group.
Audit exemption of subsidiaries
The following subsidiaries are exempt from the requirements of
the UK Companies Act 2006 relating to the audit of individual
accounts by virtue of s479A of the Act.
Name Registered number
BrookStreet Des Roches
LLP OC317863
Dakeyne Emms Gilmore Liberson
Limited 06850969
Shulmans LLP OC348166
ASB Law LLP OC351354
ASB Aspire Limited Liability OC327667
Partnership
Mundays LLP OC313856
K & S Trust Corporation
Limited 02885753
Keebles LLP OC351421
Archers Law Limited Liability
Partnership OC306705
Langleys Solicitors LLP OC361149
Langleys Law Firm Limited 07500419
SLS Trust Corporation Limited. 12122733
Coffin Mew LLP OC323868
Coffin Mew Trust Corporation
Limited 11247326
Meade King LLP OC349796
The outstanding liabilities at 30 April 2023 of the above named
subsidiaries have been guaranteed by the Company pursuant to s479A
to s479C of the Act. In the opinion of the directors, the
possibility of the guarantee being called upon is remote since the
trade, assets and majority of liabilities of these subsidiaries
were transferred to Knights Professional Services Limited before 30
April 2023.
2.4 Business combinations
The cost of a business combination is the fair value at the
acquisition date of the assets given, equity instruments issued and
liabilities incurred or assumed.
The excess of the cost of a business combination over the fair
value of the identifiable assets, liabilities and contingent
liabilities acquired is recognised as goodwill.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. This discount rate used is the
entity's incremental borrowing rate, being the rate at which
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Deferred consideration is classified as a financial liability,
which is held at amortised cost. The unwinding of the discount is
recognised in non underlying costs. Contingent consideration that
is contingent on an employee remaining in employment with the Group
are accounted for separately from the business combination as
remuneration as described in notes 13 and 21.
2.5 Revenue
The Group earns revenue from the provision of legal and
professional services. Revenue for these services is recognised
over time in the accounting period when services are rendered as
the Group has an enforceable right to payment for work performed to
date under its client terms of engagement.
Fee arrangements for legal and professional services include
fixed fee arrangements, unconditional fee-for-service arrangements
("time and materials"), and variable or contingent fee
arrangements.
For fixed fee arrangements, revenue is recognised based on the
stage of completion with reference to the actual services provided
as a proportion of the total services expected to be provided under
the contract. The stage of completion is tracked on a
contract-by-contract basis using the hours spent by professionals
providing the services.
In fee-for-service contracts, revenue is recognised up to the
amount of fees that the Group is entitled to bill for services
performed to date based on contracted rates.
Under variable or contingent fee arrangements, fees may be
earned only in the event of a successful outcome of a client's
claim. Fees under these arrangements may be fixed or may be
variable based on a specified percentage of damages awarded under a
claim.
For variable or contingent fee arrangements management makes a
detailed assessment of the amount of revenue expected to be
received and the probability of success of each case. Variable
consideration is recognised over the duration of the matter only to
the extent that it is highly probable that the amount recognised
will not be subject to significant reversal when the matter is
concluded based on the expected amount recoverable at that point in
time. In such circumstances, a level of judgement is required to
determine the likelihood of success of a given matter, as well as
the estimated amount of fees that will be recovered in respect of
the matter. Where the likelihood of success of a contingent fee
arrangement is less than highly probable, the value recognised in
contract assets is further reduced to reflect this uncertainty.
Certain contingent fee arrangements are undertaken on a
partially funded basis. In such arrangements, the funded portion of
fees is not contingent on the successful outcome of the litigation
and in these instances the revenue is recognised up to the amount
of fees that the Group is entitled to bill for services performed
to date based on contracted rates. The remaining consideration is
variable and conditional on the successful resolution of the
litigation. The variable consideration is recognised over the
duration of the matter and included in revenue based on the
expected amount recoverable only to the extent that it is highly
probable that the amount recognised will not be subject to
significant reversal when the uncertainty is resolved at that point
in time.
The Group's contracts with clients each comprise of a single
distinct performance obligation, being the provision of legal and
professional services in relation to a particular matter and the
transaction price is therefore allocated to this single performance
obligation.
Estimates of revenues, costs or extent of progress toward
completion are revised if circumstances change. Any resulting
increases or decreases in estimated revenues or costs are reflected
in the Consolidated Statement of Comprehensive Income in the period
in which the circumstances that give rise to the revision become
known by management.
The Group has determined that no significant financing component
exists in respect of the provision of legal and professional
services because the period between when the Group transfers its
services to a client and when the client pays for that service will
generally be one year or less.
Consideration for services provided under contingent or variable
fee arrangements may be paid after a longer period. In these cases,
no significant financing component exists because the consideration
promised by the customer is variable subject to the occurrence or
non-occurrence of a future event that is not substantially within
the control of the client or the Group.
A receivable is recognised when a bill has been issued to the
client, as this is the point in time that the consideration is
unconditional because only the passage of time is required before
the payment is due.
Unbilled revenue is recognised as contract assets. Costs
incurred in fulfilling the future performance obligations of a
contract are recognised as contract assets if the costs are
expected to be recovered.
Contract liabilities are recognised in respect of consideration
billed in advance of satisfying the performance obligation under
the contract.
Revenue does not include disbursements. Recoverable expenses
incurred on client matters that are expected to be recovered and
are billed during the period are recognised in other income.
2.6 Interest received on client deposits
Interest is recognised on client deposits held, this is
recognised in profit or loss as it accrues, based on the effective
interest rate during the period. This forms part of other income as
this is driven by the ongoing operations of the business.
2.7 Taxation
The tax expense represents the sum of the current tax expense
and the deferred tax expense. Current tax assets are recognised
when the tax paid exceeds the tax payable. Current tax is based on
taxable profit for the year. Current tax assets and liabilities are
measured using tax rates that have been enacted or substantively
enacted by the reporting date.
Deferred tax is recognised for temporary differences, calculated
at the tax rates that are expected to apply to the period when the
asset is realised or the liability is settled based on tax rates
that have been enacted or substantively enacted by the reporting
date except for;
-- When the deferred tax asset or liability arises from the
initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at the
time of the transaction, affects neither the accounting nor taxable
profits; or
-- When the taxable temporary difference is associated with
interests in subsidiaries, associates or joint ventures, and the
timing of the reversal can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable
future.
Deferred tax assets are recognised only to the extent that it is
probable that they will be recovered by the reversal of deferred
tax liabilities or other future taxable profits.
Deferred tax is recognised on differences between the value of
assets (other than goodwill) and liabilities recognised in a
business combination and the amounts that can be deducted or
assessed for tax. The deferred tax recognised is adjusted against
goodwill.
Current tax assets and current tax liabilities and deferred tax
assets and deferred tax liabilities are offset if, and only if,
there is a legally enforceable right to set off the amounts and the
entity intends either to settle on a net basis or to realise the
asset and settle the liability simultaneously.
2.8 Intangible assets - Goodwill
Goodwill arising on the acquisition of an entity represents the
excess of the cost of acquisition over the Group's interest in the
net fair value of the identifiable assets, liabilities and
contingent liabilities of the entity recognised at the date of
acquisition. Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less accumulated impairment
losses. Goodwill is tested annually by the directors for evidence
of impairment.
2.9 Intangible assets - Other than goodwill
Intangible assets purchased, other than in a business
combination, are recognised when future economic benefits are
probable and the cost or value of the asset can be measured
reliably.
Intangible assets arising on a business combination, such as
customer relationships, are initially recognised at estimated fair
value, except where the asset does not arise from legal or
contractual rights, and there is no history or evidence of exchange
transactions for the same or similar assets and estimating the
assets fair value would depend on immeasurable variables. The fair
value represents the directors' best estimate of future economic
benefit to be derived from these assets discounted at an
appropriate rate.
Intangible assets are initially recognised at cost (which for
intangible assets acquired in a business combination is the fair
value at acquisition date) and are subsequently measured at cost
less accumulated amortisation and accumulated impairment
losses.
Intangible assets are amortised to the Consolidated Statement of
Comprehensive Income on a straight-line basis over their estimated
useful lives, as follows:
Purchased computer software - 4 years
Customer relationships - 3-25 years
Brand - 100 years
Purchased computer software is amortised over a period of 4
years, being the minimum period expected to benefit from the
asset.
Customer relationships are amortised over a period of 3-25 years
being the average length of relationship with key clients for
acquired entities.
Restrictive covenants are amortised over the remaining length of
covenant.
Brand value is amortised over a period of 100 years based on the
directors' assessment of the future life of the brand. This is
supported by a trading history dating back to 1759. Brand value
relates to the 'Knights' brand only. Other acquired brands are not
recognised as an asset as the acquired entities are rebranded as
Knights and the impact of such recognition would not be
material.
2.10 Property, plant and equipment
Property, plant and equipment are stated at cost net of
depreciation and any provision for impairment.
Depreciation is provided on property, plant and equipment at
rates calculated to write each asset down to its estimated residual
value over its expected useful life, as follows:
Expenditure on short leasehold - 10% on cost
property
Office equipment - 25 % on cost
Furniture and fittings - 10% on cost
Motor vehicles - 25 % on cost
Right-of-use assets - useful life of the lease
(between 1 and 25 years)
Residual value is calculated on prices prevailing at the
reporting date, after estimated costs of disposal, for the asset as
if it were at the age and in the condition expected at the end of
its useful life.
2.11 Impairment of non-financial assets
An assessment is made at each reporting date of whether there
are indications that non financial assets may be impaired or that
an impairment loss previously recognised has fully or partially
reversed. If such indications exist, the Group estimates the
recoverable amount of the asset or, for goodwill, the recoverable
amount of the cash-generating unit.
Shortfalls between the carrying value of non financial assets
and their recoverable amounts, being the higher of fair value less
costs to sell and value in use, are recognised as impairment
losses. All impairment losses are recognised in the Consolidated
Statement of Comprehensive Income.
Recognised impairment losses are reversed (other than for
goodwill) if, and only if, the reasons for the impairment loss have
ceased to apply. Reversals of impairment losses are recognised in
the Consolidated Statement of Comprehensive Income. On reversal of
an impairment loss, the depreciation or amortisation is adjusted to
allocate the asset's revised carrying amount (less any residual
value) over its remaining useful life.
2.12 Professional indemnity provisions
In common with comparable practices, the Group is involved in a
number of disputes in the ordinary course of business which may
give rise to claims. Professional indemnity insurance cover is
maintained in respect of professional negligence claims. Premiums
are expensed as they fall due with prepayments being recognised
accordingly.
Provision is made in the financial statements for all claims
where costs are likely to be incurred. The provision represents
management's best estimate of the cost of defending and concluding
claims and any excesses that may become payable. No separate
disclosure is made of the cost of claims covered by insurance as to
do so could seriously prejudice the position of the Group.
2.13 Leases
Group as lessee
The Group leases offices, equipment and vehicles. Rental
contracts are for periods of between 1 and 25 years. Lease terms
are negotiated on a lease-by-lease basis and contain a variety of
terms and conditions.
The Group assesses whether a contract is or contains a lease at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets (being those assets with a value
less than GBP4,000). For short term and low value leases, the Group
recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term assumed reflects the group exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
Group's incremental borrowing rate is used, being the rate that the
Group would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions.
Underlying lease payments of both principal and interest are
included in financing activities in the cash flow. Onerous lease
payments of both principal and interest are included in
non-underlying operating activities in the Statement of cash
flows.
The lease liability is presented as a separate line in the
Consolidated Statement of Financial Position.
Right-of-use assets are recognised at commencement of the lease
and initially measured at the amount of the lease liability, plus
any incremental costs of obtaining the lease and any lease payments
made at or before the leased asset is available for use by the
Group.
After initial recognition, the lease liability is reduced for
payments made and increased to reflect interest on the lease
liability (using the effective interest method). The related
right-of-use asset is depreciated over the term of the lease or, if
shorter, the useful economic life of the leased asset. The lease
term shall include the period of an extension option where it is
reasonably certain that the option will be exercised. Interest on
the lease liability is recognised in the Consolidated Statement of
Comprehensive Income.
