RNS Number : 4057V

Knights Group Holdings PLC

08 July 2024

Knights Group Holdings plc

("Knights" or the "Group")

Full Year Results

A good performance, reflecting resilience, scale and financial discipline

Plan to double the business in medium term

Knights, the legal and professional services business, today announces its full year results for the year ended 30 April 2024.

Financial highlights

· Revenue increased by 6% to £150m (FY23: £142.1m); organic growth of 1.9%

· Gross margin of 48.8% (FY23: 48.5%)

· Underlying PBT¹ up 17.3% to £25.3m (FY23: £21.6m); underlying PBT¹ margin increased to 16.9% (FY23: 15.2%)

· Reported PBT increased 28.6% to £14.8m (FY23: £11.5m)

· Underlying EPS² increased 8% to 21.81p (FY23: 20.20p). Basic EPS of 11.47p (FY23: 9.28p)

· Strong improvement in lock up³ days to 78 (FY23: 87 days), with debtor days improving to 28 (FY23: 30 days)

· Continued excellent cash conversion⁴ of 131% (FY23: 117%) enabling investment in growth

· Net debt⁵ of £35.2m (30 April 23: £29.2m), after a cash outlay of £11.3m relating to acquisitions and a joint venture investment in Convex Corporate Finance Limited resulting in a reduction in banking covenant EBITDA / net debt ratio to 1.1x (30 April 2023: 1.2x)

· Final dividend of 2.79p (FY23: 2.50p), giving a 9% increase in the total dividend to 4.40p (FY23: 4.03p)

Strategic and operational highlights

A good performance as we strengthened our platform for growth

· 40 senior fee earners joined the business (FY23: 27), as awareness increases of our national scale, differentiated model, and strong culture. Strong retention with 12% churn (FY23: 18%)

· Won a number of new and significant clients and extended our relationships with a number of existing clients

· Continued focus on cost discipline and operational excellence

Increased scale and diversification through considered acquisitions and partnerships

· Acquired Baines Wilson and St James Law in the period, both are trading ahead of expectations and provide strong platforms for future organic growth; seven senior recruits have joined these new offices since acquisition

· Formed a joint venture with Convex, diversifying our range of services further, with its entrepreneur focus bringing synergies with our corporate and private wealth offering

Current trading and Outlook

· Encouraging start to the year with a strong recovery in residential property

· Focused on client acquisition and deeper collaboration across offices to bring more services to existing clients

· Sustained recruitment momentum and good retention

· Active pipeline of attractive acquisitions

· Confident of delivering a meaningful improvement in organic growth in the current financial year

Plan to double the business in the medium term

· Execution of strategy and market tailwinds to drive revenue and profit growth

· Expected to be delivered through strong organic growth complemented by our value accretive acquisition strategy

· Builds on considerable growth to date, EBITDA more than quadrupled since IPO in 2018

David Beech, CEO of Knights, commented:

"Knights has delivered a good performance against a challenging market backdrop, reflecting the strength of our diversified service offering, and continued execution against our strategy, and building on our strong track record of profitable growth since IPO in 2018.

"We have diversified our service offering, won a number of new clients, sharpened our focus on operational excellence and made considered strategic acquisitions, bolstering our scale in the North, an important region.

"This progress, together with an encouraging start to the year, including a strong recovery in residential property, in line with our expectations, means we are confident in delivering our ambitions plans to double the size of the business in the medium term."

Footnotes

¹Underlying PBT is before amortisation of acquired intangibles, non-underlying operating expenses, and non-underlying finance costs. Non-underlying operating expenses include transaction and onerous lease expenses in relation to acquisitions, contingent acquisition payments, disposal of acquired assets, along with one-off restructuring staff and professional expenses, mainly incurred on acquisitions, through streamlining support functions or strategic reorganisations.

Contingent acquisition payments are treated as a non-underlying expense as this represents payments for acquisitions which are dependent on the continued employment of certain individuals in the business for an agreed contractual period after an acquisition of one to three years to preserve the acquired goodwill and customer relationships. Accounting standards require such arrangements to be treated as remuneration in the Statement of Comprehensive Income. However, the individuals also receive market rate salaries, therefore, if not separately identified, these payments would significantly distort the reported results.

²Underlying EPS is underlying PAT divided by the weighted average number of ordinary shares in issue.

³Lock 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.

⁴Cash conversion is calculated as the total of cash from operations, less tax paid and underlying IFRS 16 net lease payments, divided by underlying profit after tax.

⁵Net debt includes cash and cash equivalents, borrowings and acquired debt but excludes lease liabilities.

⁶Underlying EBITDA is operating profit before depreciation, amortisation and non-underlying operating expenses as defined above¹

⁷Underlying PAT is underlying PBT less any tax in respect of underlying items.

⁸Underlying EBITDA post IFRS 16 is used as a metric as this reflects the profits after deduction of rental costs which is most comparable to the EBITDA reported at IPO, before the introduction of IFRS 16.

These footnotes apply throughout the RNS

Enquiries

Knights
David Beech, CEO Kate Lewis, CFO	Via MHP
Deutsche Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank	020 7260 1000
MHP (Media enquiries)
Katie Hunt, Eleni Menikou, Rob 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 23 offices located in Birmingham, Brighton, Bristol, Carlisle, Cheltenham, Chester, Exeter, Kings Hill, Leeds, Leicester, Lincoln, Manchester, Newbury, Newcastle, Nottingham, Oxford, Portsmouth, Sheffield, Stoke, Teesside, Weybridge, Wilmslow and York.

Chairmans's statement

I am delighted to introduce my first full year results as Chair of Knights.

Pleasingly, my first six months as Chair have confirmed my expectations that Knights is a quality legal and professional services business of scale, with a very driven, strong management team and a proven scalable operating platform for future growth.

As one of the largest legal and professional services businesses outside London, we provide the full scope of legal services, delivered to clients locally. This together with the truly collaborative culture I have witnessed, sets the business apart from traditional firms, and underpins its ability to provide premium services with on the ground expertise, without limiting the breadth of what we are able to offer.

It is these attributes, combined with the hard work of our talented professionals and executive management team, that have facilitated the delivery of a good performance in a difficult operating environment, amid ongoing macroeconomic uncertainty. Despite these challenges, and their impact primarily in the residential property market and on corporate transactions, the Group's financial performance was in line with the Board's and market expectations, with a significant rise in profitability.

The Group delivered revenue of £150m for the first time, representing growth of 6%, while underlying EBITDA⁶ post IFRS 16⁸ charges reached £31.6m, up 21%. This is over four times the underlying EBITDA⁶ reported when the Group floated on the London Stock Exchange's AIM market in 2018, an outstanding achievement. Reported profit before tax (PBT) increased by 29% to £14.8m in the year.

On behalf of the Board, I would like to thank all our dedicated employees for their contribution to the delivery of this performance and our clients and our shareholders for their ongoing support.

Further Strategic Progress

Our strategy has delivered exemplary growth since IPO, and the management team pressed ahead with executing this during the year. The Group enhanced its platform both through acquisition, and by focusing on driving cost efficiencies and hiring the best people, positioning us well for organic growth and operational leverage in the year ahead.

We have a strong track record of executing a proven value accretive strategy to enhance our footprint through acquisitions. We added St James Law and Baines Wilson to our network in the year, which both provide good platforms for future organic growth and complement our existing presence in the North East of England. These businesses were attracted by our model and the benefits of being part of Knights for their next phase of growth, motivation shared with those businesses that have joined over previous years.

We also entered into a joint venture to form Convex Corporate Finance Limited ('Convex'). This boutique corporate finance business has a compelling proposition, supporting the founders of small and medium size enterprises through sales processes, which provides us with a service complementary to its M&A legal work, while providing Convex with access to our wider range of private wealth services. We are confident in the prospects of the business as M&A markets recover, with the businesses already benefitting from their symbiotic relationship.

Dividend

The Group's dividend policy, of paying 20% of underlying profit after tax⁷, balances the retention of profits to fund our long-term growth strategy with providing shareholders with a return, as our growth strategy delivers positive results.

The Board is proposing a final dividend of 2.79p, which, together with the interim dividend of 1.61p per share gives a total dividend for the year of 4.40p (FY23: 4.03p), an increase of 9%. The dividend will be payable on 27 September 2024 to shareholders on the register at 30 August 2024, subject to shareholder approval at the Group's AGM.

Summary

The Board is pleased with the Group's performance. We expect the good strategic progress we have made over the course of the year, as well as the work undertaken to enhance our platform, to support future organic growth, recruitment momentum, M&A opportunities and client wins in the year ahead, as we continue to scale across the UK.

With our national capabilities and deep expertise, delivered locally by a network of talented lawyers, we are confident of making further progress.

Chief Executive's review

Our performance for the year demonstrates that the continued successful execution of our strategy is delivering for the business and its stakeholders, despite challenging macroeconomic conditions, with FY24 underlying EBITDA⁶ post IFRS 16⁸ charges more than four times the Group's underlying EBITDA⁶ (the equivalent metric in 2018) at the time of our IPO. We continued to make considered strategic acquisitions, bolstering our scale in the North, an important region, and also diversified our service offering, won a number of new clients, and sharpened our focus on driving cost savings whilst improving operational excellence. As a result, our position as the preeminent provider of premium professional services outside London, with the ability to deliver a high calibre, full-scope service, locally, became even more firmly established.

Operationally and strategically, it was a year of two distinct halves. Early in the year, we expanded our presence in the North of England with two carefully chosen acquisitions which have since integrated into the Group well and are performing ahead of expectations. In the second half, we focussed on optimising operational gearing by making salary and administrative cost savings as we continued to drive future organic growth, enhanced by our joint venture with corporate financier, Convex, which further strengthens our foundation for diversified growth.

Momentum in recruitment has been good, with our strong reputation, scale, and differentiated model and culture continuing to attract quality talent to the Group from leading law firms across the country; during the year, 40 senior fee earners joined us, a 48% increase compared with 27 the previous year. As we continued to build our teams, we also secured a number of new and significant clients and extended our relationships with a number of existing clients. This demonstrates that our unique combination of scale, breadth of services, and locally delivered expertise is resonating with potential and existing clients.

A robust performance, reflecting the Group's resilience, scale and financial discipline

Our operating environment continued to be challenged through the year, with uncertainties impacting business sentiment, such as high interest rates, and the UK's mini recession, weighing on residential property markets and M&A activity in particular. Despite this, we were able to deliver our 12th consecutive year of profitable revenue growth, testament to the strength of the business and its diversified service offering and client base.

Total revenue for the year increased by 6% to £150m (FY23: £142m), reflecting the resilience of the Group and the tireless efforts of our people. Contributions from acquisitions accounted for 4% of the growth in the year. Revenues grew by 2% organically, with good growth in our non-cyclical work, particularly private wealth, dispute resolution, CL Medilaw, and our growing regulatory team, which more than offset softer performances from the more cyclical residential property and corporate activities. If the reduced revenues in the housing and corporate activities are excluded, along with the reduction in insolvency revenue, due to the strategic decision to reduce this work stream, organic growth for the Group is 6% for the year. We also focused on cost optimisation, driving efficiencies through the business and fully achieving all integration synergies on acquisitions.

