TIDMKGH
RNS Number : 1057S
Knights Group Holdings PLC
12 July 2022
Knights Group Holdings plc
("Knights" or the "Group")
Full Year Results
Robust financial performance with strategy execution driving
growth
Knights today announces its full year results for the year ended
30 April 2022.
Financial highlights
-- Revenue increased by 22% to GBP125.6m (2021: GBP103.2m)
o Organic growth(1) of 2%, held back by Omicron in the typically important fourth quarter
o 20% revenue growth from acquisitions; a GBP14.8m increase in
contribution from prior year acquisitions and GBP5.8m from in year
acquisitions
-- Gross margins increased to 49.3% (2021: 48.9%)
-- Underlying PBT(2) fell by 2% to GBP18.1m (2021: GBP18.4m),
representing an underlying PBT margin of 14.4% (2021: 17.8%)
-- Underlying EPS decreased to 17.23p (2021: 18.30p). Basic EPS
- loss of 3.02p (2021: profit of 4.14p)
-- Strong cash conversion(3) of 109% (2021: 96%)
-- Lock up(4) was 86 days (2021: 89 days excluding
acquisitions), with continued improvement driven by strong culture
and discipline of day-to-day cash collection across the Group
-- Net debt, excluding leases, of GBP28.9m (30 April 2021:
GBP21.1m) after paying GBP18.0m of initial and deferred cash
consideration for acquisitions
-- Proposed final dividend of 2.04p, giving a total dividend of
3.50p (FY 21: nil, FY 20: 1.10p)
Strategic and operational highlights
-- Continued to expand geographic presence, with acquisition strategy gaining momentum
o Three acquisitions completed during the period, providing
platforms for future organic growth
-- Keebles strengthened Knights' Yorkshire presence,
complementing existing offices in Nottingham and Leeds
-- Archers provided entry into the North East, one of the
largest markets for legal and professional services in the UK
-- Langleys established Knights as the leading firm in York and
expanded its operations in the East of England, with entry into
Lincoln
-- Acquisition pipeline remains strong, with acquisition of
Coffin Mew completed post-period end adding four offices in the
South of England, providing a new presence in Portsmouth,
Southampton, Brighton and Newbury
o Integration of newly acquired businesses is progressing well
with performance in line with expectations, overseen by the growing
Client Services Executive
-- Strong employee retention and continued recruitment driven by
unique culture, increased scale and national reputation
o Remains an attractive location for talent with over 1000 fee earners at the year end
o Strong net promoter scores, driven by strong culture (Client NPS +72, Employee NPS +24)
o Workforce remains stable with very low churn(5) of 9%
(excluding anticipated churn in acquisitions), which continues to
improve. Average length of service of partners of over 9 years
-- Expanded Client Services Director team working more closely with Operational Directors
o Added four new Client Services Directors ("CSDs"), through recruitment and internal promotion
o New lines of reporting allowing CSDs and Operational Directors
to work more closely with each other, reporting directly to CEO and
CFO
-- Continued progress with ESG, with new targets being developed
o Increasing momentum in the 4 our community programme with
colleagues doing more activities together to support local
communities
o Continued focus on the health and wellbeing of colleagues, a
key theme at a successful annual conference on 10th June 2022 with
over 1,000 colleagues socialising together, giving feedback and
being encouraged to work with our retained psychologist on
mindset
o Greater investment in local office social events encouraging
colleagues to have fun and get to know each other better to promote
well-being and to accelerate the return to office-based working
o New targets being developed for 2022, having surpassed
performance targets for our greenhouse gas emissions, and paper
consumption set in 2019
o Maintained good gender balance in senior positions, with five
of the 12 CSDs and 60% of the Board being female
o Expanded ESG governance to include climate change, adopting TCFD guidance
-- Current trading and outlook
o A positive start to the new year with prior year acquisitions
integrating and performing well and as planned
o Continuing to attract high calibre professionals, with strong client followings
o Acquisition pipeline growing in quality and quantity, aided by
the return to normality following the pandemic and accelerated by
the uncertain economic environment
o While uncertainty around economic conditions persists, the
Board considers that the business is highly resilient, with a
significant market opportunity, the right strategy and team in
place to deliver on it, giving confidence in its medium-term
outlook
David Beech, CEO of Knights, commented:
"We have delivered another robust financial performance despite
the short-term challenges experienced in the fourth quarter, with a
positive start to the new financial year supported by the
acquisitions completed in prior years.
"I am extremely grateful to the support our people have given to
me and the business in recent weeks and we have a great culture and
high morale which will enable us to continue to make good progress
in the current year.
"Our ability to attract and retain top industry talent remains
strong, while our pipeline of high quality acquisition targets
continues to grow.
"I'm very pleased not only with the level of growth we have
delivered over the last ten years since we corporatised, growing
from two offices and GBP9m of revenue to a Top 50 law firm with 22
offices, and revenue of over GBP125m but also with our continued
discipline to deliver market leading working capital days and cash
generation.
"We continue to execute our strategy and remain confident in our
outlook, as we leverage our enhanced scale and national reputation
to realise our ambition to be the leading legal and professional
services firm outside London."
A presentation of the full year results will be made to analysts
via a webinar at 9am today. To register interest in attending,
please contact Christian Hart at MHP Communications on 020 3128
8147 or email knights@mhpc.com .
Enquiries
Knights
David Beech, CEO Via MHP Communications
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Numis (Nomad and Broker)
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Stuart Skinner, Kevin Cruickshank 020 7260 1000
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MHP Communications (Media enquiries)
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Andrew Jaques, Katie Hunt, Eleni 020 3128 8100
Menikou, Robert Collett-Creedy
07736 464749
knights@mhpc.com
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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 22 offices located in Birmingham, Brighton,
Cheltenham, Chester, Crawley, Exeter, Leeds, Leicester, Lincoln,
Maidstone, Manchester, Newbury, Nottingham, Oxford, Portsmouth,
Sheffield, Southampton, Stoke, Teesside, Weybridge, Wilmslow and
York.
Footnotes:
(1) 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.
(2) Underlying PBT is before amortisation of acquired
intangibles, one off transaction costs relating to acquisitions
made during the year, restructuring costs, disposals of acquired
assets and recognition of onerous leases. It also excludes one off
share-based payment charges along with contingent consideration
payments required to be reflected through the Statement of
Comprehensive Income as remuneration under IFRS accounting
conventions. Underlying EPS excludes these items and the tax
related to these items. The Board believes that these underlying
figures provide a more meaningful measure of the Group's underlying
performance.
(3) Cash conversion is calculated as the total of net cash from
operations, tax paid and payments of lease interest and lease
finance liabilities under IFRS 16, divided by the underlying profit
after tax, which is calculated from profit after tax by adding back
amortisation of acquired intangibles, the effect of the change in
the tax rate, non-underlying operating costs relating to
acquisitions, non-recurring finance, restructuring costs in the
reporting period, and non-underlying share-based payments and the
tax in respect of these costs.
(4) Lock up excludes the impact of acquisitions in the last
quarter of the financial year as well as clinical negligence,
insolvency, highways and ground rents work in progress as these
matters operate mainly on a conditional fee arrangement and a
different profile to the rest of the business.
(5) Employee churn is calculated based on the number of
qualified fee earners who have been employed by the Group for more
than one year, excluding expected churn from acquisitions.
A more detailed explanation of the Group's alternative
performance measures used in this report have been included in the
glossary.
Chairman's Statement
Knights delivered a robust financial performance this year, with
revenue of GBP125.6m, up c.22% compared to the prior year. This
growth in the year principally reflects acquisitions, with in-year
acquisition contributing c.GBP5.8m and the full year impact of
prior year acquisitions delivering an additional GBP14.8m, giving
total revenue growth from acquisitions of GBP20.6m (20%). This
acquisition-led growth was complemented by our COVID affected
organic growth of 2% in the period, 4% disregarding the impact of
closing down volume debt recovery and conveyancing, and further
enhancing the Group's position in its market.
Throughout the year we continued to realise our vision of
building the UK's leading legal and professional services business
outside London. We expanded our geographic footprint, strengthening
our presence in Yorkshire and entering the North East and East of
England as we welcomed more high quality businesses and people into
our Group. As we entered the new financial year, we extended our
presence in the South East, meaning that as Knights celebrates a
decade since its corporatisation, we are now a diversified business
of truly national scale, operating from offices across the UK. As
we grow the business, the Board continually reviews Knights'
corporate structure, operational infrastructure, and processes to
ensure they will support the continued scaling up of the
business.
During the year, we faced unusual challenges, including the
emergence of the Omicron variant of the COVID-19 virus, leading to
disruption within the business due to increased employee sickness
and absence during what is historically our most significant
trading period in the fourth quarter of the financial year. Despite
this, the Group delivered underlying profit before tax of
c.GBP18.1m, reflecting the resilience of our business model and
agility of our management team. I am proud of how our people met
these challenges and have bounced back quickly, demonstrating the
benefits of our strong and unique culture. I would like to express
my thanks, on behalf of the whole Board, for their dedication, and
tireless hard work. I would also like to thank our exceptional
management team, who continue to successfully drive the business
forward, despite such unpredictable headwinds.
Increasingly well positioned to execute our acquisition
strategy
Our strategy is delivering tangible results. Knights'
differentiated corporate structure is increasingly understood and a
heightened awareness of its strong culture and reputation is
helping to drive continued growth. Within a large, highly
fragmented market, Knights is well-positioned to continue to seize
opportunities that align with our strategy and goals.
This year, we built on our exemplary track record of deriving
value from acquisitions and continued to roll out our targeted
expansion, executing our strategy. This growth has increased our
ability to attract high-quality acquisition targets that are a
strong strategic and cultural fit for our business, bringing a
significant number of talented new professionals into our Group.
Our reach now spans a large proportion of the UK.
Strong recruitment momentum as we continue to scale the
business
We continue to attract the highest calibre people and I am
pleased to say that this year we recruited from leading law firms
across the country as quality lawyers, typically with a strong
client following, continue to favour our model over equity
partnership. As importantly, I am delighted to say that employee
churn, at 9%, remains low across all experience levels.
During the year, we have continued to attract new clients who
recognise the unique combination of expertise, excellent service
and value that we offer, adding to our already strong client base.
We have also broadened Knights' portfolio of specialisms, adding a
complementary debt advisory service offering to the Group. This is
performing well, providing opportunities for cross-selling, and has
attracted experienced accountants and corporate bankers from
respected institutions, further demonstrating the strong
positioning of the Knights brand.
Our strong culture, which is recognised across the industry, and
enhanced reputation, are key draws for talented professionals. The
cultural integration of our newly acquired businesses is overseen
by our growing Client Services Executive team, which we expanded
during the year. This team and our Operational Directors, report
directly into David Beech and Kate Lewis (CEO and CFO), ensuring
that this deeply experienced group continues to work together to
support the growth and scaling up of the business.
The adoption of a hybrid working model has allowed our people to
work flexibly and maintain a healthy work-life balance, whilst
continuing to benefit from our strong team culture. We continued to
invest in our systems, building on the technological improvements
we implemented during the pandemic, to facilitate a more seamless
flow between home and office. This, together with the depth and
breadth of our resources, has further accelerated the integration
of new businesses and joiners into our Group during the year.
Board and ESG
We continue to be mindful of the impact of our business on the
world around us. Throughout the year we proactively managed this
through improving energy efficiency by moving from older office
buildings to grade A space, maximising space by consolidating into
fewer, larger offices and building on the habits adopted by our
professionals to digitise the way in which they work. I am pleased
with our performance against targets, having surpassed those we set
in 2019, successfully reducing our greenhouse gas emissions, paper
consumption and office usage. We are in the process of agreeing new
targets for 2022 and beyond. During the year we expanded the scope
of our ESG governance to include Climate Change, adopting TCFD
guidance. Following a strategic review to assess risk under various
climate change scenarios, we see no material risk or opportunity
for the business.