An estimate of the costs to be incurred in restoring the leased
asset to the condition required under the terms and conditions of
the lease is recognised as part of the cost of the right-of-use
asset when the Group incurs the obligation for these costs. The
costs are incurred at the start of the lease or over the lease
term. The provision is measured at the present value of the best
estimate of the expenditure required to settle the obligation.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use
asset) whenever:
-- the lease term has changed or there is a significant change
in the assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised lease
payments using a revised discount rate;
-- the lease payments change due to changes in an index or rate
or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the
revised lease payments using the initial discount rate (unless the
lease payments change is due to a change in a floating interest
rate, in which case a revised discount rate is used);
-- a lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the lease
liability is remeasured by discounting the revised lease payments
using a revised discount rate.
The Group did not make any such adjustments during the periods
presented.
Group as lessor
The Group enters into lease agreements as a lessor with respect
to two of its properties.
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of
whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to
the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the exemption described above,
then it classifies the sub-lease as an operating lease.
2.14 Retirement benefits
2.14a Defined contribution scheme
The Group operates a defined contribution scheme. The amount
charged to the Consolidated Statement of Comprehensive Income in
respect of pension costs is the contributions payable in the year.
Differences between contributions payable in the year and
contributions actually paid are shown as either accrued expenses or
prepayments and other receivables.
2.14b Defined benefit pension scheme
For defined benefit schemes the amounts charged to operating
profit are the current service costs and gains and losses on
settlements and curtailments. They are included as part of staff
costs. The interest cost and the expected return on assets are
shown as a net amount of other finance costs or finance income.
Actuarial gains and losses are recognised immediately in Other
Comprehensive Income.
Defined benefit schemes are funded, with the assets of the
scheme held separately from those of the Group, in separate trustee
administered funds. Pension scheme assets are measured at fair
value and liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of
equivalent currency and term to the scheme liabilities. The
actuarial valuations are obtained at least triennially and are
updated at each reporting date.
Defined benefit assets are not recognised in the Consolidated
Statement of Financial Position, on the basis that they are not
deemed to be material.
For the 'With Profit Section' contributions are recognised in
the Consolidated Statement of Comprehensive Income in the period to
which they relate as there is insufficient information available to
use defined benefit accounting. A liability will be recognised
based on the agreed share of the Group in the scheme. No liability
has been recognised in the current or prior period (asset) on the
basis that future economic benefits are not available to the Group
in the form of a reduction in future contributions or a cash
refund.
2.15 Share Based Payments
The cost of providing share-based payments to employees is
charged to the Consolidated Statement of Comprehensive Income over
the vesting period of the awards. The cost is based on the fair
value of awards at the date of grant of the award using an
appropriate valuation model. The amount recognised as an expense
will be adjusted to reflect differences between the expected and
actual vesting levels. Further details of the schemes are included
in note 9.
2.16 Financial instruments
Financial instruments are recognised on the date when the Group
becomes a party to the contractual provisions of the instrument.
Financial instruments are recognised initially at fair value.
Financial assets
Contract assets and trade and other receivables
Contract assets and trade and other receivables which are
receivable within one year are initially measured at fair value.
These assets are subsequently measured at amortised cost, being the
transaction price less any amounts settled and any impairment
losses.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
('ECL') on contract assets and trade and other receivables. The
expected credit losses on trade receivables includes specific
provisions against known receivables and an estimate using a
provision matrix by reference to past experience, adjusted for
forward looking considerations, and an analysis of the debtor's
current financial position on the remaining balance. The expected
credit losses on contract assets and other receivables is assessed
based on historical credit loss experienced on these types of
assets adjusted for known foreseeable estimated losses.
Financial liabilities and equity
Financial instruments are classified as liabilities and equity
instruments according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Trade and other payables
Trade and other payables due within one year are initially
measured at fair value and subsequently measured at amortised cost,
being the transaction price less any amounts settled.
Deferred consideration
Deferred consideration is initially recognised at the fair value
of the amounts payable and subsequently at amortised cost of the
agreed payments in accordance with the agreement. Any interest
payable on the balance is reflected in the value of the liability
and charged monthly to the Statement of Comprehensive Income as it
arises.
Borrowings
Borrowings are initially recognised at the fair value of the
consideration received net of issue costs associated with the
borrowings. Borrowings are subsequently measured at amortised cost
using the effective interest method. Interest expense is recognised
on the basis of the effective interest method and is included in
Finance costs.
Derecognition of financial assets and liabilities
A financial asset is derecognised only when the contractual
rights to cash flows expire or are settled, or substantially all
the risks and rewards of ownership are transferred to another
party. A financial liability (or part thereof) is derecognised when
the obligation specified in the contract is discharged, cancelled
or expires.
3. Accounting developments
New and amended IFRSs that are effective for the future
At the date of these financial statements, there were new
standards and amendments to IFRSs which were in issue but which
were not yet effective and which have not been applied. The
principal ones were:
Revised IFRS Effective
date
Amendments to IAS 1, Practice statement 2 and 1 January
IAS 8 2023
Amendment to IAS 12 - deferred tax related to 1 January
assets and liabilities arising from a single transaction 2023
Amendments to IAS1 Presentation of Financial Statements: 1 January
Classification of Liabilities as Current and Non- 2024
current and Classification of Liabilities as Current
or Non-current
The directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are
described in note 2, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Amounts recoverable on contracts - contingent fee
arrangements
A level of judgement is required to determine the likelihood of
success of a given matter for contingent fee arrangements. This is
determined on a contract-by-contract basis after considering the
relevant facts and circumstances surrounding each matter. The
valuation exercise is conducted by experienced professionals with
detailed understanding of the individual matters. The carrying
value of contingent fee arrangements at 30 April 2023 was
GBP9,488,000 (2022: GBP7,804,000).
IFRS 16
In applying IFRS 16, the Group uses judgement to assess whether
the interest rate implicit in the lease is readily determinable.
When the interest rate implicit in the lease is not readily
determinable, the Group estimates the incremental borrowing rate
based on its external borrowings secured against similar assets,
adjusted for the term of the lease.
Business combinations
Management make judgements regarding the date of control of an
acquisition in accordance with IFRS10. The judgement considers the
individual legal agreements on each transaction and the date at
which the Group starts to exercise control over the activities of
the subsidiary, usually the date of exchange of contracts.
Financial performance of the acquisitions is included in the
consolidated group from the deemed date of control.
Alternative performance measures (APM's)
The Group presents various APMs to assist the user in
understanding the underlying performance of the Group. The
selection of these APMs requires the exercise of judgement as to
the key performance indicators used.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty in the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
IFRS 16
The Group makes estimates of the cost of restoring leased assets
to their original condition when required to do so under the terms
and conditions of the lease. Those estimates are based on the
current condition of the leased assets and past experience of
restoration costs. As at 30 April 2023 the Group had total
provisions of GBP4,827,000 (2022: GBP4,462,000) (see note 33).
Amounts recoverable on contract assets- recoverable amounts
The valuation of amounts recoverable on contract assets ('AROC')
involves the use of estimates of the likely recovery rate which
will be made on the gross value of chargeable time recorded to each
matter.
This percentage represents management's best estimate of future
value following a line by line review of the matters by
professionals. The estimation process takes into account the
progress of the case at the reporting date, the estimated eventual
fee payable by the client and the amount of time which will be
incurred in bringing the matter to a successful conclusion. The
amount recognised in AROC at the year end was GBP38,215,000 (2022:
GBP31,777,000), a 3% change in the estimated recovery of all
matters would impact the profit for the period by approximately
GBP1,407,000 (2022: GBP1,245,000).
Accounting for business combinations and valuation of acquired
intangibles
Business combinations are accounted for at fair value. The
valuation of goodwill and acquired intangibles is calculated
separately on each individual acquisition. In attributing value to
intangible assets arising on acquisition, management has made
certain assumptions in relation to the expected growth rates,
length of key customer relationships and the appropriate weighted
average cost of capital ('WACC') and internal rate of return
('IRR'). Profitability at an EBITDA margin level is also assumed,
but is considered reasonably predictable.
The value attributable to the intangible assets acquired on
acquisitions also impacts the deferred tax provision relating to
these items.
The total carrying value of acquired intangibles (excluding
brands) is GBP23,158,000 (2022: GBP25,122,000). In order to assess
the impact of the key assumptions on the values disclosed in the
Financial Statements the Directors have applied the following
sensitivities to the acquisitions in the current year:
Rate applied Sensitivity Annual profit Value of
in the financial tested impact intangible
statements GBP'000 assets
Key assumption GBP'000
Long term growth
rate 2% 0% 3 (6)
------------------ ------------- -------------- ------------
8.3% - 10.1% Increase
WACC and IRR (1) by 5% 48 (84)
------------------ ------------- -------------- ------------
Length of customer Increase
relationships 4 - 7.6 years of 5 years (12) 248
------------------ ------------- -------------- ------------
(1) Each acquisition has been reviewed and, dependent upon the
structure of the acquisition, an appropriate WACC or IRR rate has
been applied. These sensitivities have been calculated by adjusting
the adopted rates as noted above.
Growth rates are estimated based on the current conditions at
the date of each acquisition with reference to independent surveys
of future growth rates in the legal profession in real, inflation
adjusted terms.
The length of customer relationships is estimated by considering
the length of time the acquiree has had its significant client
relationships up to the date of acquisition and historic customer
attrition rates as appropriate.
The Directors consider the resulting valuations used give a
reasonable approximation as to the value of the intangibles
acquired and that any reasonably possible change in any one of the
estimations in isolation would not have a material impact on the
financial statements.
Intangible Assets - carrying amount of goodwill - impairment
review
The Directors undertake an annual impairment review of goodwill
to assess whether the carrying value of GBP59.7 million is still
supported by using a discounted cash flow model to derive the value
in use of the cash generating unit ('CGU'). Cash flow forecasts are
derived from the most recent financial budgets approved by
management for the next three years and extrapolated using a
terminal value calculation.
The key assumptions for the value in use calculations are those
regarding the discount rates and growth rates for the Group's
revenues from legal and professional services and the EBITDA
margin. Management estimates discount rates using pre-tax rates
that reflect current market assessments of the time value of money
and the risks specific to the CGU.
Revenue growth over the three years of the forecast period
reflects, for FY24, the current run rate of revenue from the
Group's existing business and a full year of revenue from
acquisitions made during the year ended 30 April 2023, with an
element of organic growth in FY25 and FY26. The long-term growth
rate of 2% (2022: 2%) is based on UK economic growth forecasts for
the legal services market.
The Group has conducted a sensitivity analysis on the impairment
test of the CGU value in use. Management considers there is no
reasonably plausible scenario under which goodwill would be
impaired.
5. Revenue
All revenue is derived from contracts with customers and is
recognised over time. As explained further in note 6, the Group's
legal and professional services business operates as a single
business unit so there are no relevant categories into which
revenue can be disaggregated.
The transaction price allocated to unsatisfied performance
obligations of contracts at 30 April 2023 is not required to be
disclosed because it is comprised of contracts that are expected to
have a duration of one year or less.
Management information does not distinguish between contingent
and non-contingent revenue as contingent fees are not separately
identifiable from other fees.
6. Segmental reporting
The Board of Directors, as the chief operating decision-making
body, reviews financial information for and makes decisions about
the Group's overall legal and professional services business and
has identified a single operating segment, that of legal and
professional services operating entirely in the UK.
The legal and professional services business operates through a
number of different service lines and in different locations;
however, management effort is consistently directed to the firm
operating as a single segment. No segmental reporting disclosure is
therefore provided as all revenue is derived from this single
segment.
7. Other operating income
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Other income 1,033 996
Bank interest on client monies 5,685 274
--------------- -----------------
6,718 1,270
--------------- -----------------
8. Staff costs
The average monthly number of employees (including executive
directors) of the Group was:
Year ended Year ended
30 April 2023 30 April 2022
Number Number
Fee earners 1,154 1,080
Other employees 288 268
1,442 1,348
--------------- ---------------
Their aggregate remuneration comprised:
Year ended
30 April Year ended
2023 30 April 2022
GBP'000 GBP'000
Wages and salaries 76,392 67,923
Social security costs 8,675 7,123
Other pension costs 2,520 2,324
Share based payment charge 1,265 835
Other employment costs 936 1,159
------------ ---------------
Aggregate remuneration of employees 89,788 79,364
Redundancy costs and share based payment
charges analysed as non-underlying costs
(note 13) (1,376) (2,501)
Underlying staff costs in Statement of
Comprehensive Income 88,412 76,863
------------ ---------------
Directors' remuneration
Companies Act disclosures
The total amounts for directors' remuneration in accordance with
Schedule 5 to the Accounting Regulations were as follows:
Year ended Year ended
30 April 30 April
2023 2022
GBP'000 GBP'000
Salaries, fees, bonuses and benefits
in kind 838 892
Gains on exercise of options - 913
Money purchase pension contributions 7 14
845 1,819
----------- -----------
The number of directors to whom benefits are accruing under
money purchase pension schemes is 2 (2022: 2).