Debtor days for the year improved yet again to 28 (FY23: 30), demonstrating our strong discipline and market leading position in managing working capital.

Our Client Services Directors remain a core strength and a critical part of the business. As well as facilitating our unrivalled focus on cash management, as our local leaders, they maintain a focus on driving growth across the Group through strategic recruitment, winning new business and developing and enhancing key client relationships.

A strengthened platform for growth

Our differentiated model and strong corporate culture continue to set Knights apart within the industry, driving strong talent acquisition. The Group's agility, entrepreneurial spirit and speed of decision making in responding to evolving client demands and market conditions have been sustained despite our increasing size, and are instrumental in securing, motivating and retaining high quality talent. Attracted by this, and our scale, 40 senior fee earning professionals joined the business during the year. Acquisitions we completed during this and the prior year also brought new talent into the business and provided stronger platforms for recruitment in their respective regions, widening the pool from which we can source high quality individuals with strong client followings.

The deepening breadth of expertise within the Group is also driving wider business performance, with colleagues increasingly introducing specialists from across our network to offer a fuller service to their clients. This is testament to the power of our commercial mindset, which is becoming increasingly embedded across our teams, and a key example of our collaborative one team culture in action. Together with growing recognition of Knights and its capabilities, it is this mindset that has helped to secure significant new client wins and led to an increase in the value of a number of our existing client relationships. It has also prompted a shift in the type of client we are able to attract, signalling a step change for the business as greater awareness of our comprehensive, premium offer gathers pace.

We are proud of the technology, centralised IT systems, and automation tools we deploy across our network. We aim to be at the forefront of implementing new technologies that can help us refine and enhance our internal processes and better serve our clients. In addition, we are trialling a number of AI-enabled tools, in partnership with technology leaders, to facilitate the delivery of services to our growing portfolio of clients. We have long been a market leader in deploying automation tools and innovative technology to drive workflow efficiencies, which has enabled us to operate a lean support function, as evidenced by our low ratio of non-fee earners to fee earners. Building on our past learnings, we recognise that a considered approach to emerging technologies is required and we are taking care to ensure we adopt the right tools for our business and our clients. While it is early days, we are excited about how these developments will help us to do more for our clients, more efficiently.

Executing our value-accretive acquisition strategy

A core part of our strategy remains the pursuit of considered acquisitions to drive future organic growth and consolidate the fragmented regional legal services market further. We focused more on acquisition activity in the first half, when we bolstered our regional footprint through two high quality acquisitions in strategic growth markets. As ever, we acquired firms that were not only a great cultural fit, but that also have clear potential to support the Group's future organic growth. We are delighted by how both these businesses have integrated, demonstrating our ability to realise synergies and realise value from the firms we acquire.

Strengthened presence in the North of England

During the year, we acquired St James Law and Baines Wilson, which both provide access to important markets, further diversification and strong platforms for talent acquisition in the region. They also support our growing brand awareness in the North of England, where our presence and reputation has been building steadily in recent years, delivering excellent results for the Group.

The acquisition of independent full service commercial law firm, St James Law, brought entry into Newcastle, an important strategic location and the financial centre of the North East, complementing our existing Teesside presence. It has already proved to be a strong platform for recruitment of high-quality talent, with six senior recruits having joined since acquisition.

The North East is one of the UK's largest markets outside London for legal and professional services. We entered the region in 2023, with the acquisition of Archers Law in Teesside. Since joining, our Teesside business has gone from strength to strength, delivering over 25% organic growth in its second full financial year as part of the Group.

We also acquired Baines Wilson, the leading commercial law firm in Carlisle. The firm offers corporate, real estate, dispute resolution and employment services, and provides us with entry into Cumbria. This acquisition has integrated well and is performing ahead of plan.

There remains a healthy pipeline of independent legal and professional services firms across the country, predominantly in locations outside major cities, seeking to join a group that offers the stability associated with a larger, more diversified business, the ability to offer a broad range of services at scale, and the benefit of a corporatised model over equity partnerships. This underpins our longstanding strategy to scale through acquisition, expanding our reach and enabling us to offer premium legal services, locally, across the UK and leverage our strong operational platform.

To pursue our value accretive acquisition strategy, a new, extended revolving credit facility was agreed during the year, providing total committed funding of £70m until November 2026. This new facility provides the headroom and flexibility for us to execute the right opportunities as they arise.

Convex joint venture

Towards the end of the financial year, we entered into an exciting joint venture with the former Convex Capital management team, to form Convex Corporate Finance Limited ("Convex").

Convex's primary activity is supporting vendors of entrepreneur-led businesses in maximising their equity value through sales to strategic acquirers globally. For us, entering into this partnership shows our commitment to diversifying and developing the range of professional services available to our clients, in this case, an expansion of our M&A services from purely legal to corporate finance. Through this venture, which is based in Manchester, Convex clients will benefit from our existing legal M&A and private wealth services and national scale.

While M&A market sentiment has been depressed, we are beginning to see signs of renewed confidence returning in the pipeline and are now even better positioned to benefit as activity picks up.

Employees at the heart of our ESG commitments

ESG remains central to everything we do, and we retain a relentless focus on developing a more sustainable business for all stakeholders. While our efforts span commitments across all aspects of our operations, this is particularly evident in our focus on culture, and our employee value proposition, which continues to drive momentum in recruitment and retention. We recognise that our talent is our greatest asset and strive to ensure that we are always improving our employee offering. We have a fierce commitment to fostering an inclusive, equitable, meritocratic environment, and we are proud that anonymous feedback provided to external consultants during the year signalled this was a stand-out cultural feature at Knights.

From an environmental perspective, while we remain a low carbon intensive business, we continuously seek ways in which to further reduce our emissions and drive energy efficiency across the group. During the year, we launched an EV scheme whereby colleagues can acquire electric vehicles through an approved salary sacrifice scheme, and in November 2023 also introduced a cycle to work initiative. We also seek to ensure that all acquired property meets minimum standards of energy efficiency, and during the year, we have focused on optimising our existing property portfolio.

Board changes

During the year, we were delighted to welcome Dave Wilson as non-executive Chairman of the Group. Dave brings more than 30 years' international board-level and operational experience to our Board, including in AIM-listed, acquisitive businesses. Since joining, Dave's insights and experience have been invaluable, and his contribution has already made a real impact.

Bal Johal stepped down from the Board at the same time, having served as non-executive Chair of Knights since 2012. On behalf of the Board, I reiterate our thanks to him for his immense contribution to the business over the past 11 years, during which time the Group has seen significant growth.

Current trading and outlook and medium-term plan

Trading in the first few weeks of the year has been encouraging. Despite some continued macroeconomic uncertainty, we are seeing a strong recovery in the residential property market, and anticipate an improving corporate M&A market, which we expect to support organic growth in our revenues during the current financial year and beyond.

While the past three fiscal years have presented the Group with multiple challenges, the business has responded well to these and is now poised to build on the work we have done during the past year to strengthen our platform for future growth. We entered the new financial year as a more connected, better organised business, able to offer and deliver a far broader range of services to our clients than ever before. This gives us great confidence that Knights is well-positioned to take advantage of improving market trends now, and longer term. We also have the headroom in our existing financing facilities and the expertise to add high quality acquisitions to our scalable platform, and we are encouraged by our active pipeline of opportunities.

We therefore expect organic growth to continue to improve in FY25, supported by sustained recruitment momentum and more new client wins, together with a more concerted approach to client acquisition and bringing more of our services to more of our existing clients, complemented by high-quality, considered acquisitions.

Looking beyond this year, we are focused on delivering an ambitious medium-term plan to significantly grow the business, building on our success to date, the clear momentum across the Group, and market tailwinds. Through a combination of strong organic growth, complemented by our strong pipeline of acquisition opportunities, we are confident in our ability to double the business in the medium term.

CFO Review

I am pleased to report another year of profitable, cash generative growth with revenue of £150.0m, up 6% compared to the prior year (FY23: £142.1m) and underlying EBITDA⁶ increasing by 16% to £38.7m (FY23: £33.4m). Reported profit before tax (PBT) increased by 29% to £14.8m in the year (FY23: £11.5m). Our disciplined approach to management of lock up³ has generated excellent cash conversion⁴ of 131% for the year (FY23: 117%) resulting in a strong balance sheet position at the year end.

Two complementary acquisitions during the year, an investment in a joint venture, recruitment of partners with new specialisms and strong growth in certain service lines has further increased the diversity of the Group's revenue. This diversity has been key to enabling the Group to deliver these positive results for FY24 despite the headwinds experienced in certain business sectors such as housing and M&A, due to the increased cost of debt.

FY24 has been a year of consolidation. Following several years of consistent and rapid growth through acquisitions, we have focused on our core business platform, consolidating services and facilities where appropriate and maximising efficiencies. Management of our cost base and treasury resources has enabled us to deliver strong growth in profits with improvements in margins achieved.

Whilst managing our cost base, we have continued to invest in our infrastructure ensuring we have the necessary management team, property portfolio and systems and technology resources in place to sustain our future growth plans.

Financial results

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000	% change
Revenue	149,957	142,080	6%
Other operating income	10,439	6,718	55%
Staff costs	(93,007)	(88,412)	5%
Other operating charges	(28,218)	(26,539)	6%
Impairment of trade receivables and contract assets	(489)	(468)	4%
Underlying EBITDA	38,682	33,379	16%
Underlying EBITDA %	25.8%	23.5%
Depreciation charges under IFRS16	(5,607)	(5,706)	(2%)
Finance costs under IFRS 16	(1,471)	(1,474)	0%
Underlying EBITDA post IFRS 16 charges	31,604	26,199	21%
Depreciation and amortisation charges (excluding amortisation on acquired intangibles)	(2,903)	(2,469)	18%
Underlying finance charges (excluding IFRS 16)	(3,402)	(2,135)	59%
Underlying finance income	23	-	0%
Underlying profit before tax	25,322	21,595	17%
Underlying profit before tax margin	16.9%	15.2%
Underlying tax charge (excluding impact of non-recurring deferred tax)	(6,598)	(4,304)	53%
Underlying profit after tax	18,724	17,291	8%
Basic underlying EPS (pence) ²	21.81	20.20	8%

Revenue

Reported revenue for the year is £150.0m compared to £142.1m in FY23, an increase of 6%.

Of this increase, £5.1m was generated from acquisitions made during the year and £1.0m is from the full year impact of FY23 acquisitions, with the disposal of HPL (acquired as part of Langleys in FY22) in July 22 reducing revenues year on year by £0.7m.

The remaining increase in revenue of £2.5m was generated through net organic growth.