Our volunteering programme also continues, with colleagues
supporting their local communities through our 4 Our Community
programme. Our partnership with Mind is also yielding positive
results.
In terms of gender balance at a senior level, we are making
significant progress. Of our 12 Client Services Directors, 5 are
female as is 60% of our Board. We are extremely proud of these
figures but recognise there is more we can do in this area. We are
also proud of the diversity across the business, with 72% of all
fee earning professionals being female.
In acknowledgement of the challenges Knights has faced during
the period, it was agreed that no bonuses would be paid to the
executive directors, even though some of the non-financial measures
had been achieved, with no increase in salary for the CEO and only
an inflationary pay rise for the CFO for FY23.
In acknowledgement of the difficulties that may be faced by our
people in light of the cost-of-living crisis, we undertook a
detailed salary review, increasing salaries across the business
which, along with other initiatives, has had a positive impact on
employee morale at all levels.
Shortly after the period end, we announced that Richard King
would step down from his role as Chief Operating Officer, and from
the Knights Board, to pursue other opportunities. Richard was
instrumental in establishing the strong operational infrastructure
which has enabled the Group to achieve critical mass and will
support the continued scaling up of the business. Richard leaves
Knights with our gratitude and on behalf of the Board I offer him
our best wishes for the future.
Dividend
The Group's progressive dividend policy balances the retention
of profits to fund our long-term growth strategy of providing
shareholders with a return, as that growth strategy delivers strong
results. In line with that policy, the Board is proposing a final
dividend of 2.04p Together with the interim dividend of 1.46p per
share, this gives a total dividend for the year of 3.50p. The
dividend will be payable on 30 September 2022 to shareholders on
the register at 2 September 2022, subject to shareholder approval
at the Group's AGM.
Summary and medium-term outlook
I am encouraged by our clear strategic and operational progress
during the year, which was achieved despite considerable external
challenges in the final quarter.
There is good momentum in the business going into the new
financial year and our outlook is positive, with a healthy pipeline
of acquisition opportunities of quality firms and high calibre
recruits, all with a strong cultural fit, and which will provide
entry into new markets or additional capabilities or scale in our
existing office locations.
We have a significant market opportunity, with the right
strategy and team in place to deliver on it and we look forward to
continuing to make strong progress in achieving our goals.
Bal Johal
Non Executive Chairman
Chief Executive's Review
2022 marks ten years since Knights was corporatised. As I
reflect on our remarkable journey over the past decade, I am
exceptionally proud of what we have achieved.
Over ten years, Knights has grown from a firm with two offices
and revenues of GBP9m to an industry-leading legal and professional
services group, now ranked among the UK's Top 50 law firms with 18
offices delivering over GBP125m in revenues as at 30 April 2022 and
now 22 offices following our most recent acquisition in the South
East. We are a well-balanced business, increasingly recognised for
our strong culture. We have forged a solid reputation as a premium
service provider across the UK, with a diversified, full service
legal offering complemented by specialist planning, tax and debt
advisory services, among others.
In recent years, our steady pace of selected acquisitions across
the UK has enabled us to achieve critical mass. Knights now has the
credibility, market positioning and scale to attract the highest
calibre talent. We are recruiting from Top 40 law firms and
well-reputed professional services firms, and crucially, are
attracting and retaining key professionals who favour our
forward-thinking corporate model over partnership and see how
Knights are well positioned to support them and their strong client
following.
Today, in line with the vision set out in 2012, our Group is
consistently sought out by clients seeking high-quality legal
expertise, deep sector knowledge, a broad range of specialisms and
bespoke advice.
Robust performance despite short term challenges
During the year, we delivered pre tax profitable, cash
generative growth albeit this was held back by short term
challenges in the last quarter, a period which has typically seen
strong revenues convert to a significant contribution to annual
profits. This year, the emergence of the Omicron variant of the
COVID-19 virus and the resulting employee sickness levels,
alongside some softening of business confidence as a result of
macroeconomic pressures, slowed growth to a greater extent than
anticipated during this important trading period. As we have
started a new financial year we have been pleased to see a growing
appetite to work together in our offices with less disruption to
our team business model and culture.
Our appetite for commercially and strategically sound
acquisitions with a clear cultural fit remains strong, and our
acquisition strategy gained further momentum during the year. We
successfully integrated prior acquisitions and acquired two
additional well-established and respected independent law firms. In
doing so, we expanded our geographical reach and added over 100
professional colleagues to the Group.
As a result of our increased credibility and the heightened
awareness of Knights, we saw several significant additions to our
client base during the year, including the Teesside Regional
Development Corporation, Warner Media, Barratt Homes, Aesop and
Durham Cathedral. We also saw our income from our Top 50 clients by
revenue increase by 33% to GBP20.5m. Our ability to service clients
of this calibre across an increased number of service lines
reflects the strength of Knights' positioning in key regions for
legal and professional services, driving organic growth across the
business.
Despite this considerable growth, we maintained our industry
leading levels of lock-up days* at 86 days, reflecting our strong
culture and discipline of day-to-day cash collection across the
Group. We continued to be cash generative, and our strong cash
position and credit facilities mean we remain well-positioned to
continue to execute our ambitious growth plans.
Continuing to put people and culture first
Knights is a people-centric business. We fully understand that
our success depends on the quality of talent across the Group and
our ability to attract and retain the best people. To support this,
we strengthened our operational infrastructure during the year, and
bolstered our team of Client Services Directors (CSDs), increasing
this group to 12. Our CSDs not only oversee day-to-day management
of the Group's offices, but also lead on the integration of new
professionals and acquired businesses, ensuring Knights' 'one team'
ethos and commercially driven approach is deeply embedded across
the business.
We continued to actively minimise churn, which remained at low
levels across the Group at 9%. I am particularly pleased that we
also maintained low levels of attrition at a senior level. While
attrition among our most experienced partners has always been low,
we are maintaining low churn comparative to large City firms due to
the market leading positions that we tend to occupy in regional
towns and cities. This is testament to both our business model and
our approach to integration, and also reflects our 'one team'
collaborative culture, something we believe is a strong
differentiator, of which we are immensely proud. We saw a powerful
example of building on the Group's culture at our recent full
company event in June which focussed on listening to and
communicating with our incredible talent and continuing to evolve
how we look after employee health and wellbeing and support them in
building their careers.
We undertook a salary review across the business which took
effect on 1 May 2022. This followed a comprehensive body of work to
ensure our pricing reflects the levels of service and the value
that we deliver to clients. This enabled us to deliver positive
uplifts to our colleagues across the Group. We are confident that
the salaries we offer at all levels are competitive and generally
higher than independent regional firms. We have also made 109
promotions during the year, testament to how we continue to nurture
and develop our talent.
We expect that all of the increased costs from salary increases
will be offset by price increases which we implemented at the
commencement of FY23.
Throughout the pandemic and beyond, we have seen a migration of
talented lawyers and other professionals away from London. We
believe this represents a structural change, and one which has
provided us with a recruitment pipeline of increasingly high
quality in other areas of the UK.
As a result of our ongoing investment in cutting-edge IT
infrastructure, our hybrid working model and our expanded presence
across the UK, we have been able to take advantage of and better
leverage this reshaped talent map. While we continue to embrace new
ways of working, it is also pleasing to see more colleagues
transitioning back to offices, allowing the full benefits of our
strong team-based culture to be realised.
Acquisition strategy gaining momentum
In line with the Group's strategy to accelerate organic growth
through carefully targeted regional acquisitions, we acquired two
high-quality law firms during the year, extending the Group's
presence into the North East and taking us into a new regional
market in the East of England. The acquisition after our year end
of Coffin Mew further expanded the Group's presence in the South
East.
Strengthening the Group's presence in Yorkshire
In addition to the two acquisitions announced in the financial
year, we also completed the acquisition of Keebles LLP in June 2021
(exchanged at the end of FY21), a firm established in Sheffield
over a century ago with a strong corporate and real estate
offering. This was a significant acquisition for the Group,
complementing Knights' existing presence in Nottingham and Leeds
with a leading position in South Yorkshire. This business is now
fully integrated into our business, making a positive contribution
to revenue and profit.
New presence in one of the UK's largest legal and professional
services markets in the North East
In November 2021, the Group welcomed Archers Law LLP, a leading
independent firm based in Teesside in the North East. This region,
which is currently receiving significant public and private
investment, represents one of the UK's largest markets for legal
and professional services outside London. This acquisition has
provided us with a platform for future organic growth in the
region. It has integrated well, with the business performing in
line with our expectations, underscoring the strong cultural fit
and well-aligned service offering we had identified.
Strategic advance into the East of England
In March 2022, we successfully completed the acquisition of
Langleys, a leading independent law firm. This established Knights
as the leading law firm in York while also providing a new presence
for us in Lincoln. This strategic acquisition expands the Group's
operations in the East of England, an attractive growth market for
our services. The integration of this business so far has been very
successful. Of the two elements of the business identified at
acquisition as not fully aligning to the Group strategy we have
transferred the Child Law business, amounting to circa GBP1m of
acquired revenues, for asset value. The HPL part of the business, a
separate subsidiary focused on high volume conveyancing, is held
for resale. As planned, we have exchanged contracts on 5 July 2022
to sell the HPL subsidiary focused on high volume conveyancing and
non core to our strategy.
Momentum maintained in the current financial year
Post period end, in July 2022, we completed the acquisition of
Coffin Mew, a leading independent law firm, which will provide us
with entry into new markets, including Portsmouth, Southampton,
Brighton and Newbury. The acquisition brings circa 100 new
professionals to Knights, significantly expanding the Group's
presence in the South of England.
Current trading and outlook
Since the year end, we have been encouraged by the Group's
positive trading momentum, as we continue to realise the benefits
of prior acquisitions. We have continued to strengthen the business
through diversification and are confident of our resilience for the
year ahead.
We see significant opportunities for further high-quality
acquisitions, as seen with the acquisition of Coffin Mew since the
beginning of the new financial year. We are strongly placed for
further organic growth, as we increasingly attract high calibre
professionals with client followings and as we further extend our
complementary services which align within our current
offerings.
While we acknowledge that uncertainty around economic conditions
persists, we strongly believe that Knights remains well-positioned
to meet any associated challenges with more resilience than ever.
We remain confident in our ability to continue to execute our
growth plans, further enhancing the Group's already strong position
in key legal services markets outside London.
David Beech
Chief Executive Officer
Chief Financial Officer Review
I am pleased to report that, despite challenging conditions in
the last two trading months of the year, during which we typically
record our strongest trading of the financial year, we have
delivered good revenue growth, with underlying profits in line with
the previous year.
Our continued focus on cash flow has resulted in excellent cash
conversion* of 109% for the year and a lower than expected net debt
figure. This positions the Group well to continue to deliver on its
strategy to grow the business both organically and acquisitively,
through carefully selected strategic acquisitions.
Financial results
2022 2021
GBP'000 GBP'000
Revenue 125,604 103,201
Staff costs (76,863) (62,707)
Other underlying costs and charges (30,610) (22,075)
-------- --------
Underlying profit before tax 18,131 18,419
Amortisation of acquisition related
intangibles (3,815) (2,622)
One-off costs on acquisitions
* (13,260) (10,288)
-------- --------
Profit before tax 1,056 5,509
======== ========
Basic EPS (3.02p) 4.14p
Basic Underlying EPS 17.23p 18.30p
Revenue
Reported revenue for the period was GBP125.6m compared with
GBP103.2m in FY21, representing a 21.7% increase.