The remuneration of the highest paid Year ended Year ended
director was: 30 April 30 April
2023 2022
GBP'000 GBP'000
Salaries, fees, bonuses, benefits in
kind and gains on exercise of options 300 1,133
Money purchase pension contributions - 7
----------- -----------
300 1,140
----------- -----------
9. Share-based payments
The Group issues equity-settled share-based payments to its
employees. The Group recognised total expenses of GBP1,265,000
(2022: GBP835,000) relating to equity-settled share-based payment
transactions in the year. GBP1,248,000 (2022: GBP414,000) is
recognised within staff costs and GBP17,000 (2022: GBP421,000) in
non-underlying costs.
Any charges relating to schemes introduced as one-off schemes as
part of the listing on AIM in 2018 are included in non-underlying
costs because the directors view these schemes as a reward to
employees for their past performance prior to the IPO and on
acquisitions. All charges relating to other recurring LTIP or SAYE
schemes are included as a normal operating expense.
The following schemes were in place during the period:
Omnibus Plan
The Omnibus Plan is a discretionary share plan, which is
administered, and the grant of awards is supervised by, the
Remuneration Committee.
Three forms of award are available under the Omnibus Plan, as
considered appropriate by the Remuneration Committee, as
follows:
a) "Restricted Stock Awards": Awards granted in the form of nil
or nominal cost share options, subject to time-based vesting
requirements and continued employment within the Group. No
performance targets will apply to Restricted Stock Awards.
b) "Performance Share Awards": Awards granted in the form of nil
or nominal cost share options, whereby vesting is subject to
satisfaction of performance conditions and continued employment
within the Group. The performance condition is in relation to
meeting target underlying EPS values.
c) "Share Options": Awards granted in the form of a share option
with an exercise price equal to the market value of an ordinary
share at the time of grant, subject to continued employment within
the Group. Share Options may or may not be subject to performance
conditions.
Restricted stock Performance share
awards awards
Weighted Weighted
average exercise average exercise
price price
Number Pence Number Pence
Outstanding at 1 May 2021 586,323 0.2 243,810 0.2
Granted during the period 265,300 0.2 100,228 0.2
Dividend equivalents awarded 2,137 0.2 - -
Forfeited during the period (37,395) 0.2 - -
Exercised during the period (354,954) 0.2 - -
Outstanding at 30 April 2022 461,411 0.2 344,038 0.2
---------- ------------------ ----------- ------------------
Exercisable at 30 April 2022 166,652 0.2 - -
---------- ------------------ ----------- ------------------
Granted during the period 2,663,854 0.2 167,476 0.2
Dividend equivalents awarded 94,844 0.2 19,374 0.2
Forfeited during the period (27,883) 0.2 (163,824) 0.2
Exercised during the period (21,572) 0.2 - -
---------- ------------------ ----------- ------------------
Outstanding at 30 April
2023 3,170,654 0.2 367,064 0.2
---------- ------------------ ----------- ------------------
Exercisable at 30 April
2023 222,929 0.2 - -
---------- ------------------ ----------- ------------------
The options outstanding at 30 April 2023 had a weighted average
exercise price of 0.2p and a weighted average remaining contractual
life of 1.62 years. The average share price for options exercised
during the year was 135.98p.
During the year 2,663,854 options were granted as restricted
stock awards. In addition, 167,476 of performance share awards were
granted. The maximum term of any award is three years.
The aggregate of the estimated fair values of the options
granted during the year GBP2,230,000. The model used is based on
intrinsic values and the inputs are as follows:
Date Granted Number Fair Value Share Exercise Expected Type of award
of Shares Price Price Life
13 July 2022 337,679 428,177 127.00 0.2p 2.9 years Restricted stock
Performance
13 July 2022 167,476 212,360 127.00 0.2p 3.0 years share
29 July 2022 509 686 135.00 0.2p 0.0 years Restricted stock
12 September
2022 33,654 34,933 103.80 0.2p 2.0 years Restricted stock
20 September
2022 19,832 19,792 99.80 0.2p 1.0 years Restricted stock
20 September
2022 19,831 19,791 99.80 0.2p 2.0 years Restricted stock
20 September
2022 19,831 19,791 99.80 0.2p 3.0 years Restricted stock
21 September
2022 20,000 20,330 101.65 0.2p 1.0 years Restricted stock
4 November 2022 727,802 481,805 66.20 0.2p 1.0 years Restricted stock
4 November 2022 727,802 481,805 66.20 0.2p 2.0 years Restricted stock
4 November 2022 363,901 240,902 66.20 0.2p 3.0 years Restricted stock
4 November 2022 363,901 240,902 66.20 0.2p 4.0 years Restricted stock
6 December 2022 29,112 29,054 99.80 0.2p 3.0 years Restricted stock
Share Incentive Plan ('SIP')
The SIP is an "all employee" scheme under which every eligible
employee within the Group was invited to participate. Eligible
employees could apply to invest up to GBP1,800 from pre-tax income
in partnership shares; matching shares were awarded on the basis of
two free matching shares for each partnership share purchased. The
matching shares are forfeited if the employee leaves within three
years of the grant date.
Partnership Matching
Shares Shares
Number Number
Outstanding at 1 May 2021 165,039 330,079
Withdrawn during the period (40,694) -
Forfeited during the period - (81,388)
Outstanding at 30 April 2022 124,345 248,691
----------- --------
Unrestricted at 30 April 2022 124,345 248,691
----------- --------
Withdrawn during the period (6,149) -
Forfeited during the period - (12,298)
----------- --------
Outstanding at 30 April 2023 118,196 236,393
----------- --------
Unrestricted at 30 April 2023 118,196 236,393
----------- --------
Sharesave Scheme ('SAYE')
This is an HMRC approved scheme and is open to any person that
was an employee or officer of the Group at the launch date of each
scheme. Under the scheme, members save a fixed amount each month
for three years. Subject to remaining in employment by the Group,
at the end of the three-year period they are entitled to use these
savings to buy shares in the Company at 80% of the market value at
launch date.
The first scheme was launched in November 2018 and further new
SAYE schemes have been launched in February 2020 and March
2022.
SAYE options
Weighted
average exercise
price
Number Pence
Outstanding at 1 May 2021 1,238,954 244
Granted during the period 1,430,251 296
Forfeited during the period (311,248) 342
Exercised during the period (491,530) 161
--------- -----------------
Outstanding at 30 April 2022 1,866,427 289
--------- -----------------
Exercisable at 30 April 2022 209,829 162
--------- -----------------
Forfeited during the period (996,259) 274
Outstanding at 30 April 2023 870,168 306
--------- -----------------
Exercisable at 30 April 2023 133,334 361
--------- -----------------
The options outstanding at 30 April 2023 had a weighted average
exercise price of 306p and a weighted average remaining contractual
life of 2.00 years.
November 2018 scheme
The aggregate of the estimated fair values of the options
granted in November 2018 is GBP500,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 162p
Expected volatility 39.2%
Expected life 3.1 years
Risk-free rate 1.4%
Expected dividend yield 1.1%
---------
The November 2018 scheme matured on 1 February 2022, the number
of share options exercised in respect of this scheme as at 30 April
2023 is 505,533. There are no share options which remain
exercisable.
February 2020 scheme
The aggregate of the estimated fair values of the options
granted in February 2020 is GBP1,163,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 361p
Expected volatility 34.3%
Expected life 3.1 years
Risk-free rate 1.1%
Expected dividend yield 0.7%
---------
The February 2020 scheme matured on 31 March 2023, the number of
share options exercised in respect of this scheme as at 30 April
2023 is 2,622. There are 133,334 share options which remain
exercisable.
March 2022 Scheme
The aggregate of the estimated fair values of the options
granted in March 2022 is GBP110,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 296p
Weighted average share price 148p
Expected volatility 53.7%
Expected life 3.1 years
Risk-free rate 5.9%
Expected dividend yield 3.0%
---------
Volatility is based on the daily change in share price from 29
June 2018 to the date of measurement.
10. Retirement benefit schemes
The Group operates a defined contribution pension scheme for
employees. The total cost charged to income of GBP2,520,000 (2022:
GBP2,324,000) represents contributions payable to the scheme by the
Group. As at 30 April 2023, total contributions of GBP515,000
(2022: GBP892,000) due in respect of the reporting period had not
been paid over to the schemes.
The defined benefit impact is discussed in note 39. There were
no charges against income in the year ended 30 April 2023.
11. Depreciation and amortisation charges
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Depreciation 2,364 2,027
Depreciation on right-of-use assets 5,706 4,799
Amortisation 3,544 3,936
Loss on disposal of property, plant and
equipment 2 16
11,616 10,778
--------------- ---------------
12. Other operating charges
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Establishment costs 6,888 5,633
Short term and low value lease costs 302 187
Other overhead expenses 19,349 16,257
26,539 22,077
--------------- ---------------
13. Non-underlying operating costs
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Redundancy and reorganisation staff costs 1,359 2,080
Transaction costs 953 988
Onerous short life asset leases - 472
Impairment of right-of-use assets 38 2,065
(Profit)/loss on disposal of intangible
assets and property, plant and equipment (12) 967
Share based payment charges 17 421
Contingent consideration treated as remuneration 4,436 6,267
--------------- ---------------
6,791 13,260
Non underlying gains on disposal (318) -
--------------- ---------------
6,473 13,260
Non underlying finance costs 152 -
6,625 13,260
--------------- ---------------
Non-underlying costs cash movement
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Non-underlying operating costs 6,625 13,260
Adjustments for:
Contingent consideration shown separately (4,436) (6,267)
Non cash movements:
Share based payment charge (17) (421)
Impairment of right of use assets (38) (2,065)
Profit/(loss) on disposal of property,
plant and equipment 12 (967)
Onerous leases - (97)
Accrual 218 248
Non underlying gains on disposal 318 - 318 -
Non-underlying finance costs (152) -
Additional cash movements:
Rental payments on onerous leases 543 -
Service charge payments on onerous leases 92 -
Receipt for sale of HPL fixed assets (24) -
3,141 3,691
--------------- ---------------
Non-underlying costs relate to redundancy costs to streamline
the support function of the Group following acquisitions,
transaction costs in respect of acquisitions, onerous lease costs
in respect of acquisitions, disposals of acquired assets and share
based payment charges relating to one off share schemes offered to
employees as part of the IPO and on acquisitions. On 5 July 2022
the group disposed of Home Property Lawyers Limited, a former
subsidiary of the Group, this was sold for a total consideration of
GBP1,276,000 with a profit on disposal of GBP318,000. The profit on
disposal has been recognised within non-underlying costs.
Contingent consideration is included in non-underlying costs as
it represents payments which are contingent on the continued
employment of those individuals with the Group, agreed under the
terms of the sale and purchase agreements with vendors of certain
businesses acquired. The payments extend over periods of one to
three years and are designed to preserve the value of goodwill and
customer relationships acquired in the business combinations. IFRS
requires such arrangements to be treated as remuneration and
charged to the Statement of Comprehensive Income. The individuals
also receive market rate salaries for their work, in line with
other similar members of staff in the Group. The contingent earnout
payments are significantly in excess of these market salaries and
would distort the Group's results if not separately identified.