Organic revenues

We are pleased to report a return to organic revenue growth of 2% in the year despite the challenging macro-economic conditions, demonstrating the resilience of our business driven by the diversity of our revenue streams and client base. The strategic decision to significantly reduce our restructuring and insolvency team during the second half of the year due to poor profitability and our commitment to positioning the business in the premium market had a negative impact on revenue growth of 1%. The economic impact of the increased costs of debt on the housing market (a 19% reduction in revenue) and corporate transactions (a 9% reduction in revenue) had a negative impact on total organic growth of 3%.

Excluding the effects of these strategic decisions and the macro-economic conditions on the housing market and corporate transactions, organic growth was 6% for the year. Strong growth in our non-cyclical areas of the business such as Private Wealth, Dispute Resolution along with our growing Regulatory and Immigration teams demonstrates the opportunities available for future organic growth when macro-economic conditions stabilise.

Our organic growth during the year results mainly from improved pricing and the quality of work undertaken, together with the recruitment of partners with strong client followings and networks.

Revenue from acquisitions

The acquisitions of Coffin Mew, Globe Consultants and Meade King completed during FY23. At acquisition we typically budget to retain 80% of acquired revenues. Other than Coffin Mew, where revenue has been impacted by the downturn in the housing market, the acquisitions are trading well and ahead of expectations. Current run rates for new housing matters acquired as part of the Coffin Mew acquisition indicate increases in revenue in FY25 to around expected levels. As well as driving the acquisition-related revenue, these acquisitions have continued to help drive organic revenues with recruits into these offices generating strong organic revenues in the year.

During FY24 we acquired Baines Wilson and St James Law. Both acquisitions have integrated into the business and are performing well and have contributed £5.1m of revenue in the year, which is higher than anticipated.

As well as contributing to acquisition revenues, both acquisitions are proving to be an excellent platform to generate strong organic growth with several new partner hires already being made into these offices.

Staff Costs

Total staff costs of £93.0m (FY23: £88.4m) have decreased as a percentage of revenue for the year to 62.0% (FY23: 62.2%) reflecting the continued discipline over cost control balanced against investing in the future growth of the business. This investment included the recruitment of partners and senior associates with good client following and networks as well as ensuring the appropriate leadership structure is in place providing a sustainable base for future growth.

Direct staff costs

Fee earning staff costs have reduced to 51.2% of revenue (FY23: 51.5%). This reflected a reduction in fee earner numbers through churn in some less productive and profitable areas of the Group and a continued leverage of the staff cost base through focus on improvements in pricing and recovery of client time. Pleasingly, we have started to leverage direct fee earner costs and improve gross margin whilst continuing to invest in the recruitment of new senior recruits to support our future organic growth. During FY24 we recruited 40 partners and senior associates (FY23: 27) representing investment for future organic growth.

Support staff costs

Support staff costs increased marginally to 10.8% (FY23: 10.7%). This is mainly due to delays in the timing of being able to leverage our past investment in creating an optimised operational platform due to the economic challenges affecting the housing-related and M&A service lines. FY24 has been a year of consolidation enabling the Group to focus on and benefit from process automation and centralisation of support services. This consolidation of support staff costs, whilst maintaining an excellent management structure to support future growth, puts the Group in a strong position to leverage this cost base in FY25 and beyond.

Other operating charges

Other operating charges of £28.2m have increased to 18.8% of revenue (FY23: 18.7%), again reflecting our investment for the future. During the period we refreshed our brand as well as investing in a review of our employee value proposition, an important investment in identifying and capturing the values, opportunities and culture our people can expect from us in return for their skills, experience and commitment. Investment in property, business development and office travel has also increased as we focus on building organic growth through building on existing client relationships, developing new client relationships and exploring new markets, including working with international clients and law firms requiring support in the UK. Whilst investing in these areas for growth we have also spent the year reviewing and consolidating supplier contracts maximising all synergy savings from past acquisitions. This has enabled us to manage our cost base whilst investing in business development, systems and technology necessary to support future growth.

Other operating income

Other operating income has increased to £10.4m from £6.7m driven by an increase in interest earned on client monies held due to higher interest rates in FY24 than the previous year.

Underlying EBITDA⁶

Underlying EBITDA⁶ excludes non-underlying operating expenses. These expenses include transaction and onerous lease expenses in relation to acquisitions, contingent acquisition payments and one-off restructuring and professional expenses mainly incurred in the streamlining of support functions or strategic reorganisations. The Board considers this to be a key metric to measure underlying business performance.

During the year, underlying EBITDA⁶ increased by £5.3m to £38.7m (FY23: £33.4m) representing an increase in margin to 25.8% (FY23: 23.5%), mainly due to the increase in the net interest earned on client monies in the period.

IFRS 16 Depreciation and finance charges

The IFRS 16 rental and finance expenses represents the accounting charge in respect of all leases with a term of over one year. During the year total expenses of £7.1m have reduced to 4.7% of revenue (FY23: 5.1%) as we continue to focus on rightsizing our property portfolio which has grown through acquisition. During the year the property portfolio has been managed to ensure we are optimising our space wherever possible, including subletting excess space in Leeds and Teesside, exiting offices in Manchester, Crawley, Southampton and Lancaster, with colleagues transferring to other existing offices.

Depreciation and amortisation charges

The increased charge from £2.5m (1.7% of revenue) in FY23 to £2.9m (1.9% of revenue) in FY24 is due to continued investment in systems and investment in property upgrades and refurbishments to support growth.

Finance charges

Finance charges increased by £1.3m in the year to £3.4m (FY23: £2.1m) driven mainly by the higher level of UK interest rates.

Underlying profit before tax (PBT)

Underlying profit before tax excludes amortisation of acquired intangibles, transaction, and onerous lease expenses in relation to acquisitions, contingent acquisition payments, disposals of acquired assets, one-off restructuring and professional costs mainly incurred in the streamlining of support functions or strategic reorganisations.

Underlying PBT 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.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit before tax	14,831	11,529
Amortisation on acquired intangibles	3,580	3,441
Contingent acquisition payments treated as remuneration	2,824	4,436
Other non-underlying costs	4,087	2,189
Underlying profit before tax	25,322	21,595

Total Group underlying PBT has increased by 17.3% to £25.3m (FY23: £21.6m).

The underlying profit before tax margin increased to 16.9% from 15.2% in the prior year benefitting from an increase in EBITDA margin, offset by an increase in interest payable.

Reported Profit Before Tax (PBT)

Reported PBT for the year has increased 28.6% to £14.8m (FY23: £11.5m) reflecting the increased profit in the underlying business.

Taxation

The tax charge for the year is £5.0m (FY23: £3.6m) made up of a current tax charge of £5.2m (FY23: £4.1m) partially offset by a deferred tax credit of £0.2m (FY23: £0.5m) giving an increased effective rate of tax for the Group of 34% (FY23: 31%). The increase in current tax charge reflects the increase in profits before tax and the full year impact of the increase in corporation tax rates in April 23 to 25% from 19%. The effective rate of tax is 34% compared to the UK corporation tax rate of 25% due to disallowable expenses, mainly contingent acquisition payments.

The effective rate of tax on the underlying profit of the Group is 26% (FY23: 20%) again mainly reflecting the increase in corporation tax rates from April 2023.

Earnings per share (EPS)

Basic EPS in the period increased by 24% to 11.47p per share (FY23: 9.28p per share). To aid comparison of EPS on a like for like basis, underlying EPS² has also been calculated based on the underlying profit after tax, calculated as set out below.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Operating profit before non-underlying charges and amortisation on acquired intangibles	30,172	25,204
Finance costs	(4,939)	(3,661)
Finance income	89	52
Underlying profit before tax¹	25,322	21,595
Taxation - underlying	(6,598)	(4,304)
Underlying profit after tax	18,724	17,291

The underlying EPS² has increased by 8% to 21.81p for the year (FY23: 20.20p). The weighted average number of shares used to calculate the undiluted EPS in the year was 85,840,067.

Considering the dilutive impact of potential share options, the basic diluted EPS for FY24 is 11.11p per share (FY23: 9.19p per share). Underlying diluted EPS has increased by 6% to 21.13p per share (FY23 20.00p per share).

Dividend

The Board continues to adopt a progressive dividend policy balanced with its commitment to continue to invest in the future growth potential of the business. Subject to approval at the Annual General Meeting in September 2024 the board proposes a final dividend of 2.79p per share. This together with the interim dividend of 1.61p per share brings the total dividend in respect of FY24 to 4.40p per share (FY23: 4.03p per share) representing an increase of 9%.

Balance Sheet

	30 April 2024 £'000	30 April 2023 £'000
Goodwill and Intangible assets	86,900	88,021
Right of use assets	34,034	38,200
Investment in joint venture	50	-
Loan to joint venture	2,523	-
Property, plant and equipment	14,896	10,004
Working capital	53,125	48,404
Other provisions and deferred tax	(14,590)	(14,823)
Lease liabilities net of lease receivables	(38,573)	(42,930)
	138,365	126,876
Cash and cash equivalents	5,453	4,045
Borrowings	(40,617)	(33,265)
Net debt⁵	(35,164)	(29,220)
Deferred consideration	(2,941)	(4,849)
Net assets	100,260	92,807

The Group's net assets as at 30 April 2024 increased by £7.5m to £100.3m (FY23: £92.8m) primarily reflecting profit for the year net of dividends paid in the period. The key movements in the Balance Sheet are discussed in more detail below.

Goodwill and intangible assets

Goodwill and intangible assets includes £24.9m of intangible assets relating to the Knights brand and customer relationships from current and prior year acquisitions. Purchased computer software amounts to £0.2m with the remaining balance of £61.8m 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 2024, the Board is satisfied that the goodwill was not impaired.

Investment in, and Loan to joint venture

Towards the end of the financial year, we entered into a joint venture with Convex. We purchased 50% of the equity of Convex for £50,000 and provided loans of £2.5m. These loans attract a minimum interest rate of 10%. There are no set repayment terms in respect of these loans which are repayable from the profit and cash generated by the business, therefore they are classified as non-current assets on the balance sheet as at 30 April 2024.

Property, Plant and Equipment

During the year the Group has continued to invest in its business platform to ensure the necessary IT and property infrastructure is in place to support our future growth plans. We continued our programme of investment in our IT systems and technology investing £1.4m (FY23: £1.3m) in the year. After a period of expansion of our property portfolio through acquisitions, during FY24 we have carried out a review of our properties, rightsizing and subletting some offices as appropriate. As part of this review, we have also invested in the refurbishment of certain offices to ensure we offer quality grade A office space where possible across the business. During FY24 we invested £6.7m in our refurbishment of office space (FY23: £0.4m). This investment, net of disposals and depreciation has resulted in an increase in our tangible fixed assets, excluding leasehold property, of £4.9m to £14.9m as at 30 April 2024 (30 April 23: £10.0m).