Of this increase 25%, or GBP5.8m, was from acquisitions made
during the financial year and GBP16.9m was contributed by
acquisitions made in FY21, an increase of GBP14.8m from the revenue
relating to those acquisitions recognised in FY21.
The Group achieved organic growth of 1.8% overall for FY22, with
organic growth in the first half of the year amounting to GBP4.3m
(9.3%). However, this was offset by a GBP2.5m (4.6%) reduction in
organic revenues in the second half of the year compared to the
same period the previous year. This decline was due to the impact
of unusually high levels of employee sickness and disruption caused
by the Omicron variant and a slight softening in business
confidence as a result of macroeconomic pressures in the last
quarter of the year, typically the most significant trading period
of the financial year.
Our strategic focus is to deliver premium services to a
high-quality client base and as such, it is necessary in some
instances to restructure certain areas of the business to ensure
our focus is on executing our overall strategy. During the
financial year, both our organic growth and our income from
acquisitions was impacted by the restructuring of some less
profitable and strategically misaligned teams.
The cessation of volume debt recovery and volume conveyancing
business during the last 12 months has impacted organic revenues by
c.GBP2m. Excluding the impact of this restructuring, organic growth
for FY22 would be c.4%.
In relation to acquisition income, for the Keebles acquisition,
approximately GBP0.9m of revenue relating to legal aid matters and
other non-strategically aligned areas was transferred to third
parties for asset value.
Given the full year impact of acquisitions made during the year,
as at 30 April 2022 the run rate revenue for the Group was
c.GBP132m.
.* see glossary
Staff costs
Total staff costs represented 61.2% of revenue during the
financial year compared with 60.8% in 2021. Fee earner staff costs
have decreased, from 51.1% to 50.7% of revenue, reflecting our
ongoing efforts to control costs whilst continuing to invest in
high quality senior recruits who bring a client following. During
the year 19 partners joined the Group as part of our active
recruitment process. Each new recruited partner typically requires
a period of three to six months minimum before achieving their full
expected fee earning run rate.
Support staff costs increased slightly to 10.5% of revenue in
the year, compared to 9.7% in the prior year, driven by the full
year cost of investment made in our operational infrastructure in
FY21, including additional office services employees required to
manage the move to an increased level of office-based working.
Staff costs leverage was impacted during the year due to trading
headwinds adversely affecting revenue at the end of the financial
year. Management continues to focus on ensuring staffing costs are
leveraged sufficiently, balancing this with ensuring the business
is fully invested in and supported ahead of planned future
growth.
Underlying profit before tax (PBT)
To reflect the impact of the Omicron variant and softening of
business confidence due to the macro-economic environment in the
last two months of the financial year, headline figures for the
year have been analysed as a half year period in the table below to
facilitate a view of the Group's trading performance.
H1 H2 H1 H2
FY22 FY22 FY22 FY21 FY21 FY21
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 59,730 65,874 125,604 46,237 56,964 103,201
Other operating income 449 821 1,270 539 771 1,310
Staff costs (37,849) (39,014) (76,863) (29,635) (33,072) (62,707)
Depreciation and amortisation
charges (5,226) (5,552) (10,778) (3,367) (4,363) (7,730)
Impairment of trade receivables
and contract assets (309) (189) (498) (105) (118) (223)
Other operating charges (10,087) (11,990) (22,077) (7,909) (8,264) (16,173)
Non-underlying costs (4,804) (8,456) (13,260) (6,007) (4,281) (10,288)
-------- -------- -------- -------- -------- --------
Operating profit/(loss) 1,904 1,494 3,398 (247) 7,637 7,390
Finance costs (1,059) (1,305) (2,364) (890) (991) (1,881)
Finance income 3 19 22 - - -
-------- -------- -------- -------- -------- --------
Profit/(loss) before tax 848 208 1,056 (1,137) 6,646 5,509
Underlying Profit Before
Tax 7,551 10,580 18,131 5,993 12,426 18,419
======== ======== ======== ======== ======== ========
Underlying PBT margin 12.6% 16.1% 14.4% 13.0% 21.8% 17.8%
Underlying Profit After
Tax 14,422 15,040
======== ========
Basic EPS (pence) (3.02) 4.14
======== ========
Underlying basic earnings
per share (pence) 17.23 18.30
======== ========
Underlying profit before tax excludes amortisation of acquired
intangibles, transaction and onerous lease costs in relation to
acquisitions, disposals of acquired assets, restructuring costs as
a result of the streamlining of the support function in
acquisitions and restructuring undertaken in response to the
COVID-19 pandemic in FY21.
Underlying profit before tax has been calculated as an
alternative performance measure (see note 37 of the financial
statements) in order to provide a more meaningful measure and year
on year comparison of the profitability of the underlying
business.
Underlying profit before tax decreased slightly compared with
the same period last year, by 1.6% to GBP18.1m (2021: GBP18.4m),
representing a margin of 14.4% for the full year, compared with
17.8% in the prior year. This decrease in margin is due to the
direct impact on profit of the lower than anticipated revenue in
the last two trading months of the financial year, as previously
explained. The cost base of the business was at a level that
budgeted for anticipated revenue of circa GBP131m. If this revenue
budget of GBP131m had been achieved, the additional GBP5m of
revenue would have supported profitability and delivered an
underlying PBT margin of circa 17.7%, in line with prior years.
Reported profit before tax (PBT)
Reported profit before tax for the year has decreased to GBP1.1m
(2021: GBP5.5m), reflecting the net impact of the GBP0.3m decrease
in underlying profit before tax, a GBP1.2m increase in amortisation
of acquired intangibles and a GBP3.0m increase in non-underlying
costs.
Non-underlying costs increased from GBP10.3m in FY21 to GBP13.3m
principally due to the following increases in costs compared to
prior year: GBP1.4m relating to the impairment of right of use
assets, a GBP0.7m loss on disposal of tangible assets acquired in a
business combination, GBP0.6m in redundancy and reorganisation
costs on acquisitions completed during the year, and GBP0.3m in
respect of the contingent consideration element of the purchase
cost of acquisitions being recognised in the Statement of
Comprehensive Income in accordance with IFRS accounting
conventions.
(Loss)/Earnings per share (EPS)
The weighted average number of shares in the year to 30 April
2022 was 83,717,952 (2021: 82,189,113) which gives a basic loss per
share (Basic EPS) for the year of (3.02p) (2021: profit of 4.14p).
Due to the loss in the year, the options are not dilutive; diluted
EPS in 2021 was 4.09p.
In order to compare the EPS year on year, underlying EPS has
been calculated showing 17. 23p in the year to 30 April 2022
compared with 18.30p in the prior year. This measure eliminates the
effect of any non-recurring and non-underlying costs on the EPS
calculation. The decrease in the underlying EPS of 6% compared to
the prior year is due to an increase in both the tax rate and the
average number of shares in issue in FY22 compared to the prior
year.
Corporation tax
The Group's tax charge for the year is GBP3.6m (2021: GBP2.1m),
made up of a current corporation tax charge of GBP1.5m (2021:
GBP2.6m) and a deferred tax charge of GBP2.1m (2021: deferred tax
credit of GBP0.5m).
As corporation tax will increase from 19% to 25% from 1 April
2023 the effect of the new rate on the Group's deferred tax charge
has been applied in the year and amounts to GBP1.7m which is
included within the deferred tax charge.
The total effective rate of tax is 340% (2021: 38%) based on
reported profit before tax. This has been adversely affected by the
change in the rate of deferred tax applied in the year as noted
above. The effective rate of tax on the underlying profit of the
business is 21% (2021: 18%) (see note 17 of the financial
statements).
Dividend
As previously outlined, the Board did not declare a dividend
during the COVID pandemic. The Board has decided to resume paying
dividends in respect of the year ended 30 April 2022 in accordance
with the previous dividend policy, being a total dividend payable
of c.20% of profits after tax.
Subject to approval at the AGM in September 2022, the Board is
pleased to announce a final dividend for the year of 2.04p per
share. This, together with the interim dividend of 1.46p per shares
brings the total dividend in respect of FY22 to 3.50p per
share.
30 April 30 April
22 21
Balance sheet GBP'000 GBP'000
Goodwill and intangible assets 82,172 79,523
Right of use assets 40,663 40,406
Working capital 44,302 36,929
Accrued consideration - (8,310)
Other net liabilities (3,028) (991)
Lease liabilities (46,528) (42,640)
Assets held for resale (net of cash included below) 635 -
-------- --------
118,216 104,917
Cash and cash equivalents 4,227 4,783
Overdraft - (1,852)
Borrowings (33,153) (24,064)
-------- --------
Net debt * (28,926) (21,133)
Deferred consideration (3,631) (1,095)
-------- --------
Net assets 85,659 82,689
======== ========
* Net debt excludes lease liabilities.
The Group's net assets as at 30 April 2022 increased by GBP3.0m
from the prior year reflecting equity consideration on acquisitions
in the year and the net result for the year.
Goodwill and intangible assets
Included within intangible assets and goodwill is GBP30.1m of
intangible assets identified on current and prior year
acquisitions. This relates to customer relationships, values
attached to restrictive covenants and brand. GBP0.3m relates to
computer software, with the remaining balance of GBP51.8m relating
to goodwill from acquisitions.
The Board carries out an impairment review of goodwill each year
to ensure the carrying value 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 2022, the Board is
satisfied that the goodwill was not impaired.
Working capital
The Group manages its working capital requirements closely, with
impact on working capital a key consideration in all business
decisions. The management of working capital has always been a key
performance indicator, with strong controls and systems in place to
monitor the level of debtors and work in progress in the business.
Number of lock up days is the primary metric used by the Group to
measure the length of time it takes to convert work recorded into
cash received.
The reported working capital balance has been impacted by the
year end corporation tax position. Tax installments in the first
half of the year were based on a higher level of year end
profitability, resulting in an overpayment of GBP1.8m. The net
impact of the corporation tax asset in FY22, compared to the
liability as at FY21 resulted in a reported increase in working
capital of GBP2.5m. Excluding corporation tax balances at each year
end working capital has increased from GBP37.7m at 30 April 2021 to
GBP42.5m at 30 April 2022, an increase of 13% which is in line with
the increase in the run rate level of revenue at each year end
taking into account the full year impact of acquisitions during the
year. As at 30 April 2022 run rate revenue is c.GBP132m being
GBP126m reported plus c.GBP6m for the full year impact of FY22
acquisitions.
Due to the strong controls already in place the Group did not
experience any significant change in its working capital cycle
throughout the year as a result of the pandemic. Bad debts have
increased slightly but remain at a very low level at 0.4% of
turnover.
Management is satisfied with the level of working capital at the
year end and the management of working capital over the period.
Right of use and lease liabilities
The right of use assets capitalised in the Statement of
Financial Position represent the present value of property,
equipment and vehicle leases. The increase in right of use assets
during the year from GBP40.4m in FY21 to GBP40.7m in FY22 was the
result of new leases acquired as part of the acquisitions completed
during the year and new leases entered into by the Group during the
period less depreciation of GBP4.8m.
The lease liabilities represent the present value of the total
liabilities recognised for right of use assets and the increase
during the year to GBP46.5m (FY21: GBP42.6m) again reflects the
leases in acquired entities and new leases entered into during the
period, less repayments in the period.
During the year the Group entered into a lease for new premises
in Maidstone and completed on a lease in York. Under IFRS16 these
are accounted for as right of use assets and accordingly GBP2.3m
has been capitalised within non-current assets in the Consolidated
Statement of Financial Position.