14. Finance costs
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Interest on borrowings 2,135 952
Interest on leases 1,526 1,412
3,661 2,364
-------------- --------------
15. Finance income
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Lease interest receivable 52 22
-------------- --------------
16. Auditor's remuneration
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Fees payable to the parent company's auditor
and their associates for the audit of the
parent company's annual accounts 43 36
Fees payable to the auditor and their associates
for other services to the Group:
- The audit of the Company's subsidiaries 150 126
--------------- ---------------
Total audit fees 193 162
--------------- ---------------
- Audit-related assurance services 22 19
Total non-audit fees 22 19
--------------- ---------------
17. Taxation
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Corporation tax:
Current year 4,208 1,574
Adjustments in respect of prior years -
non-underlying (161) -
Adjustments in respect of prior years 39 (96)
--------------- ---------------
4,086 1,478
--------------- ---------------
Deferred tax:
Origination and reversal of temporary differences (1,072) 362
Effect of change in tax rates 122 1,747
Adjustment in respect of prior years 449 -
--------------- ---------------
(501) 2,109
--------------- ---------------
Tax expense for the year 3,585 3,587
--------------- ---------------
The charge for the period can be reconciled to the Statement of
Comprehensive Income as follows:
Year ended
30 April Year ended
2023 30 April 2022
GBP'000 GBP'000
Profit before tax 11,529 1,056
------------ ---------------
Tax at the UK corporation tax rate of 19.5%
(2022: 19%) 2,248 201
Expenses that are not deductible in determining
taxable profit 679 1,735
Partnership tax paid on acquired subsidiaries 209 -
Effect of change in tax rates 122 1,747
Adjustment in respect of prior years -
non-underlying 289 -
Adjustment in respect of prior years 38 (96)
------------ ---------------
Tax expense for the year 3,585 3,587
------------ ---------------
Consisting of:
Taxation 3,175 1,840
Non-underlying tax charge 410 1,747
------------ ---------------
The impact of non-underlying costs on the effective rate of tax
is set out below:
Year ended 30 April 2023 Year ended 30 April 2022
Total Underlying Non-Underlying Total Underlying Non-Underlying
GBP'000 GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
Profit before
tax 11,529 21,595 (10,066) 1,056 18,131 (17,075)
Tax expense 3,175 4,304 (1,129) 1,840 3,709 (1,869)
Effective
rate of tax 28% 20% 11% 174% 20% 11%
--------- ----------- --------------- --------- ----------- ---------------
Change in
tax rate 122 - 122 1,747 136 1,611
Other non-underlying
tax credits 288 - 288 - - -
--------- ----------- --------------- --------- ----------- ---------------
410 - 410 1,747 136 1,611
Total tax
charge 3,585 4,304 (719) 3,587 3,845 (258)
--------- ----------- --------------- --------- ----------- ---------------
Effective
rate of tax
(post effect
of non-underlying) 31% 20% 7% 340% 21% 2%
--------- ----------- --------------- --------- ----------- ---------------
On 1 April 2023, the UK corporation tax rate increased from 19%
to 25%.The effect of the new rate on the Group's tax charge has
been applied to the financial statements. The impact of changing
the tax rate from 19% to 25% on the associated assets and
liabilities is outlined in the below table:
Year ended 30 April Year ended 30 April
2023 2022
GBP'000 GBP'000
Tax Charge at 19% 3,463 (1,840)
Tax Charge at 25% 3,585 (3,587)
Impact of change in
tax rate (122) (1,747)
The impact of the change in tax rate on deferred tax has been
classified as a non-underlying cost.
18. Earnings per share
Basic and diluted earnings per share have been calculated using
profit after tax and the weighted average number of ordinary shares
in issue during the period.
Year ended
30 April Year ended
2023 30 April 2022
Number Number
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 85,597,833 83,717,952
Effect of dilutive potential ordinary shares:
Share options 878,031 409,640
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 86,475,864 84,127,592
------------ ---------------
GBP'000 GBP'000
Profit/(loss) after tax 7,944 (2,531)
Earnings per share Pence Pence
Basic earnings per share 9.28 (3.02)
Diluted earnings per share 9.19 (3.02)
------------ ---------------
As the Group incurred a loss after tax for the year ended 30
April 2022, the options were non-dilutive and basic and diluted
earnings per share were the same in the prior year.
Underlying earnings per share is calculated as an alternative
performance measure in note 37.
19. Dividends
Year ended
30 April Year ended
2023 30 April 2022
GBP'000 GBP'000
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 30 April
2022 of 2.04p per share (2021: 0p) 1,749 -
Interim dividend for the year ended 30
April 2023 of 1.53p per share (2022: 1.46p
per share) 1,312 1,233
3,061 1,233
------------ ---------------
For the year ended 30 April 2023 the Board have proposed a final
dividend of 2.50p per share (2022: 2.04p per share). The proposed
final dividend is subject to approval by shareholders at the Annual
General Meeting and has not been included as a liability in these
financial statements. The proposed dividend is payable to all
shareholders on the register of members on 1 September 2023. The
payment of this dividend will not have any tax consequences for the
Group.
20. Intangible assets and goodwill
Purchased
Customer computer
Goodwill Brand relationships software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2021 47,657 5,401 31,392 577 85,027
Acquisitions of
subsidiaries 5,771 - 2,386 527 8,684
Adjustments (1,666) - (47) - (1,713)
Additions - - - 62 62
Disposals - - - (449) (449)
Reclassification
of assets held for
sale - - - (114) (114)
As at 30 April 2022 51,762 5,401 33,731 603 91,497
Acquisitions of
subsidiaries 7,764 - 1,609 - 9,373
Adjustments 213 - (29) (10) 174
Additions - - - 71 71
Disposals (78) - (177) (169) (424)
As at 30 April
2023 59,661 5,401 35,134 495 100,691
--------------------- -------- -------------- --------- --------
Amortisation and
impairment
As at 1 May 2021 - 324 4,848 332 5,504
Amortisation charge - 54 3,761 121 3,936
Eliminated on disposal - - - (112) (112)
Reclassification
of assets held for
sale - - - (3) (3)
As at 30 April 2022 - 378 8,609 338 9,325
Adjustments - - (3) (10) (13)
Amortisation charge - 54 3,387 103 3,544
Eliminated on disposal - - (17) (169) (186)
As at 30 April
2023 - 432 11,976 262 12,670
--------------------- -------- -------------- --------- --------
Carrying amount
At 30 April 2023 59,661 4,969 23,158 233 88,021
--------------------- -------- -------------- --------- --------
At 30 April 2022 51,762 5,023 25,122 265 82,172
--------------------- -------- -------------- --------- --------
At 30 April 2021 47,657 5,077 26,544 245 79,523
--------------------- -------- -------------- --------- --------
During the year ended 30 April 2022, the initial accounting for
the business combination which occurred at the end of the prior
year was not complete and further information came to light about
estimated provisions and debt items which existed at the
acquisition date.
On settling debt items on completion, it became apparent that
some items had been accounted as both an acquired liability and
consideration payable to the vendors. In addition, an estimated
provision was subsequently identified as being overstated once the
actual costs were incurred. Both items resulted in goodwill being
overstated by GBP1.6m and the error was corrected. The error was
not considered to be qualitatively material, as it has no impact on
reported profits or cash flows and was c 2% of intangible assets.
It was not, therefore, considered to be a prior period
adjustment.
The carrying amount of goodwill of GBP59,661,000 (2022:
GBP51,762,000) has been allocated to the single cash generating
unit (CGU) present in the business, which is the provision of legal
and professional services.
The recoverable amount of the Group's goodwill has been
determined by a value in use calculation using a discounted cash
flow model. The Group has prepared cash flow forecasts derived from
the most recent financial budgets approved by management for the
next three years after which cash flows are extrapolated using a
terminal value calculation based on an estimated growth rate of 2%
(2022: 2%). This rate does not exceed the expected average
long-term growth rate for the UK legal services market.
The key assumptions for the value in use calculations are those
regarding the growth rates for the Group's revenues from legal and
professional services, the EBITDA margin and the discount rate.
Management estimates discount rates using pre-tax rates that
reflect current market assessments of the time value of money and
the risks specific to the CGU.
The rate used to discount the forecast cash flows is based on a
pre tax estimated weighted average cost of capital of 11.1% (2022:
12.4%).
Revenue growth over the three years of the forecast period
reflects, for FY24, the current run rate of revenue from the
Group's existing business and a full year of revenue from
acquisitions made during the year ended 30 April 2023, and an
element of organic growth in FY25 and FY26 through continued
recruitment and increases in chargeable hours and recovered rates.
The long-term growth rate is based on UK economic growth forecasts
for the legal services market.
The Group has conducted a sensitivity analysis on the impairment
test of the CGU value in use. Management considers there is no
reasonably plausible scenario under which goodwill would be
impaired.
21. Acquisitions
Acquisitions summary
During the year the Group has completed three acquisitions
Coffin Mew LLP, Meade King LLP and Globe Consultants Limited. The
table below summarises the consideration paid and the net cash flow
arising on all acquisitions in the period:
Total
GBP'000
Total identifiable assets less liabilities acquired 4,888
Goodwill 7,764
---------
Total consideration 12,652
---------
Satisfied by:
Cash 9,292
Equity instruments (1,152,078 ordinary shares of
Knights Group Holdings plc) 1,000
Deferred consideration arrangement 2,360
---------
Total consideration transferred 12,652
---------
Net cash outflows arising on acquisition:
Cash consideration net of cash acquired 6,018
---------
Net investing cash outflow arising on acquisition 6,018
---------
Repayment of debt acquired 256
---------
Net financing cash outflow arising on acquisition 256
---------
The allocation of fair values is incomplete at the period end
and values are provisional. Details for the individual acquisitions
are included on the following pages.
The acquisition date in each case is the date of exchange of the
sale and purchase agreement, being the date on which control passes
and the Group is exposed to variable returns.
Coffin Mew LLP ('Coffin Mew')
On 18 May 2022, the Group exchanged contracts to acquire Coffin
Mew by purchasing 100% of the membership interests of the entity.
This acquisition completed on 8 July 2022. Coffin Mew is a law firm
which will strengthen Knights' existing offering and presence in
the South of England and provides entry into a number of new
locations with offices in Portsmouth, Southampton, Brighton and
Newbury.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table below.
These figures are provisional as the purchase accounting is not yet
finalised:
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets relating
to customer relationships - 1,377 1,377
Property, plant and equipment 225 - 225
Right-of-use assets - 4,015 4,015
Contract assets 2,110 (350) 1,760
Trade and other receivables (net of
GBP353,000 loss allowance provision) 1,661 - 1,661
Cash and cash equivalents 2,667 - 2,667
Liabilities
Trade and other payables (2,785) 591 (2,194)
Lease liabilities - (4,015) (4,015)
Borrowings - (35) (35)
Provisions (1,063) - (1,063)
Deferred tax - (503) (503)
--------- ------------ ---------
Total identifiable assets and liabilities 2,815 1,080 3,895
--------- ------------ ---------
Goodwill 7,236
---------
Total consideration 11,131
---------
Satisfied by:
Cash 7,771
Deferred consideration 2,360
Equity instruments (1,152,078 Ordinary
Shares of Knights Group Holdings plc) 1,000
---------
Total consideration transferred 11,131
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 5,104
Repayment of debt 35
---------
Net cash outflow arising on acquisition 5,139
---------
Intangibles relating to customer relationships of GBP1,377,000
has been arrived at using the excess earnings method. The goodwill
of GBP7,236,000 represents the assembled workforce, with the
acquisition bringing a number of new fee earners and expected
synergies. None of the goodwill is expected to be deductible for
income tax purposes.
The fair value of the ordinary shares issued as part of the
consideration was determined on the basis of the volume weighted
average share price for the 5 days prior to exchange.
A contingent consideration arrangement was entered into as part
of the acquisition. This is contingent on the sellers remaining in
employment by the Group so it has been excluded from the
consideration and will be recognised in the Consolidated Statement
of Comprehensive Income on a straight-line basis as a remuneration
expense over the 3 year post acquisition period. This is recognised
within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments
under the contingent consideration arrangement is GBP2,500,000
which is payable in equal instalments on the first, second and
third anniversary of completion.
There are also undiscounted deferred consideration payments
totalling GBP2,500,000 outstanding. This is payable in instalments
on the first, second and third anniversaries of completion.
Coffin Mew contributed GBP7,566,000 of revenue to the Group's
Statement of Comprehensive Income for the period from 18 May 2022
to 30 April 2023. The profit contributed is not separately
identifiable due to the hive-up of its trade and assets being
incorporated into Knights Professional Services Limited from 8 July
2022.