Working capital

Working capital is calculated as follows:

	30 April 2024 £'000	30 April 2023 £'000
Contract assets	40,191	38,215
Trade and other receivables	32,753	31,087
Corporation tax receivable	304	152
Total current assets	73,248	69,454
Trade and other payables	(19,935)	(20,832)
Contractual liabilities	(188)	(218)
Total current liabilities	(20,123)	(21,050)
Net working capital	53,125	48,404

Net working capital has increased to £53.1m as at 30 April 2024 (30 April 23: £48.4m), an increase of £4.7m or 10% from the prior year. Whilst the combined total for contract assets and trade receivables have reduced marginally as a percentage of revenue to 48.6% as at 30 April 2024 (30 April 23: 48.8%), timing of supplier payments has reduced the trade payables balance by £0.9m compared to the prior year.

The management of working capital continues to be a fundamental KPI for the Group, with strong controls and systems in place to monitor the levels of receivables and work in progress across the business. The number of lock up³ days (the time taken to convert a unit of time incurred into cash) is a key focus for the Board, Client Services Directors, and wider management team. As at 30 April 2024 lock up³ was 78 days (30 April 23: 87 days). This decrease was driven by a reduction in debtor days to 28 days (30 April 23: 30 days) and WIP (work in progress) days of 50 days (30 April 23: 57 days). Due to the disproportionate amount of time that it takes to conclude certain work types, such as our CL Medilaw, Real Estate Investment and Insolvency matters, these work types are excluded from our WIP days calculation as exceptions, so as not to distract the majority of the business from focusing on achieving its excellent lock up³ days. If WIP days were calculated including all valued WIP of the Group this would give WIP days of 85 days and hence a total lock up³, with no exclusions, of 113 days as at 30 April 2024 (30 April 23: 116 days).

The Group's strong controls over and focus on invoice collection continue to deliver excellent results with the bad debt charge for the year remaining at 0.3% of revenue, consistent with the prior year.

Right of Use Assets

The right of use assets capitalised in the Consolidated Statement of Financial Position represents the present value of property, equipment and vehicle leases. The decrease in the value of right of use assets during the year to £34.0m, from £38.2m as at 30 April 2023, resulted from an increase in assets of £7.0m relating to new leases acquired through acquisitions and the relocation of existing offices to new properties, less disposals and impairment of £5.6m as we terminate existing leases, and sublet excess space as part of our ongoing review of the property portfolio, less deprecation of £5.6m for the year.

Lease liabilities net of lease receivables

Lease liabilities net of lease receivables represents the present value of the total liabilities recognised in respect of the right of use assets, net of the present value of all amounts receivable in respect of any subleases of these assets.

The decrease in net lease liabilities and receivables in the year to £38.6m (30 April 2023: £42.9m) is the net impact of receipts and payments made in respect of existing lease agreements together with the impact of the lease receivable from the sublease of part of the Teesside office during the year together with the increase in lease liabilities from new leases acquired net of disposals of leases during the period.

Cash conversion, net debt⁵, financing and leverage

Cash generation continues to be a key focus for the Board and management team. The Group measures cash conversion by comparing the free cash flow from operations as a percentage of its underlying profit after tax⁷. As a result of the continued focus on this and specifically the management of lock up³, the Group generated underlying cashflows before capital expenditure of £24.6m during year equating to a cash conversion of 131%.

Cash flow

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Underlying EBITDA⁶	38,682	33,379
Change in working capital	(3,549)	(5,196)
Cash outflow for IFRS 16 leases	(6,245)	(6,728)
Movement in underlying share-based payment charge	1,121	1,248
Cash generated from underlying operations (pre-tax)	30,009	22,703
Tax paid	(5,432)	(2,424)
Net cash generated from underlying operating activities	24,577	20,279
Underlying profit after tax	18,724	17,291
Underlying cash conversion	131%	117%

The strong cash generation in the year has resulted in net debt⁵ of £35.2m at the year-end (30 April 23: £29.2m) despite a cash outlay of £11.3m relating to acquisitions and investments in the year along with deferred and contingent acquisition payments paid for acquisitions in prior years. The continued strong cash conversion has also enabled us to invest £8.2m in our systems and property portfolio to provide high quality infrastructure to support our future growth strategy and focus on premium service delivery.

The table below shows a reconciliation of the key cashflows impacting the movement in net debt in the year.

	Year ended 30 April 2024 £'000
Net debt 30 April 2023	29,220
Other net cash (inflows) from operating activities	(24,572)
Deferred and contingent acquisition payments	6,162
Consideration paid for acquisitions in the year (including acquired debt and cash)	2,549
Unpaid acquired debt	638
Non-underlying costs paid	4,246
Interest on borrowings	2,965
Dividends paid	3,525
Investment in joint venture	2,550
Capital expenditure (net of landlord contributions)	7,881
Net debt 30 April 2024	35,164

In November 2023 we renewed and extended our revolving credit facility (RCF) to £70m, committed until November 2026. As at 30 April 2024 the Group has c.£35m headroom in the RCF and is well within all covenants. For banking purposes our leverage as at 30 April 2024 was 1.1 times EBITDA (as defined for covenant purposes). Interest is payable on the loan at a margin of between 1.65% and 2.55% above SONIA dependent on leverage.

The Group is therefore in a strong financial position with sufficient headroom and flexibility within our financing arrangements to enable us to continue to execute our growth strategy.

Capital Expenditure

Capital expenditure (net of landlord contributions) during the year was £7.9m (FY23: £1.9m). The increase in the amount spent in the year compared to the prior year is due to the review of our property portfolio and the refurbishment of existing and acquisition of new office spaces as we look to consolidate our existing portfolio where appropriate, and invest in new and existing space to provide Grade A office space ensuring colleagues benefit from a high-quality working environment. Investment in office space and systems will continue into FY25, with circa £11m budgeted to be spent on completing the refurbishment of all existing offices together with the continued investment in our IT systems together to ensure we have top quality premises and systems in place to support our future growth strategy.

Acquisitions

During the year we completed two acquisitions and invested in a joint venture. The table below summarises the impact of these acquisitions on the cashflows during the year and in future years. This shows the consideration payable net of any cash in the acquired business.

The payment to the joint venture included a £50,000 investment in the equity of the business with the balance of £2.5m being a loan repayable from the future profits of the business. There is no agreed timescale for repayment of the loan therefore this has not been included in current forecast cashflows shown below, any repayments would therefore represent upside on forecast cashflows.

Financial year ended	Acquisitions of subsids (net of acquired cash) £m	Repayment of debt acquired with subsids £m	Contingent & deferred acquisition payments £m	Investment in and loan to joint venture £'m	Net cash impact of acquisitions pre year end £m
2024	1.9	0.8	6.2	2.6	11.5
2025	-	0.5	5.2	-	5.7
2026	-	0.3	1.7	-	2.0
2027	-	-	0.3	-	0.3

The above includes estimated contingent acquisition payments as remuneration in the Consolidated Statement of Comprehensive Income.

Summary

Results for the year to 30 April 2024 reflect a steady year of consolidation enabling us to continue to build our platform to support future growth. We have seen both acquisitive growth and a return to modest organic growth during the year, with our scale and diversity providing good resilience against an uncertain macro-economic environment. The centralisation of many support services and continued investment in recruitment and business development places the Group in a strong position to enable it to leverage costs and deliver higher levels of growth as external markets improve.

Our continued excellent management of cash has resulted in a strong Balance Sheet with significant headroom in our banking facilities to fund future investment and growth, both organically and through acquisitions

Consolidated Statement of Comprehensive Income

For the year ended 30 April 2024

	Note	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Revenue	5	149,957	142,080
Other operating income	7	10,439	6,718
Staff costs*	8	(93,007)	(88,412)
Depreciation and amortisation charges*	11	(8,510)	(8,175)
Impairment of trade receivables and contract assets		(489)	(468)
Other operating charges*	12	(28,218)	(26,539)
Operating profit before non-underlying charges and amortisation on acquired intangibles		30,172	25,204
Amortisation on acquired intangibles	11	(3,580)	(3,441)
Non-underlying operating costs	13	(6,630)	(6,473)
Operating profit		19,962	15,290
Finance costs*	14	(4,939)	(3,661)
Finance income	15	89	52
Non-underlying finance costs	13	(281)	(152)
Net finance costs		(5,131)	(3,761)
Profit before tax		14,831	11,529
Taxation - underlying*	17	(6,598)	(4,304)
Tax impact of non-underlying costs	17	1,614	1,129
Non-recurring tax charge	17	-	(410)
Taxation		(4,984)	(3,585)
Profit and total comprehensive income for the year attributable to equity owners of the parent		9,847	7,944

Earnings per share		Pence	Pence
Basic earnings per share		11.47	9.28
Diluted earnings per share		11.11	9.19

The above results were derived from the Group's continuing operations.

* Excluding non-underlying items and amortisation on acquired intangibles

Consolidated Statement of Financial Position

As at 30 April 2024

	Note	30 April 2024 £'000	30 April 2023 £'000
Assets
Non-current assets
Intangible assets and goodwill	20	86,900	88,021
Investments	22	50	-
Property, plant and equipment	23	14,896	10,004
Right-of-use assets	23	34,034	38,200
Finance lease receivables	26	1,633	1,671
Trade and other receivables	25	2,523	-
		140,036	137,896
Current assets
Contract assets	24	40,191	38,215
Trade and other receivables	25	32,753	31,087
Finance lease receivables	26	364	315
Corporation tax asset		304	152
Cash and cash equivalents		5,453	4,045
		79,065	73,814
Total assets		219,101	211,710

Equity and liabilities
Equity
Share capital	27	171	171
Share premium		75,262	75,262
Merger reserve		(3,506)	(3,506)
Retained earnings		28,333	20,880
Equity attributable to owners of the parent		100,260	92,807

Non-current liabilities
Lease liabilities	28	35,389	38,585
Borrowings	29	40,149	33,076
Deferred consideration	30	350	2,482
Deferred tax	31	8,288	8,388
Provisions	33	3,968	4,090
		88,144	86,621

Current liabilities
Lease liabilities	28	5,181	6,331
Borrowings	29	468	189
Trade and other payables	32	19,935	20,832
Deferred consideration	30	2,591	2,367
Contract liabilities	24	188	218
Provisions	33	2,334	2,345
		30,697	32,282
Total liabilities		118,841	118,903
Total equity and liabilities		219,101	211,710

Consolidated Statement of Changes in Equity

For the year ended 30 April 2024

	Note	Share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
As at 1 May 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	27	2	998	-	-	1,000
Transfers		-	-	30	(30)	-
Dividends	19	-	-	-	(3,061)	(3,061)
Balance at 30 April 2023		171	75,262	(3,506)	20,880	92,807
Profit for the period and total comprehensive income		-	-	-	9,847	9,847
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments	9	-	-	-	1,131	1,131
Dividends	19	-	-	-	(3,525)	(3,525)
Balance at 30 April 2024		171	75,262	(3,506)	28,333	100,260

Consolidated Statement of Cash Flows

For the year ended 30 April 2024

	Note	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Operating activities
Cash generated from operations	35	36,254	29,431
Non-underlying operating costs paid	13	(4,246)	(3,142)
Tax paid		(5,432)	(2,424)
Contingent acquisition payments		(3,745)	(3,870)
Net cash from operating activities		22,831	19,995

Investing activities
Acquisition of subsidiaries (net of cash acquired)	21	(1,888)	(6,018)
Other loans made	22	(2,500)	-
Investment in joint ventures	22	(50)	-
Purchase of intangible fixed assets	20	(40)	(71)
Purchase of property, plant and equipment	23	(8,165)	(1,853)
Proceeds from lease receivables	26	405	237
Disposal of subsidiaries (net of cash disposed)		-	1,068
Landlord capital contribution		396	-
Associated lease costs		(72)	-
Payment of deferred consideration		(2,417)	(1,210)
Net cash used in investing activities		(14,331)	(7,847)

Financing activities
Proceeds of borrowings		23,200	34,425
Repayment of borrowings		(16,325)	(33,900)
Repayment of debt acquired with current year subsidiaries	21	(661)	(256)
Repayment of debt acquired with prior year subsidiaries		(166)	(438)
Repayment of lease liabilities		(5,113)	(5,439)
Interest and other finance costs paid		(4,502)	(3,661)
Dividends paid		(3,525)	(3,061)
Net cash used in financing activities		(7,092)	(12,330)
Net increase/(decrease) in cash and cash equivalents		1,408	(182)
Cash and cash equivalents at the beginning of the period		4,045	4,227
Total cash and cash equivalents at end of period		5,453	4,045

Notes to the Consolidated Financial Statements

For the year ended 30 April 2024

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, all of its subsidiaries and its share of joint ventures.