During the year, in order to minimise the cost of some
unoccupied property space, the Group agreed to lease one floor of
an existing office to a third party. This has resulted in the Group
recognising total lease receivables of GBP1.2m in the Statement of
Financial Position during the period (FY21:GBPnil), representing
the total present value of amounts receivable under the sub
lease.
Net debt, financing and leverage
Strong cash conversion in the period has resulted in net debt of
GBP28.9m at the year end. This figure represents an increase in net
debt from GBP21.1m as at 30 April 2021 due to an aggregate cash
outlay of GBP18.0m relating to consideration for acquisitions
completed during the period, deferred consideration paid in
relation to acquisitions in prior years, repayment of debt on
acquisitions, and contingent consideration charged as
remuneration.
The Group's RCF facility was extended to GBP60m during the
period, giving significant headroom to continue to support the
growth strategy into 2023 through organic recruitment and strategic
acquisitions.
Cash conversion
2022 2021
GBP'000 GBP'000
Net cash generated from underlying operating activities* 25,060 20,378
Tax paid (4,095) (2,125)
Cash outflow for IFRS 16 leases (rental payments
excluded from operating activity cash flows under
IFRS 16) (5,302) (3,741)
-------- --------
Free cash flow 15,663 14,512
Underlying profit after tax* 14,422 15,040
-------- --------
Cash conversion 109% 96%
======== ========
*See glossary
The cash conversion percentage measures the Group's conversion
of its underlying profit after tax into free cash flow. Due to a
continued focus on management of working capital and lock up, the
Group has again delivered strong cash conversion of 109% (2021:96%)
demonstrating strong cash controls.
Capital expenditure
Capital expenditure during the year was GBP2.5m (FY21:
GBP4.3m).
During the year the Group continued to invest in its systems and
premises to expand capacity and ensure staff continue to benefit
from a high quality working environment, with consistent systems
across the Group to aid integration of acquisitions and support its
'one team' culture. This includes refurbishment of offices that
were part of acquisitions of c.GBP1.0m and system / equipment
upgrades for acquisitions of GBP0.5m.
Capital budgets for FY23 include the normal level of expected
investment in general IT, communications, and infrastructure to
ensure we continue to have the capacity required for a growing
business. Due to the acquisitions completed during FY22 and early
FY23, and some potential relocation of offices due to expiring
leases, we expect some one-off refurbishment costs amounting to
c.GBP2.5m in the current financial year.
Acquisitions
During the year we signed and completed two acquisitions and
finalised the integration of the Keebles acquisition for which
contracts were exchanged at the end of FY21. The table below
summarises the net impact of acquisitions on cashflows during the
year and in future years. This shows the impact of consideration
payable net of any cash in the acquired businesses.
For completeness, the table also shows the cash impact of the
acquisition post year end of Coffin Mew that completed on 8 July
2022.
Cash impact Repayment Cash impact Total cash Cash impact
from of from impact of post
acquisitions debt on prior year from year end
Financial in the year acquisitions acquisitions acquisitions acquisitions
year ended GBPm GBPm GBPm GBPm GBPm
------------- ------------- ------------- -------------
2022 6.8 4.7 6.5 1 8.0 -
2023 2.6 - 2.5 5.1 5.5
2024 2.6 - 1.4 4.0 2.0
2025 2.6 - - 2.6 2.0
2026 - - - - 2.0
------------ ------------- ------------- ------------- ------------- -------------
The above includes estimated contingent consideration charged as
remuneration in the Consolidated Statement of Comprehensive
Income.
Tax - Cash flow impact
Corporation tax
Corporation tax of GBP4.1m (FY21: GBP2.1m) was paid during the
year. This included an overpayment of c.GBP1.8m due to the
quarterly payment scheme calculations. Cash payments due for 2023
will be reduced by this amount.
In summary
Given the unexpected trading headwinds at the end of the
financial year, the Board is pleased to deliver in line with its
revised expectations, continuing to drive good levels of revenue
growth and cash conversion. The lower than anticipated levels of
net debt as at the end of the year are the result of the Group's
continued excellent cash management policy. The Group is in a
strong position to invest in growing the business both organically
and through strategic acquisition opportunities with headroom
within its current RCF facility of over GBP30m.
Kate Lewis
Chief Financial Officer
1. Consolidated Statement of Comprehensive Income
For the year ended 30 April 2022
Year ended Year ended
30 April 30 April
2022 2021
Note GBP'000 GBP'000
Revenue 5 125,604 103,201
Other operating income 7 1,270 1,310
Staff costs 8 (76,863) (62,707)
Depreciation and amortisation charges 11 (10,778) (7,730)
Impairment of trade receivables and contract
assets (498) (223)
Other operating charges 12 (22,077) (16,173)
--------------------------------------------- ---- ---------- ----------
Operating profit before non-underlying
charges 16,658 17,678
Non-underlying operating costs 13 (13,260) (10,288)
--------------------------------------------- ---- ---------- ----------
Operating profit 3,398 7,390
Finance costs 14 (2,364) (1,881)
Finance income 15 22 -
Profit before tax 1,056 5,509
--------------------------------------------- ---- ---------- ----------
Taxation 17 (1,840) (2,107)
Impact of change in tax rate on deferred
tax charge 17 (1,747) -
--------------------------------------------- ---- ---------- ----------
(Loss)/ profit and total comprehensive
income for the year attributable to equity
owners of the parent (2,531) 3,402
---------- ----------
Earnings per share Pence Pence
Basic earnings per share 18 (3.02) 4.14
Diluted earnings per share 18 (3.02) 4.09
---------- ----------
2. Consolidated Statement of Financial Position
As at 30 April 2022
30 April
30 April 2022 2021
Note GBP'000 GBP'000
Assets
Non-current assets
Intangible assets and goodwill 20 82,172 79,523
Property, plant and equipment 22 10,240 9,538
Right-of-use assets 22 40,663 40,406
Finance lease receivables 26 1,091 -
------------- ---------
134,166 129,467
------------- ---------
Current assets
Contract assets 23 31,777 28,530
Trade and other receivables 24 32,309 31,521
Finance lease receivables 26 76 -
Corporation tax asset 1,815 -
Cash and cash equivalents 4,097 4,783
Assets held for sale 27 1,195 -
------------- ---------
71,269 64,834
------------- ---------
Total assets 205,435 194,301
------------- ---------
Equity and liabilities
Equity
Share capital 25 169 165
Share premium 74,264 68,369
Merger reserve (3,536) (3,536)
Retained earnings 14,762 17,691
------------- ---------
Equity attributable to owners of the
parent 85,659 82,689
------------- ---------
Non-current liabilities
Lease liabilities 28 41,183 39,020
Borrowings 29 32,798 23,650
Deferred consideration 30 2,421 -
Deferred tax 31 8,332 5,655
Provisions 33 4,331 2,998
------------- ---------
89,065 71,323
------------- ---------
Current liabilities
Lease liabilities 28 5,345 3,620
Borrowings 29 355 414
Trade and other payables 32 21,362 32,303
Deferred consideration 30 1,210 1,095
Contract liabilities 23 237 216
Corporation tax liability - 765
Provisions 33 1,772 1,876
Liabilities held for sale 27 430 -
------------- ---------
30,711 40,289
------------- ---------
Total liabilities 119,776 111,612
------------- ---------
Total equity and liabilities 205,435 194,301
------------- ---------
3. Consolidated Statement of Changes in Equity
For the year ended 30 April 2022
Share Share Merger Retained
capital premium reserve earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2020 164 66,252 (3,536) 13,070 75,950
Profit for the period
and total comprehensive
income - - - 3,402 3,402
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - - - 1,219 1,219
Issue of shares 25 1 2,117 - - 2,118
Balance at 30 April
2021 165 68,369 (3,536) 17,691 82,689
Loss for the period
and total comprehensive
income - - - (2,531) (2,531)
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - - - 835 835
Issue of shares 25 4 5,895 - - 5,899
Dividends 19 - - - (1,233) (1,233)
-------- -------- --------- --------- --------
Balance at 30 April
2022 169 74,264 (3,536) 14,762 85,659
======== ======== ========= ========= ========
4. Consolidated Statement of Cash Flows
For the year ended 30 April 2022
Year ended Year ended
30 April 30 April
2022 2021
Note GBP'000 GBP'000
Operating activities
Cash generated from operations 35 25,060 20,378
Non-underlying operating costs paid 13 (3,691) (4,268)
Interest received 274 461
Tax paid (4,095) (2,125)
Contingent acquisition payments (5,383) (5,597)
---------- ----------
Net cash from operating activities 12,165 8,849
Investing activities
Acquisition of subsidiaries (net of
cash acquired) 21 (6,801) (1,195)
Purchase of intangible fixed assets 20 (62) (196)
Purchase of property, plant and equipment 22 (2,526) (4,356)
Proceeds from sale of property, plant
and equipment - 6
Proceeds from lease receivables 30 -
Landlord capital contribution 146 2,265
Associated lease costs (23) (289)
Payment of deferred and contingent
consideration (1,095) (3,171)
Net cash used in investing activities (10,331) (6,936)
Financing activities
Proceeds of borrowings 47,350 19,000
Repayment of borrowings (38,600) (24,000)
Proceeds from exercise of share options 798 -
Repayment of debt acquired with subsidiaries 21 (2,903) (2,387)
Repayment of lease liabilities (3,890) (2,564)
Interest and other finance costs paid (2,060) (1,772)
Dividends paid (1,233) -
---------- ----------
Net cash used in financing activities (538) (11,723)
---------- ----------
Net increase/(decrease) in cash and
cash equivalents 1,296 (9,810)
Cash and cash equivalents at the beginning
of the period (net of overdraft GBPnil
(2021:GBP1,852,000)) 2,931 12,741
--------------------------------------------- ---- ---------- ----------
Cash - continuing operations 4,097 2,931
Cash - assets held for disposal (note
27) 130 -
--------------------------------------------- ---- ---------- ----------
Total Cash and cash equivalents at
end of period (net of overdraft GBPnil
(2021: GBP1,852,000)) 4,227 2,931
========== ==========
5. Notes to the Consolidated Financial Statements
For the year ended 30 April 2022
1. General Information
Knights Group Holdings plc ("the Company") is a public company
limited by shares and is registered, domiciled and incorporated in
England.
The Group consists of Knights Group Holdings plc and all of its
subsidiaries.
The principal activity and nature of operations of the Group is
the provision of legal and professional services. The address of
its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
Preliminary announcement
The preliminary results for the year ended 30 April 2022 were
approved by the Board of Directors on 11 July 2022.
The preliminary announcement set out above does not constitute
Knights Group Holdings plc's statutory financial statements for the
years ended 30 April 2022 or 30 April 2021 within the meaning of
section 434 of the Companies Act 2006 but is derived from those
audited financial statements.
The auditor's report on the consolidated financial statements
for the years ended 30 April 2022 and 30 April 2021 is unqualified
and does not contain statements under s498(2) or (3) of the
Companies Act 2006.
The accounting policies used for the year ended 30 April 2022
are unchanged from those used for the statutory Financial
Statements for the year ended 30 April 2021. The 30 April 2022
statutory accounts will be delivered to the Registrar of Companies
following the Company's Annual General Meeting.
Compliance with accounting standards
While the financial information included in this preliminary
announcement has been computed in accordance with the measurement
principles of UK-adopted international accounting standards, this
announcement does not itself contain sufficient information to
comply with these accounting standards.
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, rounded to the nearest thousand except where
otherwise indicated.
The principal accounting policies adopted are set out below.
These policies have been consistently applied to all periods
presented in the financial statements, unless otherwise stated.