If the acquisition occurred at the beginning of the year Coffin
Mew would have contributed GBP7,856,000 of revenue to the Group.
Profit is not separately identifiable due to the full integration
on hive up.
Globe Consultants Limited
On 9 May 2022, the group acquired the entire share capital of
Globe Consultants Limited (Globe), a planning business with 5
employees. Total consideration transferred was GBP122,000.
Globe contributed GBP224,000 of revenue to the Group's Statement
of Comprehensive Income for the period from 11 May 2022 to 30 April
2023. The profit contributed is not separately identifiable due to
the hive-up of its trade and assets being incorporated into Knights
Professional Services Limited from 11 May 2022.
If the acquisition occurred at the beginning of the year Globe
would have contributed GBP229,000 of revenue to the Group. Profit
is not separately identifiable due to the full integration on hive
up.
Meade King LLP
On 13 January 2023, the Group exchanged contracts to acquire
Meade King LLP, through the agreement to purchase the interests of
the equity partners. This acquisition completed on 17 February
2023. Meade King is a law firm based in Bristol, which will
strengthen Knights existing offering and presence in the South West
region by adding a second office.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below.
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets relating
to customer relationships - 155 155
Property, plant and equipment 79 - 79
Right-of-use assets - 197 197
Contract assets 747 (50) 697
Trade and other receivables (net of
GBP48,000 loss allowance provision) 234 - 234
Cash and cash equivalents 515 - 515
Liabilities
Trade and other payables (380) (53) (433)
Lease liabilities - (197) (197)
Borrowings (221) - (221)
Provisions - (115) (115)
Deferred tax - (39) (39)
--------- ------------ ---------
Total identifiable assets and liabilities 974 (102) 872
--------- ------------ ---------
Goodwill 527
---------
Total consideration 1,399
---------
Satisfied by:
Cash 1,399
Total consideration transferred 1,399
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 884
Repayment of debt 221
---------
Net cash outflow arising on acquisition 1,105
---------
Intangibles relating to customer relationships of GBP155,000 has
been arrived at using the excess earnings method. Goodwill of
GBP527,000 represents the assembled workforce, with the acquisition
bringing a number of new fee earners and expected synergies. None
of the goodwill is expected to be deductible for income tax
purposes.
A contingent consideration arrangement was entered into as part
of the acquisition. This is contingent on the sellers remaining in
employment by the Group so it has been excluded from the
consideration and will be recognised in the Consolidated Statement
of Comprehensive Income on a straight-line basis as a remuneration
expense over the 3 year post acquisition period. This is recognised
within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments
under the contingent consideration arrangement is GBP624,000 and is
payable in equal instalments on the first, second and third
anniversary of completion.
Meade King contributed GBP974,000 of revenue to the Group's
Consolidated Statement of Comprehensive Income for the period from
13 January 2023 to 30 April 2023. The profit contributed is not
separately identifiable due to the hive-up of its trade and assets
being incorporated into Knights Professional Services Limited from
17 February 2023.
If the acquisition occurred at the beginning of the year Meade
King would have contributed GBP3,073,000 of revenue to the Group.
Profit is not separately identifiable due to the full integration
on hive up.
22. Property, plant and equipment
Expenditure
on short
leasehold Office Furniture Motor Vehicles Right-of-use
property equipment and fittings GBP'000 assets Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2021 7,875 4,456 1,041 - 45,851 59,223
Acquisitions of
subsidiaries 543 224 82 - 5,224 6,073
Additions 1,292 1,176 58 - 3,144 5,670
Disposals (1,358) (216) (113) - (1,482) (3,169)
Alignment 5 53 4 - - 62
As at 30 April
2022 8,357 5,693 1,072 - 52,737 67,859
Acquisitions of
subsidiaries 117 151 41 - 4,212 4,521
Additions 229 1,328 206 90 47 1,900
Disposals (3) (716) (1) - (1,509) (2,229)
Alignment (10) (4) (1) - - (15)
----------- ---------- ------------- ---------------- -------------- --------
As at 30 April
2023 8,690 6,452 1,317 90 55,487 72,036
----------- ---------- ------------- ---------------- -------------- --------
Depreciation
and impairment
As at 1 May 2021 1,693 1,782 359 - 5,445 9,279
Depreciation charge 787 1,132 108 - 4,799 6,826
Impairment - - - - 2,065 2,065
Eliminated on
disposal (860) (155) (24) - (235) (1,274)
Alignment (1) 60 1 - - 60
As at 30 April
2022 1,619 2,819 444 - 12,074 16,956
Depreciation charge 857 1,369 127 11 5,706 8,070
Eliminated on
disposal (3) (684) 1 - (531) (1,217)
Impairment 38 38
Alignment (8) (3) (4) - - (15)
----------- ---------- ------------- ---------------- -------------- --------
As at 30 April
2023 2,465 3,501 568 11 17,287 23,832
----------- ---------- ------------- ---------------- -------------- --------
Carrying amount
At 30 April 2023 6,225 2,951 749 79 38,200 48,204
----------- ---------- ------------- ---------------- -------------- --------
At 30 April 2022 6,738 2,874 628 - 40,663 50,903
----------- ---------- ------------- ---------------- -------------- --------
At 30 April 2021 6,182 2,674 682 - 40,406 49,944
----------- ---------- ------------- ---------------- -------------- --------
Net impairment of GBP38,125 (2022: GBP2,065,000) due to leases
being classified as onerous is included in non-underlying operating
costs.
See note 28 for further details of right of use assets.
23. Contract assets and liabilities
Contract Contract
assets Trade receivables liabilities
GBP'000 GBP'000 GBP'000
As at 30 April 2023 38,215 23,610 (218)
--------- ------------------ -------------
As at 30 April 2022 31,777 26,643 (237)
--------- ------------------ -------------
As at 1 May 2021 28,530 25,951 (216)
--------- ------------------ -------------
The movement during the year is not separately identifiable.
Contract assets
Contract assets consist of unbilled revenue in respect of legal
and professional services performed to date.
Contract assets in respect of fee-for-service and fixed fee
arrangements are billed at appropriate intervals, normally on a
monthly basis in arrears, in line with the performance of the
services. Where such matters remain unbilled at the period end the
asset is valued on a contract-by-contract basis at its expected
recoverable amount.
The Group undertakes some matters based on contingent fee
arrangements. These matters are billed when the claim is
successfully settled. For matters ongoing at the period end, each
matter is valued based on its specific circumstances. If the matter
has agreed funding arrangements in place, then it is valued based
on the estimated amount recoverable from the funding depending on
the stage of completion of the matter.
If the liability of a matter has been admitted and performance
obligations satisfied, such that it is no longer contingent, these
matters are valued based on the expected recoverable amount. Due to
the complex nature of these matters, they can take a considerable
time to be finalised therefore performance obligations may be
settled in one period but the matter not billed until a later
financial period. The amount of contingent fee work in progress at
30 April 2023 was GBP9,488,000 (2022: GBP7,804,000).
If the performance obligations for contingent matters have not
been satisfied at the reporting date, these assets are valued on a
contract-by-contract basis taking into account the expected
recoverable amount and the likelihood of success. Where the
likelihood of success of a contingent fee arrangement is less than
highly probable, the amount recognised in contract assets is
further reduced to reflect this uncertainty.
During the year, contract assets of GBP2,457,000 (2022:
GBP3,731,000) were acquired in business combinations.
An impairment loss of GBP41,000 has been recognised in relation
to contract assets in the year (2022: GBP41,000). This is based on
the expected credit loss under IFRS 9 of these types of assets. The
contract asset loss is estimated at 0.2% (2022: 0.2%) of the
balance.
Trade receivables
Trade receivables are recognised when a bill has been issued to
the client, as this is the point in time that the consideration is
unconditional because only the passage of time is required before
the payment is due. Trade receivables also includes
disbursements.
Bills are payable within thirty days of date of issue unless
otherwise agreed with the client.
Contract liabilities
When matters are billed in advance or on the basis of a monthly
retainer, this is recognised in contract liabilities and released
over time as the services are performed.
24. Trade and other receivables
30 April 30 April
2023 2022
GBP'000 GBP'000
Trade receivables 24,524 27,908
Impairment provision - trade receivables (914) (1,265)
Prepayments and other receivables 7,477 5,666
31,087 32,309
--------- ---------
Trade receivables
The average credit period taken on sales is 30 days as at 30
April 2023 (2022: 31 days). No interest is charged on trade
receivables. The Group uses appropriate methods to recover all
balances once overdue. Once the expectation of recovery is deemed
remote a debt may be written off.
The Group measures the loss allowance for trade receivables at
an amount equal to 12 months expected credit losses ('ECL'). The
Group applies the simplified approach to providing for expected
credit losses prescribed by IFRS 9, which permits the use of a
provision matrix when measuring the expected loss provision for all
trade receivables. As the Group's historical credit loss experience
does not show significantly different loss patterns for different
client segments, the provision for loss allowance is based on past
due status.
The following table details the risk profile of trade
receivables (excluding disbursements) based on the Group's
provision matrix:
30 April 2023 2023 2022
Gross Expected Expected Gross Expected Expected
carrying credit credit carrying credit credit
amount losses loss rate amount losses loss rate
GBP'000 GBP'000 % GBP'000 GBP'000 %
Not past due 13,108 40 0.31 14,553 52 0.36
31-60 days past
due 2,961 16 0.55 3,077 14 0.45
61-90 days past
due 1,099 10 0.85 1,231 4 0.34
91-120 days past
due 187 4 2.01 496 11 2.29
>120 days past due 2,548 738 28.96 2,861 854 29.88
12 month ECL GBP'000 19,903 808 4.06 22,218 935 4.21
---------- ---------- ------------ ---------- ---------- -----------
In addition to the above on trade receivables a further
GBP106,000 (2022: GBP330,000) impairment loss has been recognised
against disbursement balances. This is based on 100% impairment
against all disbursements with no activity on the matter for over
12 months and 0.2% against the remainder of the balance based upon
the expected credit loss of this type of asset.
The movement in the allowance for impairment in respect of trade
receivables and contract assets during the year was as follows:
2023 2022
GBP'000 GBP'000
Balance at 1 May 1,265 1,002
Increase in loss allowance recognised
in profit of loss during the year 468 498
Acquired provisions 401 212
Receivables written off during the year
as uncollectable (1,220) (447)
Balance at 30 April 914 1,265
-------- --------
25. Share capital
Ordinary shares
Number GBP'000
As at 1 May 2021 82,606,792 165
Changes during the period
Ordinary shares of 0.2p each issued in
respect of exercised share options 844,347 2
Ordinary shares of 0.2p each issued in
respect of exercised share options equivalent
to dividend entitlement 2,137 -
Ordinary shares of 0.2p each issued as
consideration in the purchase of subsidiaries 1,187,050 2
---------------- --------------------
At 30 April 2022 (allotted, called up
and fully paid) 84,640,326 169
Changes during the period
Ordinary shares of 0.2p each issued in
respect of exercised share options 21,488 -
Ordinary shares of 0.2p each issued in
respect of exercised share options equivalent
to dividend entitlement 84 -
Ordinary shares of 0.2p each issued as
consideration in the purchase of subsidiaries 1,152,078 2
---------------- --------------------
At 30 April 2023 (allotted, called up
and fully paid) 85,813,976 171
---------------- --------------------
Included in the consideration for the purchase of subsidiaries
is 1,152,078 shares in respect of the purchase of Coffin Mew LLP
(see note 21).
26. Finance lease receivable
The Group sub-leases floors in two office buildings on head
leases that were acquired in previous periods. The Group has
classified the sub-leases as finance leases because the sub-leases
are for the whole of the remaining term of the head leases.
The following table sets out a maturity analysis of lease
receivables, showing the undiscounted lease payments to be received
after the reporting date.
30 April
30 April 2023 2022
GBP'000 GBP'000
Less than one year 375 222
One to two years 375 222
Two to three years 375 222
Three to four years 375 222
Four to five years 375 222
More than five years 435 388
------------- --------
2,310 1,498
Less: unearned finance income (324) (331)
------------- --------
1,986 1,167
------------- --------
Finance lease receivable 30 April 30 April
2023 2022
GBP'000 GBP'000
> 1 year 1,671 1,091
< 1 year 315 76
--------- ---------
1,986 1,167
--------- ---------
Total lease payments received for the year ended 30 April 2023
was GBP237,000 (2022: GBP30,000)
During the year, the Group sublet a floor in the Lincoln office.