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 the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has a strong trading performance, generates strong operating cashflows and has recently renewed and increased its banking facilities from £60,000,000 to £70,000,000, available until 7 November 2026. 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' conclusions 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 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, all of its subsidiaries and share of joint venture.

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
K & S Trust Corporation Limited	02885753
Coffin Mew LLP	OC323868
CLM Trust Corporation Limited	11247326
Meade King LLP	OC349796
Baines Wilson LLP	OC330890
St James' Law Limited	10507535

The outstanding liabilities at 30 April 2024 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 2024.

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 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 acquisition payments are contingent on an employee remaining in employment with the Group is 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 in which the 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 client 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 the Consolidated Statement of Comprehensive Income as it accrues, based on the effective interest rate during the period. This forms part of other operating 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.

Other 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.

Customer relationships that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and impairment losses (see accounting policy 'Impairment of non-financial assets'). Cost reflects management's judgement of the fair value of the individual intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset, discounted at an appropriate discount rate

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.

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 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 property	-	10% on cost
Leasehold property	-	10% on cost
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 2 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 Investment in joint ventures

Entities in which the Group has a long-term interest and share control under a contractual arrangement are classified as joint ventures. Joint ventures are accounted for using the equity method. Where necessary, adjustments are made to bring the accounting policies of joint ventures into line with those used by the Group.

2.12 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 the 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.

2.13 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 for the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

2.14 Leases

Group as lessee

The Group leases offices, equipment and vehicles. Rental contracts are for periods of between 2 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 £4,000). 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 some 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.

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases.

2.15 Retirement benefits

2.15a 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.

2.15b 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 in 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 on the basis that they are not deemed to be material.

2.16 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.

2.17 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 expected 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 are two new standards and amendments to IFRSs in issue but not yet effective and have therefore not been applied as set out below:

New and amended IFRSs	Effective date
Amendments to IAS1 Presentation of Financial Statements: Classification of Liabilities as Current and Non- current and Classification of Liabilities as Current or Non-current	1 January 2024
IFRS18 Presentation and Disclosure in Financial Statements	1 January 2027

The full impact of IFRS 18 on the financial statements is in the process of being reviewed, however the directors do not expect that the adoption of the standard will have a material impact on the financial statements of the Group in future periods. The directors do not expect that the amendments to IAS 1 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 a detailed understanding of the individual matters. The carrying value of contingent fee arrangements at 30 April 2024 was £13,070,000 (2023: £9,488,000).

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 IFRS 10. 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 (APMs)

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 2024 the Group had total provisions of £4,761,000 (2023: £4,827,000) (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 £40,191,000 (2023: £38,215,000), a 3% change in the estimated recovery of all matters would impact the profit for the period by approximately £1,469,000 (2023: £1,407,000).

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 £20,027,000 (2023: £23,158,000). 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:

Key assumption	Rate applied in the financial statements	Sensitivity tested	Annual profit impact £'000	Value of intangible assets £'000
Long term growth rate	2%	0%	-	-
WACC and IRR	8.4% (1)	Increase by 5%	14	(16)
Length of customer relationships	3 - 4.8 years	Increase of 5 years	(26)	161

(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 £61,788,000 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 FY25, 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 2024, with an element of organic growth in FY26 and FY27. The long-term growth rate of 2% (2023: 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 clients 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 2024 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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Other income	758	1,033
Bank interest on client monies	9,681	5,685
	10,439	6,718

8. Staff costs

The average monthly number of employees (including executive directors) of the Group was:

	Year ended 30 April 2024 Number	Year ended 30 April 2023 Number
Fee earners	1,131	1,154
Other employees	298	288
	1,429	1,442

Their aggregate remuneration comprised:

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Wages and salaries	80,456	76,392
Social security costs	9,053	8,675
Other pension costs	2,615	2,520
Share-based payment charge	1,131	1,265
Other employment costs	1,097	936
Aggregate remuneration of employees	94,352	89,788
Redundancy costs and share-based payment charges analysed as non-underlying costs	(1,345)	(1,376)
Underlying staff costs in Consolidated Statement of Comprehensive Income	93,007	88,412

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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Salaries, fees, bonuses and benefits in kind	749	838
Money purchase pension contributions	7	7
	756	845

The number of directors to whom benefits are accruing under money purchase pension schemes is 1 (2023: 2).

The remuneration of the highest paid director was:

Year ended 30 April 2024

£'000

Year ended 30 April 2023

£'000

Salaries, fees, bonuses, benefits in kind and gains on exercise of options

315

300

9. Share-based payments

The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of £1,131,000 (2023: £1,265,000) relating to equity-settled share-based payment transactions in the year. £1,121,000 (2023: £1,248,000) is recognised within staff costs, and £10,000 (2023: £17,000) is classified as 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 in the directors view these schemes were 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.

	Restricted stock awards		Performance share awards
	Number	Weighted average exercise price Pence	Number	Weighted average exercise price Pence
Outstanding at 1 May 2022	461,411	0.2	344,038	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	-	-
Granted during the period	433,332	0.2	-	0.2
Dividend equivalents awarded	144,200	0.2	9,471	0.2
Forfeited during the period	(105,912)	0.2	(138,397)	0.2
Exercised during the period	(100,184)	0.2	-	-
Outstanding at 30 April 2024	3,542,090	0.2	238,138	0.2
Exercisable at 30 April 2024	992,586	0.2	-	-

The options outstanding at 30 April 2024 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 1.25 years. The average share price for options exercised during the year was 109.04p.

During the year 433,332 options were granted as restricted stock awards. The maximum term of any award is three years.

The aggregate of the estimated fair values of the options granted during the year was £414,000. The model used is based on intrinsic values and the inputs are as follows:

Date Granted	Number of Shares	Fair Value £	Share Price (p)	Exercise Price (p)	Expected Life	Type of award
25 July 2023	333,332	292,665	88.0	0.2	3.0 years	Restricted stock
29 November 2023	30,000	28,740	96.0	0.2	0.0 years	Restricted stock
06 February 2024	70,000	92,260	132.0	0.2	1.9 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. The original SIP scheme was launched in September 2019, eligible employees could apply to invest up to £1,800 from pre-tax income in partnership shares; matching shares were awarded on the basis of two free matching shares for each partnership share purchased.

In January 2024, the Group launched a new 'evergreen' SIP scheme which allows eligible employees to purchase shares each month with the maximum investment per employee per year being £1,800. Matching shares are awarded on the basis of one free matching share for every two partnership shares purchased.

Under both schemes, matching shares are forfeited if the employee leaves within three years of the grant date.

	Partnership Shares Number	Matching Shares Number	Dividend Shares Number

Outstanding at 1 May 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	-
Granted during the period	48,856	24,418	16,188
Withdrawn during the period	(37,219)	-	-
Reallocated during the period	(6,766)	(12,733)	19,499
Forfeited during the period	-	(70,351)	(4,784)
Outstanding at 30 April 2024	123,067	177,727	30,903
Unrestricted at 30 April 2024	74,285	153,346	30,903

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 were launched in February 2020 and March 2022.

	SAYE options
	Number	Weighted average exercise price Pence

Outstanding at 1 May 2022	1,866,427	289
Forfeited during the period	(996,259)	274
Outstanding at 30 April 2023	870,168	306
Exercisable at 30 April 2023	133,334	361
Forfeited during the period	(569,621)	310
Outstanding at 30 April 2024	300,547	298
Unrestricted at 30 April 2024	7,977	361

The options outstanding at 30 April 2024 had a weighted average exercise price of 298p and a weighted average remaining contractual life of 1.00 years.

February 2020 scheme

The aggregate of the estimated fair values of the options granted in February 2020 is £1,163,000. 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 2024 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 £110,000. 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 £2,615,000 (2023: £2,520,000) represents contributions payable to the scheme by the Group. As at 30 April 2024, total contributions of £551,000 (2023: £515,000) 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 2024.

11. Depreciation and amortisation charges

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Depreciation	2,656	2,364
Depreciation on right-of-use assets	5,607	5,706
Amortisation on computer software	103	103
Loss on disposal of property, plant and equipment	144	2
Underlying depreciation and amortisation charges in Consolidated Statement of Comprehensive Income	8,510	8,175
Amortisation on acquired intangibles	3,580	3,441
	12,090	11,616

Amortisation on acquired intangibles has been separately identified within overall depreciation and amortisation charges as it is deemed to be a non-underlying cost, on the basis that it relates to acquisitions. As such in the year ended 30 April 2023 it has been reclassified to enable clearer presentation of the non-underlying items included within operating profit. This has not resulted in any change to reported operating profit.

12. Other operating charges

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Establishment costs	7,775	6,888
Short term and low value lease costs	247	302
Other overhead expenses	20,196	19,349
	28,218	26,539

13. Non-underlying costs

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Redundancy and reorganisation staff costs	1,335	1,359
Share-based payment charges	10	17
Contingent acquisition payments treated as remuneration	2,824	4,436
Impairment of right-of-use assets	153	38
(Profit) on disposal of right-of-use assets	(125)	-
Loss/(profit) on disposal of property, plant and equipment	930	(12)
Non-underlying gains on disposal	-	(318)
Transaction costs	1,503	953
Non-underlying operating costs	6,630	6,473
Non-underlying finance costs	281	152
	6,911	6,625

Non-underlying costs cash movement

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Non-underlying costs	6,911	6,625
Adjustments for:
Contingent acquisition payments shown separately	(2,824)	(4,436)
Non-cash movements:
Share-based payment charge	(10)	(17)
Impairment of right-of-use assets	(153)	(38)
Profit on disposal of right-of-use assets	449	-
(Loss)/profit on disposal of property, plant and equipment	(930)	12
Non-underlying gains on disposal	-	318
Transaction costs	(443)	218
Non-underlying finance costs	(281)	(152)
Additional cash movements:
Rental payments on onerous leases	605	543
Service charge payments on onerous leases	104	92
Dilapidation payments	818	-
Receipt for sale of HPL fixed assets	-	(24)
	4,246	3,141

Non-underlying costs relate to redundancy costs to streamline the support function of the Group following acquisitions or strategic reorganisations, 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.