2.2 Going concern
The accounts are prepared on a going concern basis as, at the
time of approving the financial statements, the Directors have a
reasonable expectation that the Group and Company have adequate
resources to continue in operational existence for the foreseeable
future. The Group was cash generative for FY22 and is forecast to
continue to be so. The group has banking facilities of
GBP60,000,000 available until October 2024. The Group's forecasts
show sufficient cash generation and headroom in banking facilities
and covenants by comparison to anticipated future requirements to
support the Directors' conclusion that the assumption of the going
concern basis of accounting in preparing the financial statements
is appropriate.
The Group continues to trade profitably before non underlying
charges 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 have been modelled and reviewed. Some of these
scenarios forecast a significantly more negative trading
performance than is expected. In all of these scenarios the Group
remained profitable and with significant headroom in its cash
resources for the 12 months from the date of approval of the
accounts.
2.3 Basis of consolidation
The consolidated financial statements incorporate the results of
Knights Group Holdings plc and all of its subsidiaries.
Subsidiaries results are consolidated in the financial statements
from the date of exchange of the sale and purchase agreement, at
which time control is obtained until the date that control
ceases.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
In assessing control, the Group takes into consideration potential
voting rights that are currently exercisable. The acquisition date
is the date on which control is transferred to the acquirer which
is the date of exchange of the sale and purchase agreement. The
financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
Transactions eliminated on consolidation
All intra-group transactions, balances and unrealised gains on
transactions between group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred.
Where necessary, adjustments are made to the financial
information of subsidiaries to bring the accounting policies used
into line with those used by the Group.
Audit exemption of subsidiaries
The following subsidiaries are exempt from the requirements of
the UK Companies Act 2006 relating to the audit of individual
accounts by virtue of s479A of the Act.
Name Registered number
BrookStreet Des Roches
LLP OC317863
Dakeyne Emms Gilmore Liberson
Limited 06850969
ERT Law Limited 09182964
Shulmans LLP OC348166
ASB Law LLP OC351354
ASB Aspire Limited Liability OC327667
Partnership
OTB Eveling LLP OC371214
Mundays LLP OC313856
K & S Trust Corporation
Limited 02885753
Keebles LLP OC351421
Archers Law Limited Liability
Partnership OC306705
Langleys Solicitors LLP OC361149
Langleys Law Firm Limited 07500419
Home Property Lawyers Limited 09356408
The outstanding liabilities at 30 April 2022 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 2022.
2.4 Business combinations
The cost of a business combination is the fair value at the
acquisition date of the assets given, equity instruments issued and
liabilities incurred or assumed.
The excess of the cost of a business combination over the fair
value of the identifiable assets, liabilities and contingent
liabilities acquired is recognised as goodwill.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. This discount rate used is the
entity's incremental borrowing rate, being the rate at which
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified as a financial liability.
Amounts classified as a financial liability are subsequently
remeasured to fair value, with changes in fair value recognised in
profit or loss.
2.5 Revenue
The Group earns revenue from the provision of legal and
professional services. Revenue for these services is recognised
over time in the accounting period when services are rendered as
the Group has an enforceable right to payment for work performed to
date under its client terms of engagement.
Fee arrangements for legal and professional services include
fixed fee arrangements, unconditional fee-for-service arrangements
("time and materials"), and variable or contingent fee
arrangements.
For fixed fee arrangements, revenue is recognised based on the
stage of completion with reference to the actual services provided
as a proportion of the total services expected to be provided under
the contract. The stage of completion is tracked on a
contract-by-contract basis using the hours spent by professionals
providing the services.
In fee-for-service contracts, revenue is recognised up to the
amount of fees that the Group is entitled to bill for services
performed to date based on contracted rates.
Under variable or contingent fee arrangements, fees may be
earned only in the event of a successful outcome of a client's
claim. Fees under these arrangements may be fixed or may be
variable based on a specified percentage of damages awarded under a
claim.
For variable or contingent fee arrangements management makes a
detailed assessment of the amount of revenue expected to be
received and the probability of success of each case. Variable
consideration is recognised over the duration of the matter only to
the extent that it is highly probable that the amount recognised
will not be subject to significant reversal when the matter is
concluded based on the expected amount recoverable at that point in
time. In such circumstances, a level of judgement is required to
determine the likelihood of success of a given matter, as well as
the estimated amount of fees that will be recovered in respect of
the matter. Where the likelihood of success of a contingent fee
arrangement is less than highly probable, the value recognised in
contract assets is further reduced to reflect this uncertainty.
Certain contingent fee arrangements are undertaken on a
partially funded basis. In such arrangements, the funded portion of
fees is not contingent on the successful outcome of the litigation
and in these instances the revenue is recognised up to the amount
of fees that the Group is entitled to bill for services performed
to date based on contracted rates. The remaining consideration is
variable and conditional on the successful resolution of the
litigation. The variable consideration is recognised over the
duration of the matter and included in revenue based on the
expected amount recoverable only to the extent that it is highly
probable that the amount recognised will not be subject to
significant reversal when the uncertainty is resolved at that point
in time.
The Group's contracts with clients each comprise of a single
distinct performance obligation, being the provision of legal and
professional services in relation to a particular matter and the
transaction price is therefore allocated to this single performance
obligation.
Estimates of revenues, costs or extent of progress toward
completion are revised if circumstances change. Any resulting
increases or decreases in estimated revenues or costs are reflected
in the Consolidated Statement of Comprehensive Income in the period
in which the circumstances that give rise to the revision become
known by management.
The Group has determined that no significant financing component
exists in respect of the provision of legal and professional
services because the period between when the Group transfers its
services to a client and when the client pays for that service will
generally be one year or less.
Consideration for services provided under contingent or variable
fee arrangements may be paid after a longer period. In these cases,
no significant financing component exists because the consideration
promised by the customer is variable subject to the occurrence or
non-occurrence of a future event that is not substantially within
the control of the client or the Group.
A receivable is recognised when a bill has been issued to the
client, as this is the point in time that the consideration is
unconditional because only the passage of time is required before
the payment is due.
Unbilled revenue is recognised as contract assets. Costs
incurred in fulfilling the future performance obligations of a
contract are recognised as contract assets if the costs are
expected to be recovered.
Contract liabilities are recognised in respect of consideration
billed in advance of satisfying the performance obligation under
the contract.
Revenue does not include disbursements. Recoverable expenses
incurred on client matters that are expected to be recovered and
are billed during the period are recognised in other income.
2.6 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 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.
Deferred tax liabilities are recognised in respect of all timing
differences that exist at the reporting date. Timing differences
are differences between taxable profits and total comprehensive
income that arise from the inclusion of income and expenses in tax
assessments in different periods from their recognition in the
financial statements. 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.
2.7 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.
2.8 Intangible assets - Other than goodwill
Intangible assets purchased, other than in a business
combination, are recognised when future economic benefits are
probable and the cost or value of the asset can be measured
reliably.
Intangible assets arising on a business combination, such as
customer relationships, are initially recognised at estimated fair
value, except where the asset does not arise from legal or
contractual rights, and there is no history or evidence of exchange
transactions for the same or similar assets and estimating the
assets fair value would depend on immeasurable variables. The fair
value represents the directors' best estimate of future economic
benefit to be derived from these assets discounted at an
appropriate rate.
Intangible assets are initially recognised at cost (which for
intangible assets acquired in a business combination is the fair
value at acquisition date) and are subsequently measured at cost
less accumulated amortisation and accumulated impairment
losses.
Intangible assets are amortised to the Consolidated Statement of
Comprehensive Income on a straight-line basis over their estimated
useful lives, as follows:
Purchased computer - 4 years
software
Customer relationships - 4-25 years
Restrictive covenants - remaining length
of covenant
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 4-25 years
being the average length of relationship with key clients for
acquired entities.
Restrictive covenants are amortised over the remaining length of
covenant.
Brand value is amortised over a period of 100 years based on the
directors' assessment of the future life of the brand. This is
supported by a trading history dating back to 1759. Brand value
relates to the 'Knights' brand only. Other acquired brands are not
recognised as an asset as the acquired entities are rebranded as
Knights and the impact of such recognition would not be
material.
2.9 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 - 10% on cost
leasehold property
Office equipment - 25% on cost
Furniture and fittings - 10% on cost
Right-of-use assets - useful life of the lease
(between 1 and 25 years)
Residual value is calculated on prices prevailing at the
reporting date, after estimated costs of disposal, for the asset as
if it were at the age and in the condition expected at the end of
its useful life.
2.10 Impairment of non-current assets
An assessment is made at each reporting date of whether there
are indications that non-current 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-current assets and
their recoverable amounts, being the higher of fair value less
costs to sell and value in use, are recognised as impairment
losses. All impairment losses are recognised in the Consolidated
Statement of Comprehensive Income.
Recognised impairment losses are reversed 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.
2.11 Professional indemnity provisions
In common with comparable practices, the Group is involved in a
number of disputes in the ordinary course of business which may
give rise to claims. Professional indemnity insurance cover is
maintained in respect of professional negligence claims. Premiums
are expensed as they fall due with prepayments being recognised
accordingly.
Provision is made in the financial statements for all claims
where costs are likely to be incurred. The provision represents
management's best estimate of the cost of defending and concluding
claims and any excesses that may become payable. No separate
disclosure is made of the cost of claims covered by insurance as to
do so could seriously prejudice the position of the Group.
2.12 Leases
Group as lessee
The Group leases offices, equipment and vehicles. Rental
contracts are for periods of between 1 and 25 years. Lease terms
are negotiated on a lease by lease basis and contain a variety of
terms and conditions.
The Group assesses whether a contract is or contains a lease at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee, except for short term
leases (defined as leases with a lease term of 12 months or less)
and leases of low value assets (being those assets with a value
less than GBP4,000). For short term and low value leases, the Group
recognises the lease payments as an operating expense on a straight
line basis over the term of the lease.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term assumed reflects the group exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
Group's incremental borrowing rate is used, being the rate that the
Group would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions.
Lease payments of both principal and interest are included in
financing activities in the cash flow.
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.
Subsequent to 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 one of its properties.
When the Group acts as a lessor, it determines at lease
inception whether each lease is a finance lease or an operating
lease.
To classify each lease, the Group makes an overall assessment of
whether the lease transfers substantially all of the risks and
rewards incidental to ownership of the underlying asset. If this is
the case, then the lease is a finance lease; if not, then it is an
operating lease. As part of this assessment, the Group considers
certain indicators such as whether the lease is for the major part
of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its
interests in the head lease and the sub-lease separately. It
assesses the lease classification of a sub-lease with reference to
the right-of-use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the exemption described above,
then it classifies the sub-lease as an operating lease.
2.13 Retirement benefits
2.13a 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.
2.13b Defined benefit pension scheme
For defined benefit schemes the amounts charged to operating
profit are the current service costs and gains and losses on
settlements and curtailments. They are included as part of staff
costs. The interest cost and the expected return on assets are
shown as a net amount of other finance costs or finance income.
Actuarial gains and losses are recognised immediately in Other
Comprehensive Income.
Defined benefit schemes are funded, with the assets of the
scheme held separately from those of the Group, in separate trustee
administered funds. Pension scheme assets are measured at fair
value and liabilities are measured on an actuarial basis using the
projected unit credit method and discounted at a rate equivalent to
the current rate of return on a high quality corporate bond of
equivalent currency and term to the scheme liabilities. The
actuarial valuations are obtained at least triennially and are
updated at each reporting date.
Defined benefit assets are not recognised in the Consolidated
Statement of Financial Position, on the basis that they are not
deemed to be material.