The present value of this investment was GBP1,003,000 and the
right-of-use asset derecognised had a carrying value of GBP938,000.
The profit of GBP65,000 has been recognised in non-underlying
operating costs.
The Group's finance lease arrangements do not include variable
payments.
The directors of the Group estimate the loss allowance on
finance lease receivables at the end of the reporting period at an
amount equal to lifetime ECL. None of the finance lease receivables
at the end of the reporting period is past due, and considering the
historical default experience and the future prospects of the
sectors in which the lessees operate, the directors of the Group
consider that no finance lease receivable is impaired.
27. Disposal of subsidiary
On 25 March 2022 the Group completed the acquisition of Home
Property Lawyers Limited (HPL), an entity that provides volume
conveyancing services. At the time of acquisition, it was noted
that the strategic options for this subsidiary were under
review.
Following a period of internal review, in April 2022, management
committed to a plan to sell HPL. Accordingly, all assets and
liabilities were presented as a disposal of subsidiary held for
sale as at 30 April 2022.
On 5 July 2022 the Group exchanged contracts to dispose of HPL.
This was sold for a total consideration of GBP1,276,000 with a
profit on disposal of GBP318,000. The profit on disposal has been
recognised within non-underlying costs in the Consolidated
Statement of Comprehensive Income.
At 30 April 2022, HPL was stated at fair value less cost to sell
and comprised the following assets and liabilities.
30 April
2022
GBP'000
Intangible assets 111
Contract assets 526
Trade and other receivables 428
Cash and cash equivalents 130
--------
Assets held for sale 1,195
--------
Trade and other payables 430
--------
Liabilities held for sale 430
--------
Assets held for sale did not include GBP69,765 due from other
Group entities which were eliminated on consolidation.
28. Lease liabilities
Incremental borrowing rates applied to individual leases ranged
between 1.68% and 6.51%.
The table below sets out the Consolidated Statement of Financial
Position as at 30 April 2023 and 30 April 2022:
30 April 30 April
2023 2022
GBP'000 GBP'000
Right-of-use assets
Property 37,693 39,691
Equipment 507 972
-------- --------
38,200 40,663
-------- --------
Lease liability
> 1 year 38,585 41,183
< 1 year 6,331 5,345
-------- --------
44,916 46,528
-------- --------
Right of use assets include additions and acquired assets of
GBP4,212,000 (2022: GBP7,452,000) for property and GBP47,000 (2022:
GBP916,000) for equipment. There is also depreciation of
GBP5,234,000 (2022: GBP4,397,000) for property and GBP472,000
(2022: GBP402,000) for equipment.
The table below shows lease liabilities maturity analysis -
contractual undiscounted cash flows at 30 April 2023:
30 April 2023 30 April 2022
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Less than one year 7,312 426 7,738 6,213 496 6,709
One to five years 23,473 86 23,559 21,313 506 21,819
More than five years 22,491 - 22,491 22,701 1 22,702
---------- ----------- ------------------- ---------- ----------- -------------------
53,276 512 53,788 50,227 1,003 51,230
Less unaccrued future
interest (8,849) (23) (8,872) (4,663) (39) (4,702)
---------- ----------- ------------------- ---------- ----------- -------------------
44,427 489 44,916 45,564 964 46,528
---------- ----------- ------------------- ---------- ----------- -------------------
The table below shows amounts recognised in the Consolidated
Statement of Comprehensive Income for short term and low value
leases as at 30 April 2023:
30 April 2023 30 April 2022
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expenses relating to
short - term and low
value leases 271 31 302 146 41 187
---------- ----------- --------- ---------- ----------- ---------
For right-of-use asset depreciation and lease interest charges
on leases see note 11 and 14. Total lease payments, including for
short term and low value leases, for the year ended 30 April 2023
were GBP7,810,000 (2022: GBP5,488,000).
29. Borrowings
30 April 30 April
2023 2022
GBP'000 GBP'000
Secured borrowings at amortised cost:
Bank loans 32,925 32,400
Other loans 340 753
Total borrowings 33,265 33,153
--------- ---------
Amount due for settlement within 12 months 189 355
--------- ---------
Amount due for settlement after 12 months 33,076 32,798
--------- ---------
The above excludes lease liabilities.
All of the Group's borrowings are denominated in sterling.
The Group has a credit facility of GBP60,000,000 in total (2022:
GBP60,000,000). The facility remains available until 29 October
2024.
The facility is a revolving credit facility and has the ability
to roll on a monthly, quarterly, half yearly basis or any other
period at the Groups option and is due for final repayment in
October 2024. The facility is secured by a fixed and floating
charge over the Group's assets. The facility carries an interest
margin above SONIA of between 1.65% and 2.40% depending on the
leverage level. A commitment fee of one third of the applicable
margin is payable on the undrawn amounts.
30. Deferred consideration
30 April 30 April
2023 2022
GBP'000 GBP'000
Non-current liabilities
Deferred consideration 2,482 2,421
--------- ---------
Current liabilities
Deferred consideration 2,367 1,210
--------- ---------
Deferred consideration as at 30 April 2023 relates to the
acquisition of Langleys Solicitors LLP and Coffin Mew LLP and is
not contingent.
In addition, the Group has accrued contingent consideration
relating to acquisitions included within trade and other payables.
This is contingent based upon the continued employment of certain
individuals and is being accrued on a monthly basis in the
Consolidated Statement of Comprehensive Income in accordance with
the terms of the agreements. It is expected that employment will
continue for the terms of the agreements and, therefore, the
contingent consideration will be payable in full.
31. Deferred tax
The following are the major deferred tax liabilities and
(assets) recognised by the Group and movements thereon during the
current and prior reporting period.
Accelerated Intangible Share-based
capital allowances assets payments IFRS 16 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2021 544 5,840 (449) (280) 5,655
Acquisitions of subsidiaries - 454 - - 454
Adjustments 125 (11) - - 114
Effect for change in tax
rate 244 1,611 (37) (71) 1,747
Charge/(credit) for the
year 479 (112) (33) 28 362
------------------- ---------- ----------- -------------- --------
As at 30 April 2022 1,392 7,782 (519) (323) 8,332
Acquisitions of subsidiaries - 403 - 159 562
Adjustments - (5) - - (5)
Effect of change in tax
rate 87 77 (73) 31 122
Non-underlying charge/(credit)
for the year - (445) 296 598 449
Credit for the year (103) (780) (163) (26) (1,072)
------------------- ---------- ----------- -------------- --------
As at 30 April 2023 1,376 7,032 (459) 439 8,388
------------------- ---------- ----------- -------------- --------
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances after offset for financial
reporting purposes:
30 April 30 April
2023 2022
GBP'000 GBP'000
Deferred tax assets (459) (842)
Deferred tax liabilities 8,847 9,174
8,388 8,332
--------- ---------
32. Trade and other payables
30 April 30 April
2023 2022
GBP'000 GBP'000
Trade payables 5,531 4,664
Other taxation and social security 7,350 7,370
Other payables 2,410 1,978
Accruals 5,541 7,350
20,832 21,362
--------- ---------
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 25 days (2022: 26 days).
No interest is payable on the trade payables.
The directors consider that the carrying amount of trade
payables approximates to their fair value.
33. Provisions
Onerous Professional
Dilapidation contract indemnity
provision provision provision Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2021 3,999 6 869 4,874
Acquisitions of subsidiaries 507 - 171 678
Additional provision
in the year 289 448 550 1,287
Utilisation of provision (333) (28) (375) (736)
------------ ---------- ------------- ---------
As at 30 April 2022 4,462 426 1,215 6,103
Acquisitions of subsidiaries 777 - 425 1,202
Additional provision
in the year 44 8 500 552
Utilisation of provision (456) (152) (814) (1,422)
------------ ---------- ------------- ---------
As at 30 April 2023 4,827 282 1,326 6,435
------------ ---------- ------------- ---------
Consisting of:
Non-current liabilities 3,888 202 - 4,090
------------ ---------- ------------- ---------
Current liabilities 939 80 1,326 2,345
------------ ---------- ------------- ---------
The dilapidations provision relates to the potential
rectification of leasehold sites upon expiration of the leases.
This has been based on internal estimates of the schedule of works
included in the lease.
The onerous contract provision relates to services and other
charges on vacant offices where the Group is the lessee. The Group
is actively marketing these leases for reassignment. The provision
represents the Directors' estimate of the future lease payments and
other associated property costs to be paid by the Group prior to
reassignment of the leases. The onerous contracts provision also
includes contracts acquired via acquisition that are no longer
utilised but are non-cancellable. The provision represents the
remaining payments and other associated property costs under the
terms of the lease. Future lease payments are offset against the
provision.
The professional indemnity provision relates to a number of
disputes in the ordinary course of business for all claims where
costs are likely to be incurred and represents the cost of
defending and concluding claims and any excess that may become
payable. The Group carries professional indemnity insurance and no
separate disclosure is made of the cost of claims covered by
insurance as to do so could seriously prejudice the position of the
Group.
34. Financial instruments
Categories of financial instruments
30 April 30 April
2023 2022
GBP'000 GBP'000
Financial assets
Amortised cost
Contract assets 38,215 31,777
Trade and other receivables (excluding
prepayments) 24,715 26,919
Lease receivable 1,986 1,167
Cash and cash equivalents 4,045 4,097
Financial liabilities
Amortised cost
Borrowings 33,265 33,153
Deferred consideration 4,849 3,631
Trade and other payables 11,077 13,992
Leases 44,916 46,528
Financial risk management objectives
The Group's Executive board and finance function monitors and
manages the financial risks relating to the operations of the
Group. These risks include market risk (interest rate risk), credit
risk, liquidity risk and cash flow interest rate risk.
Market risk
The Group's activities expose it primarily to the financial
risks of changes in interest rates (see below). Market risk
exposures are measured using sensitivity analysis.
There has been no change to the Group's exposure to market risks
or the manner in which these risks are managed and measured.
Interest rate risk management
The Group is exposed to interest rate risk because the Group
borrows funds at floating interest rates. The risk is managed by
the Group by keeping the level of borrowings at a manageable
level.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the
exposure to interest rates for financial instruments at the end of
the reporting period. For floating rate liabilities, the analysis
is prepared assuming the amount of the liability outstanding at the
end of the reporting period was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other
variables were held constant, the Group's profit for the year ended
30 April 2023 would decrease/increase by GBP166,000 (2022:
decrease/increase by GBP166,000). This is attributable to the
Group's exposure to interest rates on its variable rate
borrowings.
The Group's sensitivity to interest rates has increased slightly
during the current year due to the increase in interest rates.
Credit risk management
Note 24 details the Group's maximum exposure to credit risk and
the measurement bases used to determine expected credit losses.
The risk of bad debts is mitigated by the Group having a policy
of performing credit checks or receiving payments on account for
new clients when practical and ensuring that the Group's exposure
to any individual client is tightly controlled, through credit
control policies and procedures.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the financial charges on its debt instruments and
repayments of principal. There is a risk that the Group will
encounter difficulty in meeting its financial obligations as they
fall due or not meet its required covenants. The Group manages this
risk and its cash flow requirements through detailed annual,
monthly and daily cash flow forecasts. These forecasts are reviewed
regularly to ensure that the Group has sufficient working capital
to enable it to meet all of its short-term and long-term cash flow
needs.
Measurement of fair values
Financial assets and liabilities are measured in accordance with
the fair value hierarchy and assessed as Level 1, 2 or 3 based on
the following criteria:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a
liability fall into different levels of the fair value hierarchy,
then the fair value measurement is categorised in its entirety in
the same level of the fair value hierarchy as the lowest level
input that is significant to the entire measurement.
Contingent consideration, held at fair value through profit or
loss, is a Level 3 financial liability. The remaining financial
instruments are measured at amortised cost. The carrying values of
the Group's financial assets and liabilities approximate their fair
values.
The tables below analyse the Group's financial liabilities into
relevant maturity groupings based on their contractual maturities.
The amounts disclosed in the table are the contractual undiscounted
cash flows.