Contingent acquisition payments are 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 Consolidated 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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Interest on borrowings	3,402	2,135
Interest on leases	1,537	1,526
	4,939	3,661

15. Finance income

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Loan interest receivable	23	-
Lease interest receivable	66	52
	89	52

16. Auditor's remuneration

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Fees payable to the parent company's auditor and their associates for the audit of the parent company's annual accounts	50	43
Fees payable to the auditor and their associates for other services to the Group:
- The audit of the Company's subsidiaries	170	150
Total audit fees	220	193

- Audit-related assurance services	25	22
Total non-audit fees	25	22

17. Taxation

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Corporation tax:
Current year	4,991	4,208
Adjustments in respect of prior years - non-recurring	-	(161)
Adjustments in respect of prior years	218	39
	5,209	4,086
Deferred tax:
Origination and reversal of temporary differences	(225)	(1,072)
Effect of change in tax rates	-	122
Adjustment in respect of prior years	-	449
	(225)	(501)

Tax expense for the year	4,984	3,585

The charge for the period can be reconciled to the Consolidated Statement of Comprehensive Income as follows:

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit before tax	14,831	11,529
Tax at the UK corporation tax rate of 25% (2023: 19.5%)	3,708	2,248
Expenses that are not deductible in determining taxable profit	1,058	679
Partnership tax paid on acquired subsidiaries	-	209
Effect of change in tax rates	-	122
Adjustment in respect of prior years - non-recurring	-	289
Adjustment in respect of prior years	218	38
Tax expense for the year	4,984	3,585

Consisting of:
Taxation - underlying	6,598	4,304
Tax impact of non-underlying costs	(1,614)	(1,129)
Non-recurring tax charge	-	410

The impact of non-underlying costs on the effective rate of tax is set out below:

	Year ended 30 April 2024			Year ended 30 April 2023
	Total £'000	Underlying £'000	Non-Underlying £'000	Total £'000	Underlying £'000	Non-Underlying £'000
Profit before tax	14,831	25,322	(10,491)	11,529	21,595	(10,066)
Tax expense	4,984	6,598	(1,614)	3,175	4,304	(1,129)
Effective rate of tax	34%	26%	15%	28%	20%	11%

Change in tax rate	-	-	-	122	-	122
Other non-recurring tax credits	-	-	-	288	-	288
Non-recurring tax charge				410	-	410
Total tax charge	4,984	6,598	(1,614)	3,585	4,304	(719)
Effective rate of tax (post effect of non-underlying)	34%	26%	15%	31%	20%	7%

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 2024 Number	Year ended 30 April 2023 Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	85,840,067	85,597,833
Effect of dilutive potential ordinary shares:
Share options	2,778,654	878,031
Weighted average number of ordinary shares for the purposes of diluted earnings per share	88,618,721	86,475,864
	£'000	£'000
Profit after tax	9,847	7,944
Earnings per share	Pence	Pence
Basic earnings per share	11.47	9.28
Diluted earnings per share	11.11	9.19

Underlying earnings per share is calculated as an alternative performance measure in note 37.

19. Dividends

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 April 2023 of 2.50p per share (2022: 2.04p)	2,145	1,749
Interim dividend for the year ended 30 April 2024 of 1.61p per share (2023: 1.53p per share)	1,380	1,312
	3,525	3,061

For the year ended 30 April 2024 the Board have proposed a final dividend of 2.79p per share (2023: 2.50p 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 30 August 2024. The payment of this dividend will not have any tax consequences for the Group.

20. Intangible assets and goodwill

	Goodwill £'000	Brand £'000	Customer relationships £'000	Purchased computer software £'000	Total £'000
Cost
As at 1 May 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
Acquisitions of subsidiaries	2,049	-	395	-	2,444
Adjustments	78	-	-	-	78
Additions	-	-	-	40	40
Disposals	-	-	(1,097)	-	(1,097)
As at 30 April 2024	61,788	5,401	34,432	535	102,156

Amortisation and impairment
As at 1 May 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
Amortisation charge	-	54	3,526	103	3,683
Eliminated on disposal	-	-	(1,097)	-	(1,097)
As at 30 April 2024	-	486	14,405	365	15,256

Carrying amount
At 30 April 2024	61,788	4,915	20,027	170	86,900
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

As noted in the prior year accounts, the initial accounting for the business combination which occurred at the end of the prior year was not complete. During the year further information has come to light about estimated provisions which existed at the acquisition date but were subsequently identified as being understated. This has resulted in adjustments of £78,000 being made to goodwill during the year.

The carrying amount of goodwill of £61,788,000 (2023: £59,661,000) 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% (2023: 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 13.4% (2023: 11.1%).

Revenue growth over the three years of the forecast period reflects, for FY25, 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 2024, and an element of organic growth in FY26 and FY27 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 two acquisitions St James' Law Limited and Baines Wilson LLP. The table below summarises the consideration paid and the net cash flow arising on all acquisitions in the period:

	Total £'000
Total identifiable assets less liabilities acquired	647
Goodwill	2,049
Total consideration	2,696

Satisfied by:
Cash	2,462
Deferred consideration arrangement	234
Total consideration transferred	2,696

Net cash outflows arising on acquisition:
Cash consideration net of cash acquired	1,888
Net investing cash outflow arising on acquisition	1,888

Repayment of debt acquired	661
Net financing cash outflow arising on acquisition	661

Repayment of debt in future years	638

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.

Baines Wilson Limited Liability Partnership ('BW')

On 1 May 2023 the Group exchanged contracts to acquire BW by purchasing the controlling membership interests of the entity. This acquisition completed on 2 June 2023. BW is a law firm which will strengthen Knights' presence in the North of England and provides entry into a new location with an office in Carlisle.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	-	383	383
Property, plant and equipment	409	27	436
Contract assets	94	-	94
Trade and other receivables	685	-	685
Cash and cash equivalents	302	-	302
Liabilities
Trade and other payables	(295)	-	(295)
Borrowings	(130)	-	(130)
Provisions	(30)	-	(30)
Deferred tax	(16)	(96)	(112)
Total identifiable assets and liabilities	1,019	314	1,333
Goodwill			1,062
Total consideration			2,395


Satisfied by:
Cash			2,395
Total consideration transferred			2,395

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			2,093
Repayment of debt			130
Net cash outflow arising on acquisition			2,223

Intangibles relating to customer relationships of £383,000 has been arrived at using the excess earnings method. The goodwill of £1,062,000 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 acquisition payments arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group and it has therefore 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 years post-acquisition period. This is recognised within non-underlying operating costs.

The maximum undiscounted amount of all potential future payments under the contingent acquisition payments arrangement is £1,020,000 and is payable in equal instalments on the first, second and third anniversary of completion.

BW contributed £3,376,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 1 May 2023 to 30 April 2024. 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 2 June 2023.

St James' Law Firm Limited ('SJS')

On 1 May 2023 the Group exchanged contracts to acquire SJS by purchasing the controlling membership interests of the entity. This acquisition completed on 16 June 2023. SJS is a law firm which will strengthen Knights' presence in the North East of England and provides entry into a new location with an office in Newcastle.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	-	12	12
Property, plant and equipment	30	(7)	23
Contract assets	250	-	250
Trade and other receivables	363	-	363
Cash and cash equivalents	272	-	272
Liabilities
Trade and other payables	(406)	-	(406)
Borrowings to be repaid within the year	(531)	-	(531)
Borrowings to be repaid over 1 year	(638)	-	(638)
Provisions	(18)	-	(18)
Deferred tax	(10)	(3)	(13)
Total identifiable assets and liabilities	(688)	2	(686)
Goodwill			987
Total consideration			301


Satisfied by:
Cash			67
Deferred consideration			234
Total consideration transferred			301

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			(205)
Repayment of debt within the year			531
Net cash outflow arising on acquisition			326

Repayment of debt in future years			638

Intangibles relating to customer relationships of £12,000 has been arrived at using the excess earnings method. The goodwill of £987,000 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 acquisition payments 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 2 years post acquisition period. This is recognised within non-underlying operating costs.

The maximum undiscounted amount of all potential future payments under the contingent acquisition payments arrangement is £100,000 and is payable in equal instalments on the first and second anniversary of completion.

There are also undiscounted deferred consideration payments totalling £252,000 outstanding. These are payable in instalments on the first and second anniversaries of completion.

SJS contributed £1,676,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 1 May 2023 to 30 April 2024. 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 16 June 2023.

22. Investments

On 28 March 2024, the Group acquired 50% of the share capital of Convex Corporate Finance Limited as part of a joint venture with key management personnel of Convex Corporate Finance Limited. The initial investment was £50,000 and each joint venturer has equal voting rights. No share of net assets has been recognised in the Group during the year as the first £1,000,000 of profits in each financial year are allocated to the key management personnel of Convex Corporate Finance.

During the year a £2,500,000 loan was made to Convex Corporate Finance Limited in order for them to carry out their operating activities. The loan attracts interest at 10% per annum. The loan and its associated interest is recognised in trade and other receivables greater than one year.

23. Property, plant and equipment

	Expenditure on short leasehold property £'000	Long leasehold property £'000	Office equipment £'000	Furniture and fittings £'000	Motor Vehicles £'000	Right-of-use assets £'000	Total £'000
Cost
As at 1 May 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
Acquisitions of subsidiaries	7	380	35	37	-	-	459
Additions	5,297	-	1,424	1,444	-	7,076	15,241
Disposals	(1,178)	-	(1,410)	(262)	-	(11,346)	(14,196)
Impairment	-	-	-	-	-	(882)	(882)
As at 30 April 2024	12,816	380	6,501	2,536	90	50,335	72,658

Depreciation and impairment
As at 1 May 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
Depreciation charge	979	4	1,474	176	23	5,607	8,263
Eliminated on disposal	(422)	-	(1,257)	(95)	-	(5,864)	(7,638)
Impairment	-	-	-	-	-	(729)	(729)
As at 30 April 2024	3,022	4	3,718	649	34	16,301	23,728

Carrying amount
At 30 April 2024	9,794	376	2,783	1,887	56	34,034	48,930
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

Net impairment charges of £153,000 (2023: £38,125) due to leases being classified as onerous are included in non-underlying operating costs (see note 13).