For the 'With Profit Section' contributions are recognised in
the Consolidated Statement of Comprehensive Income in the period to
which they relate as there is insufficient information available to
use defined benefit accounting. A liability will be recognised
based on the agreed share of the Group in the scheme. No asset has
been recognised in the current or prior period on the basis that
future economic benefits are not available to the Group in the form
of a reduction in future contributions or a cash refund.
2.14 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.
2.15 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 instruments are derecognised when the Group is no longer
party to the contractual provisions of the instrument.
Financial assets
Contract assets and trade and other receivables
Contract assets and trade and other receivables which are
receivable within one year are initially measured at fair value.
These assets are subsequently measured at amortised cost, being the
transaction price less any amounts settled and any impairment
losses.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses
('ECL') on contract assets and trade and other receivables. The
expected credit losses on trade receivables includes specific
provisions against known receivables and an estimate using a
provision matrix by reference to past experience, adjusted for
forward looking considerations, and an analysis of the debtor's
current financial position on the remaining balance. The expected
credit losses on contract assets and other receivables is assessed
based on historical credit loss experienced on these types of
assets adjusted for known foreseeable estimated losses.
Financial liabilities and equity
Financial instruments are classified as liabilities and equity
instruments according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Group after
deducting all of its liabilities.
Trade and other payables
Trade and other payables due within one year are initially
measured at fair value and subsequently measured at amortised cost,
being the transaction price less any amounts settled.
Deferred consideration
Deferred consideration is initially recognised at the fair value
of the amounts payable and subsequently at amortised cost of the
agreed payments in accordance with the agreement. Any interest
payable on the balance is reflected in the value of the liability
and charged monthly to the Statement of Comprehensive Income as it
arises.
Borrowings
Borrowings are initially recognised at the fair value of the
consideration received net of issue costs associated with the
borrowings. Borrowings are subsequently measured at amortised cost
using the effective interest method. Interest expense is recognised
on the basis of the effective interest method and is included in
Finance costs.
Derecognition of financial assets and liabilities
A financial asset is derecognised only when the contractual
rights to cash flows expire or are settled, or substantially all
the risks and rewards of ownership are transferred to another
party. A financial liability (or part thereof) is derecognised when
the obligation specified in the contract is discharged, cancelled
or expires.
3. Accounting developments
New and amended IFRSs that are effective for the future
At the date of these financial statements, there were new
standards and amendments to IFRSs which were in issue but which
were not yet effective and which have not been applied. The
principal ones were:
Revised IFRS Effective
date
Amendments to IFRS3 Business Combinations; IAS16 1 January
Property, Plant and Equipment, IAS37 Provisions, 2022
Contingent Liabilities and Contingent Assets and
Annual Improvements on IFRS1, IFRS9, IAS41 and
IFRS16
IFRS17 : Insurance contracts 1 January
2023
Amendments to IAS 1, Practice statement 2 and 1 January
IAS 8 2023
Amendment to IAS 12 - deferred tax related to 1 January
assets and liabilities arising from a single transaction 2023
Amendments to IAS1 Presentation of Financial Statements: 1 January
Classification of Liabilities as Current and Non- 2024
current and Classification of Liabilities as Current
or Non-current
The directors do not expect that the adoption of the Standards
listed above will have a material impact on the financial
statements of the Group in future periods.
4. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described in note 2, the directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Amounts recoverable on contracts - contingent fee
arrangements
A level of judgement is required to determine the likelihood of
success of a given matter for contingent fee arrangements. This is
determined on a contract-by-contract basis after considering the
relevant facts and circumstances surrounding each matter. The
valuation exercise is conducted by experienced professionals with
detailed understanding of the individual matters. The carrying
value of contingent fee arrangements at 30 April 2022 was
GBP7,804,000 (2021: GBP5,781,000).
IFRS 16
In applying IFRS 16, the Group uses judgement to assess whether
the interest rate implicit in the lease is readily determinable.
When the interest rate implicit in the lease is not readily
determinable, the Group estimates the incremental borrowing rate
based on its external borrowings secured against similar assets,
adjusted for the term of the lease.
Business combinations
Management make judgements regarding the date of control of an
acquisition in accordance with IFRS10. The judgement considers the
individual legal agreements on each transaction and the date at
which the Group starts to exercise control over the activities of
the subsidiary, usually the date of exchange of contracts.
Financial performance of the acquisitions is included in the
consolidated group from the deemed date of control.
Alternative performance measures (AMP's)
The Group presents various APMs to assist the user in
understanding the underlying performance of the Group. The
selection of these APMs requires the exercise of judgement as to
the key performance indicators used.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty in the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
IFRS 16
The Group makes estimates of the cost of restoring leased assets
to their original condition when required to do so under the terms
and conditions of the lease. Those estimates are based on the
current condition of the leased assets and past experience of
restoration costs. As at 30 April 2022 the Group had total
provisions of GBP4,462,000 (2021: GBP3,999,000) (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 GBP31,777,000 (2021:
GBP28,530,000), a 3% change in the estimated recovery of all
matters would impact the profit for the period by approximately
GBP1,245,000 (2021: GBP982,000).
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 GBP25,122,000 (2021: GBP26,544,000). In order to assess
the impact of the key assumptions on the values disclosed in the
Financial Statements the Directors have applied the following
sensitivities to the acquisitions in the current year:
Rate applied Sensitivity Annual profit Value of
in the financial tested impact intangible
statements GBP'000 assets
Key assumption GBP'000
Long term growth
rate 2% 0% 5 (6)
------------------ ------------- -------------- ------------
10.0% - 10.3% Increase
WACC and IRR (1) by 5% 61 (59)
------------------ ------------- -------------- ------------
Length of customer Increase
relationships 3.5 - 7 years of 5 years (175) 345
------------------ ------------- -------------- ------------
(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 GBP51.8 million is still
supported by using a discounted cash flow model to derive the value
in use of the cash generating unit ('CGU'). Cash flow forecasts are
derived from the most recent financial budgets approved by
management for the next three years and extrapolated using a
terminal value calculation.
The key assumptions for the value in use calculations are those
regarding the discount rates and growth rates for the Group's
revenues from legal and professional services and the EBITDA
margin. Management estimates discount rates using pre-tax rates
that reflect current market assessments of the time value of money
and the risks specific to the CGU.
Revenue growth over the three years of the forecast period
reflects, for FY23, 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 2022, with an
element of organic growth in FY24 and FY25. The long term growth
rate of 2% (2021: 2%) is based on UK economic growth forecasts for
the legal services market.
The Group has conducted a sensitivity analysis on the impairment
test of the CGU value in use. Management considers there is no
reasonably plausible scenario under which goodwill would be
impaired.
5. Revenue
All revenue is derived from contracts with customers and is
recognised over time. As explained further in note 6, the Group's
legal and professional services business operates as a single
business unit so there are no relevant categories into which
revenue can be disaggregated.
The transaction price allocated to unsatisfied performance
obligations of contracts at 30 April 2022 is not required to be
disclosed because it is comprised of contracts that are expected to
have a duration of one year or less.
Management information does not distinguish between contingent
and non-contingent revenue as contingent fees are not separately
identifiable from other fees.
6. Segmental reporting
The Board of Directors, as the chief operating decision-making
body, reviews financial information for and makes decisions about
the Group's overall legal and professional services business and
has identified a single operating segment, that of legal and
professional services operating entirely in the UK.
The legal and professional services business operates through a
number of different service lines and in different locations;
however, management effort is consistently directed to the firm
operating as a single segment. No segmental reporting disclosure is
therefore provided as all revenue is derived from this single
segment.
7. Other operating income
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Other income 996 912
Bank interest 274 398
------------ ------------
1,270 1,310
============ ============
8. Staff costs
The average monthly number of employees (including executive
directors) of the Group was:
Year ended Year ended
30 April 30 April
2022 2021
Number Number
Fee earners 1,080 933
Other employees 268 230
1,348 1,163
============ ============
Their aggregate remuneration comprised:
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Wages and salaries 67,923 54,927
Social security costs 7,123 5,603
Other pension costs 2,324 1,848
Share based payment charge 835 1,219
Other employment costs 1,159 1,169
------------ ------------
Aggregate remuneration of employees 79,364 64,766
Redundancy costs and share based payment
charges analysed as non-underlying costs
(note 13 ) (2,501) (2,059)
Underlying staff costs in Statement of
Comprehensive Income 76,863 62,707
============ ============
Directors' remuneration
Companies Act disclosures
The total amounts for directors' remuneration in accordance with
Schedule 5 to the Accounting Regulations were as follows:
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Salaries, fees, bonuses and benefits
in kind 892 729
Gains on exercise of options 913 -
Money purchase pension contributions 14 10
1,819 739
=========== ===========
The number of directors to whom benefits are accruing under
money purchase pension schemes is 2 (2021: 2).
The remuneration of the highest paid Year ended Year ended
director was: 30 April 30 April
2022 2021
GBP'000 GBP'000
Salaries, fees, bonuses, benefits in
kind and share based payment gains on
exercise of options 1,140 212
=========== ===========
9. Share-based payments
The Group issues equity-settled share-based payments to its
employees. The Group recognised total expenses of GBP835,000 (2021:
GBP1,219,000) relating to equity-settled share-based payment
transactions in the year. GBP414,000 (2021: GBP619,000) is
recognised within staff costs and GBP421,000 (2021: GBP600,000) in
non-underlying costs.
Any charges relating to schemes introduced as one-off schemes as
part of the listing on AIM in 2018 are included in non-underlying
costs because the directors view these schemes as a reward to
employees for their past performance prior to the IPO and on
acquisitions. Additionally, in the current year there has been
GBP260,000 of charges in respect of employees leaving a share
scheme but remaining with the business. One off accelerated charges
required under IFRS 2 due to employees leaving the scheme, as a
result of COVID or the reduction in share price following the
trading announcement, are also excluded from underlying charges as
once an individual has left the scheme this charge is an accounting
convention only and is not an alternative form of remuneration for
the employee. All charges relating to other recurring LTIP or SAYE
schemes are included as a normal operating expense.
The following schemes were in place during the period:
Omnibus Plan
The Omnibus Plan is a discretionary share plan, which is
administered, and the grant of awards is supervised by, the
Remuneration Committee.
Three forms of award are available under the Omnibus Plan, as
considered appropriate by the Remuneration Committee, as
follows:
a) "Restricted Stock Awards": Awards granted in the form of nil
or nominal cost share options, subject to time-based vesting
requirements and continued employment within the Group. No
performance targets will apply to Restricted Stock Awards.
b) "Performance Share Awards": Awards granted in the form of nil
or nominal cost share options, whereby vesting is subject to
satisfaction of performance conditions and continued employment
within the Group. The performance condition is in relation to
meeting target underlying EPS values.
c) "Share Options": Awards granted in the form of a share option
with an exercise price equal to the market value of an Ordinary
share at the time of grant, subject to continued employment within
the Group. Share Options may or may not be subject to performance
conditions.
Restricted stock awards Performance share awards
Weighted average Weighted average
exercise price exercise price
Number Pence Number Pence
Outstanding at 1 May 2020 575,398 0.2 206,214 0.2
Granted during the period 85,322 0.2 77,410 0.2
Forfeited during the period (15,278) 0.2 (39,814) -
Exercised during the period (59,119) 0.2 - -
Outstanding at 30 April 2021 586,323 0.2 243,810 0.2
------------- ---------------------- ------------ ------------------------
Exercisable at 30 April 2021 69,934 0.2 - -
------------- ---------------------- ------------ ------------------------
Granted during the period 265,300 0.2 100,228 0.2
Dividend equivalents awarded 2,137 0.2 - -
Forfeited during the period (37,395) 0.2 - -
Exercised during the period (354,954) 0.2 - -
------------- ---------------------- ------------ ------------------------
Outstanding at 30 April 2022 461,411 0.2 344,038 0.2
------------- ---------------------- ------------ ------------------------
Exercisable at 30 April 2022 166,652 0.2 - -
------------- ---------------------- ------------ ------------------------
The options outstanding at 30 April 2022 had a weighted average
exercise price of 0.2p and a weighted average remaining contractual
life of 1.52 years. The average share price for options exercised
during the year was 382.4p.