Contractual maturities of financial liabilities
30 April 2023 < 1 year 1-2 years 2-5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Borrowings 189 33,028 48 33,265
Deferred consideration 2,367 2,328 154 4,849
Trade and other payables 13,482 - - 13,482
--------- ----------- ---------- ---------
30 April 2022 < 1 2-5 years Total
year 1-2 years GBP'000 GBP'000
GBP'000 GBP'000
Borrowings 355 - 32,798 33,153
Deferred consideration 1,210 1,210 1,211 3,631
Trade and other payables 13,992 - - 13,992
--------- ----------- ---------- ---------
Trade and other payables above exclude other taxation and social
security costs.
The Group has met its covenant tests during the year.
For lease maturity see note 28.
Capital management
The capital structure of the Group consists of borrowings (as
disclosed in note 29) and equity of the Group (comprising issued
capital, reserves, and retained earnings as disclosed in the
Statement of Changes in Equity).
In managing its capital, the Group's primary objective is to
provide a return for its equity shareholders through capital growth
and future dividend income. The Group seeks to maintain a gearing
ratio that balances risk and returns at an acceptable level and
also to maintain a sufficient funding base to enable the Group to
meet its working capital and strategic investment needs and
objectives.
Gearing ratio
The gearing ratio at the year end is as follows:
30 April 30 April
2023 2022
GBP'000 GBP'000
Borrowings (note 29) 33,265 33,153
Cash and cash equivalents (4,045) (4,097)
Asset held for sale (note 28) - (130)
--------- ---------
Net debt 29,220 28,926
--------- ---------
Equity 92,807 85,659
--------- ---------
% %
Net debt to equity ratio 31 34
--------- ---------
Significant accounting policies
Details of the significant accounting policies and methods
adopted (including the criteria for recognition, the basis of
measurement and the bases for recognition of income and expenses)
for each class of financial asset, financial liability and equity
instrument are disclosed in note 2.
35. Reconciliation of profit before taxation to net cash generated from operations
Year ended Year ended
30 April 30 April
2023 2022
GBP'000 GBP'000
Profit before taxation 11,529 1,056
Adjustments for:
Amortisation 3,544 3,936
Depreciation - property, plant and equipment 2,364 2,027
Depreciation - right-of-use assets 5,706 4,799
Loss on disposal (net of GBP12,000 profit)
(2022: GBP967,000) included in non-underlying
costs) 2 16
Contingent consideration expense 4,436 6,267
Non-underlying operating costs 2,338 6,572
Non-underlying finance costs 152 -
Non-underlying gain on disposal (318) -
Non-underlying share based payments 17 161
Share based payments 1,248 674
Interest income (52) (296)
Interest expense 3,661 2,364
------------- -------------
Operating cash flows before movements
in working capital 34,627 27,576
(Increase)/decrease in contract assets (3,924) 628
Decrease in trade and other receivables 3,346 570
(Decrease)/increase in provisions (738) 469
(Decrease)/Increase in contract liabilities (19) 21
Decrease in trade and other payables (3,861) (4,204)
Cash generated from operations 29,431 25,060
------------- -------------
36. Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's Consolidated Statement of Cash Flows as cash flows
from financing activities.
Borrowings Leases
GBP'000 GBP'000
As at 1 May 2021 24,064 42,640
New borrowings and leases 47,350 3,083
Acquired borrowings and leases 3,239 4,695
Interest charged (net of GBP25,000 included
in non-underlying) 952 1,412
Interest paid (648) (1,412)
Non-cash movement (301) -
Repayments (net of GBP296,000 included
in non-underlying) (41,503) (3,890)
---------------- ------------
As at 1 May 2022 33,153 46,528
New borrowings and leases 34,425 -
Acquired borrowings and leases 256 4,212
Interest charged 2,135 1,526
Interest paid (2,135) (1,526)
Non-cash movement 12 3
Repayment of debt acquired with prior (438) -
year subsidiaries
Repayments (34,156) (5,439)
Amounts included in operating activities 13 (388)
As at 30 April 2023 33,265 44,916
---------------- ------------
37. Alternative performance measures
This Annual Report contains both statutory measures and
alternative performance measures. In management's view the
underlying performance of the business provides a more meaningful
measure and year on year comparison of how the Group's business is
managed and measured on a day-to-day basis.
The Group's alternative performance measures and key performance
indicators are aligned to the Group's strategy and together are
used to measure the performance of the business.
Alternative performance measures are non-GAAP (Generally
Accepted Accounting Practice) measures and provide supplementary
information to assist with the understanding of the Group's
financial results and with the evaluation of operating performance
for all the periods presented. Alternative performance measures,
however, are not a measure of financial performance under
UK-adopted International Financial Reporting Standards ('IFRS') and
should not be considered as a substitute for measures determined in
accordance with IFRS. As the Group's alternative performance
measures are not defined terms under IFRS they may therefore not be
comparable with similarly titled measures reported by other
companies.
Reconciliations of alternative performance measures to the most
directly comparable measures reported in accordance with IFRS are
provided below.
a) Underlying EBITDA
Underlying EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the Group
excluding the effects of depreciation, amortisation and
non-underlying items.
Year ended Year ended
30 April 30 April
2023 2022
GBP'000 GBP'000
Operating profit 15,290 3,398
Depreciation and amortisation charges
(note 11) 11,616 10,778
Non-underlying costs (note 13) 6,791 13,260
Non-underlying gains on disposal (note
13) (318) -
Underlying EBITDA 33,379 27,436
------------- -------------
b) Underlying profit before tax (PBT)
Underlying PBT is presented as an alternative performance
measure to show the underlying performance of the Group excluding
the effects of amortisation of intangible assets and non-underlying
items.
Year ended Year ended
30 April 30 April
2023 2022
GBP'000 GBP'000
Profit before tax 11,529 1,056
Amortisation (adjusted for amortisation
on computer software) 3,441 3,815
Non-underlying costs (note 13) 6,791 13,260
Non-underlying gains on disposal (note (318) -
13)
Non-underlying finance costs (note 13) 152 -
Underlying profit before tax 21,595 18,131
------------- -------------
c) Underlying profit after tax (PAT) and adjusted earnings per
share (EPS)
Underlying PAT and EPS are presented as alternative performance
measures to show the underlying performance of the Group excluding
the effects of amortisation of intangible assets, share-based
payments and non-underlying items.
Year ended Year ended
30 April 2023 30 April 2022
GBP'000 GBP'000
Profit/(Loss) after tax 7,944 (2,531)
Non-underlying tax charge (note 17) 410 1,747
Amortisation (adjusted for amortisation
on computer software) 3,441 3,815
Non-underlying operating costs (note 13) 6,625 13,260
Tax in respect of the above (note 17) (1,129) (1,869)
Underlying profit after tax 17,291 14,422
--------------- ---------------
Underlying earnings per share Pence Pence
Basic underlying earnings per share 20.20 17.23
Diluted underlying earnings per share 20.00 17.14
--------------- ---------------
Tax has been calculated at the corporation tax rate of 19.5%
(2022:19%) and deferred tax rate of 25% (2022:25%)
d) Free cash flow and cash conversion %
Free cash flow measures the Group's underlying cash generation.
Cash conversion % measures the Group's conversion of its underlying
PAT into free cash flows. Free cash flow is calculated as the total
of net cash from operating activities after adjusting for tax paid
and the impact of IFRS 16. Cash conversion % is calculated by
dividing free cash flow by underlying PAT, which is reconciled to
profit after tax above.
Year ended
Year ended 30 April
30 April 2023 2022
GBP'000 GBP'000
Cash generated from operations (note
35) 29,431 25,060
Tax paid (2,424) (4,095)
Net cash outflow for IFRS16 leases (6,728) (5,302)
---------------- -------------
Free cashflow 20,279 15,663
Underlying profit after tax 17,291 14,422
Cash conversion (%) 117% 109%
---------------- -------------
(e) Net debt
Net debt is presented as an alternative performance measure to
show the net position of the Group after taking account of bank
borrowings and cash at bank and in hand.
30 April 30 April
2023 2022
GBP'000 GBP'000
Borrowings (note 29) 33,265 33,153
Cash and cash equivalents (4,045) (4,097)
Asset held for sale (note 27) - (130)
Net debt 29,220 28,926
--------- ---------
38. Capital commitments
As at 30 April 2023 there is a capital commitment of GBPnil
(2022: GBP72,000).
39. Defined benefit pension schemes
The Stonehams Pension Scheme
The Group operates a legacy defined benefit pension arrangement,
the Stonehams Pension Scheme (the "Scheme"). The Scheme provides
benefits based on salary and length of service on retirement,
leaving service, or death. The following disclosures exclude any
allowance for any other pension schemes operated by the Group.
The Scheme was acquired as part of the acquisition of ASB Law
where contracts were exchanged on 5 March 2020. Therefore, the
disclosures below represent the period of ownership from 5 March
2020 to 30 April 2023. The scheme is closed and provides benefits
for 40 legacy employees (now pensioners and deferred members).
The Scheme is subject to the Statutory Funding Objective under
the Pensions Act 2004. A valuation of the Scheme is carried out at
least once every three years to determine whether the Statutory
Funding Objective is met. As part of the process the Group must
agree with the Trustees of the Scheme the contributions to be paid
to address any shortfall against the Statutory Funding
Objective.
The most recent comprehensive actuarial valuation of the Scheme
was carried out as at 31 December 2021. The results of that
valuation were updated to 30 April 2023 allowing for cashflows in
and out of the Scheme and changes to assumptions over the
period.
From January 2022 it was agreed that Employer contributions
towards administration expenses would be deferred until January
2025. Administration expenses are to be met directly from the
assets of the Scheme. The Group will separately meet the cost of
the PPF levy.
The Scheme typically exposes the Group to actuarial risks such
as: investment risk, interest rate risk and longevity risk.
Investment risk The present value of the defined benefit
plan liability is calculated using a discount
rate determined by reference to high quality
corporate bond yields; if the return on
plan assets is below this rate, it will
create a plan deficit.
Currently assets are invested in a variety
of funds, which will reduce volatility.
The investment approach is reviewed every
three years as part of the valuation process.
Interest risk There is some hedging in the asset portfolio,
but at a low level.
A decrease in the bond interest rate will
increase the plan liability but this will
be partially offset by an increase in
the return on the plan's debt investments.
--------------------------------------------------
Longevity risk The present value of the defined benefit
plan liability is calculated by reference
to the best estimate of the mortality
of plan participants both during and after
their employment. An increase in the life
expectancy of the plan participants will
increase the plan's liability.
The average duration of the Scheme's obligations
is 12 years.
--------------------------------------------------
Actuarial assumptions
Principal actuarial assumptions
30 April 2023 30 April 2022
% %
Discount rate 4.66 3.05
Retail Prices Index ("RPI") Inflation 3.28 4.00
Consumer Price Index ("CPI") Inflation 2.38 3.30
Pension increase (LPI 5%) 3.16 3.72
Pension increase (LPI 2.5%) 2.17 2.34
Post retirement mortality
90%/100% (m/f)
S2PA CMI_2020
90%/100% (m/f) projections (with
S2PA CMI_2020 projections standard smoothing
(with standard parameter of
smoothing parameter 7.5) using a
of 7.5) using a long-term improvement
long-term improvement rate of 1.0%
rate of 1.0% pa pa
Commutation 80% of members 80% of members
are assumed to are assumed to
take the maximum take the maximum
tax free cash possible tax free cash
using current commutation possible using
factors current commutation
factors
Life expectancy at age 65 of male
aged 45 22.6 22.6
Life expectancy at age 65 of male
aged 65 24.2 24.2
Life expectancy at age 65 of female
aged 45 23.6 23.6
Life expectancy at age 65 of female
aged 65 25.4 25.3
The weighted average duration of the Scheme's obligations is 12
years.