See note 28 for further details of right of use assets.

24. Contract assets and liabilities

	Contract assets £'000	Trade receivables £'000	Contract liabilities £'000
At 30 April 2024	40,191	25,931	(188)
At 30 April 2023	38,215	23,610	(218)
At 30 April 2022	31,777	26,643	(237)

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 2024 was £13,070,000 (2023: £9,488,000).

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 £344,000 (2023: £2,457,000) were acquired in business combinations.

An impairment loss of £36,000 has been recognised in relation to contract assets in the year (2023: £41,000). 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% (2023: 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.

25. Trade and other receivables

	30 April 2024 £'000	30 April 2023 £'000
Trade receivables	26,694	24,524
Impairment provision - trade receivables	(763)	(914)
Prepayments and other receivables	6,822	7,477
Amount owed from joint venture	2,523	-
	35,276	31,087

Trade and other receivables	30 April 2024 £'000	30 April 2023 £'000
> 1 year	2,523	-
< 1 year	32,753	31,087
	35,276	31,087

Trade receivables

The average credit period taken on sales is 28 days as at 30 April 2024 (2023: 30 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 expected 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 2024				30 April 2023
	Gross carrying amount	Expected credit losses	Expected credit loss rate		Gross carrying amount	Expected credit losses	Expected credit loss rate
	£'000	£'000	%		£'000	£'000	%
Not past due	14,893	42		0.28	13,108	40	0.31
31-60 days past due	3,667	14		0.38	2,961	16	0.55
61-90 days past due	1,378	5		0.36	1,099	10	0.85
91-120 days past due	209	1		0.48	187	4	2.01
>120 days past due	2,176	605		27.80	2,548	738	28.96
12 month ECL £'000	22,323	667		2.99	19,903	808	4.06

In addition to the above on trade receivables a further £96,000 (2023: £106,000) impairment loss has been recognised against disbursement balances (excluding CL Medilaw). This is based on 100% impairment against all disbursements with no activity on the matter for over 12 months and 0.3% 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:

	2024	2023
	£'000	£'000
Balance at 1 May	914	1,265
Increase in loss allowance recognised in profit and loss during the year	489	468
Acquired provisions	129	401
Receivables written off during the year as uncollectable	(769)	(1,220)
Balance at 30 April	763	914

26. Finance lease receivable

The Group sub-leases floors in three 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 2024 £'000	30 April 2023 £'000
Less than one year	424	375
One to two years	424	375
Two to three years	424	375
Three to four years	424	375
Four to five years	406	375
More than five years	225	435
	2,327	2,310
Less: unearned finance income	(330)	(324)
	1,997	1,986
Finance lease receivable	30 April 2024 £'000	30 April 2023 £'000
> 1 year	1,633	1,671
< 1 year	364	315
	1,997	1,986

Total lease payments received for the year ended 30 April 2024 was £405,000 (2023: £237,000).

During the year, the Group sublet a floor in the Teesside office. The present value of this receivable was £350,000 and the right-of-use asset derecognised had a carrying value of £280,000. The profit of £70,000 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 are 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. Share capital

	Ordinary shares
	Number	£'000
As at 1 May 2022	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
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options	100,184	-
At 30 April 2024 (allotted, called up and fully paid)	85,914,160	171

28. Lease liabilities

Incremental borrowing rates applied to individual leases ranged between 1.7% and 8.3%.

The table below sets out the Consolidated Statement of Financial Position as at 30 April 2024 and 30 April 2023:

	30 April 2024 £'000	30 April 2023 £'000
Right-of-use assets
Property	33,496	37,693
Equipment	538	507
	34,034	38,200
Lease liability
> 1 year	35,389	38,585
< 1 year	5,181	6,331
	40,570	44,916

Right of use assets include additions and acquired assets of £6,565,000 (2023: £4,212,000) for property and £511,000 (2023: £47,000) for equipment. The related depreciation charge for the year is £5,127,000 (2023: £5,234,000) for property and £480,000 (2023: £472,000) for equipment.

The table below shows lease liabilities maturity analysis - contractual undiscounted cash flows at 30 April 2024:

	30 April 2024			30 April 2023
	Property £'000	Equipment £'000	Total £'000	Property £'000	Equipment £'000	Total £'000
Less than one year	6,810	188	6,998	7,312	426	7,738
One to five years	23,485	509	23,994	23,473	86	23,559
More than five years	20,342	-	20,342	22,491	-	22,491
	50,637	697	51,334	53,276	512	53,788
Less unaccrued future interest	(10,658)	(106)	(10,764)	(8,849)	(23)	(8,872)
	39,979	591	40,570	44,427	489	44,916

The table below shows amounts recognised in the Consolidated Statement of Comprehensive Income for short term and low value leases as at 30 April 2024:

30 April 2024

30 April 2023

Property
£'000

Equipment
£'000

Total
£'000

Property
£'000

Equipment
£'000

Total
£'000

Expenses relating to short - term and low value leases

215

247

271

302

For right-of-use asset depreciation and lease interest charges on leases see note 11 and 14.

Total lease payments, including payments for short term and low value leases, for the year ended 30 April 2024 were £7,502,000 (2023: £7,810,000).

29. Borrowings

	30 April 2024 £'000	30 April 2023 £'000
Secured borrowings at amortised cost:
Bank loans	39,800	32,925
Other loans	817	340
Total borrowings	40,617	33,265
Amount due for settlement within 12 months	468	189
Amount due for settlement after 12 months	40,149	33,076

The above excludes lease liabilities.

All of the Group's borrowings are denominated in sterling.

The Group has a credit facility of £70,000,000 in total (2023: £60,000,000). The facility remains available until 7 November 2026.

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 November 2026. 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 2.55% 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 2024 £'000	30 April 2023 £'000
Non-current liabilities
Deferred consideration	350	2,482

Current liabilities
Deferred consideration	2,591	2,367

Deferred consideration as at 30 April 2024 relates to the acquisition of Langleys Solicitors LLP, Coffin Mew LLP and St James' Law Limited and is not contingent.

In addition, the Group has accrued contingent acquisition payments 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 acquisition payments 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 capital allowances £'000	Intangible assets £'000	Share-based payments £'000	Unpaid employer contributions £'000	IFRS 16 £'000	Total £'000
As at 1 May 2022	1,392	7,782	(519)	-	(323)	8,332
Acquisitions of subsidiaries	-	403	-	-	159	562
Adjustments	-	(5)	-	-	-	(5)
Effect for 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
Acquisitions of subsidiaries	26	99	-	-	-	125
Charge/(credit) for the year	947	(895)	(221)	(1)	(55)	(225)
As at 30 April 2024	2,349	6,236	(680)	(1)	384	8,288

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 2024 £'000	30 April 2023 £'000
Deferred tax assets	(681)	(459)
Deferred tax liabilities	8,969	8,847
	8,288	8,388

32. Trade and other payables

	30 April 2024 £'000	30 April 2023 £'000
Trade payables	5,574	5,531
Other taxation and social security	7,435	7,350
Other payables	1,281	2,410
Accruals	5,645	5,541
	19,935	20,832

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 22 days (2023: 25 days). No interest is payable on the trade payables.

The directors consider that the carrying amount of trade payables approximates to their fair value.

Included within other payables is a contingent acquisition payments liability, this arises on acquisition and the liability is contingent on employees completing a specified length of service. As at 30 April 2024 £1,277,000 of contingent acquisition payments are included within other payables (2023: £2,404,000). The total potential value of the contingent liability is £2,960,000 (2023: £4,795,000).

33. Provisions

	Dilapidation provision £'000	Onerous contract provision £'000	Professional indemnity provision £'000	Total £'000
As at 1 May 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
Acquisitions of subsidiaries	38	-	10	48
Additional provision in the year	853	66	1,125	2,044
Utilisation of provision	(957)	(104)	(1,164)	(2,225)
As at 30 April 2024	4,761	244	1,297	6,302

Consisting of:
Non-current liabilities	3,824	144	-	3,968
Current liabilities	937	100	1,297	2,334

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 amounts 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 2024 £'000	30 April 2023 £'000
Financial assets
Amortised cost
Contract assets	40,191	38,215
Trade and other receivables (excluding prepayments)	29,134	24,715
Lease receivable	1,997	1,986
Cash and cash equivalents	5,453	4,045
Financial liabilities
Amortised cost
Borrowings	40,617	33,265
Deferred consideration	2,941	4,849
Trade and other payables	11,223	11,077
Leases	40,570	44,916

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. There is no significant interest rate risk in respect of temporary surplus funds invested in deposits and other interest-bearing accounts with financial institutions as the operations of the Group are not dependent on the finance income received.

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 2024 would decrease/increase by £203,000 (2023: decrease/increase by £166,000). 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 25 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.

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 2024	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	468	55	40,094	40,617
Deferred consideration	2,591	350	-	2,941
Trade and other payables	12,501	-	-	12,501

30 April 2023	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'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

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 Consolidated 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 2024 £'000	30 April 2023 £'000
Borrowings (note 29)	40,617	33,265
Cash and cash equivalents	(5,453)	(4,045)
Net debt	35,164	29,220
Equity	100,260	92,807
	%	%
Net debt to equity ratio	35	31

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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit before taxation	14,831	11,529
Adjustments for:
Amortisation on computer software	103	103
Amortisation on acquired intangibles	3,580	3,441
Depreciation - property, plant and equipment	2,656	2,364
Depreciation - right-of-use assets	5,607	5,706
Loss on disposal (net of £930,000 (2023: £12,000 profit) included in non-underlying costs)	144	2
Contingent acquisition payments	2,824	4,436
Other non-underlying operating costs	3,806	2,037
Non-underlying finance costs	281	152
Share-based payments	1,121	1,248
Finance income	(89)	(52)
Finance costs	4,939	3,661
Operating cash flows before movements in working capital	39,803	34,627
(Increase) in contract assets	(1,632)	(3,924)
(Increase)/Decrease in trade and other receivables	(767)	3,346
Increase/(Decrease) in provisions	29	(738)
(Decrease) in contract liabilities	(29)	(19)
(Decrease) in trade and other payables	(1,150)	(3,861)
Cash generated from operations	36,254	29,431

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 £'000	Leases £'000
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 year subsidiaries	(438)	-
Repayments	(34,156)	(5,439)
Amounts included in operating activities	13	(388)
As at 30 April 2023	33,265	44,916
New borrowings and leases	23,200	6,690
Acquired borrowings and leases	638	-
Finance costs	3,402	1,537
Interest and other finance costs paid	(2,965)	(1,537)
Unpaid interest not applied to principal	(437)	-
Non-cash movement	5	(5,378)
Repayment of debt acquired with prior year subsidiaries	(166)	-
Repayments	(16,325)	(5,113)
Amounts included in operating activities	-	(545)
As at 30 April 2024	40,617	40,570