During the year 265,300 options were granted as restricted stock
awards. In addition, 100,228 of performance share awards were
granted. The maximum term of any award is three years.
The aggregate of the estimated fair values of the options
granted on these dates is GBP1,574,000. The model used is based on
intrinsic values and the inputs are as follows:
Date Granted Number of Shares Fair Value Share Price Exercise Price Expected Life Type of award
5 July 2021 50,000 205,900 412p 0.2p 2.8 years Restricted stock
13 July 2021 145,000 644,960 445p 0.2p 3.0 years Restricted stock
1 September 2021 18,292 74,778 409p 0.2p 1.0 years Restricted stock
21 September 2021 4,722 20,295 430p 0.2p 1.0 years Restricted stock
15 October 2021 10,000 42,380 424p 0.2p 2.8 years Restricted stock
1 November 2021 12,428 48,444 390p 0.2p 1.0 years Restricted stock
1 November 2021 12,429 48,448 390p 0.2p 2.0 years Restricted stock
1 November 2021 12,429 48,448 390p 0.2p 3.0 years Restricted stock
19 July 2021 100,228 440,803 440p 0.2p 3.0 years Performance share
Share Incentive Plan ('SIP')
The SIP is an "all employee" scheme under which every eligible
employee within the Group was invited to participate. Eligible
employees could apply to invest up to GBP1,800 from pre-tax income
in partnership shares; matching shares were awarded on the basis of
two free matching shares for each partnership share purchased. The
matching shares are forfeited if the employee leaves within three
years of the grant date.
Partnership Shares Matching Shares
Number Number
Outstanding at 1 May 2020 181,524 363,049
Withdrawn during the period (16,485) -
Forfeited during the period - (32,970)
Outstanding at 30 April 2021 165,039 330,079
------------------ ---------------
Unrestricted at 30 April 2021 - -
------------------ ---------------
Withdrawn during the period (40,694) -
Forfeited during the period - (81,388)
------------------ ---------------
Outstanding at 30 April 2022 124,345 248,691
------------------ ---------------
Unrestricted at 30 April 2022 124,345 248,691
================== ===============
Sharesave Scheme ('SAYE')
This is an HMRC approved scheme and is open to any person that
was an employee or officer of the Group at the launch date of each
scheme. Under the scheme, members save a fixed amount each month
for three years. Subject to remaining in employment by the Group,
at the end of the three-year period they are entitled to use these
savings to buy shares in the Company at 80% of the market value at
launch date.
The first scheme was launched in November 2018 and further new
SAYE schemes have been launched in February 2020 and March
2022.
SAYE options
Weighted average exercise price
Number Pence
Outstanding at 1 May 2020 1,360,189 251
Forfeited during the period (104,557) 350
Exercised during the period (16,678) 164
--------- -------------------------------
Outstanding at 30 April 2021 1,238,954 244
--------- -------------------------------
Exercisable at 30 April 2021 - -
--------- -------------------------------
Granted during the period 1,430,251 296
Forfeited during the period (311,248) 342
Exercised during the period (491,530) 161
--------- -------------------------------
Outstanding at 30 April 2022 1,866,427 289
--------- -------------------------------
Exercisable at 30 April 2022 209,829 162
========= ===============================
The options outstanding at 30 April 2022 had a weighted average
exercise price of 289p and a weighted average remaining contractual
life of 2.41 years. The average share price for options exercised
during the year was 370.4p.
November 2018 scheme
The aggregate of the estimated fair values of the options
granted in November 2018 is GBP500,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 162p
Expected volatility 39.2%
Expected life 3.1 years
Risk-free rate 1.4%
Expected dividend yield 1.1%
=========
The November 2018 scheme matured on 1 February 2022, the number
of shares exercised in respect of this scheme as at 30 April 2022
is 489,037. There are 209,829 shares which remain exercisable.
February 2020 scheme
The aggregate of the estimated fair values of the options
granted in February 2020 is GBP1,163,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 361p
Expected volatility 34.3%
Expected life 3.1 years
Risk-free rate 1.1%
Expected dividend yield 0.7%
=========
March 2022 Scheme
The aggregate of the estimated fair values of the options
granted in March 2022 is GBP110,000. The inputs into the
Black-Scholes model are as follows:
Exercise price 296p
Weighted average share price 148p
Expected volatility 53.7%
Expected life 3.1 years
Risk-free rate 5.9%
Expected dividend yield 3.0%
=========
Volatility is based on the daily change in share price from 29
June 2018 to the date of measurement
10. Retirement benefit schemes
The Group operates a defined contribution pension scheme for
employees. The total cost charged to income of GBP2,324,000 (2021:
GBP1,848,000) represents contributions payable to the scheme by the
Group. As at 30 April 2022, contributions of GBP892,000 (2021:
GBP439,000) 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 2022.
11. Depreciation and amortisation charges
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Depreciation 2,027 1,309
Depreciation on right-of-use assets 4,799 3,684
Amortisation 3,936 2,704
Loss on disposal of property, plant and
equipment 16 33
10,778 7,730
============ ============
Depreciation of GBPnil (2021: GBP43,000) is included in
non-underlying operating costs.
12. Other operating charges
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Establishment costs 5,633 4,140
Short term and low value lease costs 187 291
Other overhead expenses 16,257 11,742
22,077 16,173
============ ============
13. Non-underlying operating costs
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Redundancy and reorganisation costs 2,080 1,459
Transaction costs 988 1,245
Onerous short life asset leases 472 132
Impairment of right-of-use assets 2,065 635
Loss on disposal of intangible assets and
property, plant and equipment 967 284
Share based payment charges 421 600
Contingent consideration treated as remuneration 6,267 5,933
13,260 10,288
============ ============
Non-underlying costs cash movement
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Non-underlying operating costs 13,260 10,288
Adjustments for:
Contingent consideration shown separately (6,267) (5,933)
Non cash movements:
Share based payment charge (421) (600)
Impairment of right of use assets (2,065) -
Loss on disposal of property, plant and
equipment (967) (284)
Onerous leases (97) (302)
Accrual 248 1,099
3,691 4,268
============ ============
Non-underlying costs relate to redundancy costs to streamline
the support function of the Group following acquisitions,
transaction costs in respect of acquisitions, onerous lease costs
in respect of acquisitions, disposals of acquired assets and share
based payment charges relating to one off share schemes offered to
employees as part of the IPO and on acquisitions. Any one off
accelerated charges required under IFRS 2 due to employees leaving
the scheme, as a result of COVID or the reduction in share price
following the trading announcement in March 2022, are also excluded
from underlying charges as once an individual has left the scheme
this charge is an accounting requirement only and is not an
alternative form of remuneration for the employee. FY21 also
included some costs relating to reorganisation actions taken in
response to the impact of COVID-19.
Contingent consideration is included in non-underlying costs as
it represents payments which are contingent on the continued
employment of those individuals with the Group, agreed under the
terms of the sale and purchase agreements with vendors of certain
businesses acquired. The payments extend over periods of one to
three years and are designed to preserve the value of goodwill and
customer relationships acquired in the business combinations. IFRS
requires such arrangements to be treated as remuneration and
charged to the Statement of Comprehensive Income. The individuals
also receive market rate salaries for their work, in line with
other similar members of staff in the Group. The contingent earnout
payments are significantly in excess of these market salaries and
would distort the Group's results if not separately identified.
14. Finance costs
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Interest on borrowings 952 704
Interest on leases 1,412 1,177
2,364 1,881
========== ==========
15. Finance income
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Lease interest receivable 22 -
========== ==========
16. Auditor's remuneration
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Fees payable to the parent company's auditor
and their associates for the audit of the
parent company's annual accounts 36 29
Fees payable to the auditor and their associates
for other services to the Group:
- The audit of the Company's subsidiaries 126 113
------------ ------------
Total audit fees 162 142
============ ============
- Audit-related assurance services 19 16
Total non-audit fees 19 16
------------ ------------
17. Taxation
Year ended Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Corporation tax:
Current year 1,574 2,852
Adjustments in respect of prior years (96) (247)
--------------- ---------------
1,478 2,605
--------------- ---------------
Deferred tax:
Origination and reversal of temporary differences 362 (498)
Effect of change in tax rates 1,747 -
--------------- ---------------
2,109 (498)
--------------- ---------------
Tax expense for the year 3,587 2,107
=============== ===============
The charge for the period can be reconciled to the Statement of
Comprehensive Income as follows:
Year ended Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Profit before tax 1,056 5,509
--------------- ---------------
Tax at the UK corporation tax rate of 19% (2021: 19%) 201 1,047
Expenses that are not deductible in determining taxable profit 2,296 1,748
Accelerated capital allowances (561) (441)
Effect of change in tax rates 1,747 -
Adjustment in respect of prior years (96) (247)
--------------- ---------------
Tax expense for the year 3,587 2,107
--------------- ---------------
Consisting of:
Underlying tax charge 1,840 2,107
Non-underlying tax charge 1,747 -
--------------- ---------------
The impact of non-underlying costs on the effective rate of tax
is set out below:
Year ended 30 April Year ended 30 April
2022 2021
Non-Underlying Non-Underlying
Total Underlying GBP'000 Total Underlying GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
Profit before
tax 1,056 18,131 (17,075) 5,509 18,419 (12,910)
Tax expense 1,840 3,709 (1,869) 2,107 3,379 (1,272)
Effective rate
of tax 174% 20% 11% 38% 18% 10%
--------- ------------ --------------- --------- ------------ ---------------
Change in tax
rate 1,747 136 1,611 - - -
--------- ------------ --------------- --------- ------------ ---------------
Effective rate
of tax (post
change in tax
rate) 340% 21% 2% 38% 18% 10%
--------- ------------ --------------- --------- ------------ ---------------
On 24 May 2021, the increase in corporation tax from 19% to 25%
from 1 April 2023 was substantively enacted for tax accounting
purposes. At the reporting date, the effect of the new rate on the
Group's tax charge has been applied to the deferred tax assets and
liabilities where the differences will not reverse until after 1
April 2023. The impact of changing the tax rate from 19% to 25% on
the associated assets and liabilities is outlined in the below
table:
Year ended 30 April 2022
GBP'000
Tax Charge at 19% (1,840)
-------------------------
Tax Charge at 25% (3,587)
-------------------------
Impact of change in tax rate (1,747)
-------------------------
The impact of the change in tax rate has been classified as a
non-underlying cost.
18. Earnings per share
Basic and diluted earnings per share have been calculated using
profit after tax and the weighted average number of ordinary shares
in issue during the period.
Year ended
30 April Year ended
2022 30 April 2021
Number Number
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 83,717,952 82,189,113
Effect of dilutive potential ordinary shares:
Share options 409,640 1,021,132
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 84,127,592 83,210,245
============ ===============
GBP'000 GBP'000
(Loss)/profit after tax (2,531) 3,402
Earnings per share Pence Pence
Basic earnings per share (3.02) 4.14
Diluted earnings per share (3.02) 4.09
============ ===============
As the Group has incurred a loss after tax for the year, the
options are non-dilutive and basic and diluted earnings per share
are the same.
Underlying earnings per share is calculated as an alternative
performance measure in note 37.