The current asset split is as follows
Asset allocation Asset allocation
at 30 April 2023 at 30 April 2022
Equities and growth assets 50% 70%
Bonds, LDI and cash 50% 30%
Value as at 30
April Value as at
2023 30 April 2022
GBP'000 GBP'000
Fair value of assets 2,314 3,047
Present value of funded obligations (1,736) (2,355)
-------------------------- -----------------------
Surplus in scheme 578 692
Deferred tax - -
-------------------------- -----------------------
Net defined benefit surplus after
deferred tax 578 692
-------------------------- -----------------------
The fair value of the assets can
be analysed as follows:
Value as at 30
April Value as at
2023 30 April 2022
GBP'000 GBP'000
Low risk investment funds 1,156 625
Credit Investment funds 696 1,513
Cash 462 909
-------------------------- -----------------------
Fair value of assets 2,314 3,047
-------------------------- -----------------------
30 April 2023 30 April 2022
GBP'000 GBP'000
Administration costs 39 28
Net interest on liabilities (21) (8)
-------------------------- -----------------------
Total charge to the Statement of
Comprehensive Income 18 20
-------------------------- -----------------------
Remeasurements over the period
since acquisition
30 April 2023 30 April 2022
GBP'000 GBP'000
Loss on assets in excess of interest (694) (115)
Gain on scheme obligation from assumptions
and experience 675 361
Loss on scheme obligations due to
scheme experience (77) -
Gain on scheme obligations from
demographic assumptions - 2
Total remeasurements (96) 248
-------------------------- -----------------------
The change in value of assets
30 April 2023 30 April 2022
GBP'000 GBP'000
Fair value of assets brought forward 3,047 3,255
Interest on assets 91 58
Benefits paid (91) (123)
Administration costs (39) (28)
Loss on assets in excess of interest (694) (115)
-------------------------- -----------------------
Fair value of assets carried forward 2,314 3,047
-------------------------- -----------------------
Actual return on assets (603) (57)
-------------------------- -----------------------
Change in value of liabilities
30 April 2023 30 April 2022
GBP'000 GBP'000
Value of liabilities brought forward 2,355 2,791
Interest cost 70 50
Benefits paid (91) (123)
Actuarial gain (598) (363)
-------------------------- -----------------------
Value of liabilities carried forward 1,736 2,355
-------------------------- -----------------------
Sensitivity of the value placed
on the liabilities
Approximate effect on liability
30 April 2023 30 April 2022
GBP'000 GBP'000
Discount rate
Minus 0.50% 110 191
Inflation
Plus 0.50% 89 139
Life Expectancy
Plus 1.0 years 52 102
Significant actuarial assumptions for the determination of the
defined benefit obligation are discount rate, inflation rate and
mortality. The sensitivity analysis above has been determined based
on reasonably possible changes of the respective assumptions
occurring at the end of the reporting period, while holding all
other assumptions constant.
The sensitivity analysis presented above may not be
representative of the actual change in the defined benefit
obligation as it is unlikely that the changes in assumptions would
occur in isolation of one another as some of the assumptions may be
correlated.
The With Profits Section of the Cheviot pension
Allocation of liabilities between employers
The With Profits Section was acquired as part of the acquisition
of ASB Law where the transaction completed on 17 April 2020.
The Trustee has discretion under the contribution rule on how
the cost of providing the benefits of the With Profits Section is
allocated between employers. The contribution rule applies until
the earlier of the discharge of the employer by the Trustee and the
termination of the With Profits Section. The Trustee's current
policy is not to discharge employers. Employers therefore remain
liable under the contribution rule even if their last member dies
or transfers out.
The Trustee has been considering how best to ensure all
employers bear an appropriate share of the With Profits Section's
obligations whilst ensuring fairness between employers and a
practical and transparent methodology for the future.
As discussed at the Employers' Meeting on 5 July 2017, the
Trustee has decided to fix the allocation between employers on the
basis of the promised benefits just before the Section was
re-classified in 2014 (the valuation as at 31 December 2013). The
allocation to each employer will be expressed as a percentage of
the total Scheme liabilities. The intention is to apply this
percentage to any funding, buyout or IFRS deficit in the future to
calculate any contribution that may be due or any accounting
liability.
The estimated percentage in relation to Knights Professional
Services Limited is 0.790%.
This approach enables each employer to calculate the extent of
their obligation to the Section on the basis of the funding level
at any time. Cheviot will publish funding updates on the website:
quarterly, on the scheme funding basis, which includes an allowance
for future investment returns; and annually, on an estimated buyout
basis, which looks at the position should all benefits be secured
with an external provider.
Estimated funding position as at 30 April:
Scheme funding basis
30 April 2023 30 April 2022
GBP'000 GBP'000
Total assets 64,200 80,100
Total liabilities excluding
expenses (68,500) (78,500)
------------- -------------
(Deficit)/Surplus (4,300) 1,600
------------- -------------
Funding level 94% 102%
Information provided for 30 April 2023 is as at 31 March 2023,
the latest information available. This is not expected to be
materially different from the 30 April 2023 position.
Allocation to the Group
The estimated share of the Scheme liabilities is 0.790%.
Over the year to 30 April 2023, the Section's funding position
is a small deficit.
30 April 2023 30 April 2022
GBP'000 GBP'000
Estimated cost of providing
benefits (541) (620)
Value of assets 507 633
------------- -------------
Resulting (deficit)/surplus (34) 13
------------- -------------
Funding level 94% 102%
The deficit has not been recognised as management consider this
to be temporary and not material.
The Trustee continues to monitor the funding position.
The Trustee reserves the right to withdraw, replace or amend the
policy for the allocation between employers in the future.
40. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions
between the Group and its other related parties are disclosed
below.
KPV Propco Ltd is a company controlled by Mr DA Beech, a person
with significant influence over the Group and a member of key
management personnel.
The Group leases a property from KPV Propco Ltd. During the year
rents of GBP376,000 (2022: GBP376,000) were charged by KPV Propco
Ltd to the Group. A lease of The Brampton, Newcastle-under-Lyme was
granted for a term of 25 years from and including 24 July 2017 to
24 July 2039 at a current rent of GBP376,000 per annum (excluding
VAT).
During the year Knights Professional Services Limited charged
KPV Propco Ltd for professional services totalling GBPnil (2022:
GBP1,000) and a management fee of GBP20,000 (2022: GBP20,000)
At 30 April 2023, there was an amount of GBP16,000 owed by KPV
Propco Ltd to the Group (2022: GBP55,000 owed by the Group to KPV
Propco Ltd).
During the year Knights Professional Services Limited provided
legal services to the Directors in an individual capacity of
GBP32,000 (2022: GBP77,000). At 30 April 2023, there was an amount
of GBPnil (2022: GBPnil) owed to the Group from the Directors.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is
set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures.
Year ended Year ended
30 April 30 April
2023 2022
GBP'000 GBP'000
Short-term employee benefits and social
security costs 1,422 1,424
Gains on exercise of options - 913
Pension costs 20 25
Share-based payments 50 (132)
1,492 2,230
----------- -----------
Key management personnel includes Board members and directors of
the Group and the main trading company Knights Professional
Services Limited.
Transactions with directors
Dividends totalling GBP664,000 (2022: GBP250,000) were paid in
the year in respect of ordinary shares held by the Company's
directors.
41. Contingent liability
Included within other creditors is a contingent consideration
liability, this arises on acquisition and the liability is
contingent on employees completing a specified length of service.
The value of the contingent liability is GBP4,795,000 (2022:
GBP6,204,000).
42. Post balance sheet events
On 1 May 2023 the Group exchanged contracts to acquire 100% of
the voting rights of Baines Wilson LLP, a leading commercial law
firm in the North West of England with offices in Carlisle and
Lancaster.
Total consideration payable is GBP3.37 million. This comprises
an initial cash consideration of GBP2.35m, with deferred cash
consideration of GBP1.02m to be paid as GBP0.34m on the first,
second and third anniversaries following completion in each case
subject to the satisfaction of certain conditions. Completion took
place on 2 June 2023.
In its unaudited accounts for the year ended 31 March 2023,
Baines Wilson reported revenue of GBP3.2m and a corporatised PBT
margin of circa 20%. Accounting for a typical 20% revenue churn
post-acquisition, the Board expects the acquisition to be
immediately earnings enhancing, with Baines Wilson expected to
contribute an adjusted PBT margin of circa 25% post synergy
savings.
On 1 May 2023 the Group exchanged contracts to acquire 100% of
the share capital of St James' Law Limited (trading as St James'
Square), an independent full service commercial law firm located in
Newcastle, the financial centre of the North East of England.
Under the terms of the acquisition, Knights will acquire St
James' Square from its four existing owner-managers, two employees
and an investor on a debt free, cash free basis, for a total
consideration of GBP1.75m. This comprises an initial cash
consideration of GBP0.5m, with deferred payments of GBP1.25m to be
paid as GBP0.7m on the first and GBP0.55m on the second anniversary
following completion in each case subject to the satisfaction of
certain conditions. Completion took place on 16 June 2023.
In its unaudited accounts for the year ended 31 December 2022,
St James' Square reported revenue of GBP2.4m and a corporatised PBT
margin, excluding the debt recovery business, of circa 5%.
Accounting for a typical 20% revenue churn post-acquisition, the
Board expects the acquisition to be immediately earnings enhancing,
with St James' Square expected to contribute an adjusted PBT margin
of circa 15% post synergy savings.
Initial accounting for the business combination is not yet
complete and the fair value of net assets acquired has not yet been
determined; accordingly details of the assets acquired and
liabilities assumed, and goodwill arising on the acquisitions,
cannot be given.
Glossary of Terms
Financial Performance Measure
This document contains certain financial measures that are not
defined or separately recognised under IFRS. These measures are
used by the Board and other users of the accounts to evaluate the
Group's underlying trading performance excluding the impact of any
non-recurring items and items that do not reflect the underlying
day-to-day trading of the Group. These measures are not audited and
are not standard measures of financial performance under IFRS.
There are no generally accepted principles governing the
calculation of these measures and the criteria upon which these
measures are based can vary from company to company. Accordingly,
these measures should be viewed as supplemental to, not as a
substitute for, the financial measures calculated under IFRS.
Working Capital
Working capital is calculated as:
30 April 2023 30 April 2022
GBP'000 GBP'000
Current assets
Contract assets 38,215 31,777
Trade and other receivables 31,087 32,309
Corporation tax receivable 152 1,815
--------------- ---------------
Total current assets 69,454 65,901
--------------- ---------------
Current liabilities
Trade and other payables 20,832 21,362
Contract liabilities 218 237
Total current liabilities 21,050 21,599
--------------- ---------------
Net working capital 48,404 44,302
--------------- ---------------
Other Definitions
Colleague/Talent Retention/Employee Turnover
Churn is calculated based on the number of qualified fee earners
who had been employed by the Group for more than one year. Churn is
calculated taking the number of leavers in the above group over the
financial year as a percentage of the average number of colleagues
for the year. Retention is 100% less the churn rate. Churn excludes
expected churn from acquisitions and restructuring
redundancies.
Client Concentration
On an individual basis this is calculated as the percentage of
total turnover for the financial year that arises from fees of the
largest client. For the top 10 client concentration calculation
this takes the fee income from the 10 largest clients for the year
as a percentage of the total turnover for the year.
Top 50 clients
Based on fee income from the 50 largest clients for the year,
excluding CL Medilaw and one off transactions.
Client Satisfaction
Net Promoter Score (NPS) measures the loyalty of a client to a
company and can be used to gauge client satisfaction. NPS scores
are measured with a single question survey and reported with a
number from -100 to +100, the higher the score, the higher the
client loyalty/satisfaction.
Colleague Satisfaction
Employee Net Promoter Score (ENPS) measures the loyalty of
employees to a company and how likely they are to recommend their
employer as a place to work, which can also be used to gauge
employee satisfaction. ENPS scores are measured with a single
question survey and reported with a number from -100 to +100, the
higher the score the higher the employee loyalty.
Fee Earners
When referring to the number of fee earners in the Group we
include all individuals working in the Group on a mainly fee
earning basis. This includes professionals (legal and non-legal) of
all levels including paralegals, trainees and legal assistants.
When referring to the number of fee earners in the business this
will refer to the absolute number of individuals working in the
Group. When using the number of fee earners to calculate the
average fees or profit per fee earner or the ratio of fee earners
to support staff these calculations are based on the number of
full-time equivalent (FTE) individuals to reflect that a number of
individuals choose to work on a part-time basis.
Non-Fee Earners/Support Staff
This includes all employees that are not fee earning.
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END
FR BCGDRLBGDGXC
(END) Dow Jones Newswires
July 10, 2023 02:00 ET (06:00 GMT)
Knights (LSE:KGH)
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