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 Accounting Standards ('IAS') 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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Operating profit	19,962	15,290
Depreciation and amortisation charges (note 11)	12,090	11,616
Non-underlying operating costs (note 13)	6,630	6,473
Underlying EBITDA	38,682	33,379
Depreciation of right of use assets (note 11)	(5,607)	(5,706)
Interest on leases (note 14)	(1,537)	(1,526)
Lease interest receivable (note 15)	66	52
Underlying EBITDA post IFRS16	31,604	26,199

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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit before tax	14,831	11,529
Amortisation on acquired intangibles (note 11)	3,580	3,441
Non-underlying operating costs (note 13)	6,630	6,473
Non-underlying finance costs (note 13)	281	152
Underlying profit before tax	25,322	21,595

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 30 April 2024 £'000	Year ended 30 April 2023 £'000

Profit after tax	9,847	7,944
Amortisation on acquired intangibles (note 11)	3,580	3,441
Non-underlying costs (note 13)	6,911	6,625
Tax impact of non-underlying costs (note 17)	(1,614)	(1,129)
Non-recurring tax charge (note 17)	-	410
Underlying profit after tax	18,724	17,291
Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	21.81	20.20
Diluted underlying earnings per share	21.13	20.00

Tax has been calculated at the corporation tax rate of 25% (2023:19.5%) and deferred tax rate of 25% (2023: 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 flows. Cash conversion % is calculated by dividing free cash flow by underlying PAT, which is reconciled to profit after tax above.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Cash generated from operations (note 35)	36,254	29,431
Tax paid	(5,432)	(2,424)
Net underlying cash outflow for IFRS16 leases	(6,245)	(6,728)
Free cashflow	24,577	20,279
Underlying profit after tax	18,724	17,291
Cash conversion (%)	131%	117%

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 2024 £'000	30 April 2023 £'000
Borrowings (note 29)	40,617	33,265
Cash and cash equivalents	(5,453)	(4,045)
Net debt	35,164	29,220

38. Capital commitments

As at 30 April 2024 there is a capital commitment of £6,342,000 (2023: £nil).

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 2024. The scheme is closed and provides benefits for 38 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 2024 allowing for cashflows in and out of the Scheme and changes to assumptions over the period.

From March 2023 it was agreed that Employer contributions towards administration expenses would be deferred until January 2026. 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 2024 %	30 April 2023 %
Discount rate	5.06	4.66
Retail Prices Index ("RPI") Inflation	3.57	3.28
Consumer Price Index ("CPI") Inflation	2.67	2.38
Pension increase (LPI 5%) Pension increase (LPI 2.5%)	3.40 2.25	3.16 2.17
Post retirement mortality	106%/99% (m/f) S2PA CMI_2022 projections using a long-term improvement rate of 1.5% pa and initial addition of 0.3%	90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of 7.5) using a long-term improvement rate of 1.0% pa
Commutation	80% of members are assumed to take the maximum tax free cash possible using current commutation factors	80% of members are assumed to take the maximum tax free cash possible using current commutation factors

Life expectancy at age 65 of male aged 65	22.0	22.6
Life expectancy at age 65 of female aged 65	23.8	24.2
Life expectancy at age 65 of male aged 45	23.0	23.6
Life expectancy at age 65 of female aged 45	24.9	25.4

The weighted average duration of the Scheme's obligations is 12 years.


The current asset split is as follows
	Asset allocation at 30 April 2024	Asset allocation at 30 April 2023
Equities and growth assets	51%	50%
Bonds, LDI and cash	49%	50%




	Value as at 30 April 2024 £'000	Value as at 30 April 2023 £'000
Fair value of assets	2,132	2,314
Present value of funded obligations	(1,605)	(1,736)
Surplus in scheme	527	578
Deferred tax	-	-
Net defined benefit surplus after deferred tax	527	578

The fair value of the assets can be analysed as follows:
	Value as at 30 April 2024 £'000	Value as at 30 April 2023 £'000
Low risk investment funds	1,050	1,156
Credit Investment funds	647	696
Cash	435	462
Fair value of assets	2,132	2,314


	30 April 2024 £'000	30 April 2023 £'000
Administration costs	36	39
Net interest on liabilities	(27)	(21)
Total charge to the Statement of Comprehensive Income	9	18

Remeasurements over the period since acquisition
	30 April 2024 £'000	30 April 2023 £'000
Loss on assets in excess of interest	(115)	(694)
Gain on scheme obligation from assumptions and experience	31	675
Loss on scheme obligations due to scheme experience	8	(77)
Gain on scheme obligations from demographic assumptions	34	-
Total remeasurements	(42)	(96)

The change in value of assets
	30 April 2024 £'000	30 April 2023 £'000
Fair value of assets brought forward	2,314	3,047
Interest on assets	105	91
Benefits paid	(136)	(91)
Administration costs	(36)	(39)
Loss on assets in excess of interest	(115)	(694)
Fair value of assets carried forward	2,132	2,314

Actual return on assets	(10)	(603)


Change in value of liabilities
	30 April 2024 £'000	30 April 2023 £'000
Value of liabilities brought forward	1,736	2,355
Interest cost	78	70
Benefits paid	(136)	(91)
Actuarial gain	(73)	(598)
Value of liabilities carried forward	1,605	1,736


Sensitivity of the value placed on the liabilities
Approximate effect on liability
	30 April 2024 £'000	30 April 2023 £'000
Discount rate
Minus 0.50%	93	110
Inflation
Plus 0.50%	70	89
Life Expectancy
Plus 1.0 years	49	52

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 2024	30 April 2023
	£'000	£'000
Total assets	58,300	64,200
Total liabilities excluding expenses	(63,000)	(68,500)
Deficit	(4,700)	(4,300)
Funding level	93%	94%

Allocation to the Group

The estimated share of the Scheme liabilities is 0.790%.

Over the year to 30 April 2024, the Section's funding position is a small deficit.

	30 April 2024	30 April 2023
	£'000	£'000
Estimated cost of providing benefits	(498)	(541)
Value of assets	461	507
Resulting deficit	(37)	(34)
Funding level	93%	94%

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 D.A. 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 £376,000 (2023: £376,000) 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 £376,000 per annum (excluding VAT).

During the year Knights Professional Services Limited charged KPV Propco Ltd for professional services totalling £145,000 (2023: £nil) and a management fee of £40,000 (2023: £20,000)

At 30 April 2024, there was an amount of £24,000 owed by KPV Propco Ltd to the Group (2023: £16,000 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 £10,000 (2023: £32,000). At 30 April 2024, there was an amount of £nil (2023: £nil) 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 30 April 2024 £'000	Year ended 30 April 2023 £'000
Short-term employee benefits and social security costs	1,338	1,422
Pension costs	20	20
Share-based payments	(23)	50
	1,335	1,492

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 £789,000 (2023: £664,000) were paid in the year in respect of ordinary shares held by the Company's directors.

41. Basis of preparation

Whilst the financial information included in this results announcement has been prepared on the basis of UK-adopted International Accounting Standards, it does not contain sufficient information to comply with UK-adopted International Accounting Standards.. The financial information contained within this results announcement for the year ended 30 April 2024 and the year ended 30 April 2023 is derived from but does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 30 April 2023 have been filed with the Registrar of Companies. The auditors' report on the statutory accounts for the year ended 30 April 2024 and the year ended 30 April 2023 is unqualified, does not draw attention to any matters by way of emphasis, and does not contain any statement under section 498 of the Companies Act 2006.

Glossary of Terms

Alternative Performance Measures

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.

Underlying EBITDA

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Operating profit	19,962	15,290
Depreciation and amortisation charges (note 11)	12,090	11,616
Non-underlying operating costs (note 13)	6,630	6,473
Underlying EBITDA	38,682	33,379
Depreciation of right of use assets	(5,607)	(5,706)
Interest on leases	(1,537)	(1,526)
Lease interest receivable	66	52
Underlying EBITDA post IFRS 16	31,604	26,199

Underlying EBITDA post IFRS 16 is used as a metric as this reflects the profits after deduction of rental costs which is most comparable to the EBITDA reported at IPO, before the introduction of IFRS 16).

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 acquired intangible assets, and non-underlying items.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit before tax	14,831	11,529
Amortisation on acquired intangibles	3,580	3,441
Non-underlying operating costs (note 13)	6,630	6,473
Non-underlying finance costs (note 13)	281	152
Underlying profit before tax	25,322	21,595

Underlying operating profit to underlying profit after tax (PAT)

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Operating profit before non-underlying charges	30,172	25,204
Finance costs	(4,939)	(3,661)
Finance income	89	52
Underlying profit before tax	25,322	21,595
Taxation	(6,598)	(4,304)
Underlying profit after tax	18,724	17,291

Underlying Profit After Tax (PAT) and Underlying Earnings per Share (EPS)

Underlying PAT and underlying EPS are presented as alternative performance measures to show the underlying performance of the Group excluding the effects of amortisation of acquired intangible assets and non-underlying items.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Profit after tax	9,847	7,944
Amortisation on acquired intangibles (note 11)	3,580	3,441
Non-underlying costs (note 13)	6,911	6,625
Tax impact of non-underlying costs (note 17)	(1,614)	(1,129)
Non-recurring tax charge (note 17)	-	410
Underlying profit after tax	18,724	17,291

Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	21.81	20.20
Diluted underlying earnings per share	21.13	20.00

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 flows. Cash conversion % is calculated by dividing free cash flow by underlying profit after tax, which is reconciled to profit after tax above.

	Year ended 30 April 2024 £'000	Year ended 30 April 2023 £'000
Cash generated from operations (note 37)	36,254	29,431
Tax paid	(5,432)	(2,424)
Total cash outflow for IFRS16 leases	(6,245)	(6,728)
Free cashflow	24,577	20,279
Underlying profit after tax	18,724	17,291
Cash conversion (%)	131%	117%

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 2024	30 April 2023
	£'000	£'000
Borrowings (note 29)	40,617	33,265
Cash and cash equivalents	(5,453)	(4,045)
Net debt	35,164	29,220

Working Capital

Working capital is calculated as:

	30 April 2024 £'000	30 April 2023 £'000
Current assets
Contract assets	40,191	38,215
Trade and other receivables	32,753	31,087
Corporation tax receivable	304	152
Total current assets	73,248	69,454

Current liabilities
Trade and other payables	(19,935)	(20,832)
Contract liabilities	(188)	(218)
Total current liabilities	(20,123)	21,050
Net working capital	53,125	48,404

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.

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.

Recurring Revenue

This is calculated based on the amount of revenue in a year that reoccurs in the following year from the same clients.

Lock Up

This 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 the total fees raised over prior months. WIP (work in progress) days are calculated based on the gross work in progress (excluding that relating to clinical negligence claims, insolvency, highways and ground rents as these matters operate on a mainly 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 highways 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 financial year.

Organic growth

Organic growth excludes revenue growth from acquisitions in the year of their acquisition, and for the first full financial year following acquisition, based on the fees generated by the individuals joining the Group from the acquired entity. Recruitment of individuals into the acquired offices post acquisition is treated as part of the organic growth of the business.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

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