19. Dividends
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Amounts recognised as distributions to
equity holders in the year:
Interim dividend for the year ended 30
April 2022 of 1.46p per share (2021: 0p
per share) 1,233 -
1,233 -
============ ============
For the year ended 30 April 2022 the Board have proposed a final
dividend of 2.04p per share (2021: 0p 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 2 September 2022. The
payment of this dividend will not have any tax consequences for the
Group.
20. Intangible assets and goodwill
Customer
relationships Purchased
and restrictive computer
Goodwill Brand covenants software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2020 39,678 5,401 26,475 372 71,926
Acquisitions of subsidiaries 7,435 - 3,702 - 11,137
Measurement period
adjustments in respect
of 2020 acquisitions 544 - 118 9 671
Additions - - 1,097 196 1,293
As at 30 April 2021 47,657 5,401 31,392 577 85,027
Acquisitions of subsidiaries 5,771 - 2,386 527 8,684
Adjustments (1,666) - (47) - (1,713)
Additions - - - 62 62
Disposals - - - (449) (449)
Reclassification
of assets held for
sale - - - (114) (114)
-------- -------- ---------------- --------- --------
As at 30 April 2022 51,762 5,401 33,731 603 91,497
-------- -------- ---------------- --------- --------
Amortisation and
impairment
As at 1 May 2020 - 270 2,280 241 2,791
Adjustments - - - 9 9
Amortisation charge - 54 2,568 82 2,704
As at 30 April 2021 - 324 4,848 332 5,504
Amortisation charge - 54 3,761 121 3,936
Eliminated on disposal - - - (112) (112)
Reclassification
of assets held for
sale - - - (3) (3)
-------- -------- ---------------- --------- --------
As at 30 April 2022 - 378 8,609 338 9,325
-------- -------- ---------------- --------- --------
Carrying amount
At 30 April 2022 51,762 5,023 25,122 265 82,172
======== ======== ================ ========= ========
At 30 April 2021 47,657 5,077 26,544 245 79,523
======== ======== ================ ========= ========
At 30 April 2020 39,678 5,131 24,195 131 69,135
======== ======== ================ ========= ========
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 current year further information
has come to light about estimated provisions and debt items which
existed at the acquisition date.
On settling debt items on completion, it became apparent that we
had accounted for some items as both an acquired liability and
consideration payable to the vendors. In addition, an estimated
provision was subsequently identified as being overstated once the
actual costs were incurred. Both items resulted in goodwill being
overstated by GBP1.6m and the error has now been corrected. The
error is not considered to be qualitatively material, as it has no
impact on reported profits or cash flows and is c 2% of intangible
assets. It is not, therefore, considered to be a prior period
adjustment.
The carrying amount of goodwill of GBP51,762,000 (2021:
GBP47,657,000) 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%
(2021: 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 12.4% (2021:
15.1%).
Revenue growth over the three years of the forecast period
reflects, for FY23, 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 2022, and an
element of organic growth in FY24 and FY25 through continued
recruitment and increases in chargeable hours and recovered rates.
The long-term growth rate is based on UK economic growth forecasts
for the legal services market.
The Group has conducted a sensitivity analysis on the impairment
test of the CGU value in use. Management considers there is no
reasonably plausible scenario under which goodwill would be
impaired.
21. Acquisitions
Acquisitions summary
During the year the Group has completed three acquisitions
(Langleys Solicitors LLP and Home Property Lawyers Limited being in
the same acquired group) and also completed the acquisition of
Keebles LLP (which was accounted for in the year ended 30 April
2021). The table below summarises the consideration paid and the
net cash flow arising on all acquisitions in the period:
Total
GBP'000
Total identifiable assets less liabilities acquired 4,652
Goodwill 5,771
---------
Total consideration 10,423
---------
Satisfied by:
Cash 5,192
Equity instruments (395,060 ordinary shares of
Knights Group Holdings plc) 1,600
Deferred consideration arrangement 3,631
---------
Total consideration transferred 10,423
---------
Net cash outflows arising on acquisition:
Cash consideration net of cash acquired 4,071
---------
Net investing cash outflow arising on acquisition 4,071
---------
Repayment of debt acquired 2,454
---------
Net financing cash outflow arising on acquisition 2,454
---------
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.
The Group exchanged contracts to acquire Keebles on 30 April
2021, by purchasing the controlling membership interests of the
entity. Economic benefit was obtained from 30 April 2021. This
acquisition completed on 11 June 2021. As a result the cashflow
timings for payment of initial consideration and repayment of debt
in relation to the Keebles acquisition occurred in the current
year.
The table below provides a reconciliation to the cashflow
statement for cashflows relating to acquisitions
Acquisition Keebles Total acquisitions
in the cashflows cashflows
year on in the year
ended completion ended 30
30 April April 2022
GBP'000 2022
Net cash outflows arising on acquisition:
Cash consideration net of cash acquired 4,071 2,730 6,801
------------- ------------ --------------------
Net investing cash outflow arising
on acquisition 4,071 2,730 6,801
============= ============ ====================
Repayment of debt acquired on acquisition 2,454 - 2,454
Repayment of debt acquired post
acquisition 35 414 449
------------- ------------ --------------------
Net financing cash outflow arising
on acquisition 2,489 414 2,903
============= ============ ====================
Archers Law Limited Liability Partnership ('Archers')
On 1 November 2021, the Group exchanged contracts to acquire
Archers by purchasing the controlling membership interests of the
entity. This acquisition completed on 29 November 2021. Archers is
a law firm which will strengthen Knights' presence in the North
East region.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below:
Fair
Carrying value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets - 671 671
Property, plant and equipment 108 - 108
Right-of-use assets - 1,065 1,065
Contract assets 588 - 588
Trade and other receivables (net of
GBP228,000 loss allowance provision) 377 (3) 374
Cash and cash equivalents 912 - 912
Liabilities
Trade and other payables (420) (20) (440)
Lease liabilities - (1,065) (1,065)
Borrowings (247) (2) (249)
Provisions - (250) (250)
Deferred tax - (127) (127)
--------- ------------ ---------
Total identifiable assets and liabilities 1,318 269 1,587
--------- ------------ ---------
Goodwill 2,349
---------
Total consideration 3,936
---------
Satisfied by:
Cash 2,336
Equity instruments (395,060 Ordinary
Shares of Knights Group Holdings plc) 1,600
---------
Total consideration transferred 3,936
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 1,424
Repayment of debt 218
---------
Net cash outflow arising on acquisition 1,642
---------
The goodwill of GBP2,349,000 arising from the acquisition
represents the assembled workforce. None of the goodwill is
expected to be deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the
consideration was determined on the basis of the volume weighted
average share price for the five days prior to exchange..
A contingent consideration arrangement was entered into as part
of the acquisition. This is contingent on the sellers remaining in
employment by the Group so it has been excluded from the
consideration and will be recognised in the Consolidated Statement
of Comprehensive Income on a straight-line basis over the three
year post acquisition period. The maximum undiscounted amount of
all potential future payments under the contingent consideration
arrangement is GBP1,500,000 and is payable in equal instalments on
the first, second and third anniversary of completion.
Archers contributed GBP2,180,000 of revenue to the Group's
Consolidated Statement of Comprehensive Income for the period from
1 November 2021 to 30 April 2022. 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
29 November 2021.
If the acquisition occurred at the beginning of the year Archers
would have contributed GBP4,272,000 of revenue
to the Group. Profit is not separately identifiable due to the full integration on hive up.
Langleys Solicitors LLP ('Langleys')
On 31 January 2022, the Group exchanged contracts to acquire
Langleys by purchasing the controlling membership interests of the
entity. This acquisition completed on 25 March 2022. Langleys is a
law firm which will strengthen Knights' presence in York and
provide access into the Lincoln market.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below:
Fair
Carrying value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets 1,104 847 1,951
Property, plant and equipment 741 - 741
Right-of-use assets - 4,159 4,159
Contract assets 2,651 - 2,651
Trade and other receivables (net of
GBP199,000 loss allowance provision) 1,818 - 1,818
Cash and cash equivalents 37 - 37
Liabilities
Trade and other payables (2,324) 432 (1,892)
Lease liabilities - (3,630) (3,630)
Borrowings (2,415) (575) (2,990)
Provisions - (409) (409)
Deferred tax - (293) (293)
--------- ------------ ---------
Total identifiable assets and liabilities 1,612 531 2,143
--------- ------------ ---------
Goodwill 3,344
---------
Total consideration 5,487
---------
Satisfied by:
Cash 1,856
Deferred consideration arrangement 3,631
---------
Total consideration transferred 5,487
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 1,819
Repayment of debt 2,236
---------
Net cash outflow arising on acquisition 4,055
---------
The goodwill of GBP3,344,000 arising from the acquisition
represents the assembled workforce. None of the goodwill is
expected to be deductible for income tax purposes.
A contingent consideration arrangement was entered into as part
of the acquisition. This is contingent on the sellers remaining in
employment by the Group so it has been excluded from the
consideration and will be recognised in the Consolidated Statement
of Comprehensive Income on a straight-line basis over the three
year post acquisition period. The maximum undiscounted amount of
all potential future payments under the contingent consideration
arrangement is GBP2,619,000 and is payable in equal instalments on
the first, second and third anniversary of completion.
There are also deferred consideration payments totalling
GBP3,631,000 outstanding. This is payable in installments on the
first, second and third anniversaries of completion.
Langleys contributed GBP2,546,000 of revenue to the Group's
Consolidated Statement of Comprehensive Income for the period from
1 February 2022 to 30 April 2022. 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
25 March 2022.
If the acquisition occurred at the beginning of the year
Langleys would have contributed GBP9,444,000 of revenue
to the Group. Profit is not separately identifiable due to the full integration on hive up.
Home Property Lawyers Limited ('HPL')
On 31 January 2022, the Group exchanged contracts to acquire
HPL, through the agreement to purchase the shares of the entity.
This acquisition completed on 25 March 2022. HPL was purchased as
part of the Langleys acquisition, this entity provides volume
conveyancing services.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below.
Fair
Carrying value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets 114 177 291
Contract assets 492 - 492
Trade and other receivables (net of
GBP12,000 loss allowance provision) 446 (94) 352
Cash and cash equivalents 172 - 172
Liabilities
Trade and other payables (363) 68 (295)
Provisions - (19) (19)
Corporation tax (100) 63 (37)
Deferred tax - (34) (34)
--------- ------------ ---------
Total identifiable assets and liabilities 761 161 922
--------- ------------ ---------
Goodwill 78
---------
Total consideration 1,000
---------
Satisfied by:
Cash 1,000
Total consideration transferred 1,000
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 828
Repayment of debt -
---------
Net cash outflow arising on acquisition 828
---------
The goodwill of GBP78,000 arising from the acquisition
represents the assembled workforce. None of the goodwill is
expected to be deductible for income tax purposes.
HPL contributed GBP1,111,000 of revenue to the Group's
Consolidated Statement of Comprehensive Income for the period from
1 February 2022 to 30 April 2022. HPL contributed GBP57,000 profit
to the Group in the period 31 January 2022 to 30 April 2022.
If the acquisition occurred at the beginning of the year HPL
would have contributed GBP4,489,000 of revenue to the Group. Profit
is not separately identifiable due to a lack of management
information available.
22. Property, plant and equipment
Expenditure
on Furniture
short leasehold and Right-of-use
property Office equipment fittings assets Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2020 3,501 3,430 995 25,744 33,670
Acquisitions of
subsidiaries 566 493 183 4,615 5,857
Additions 3,350 1,005 1 16,385 20,741
Disposals (160) (20) (149) (154) (483)
Impairment - - - (739) (739)
Alignment 618 (452) 11 - 177
As at 30 April
2021 7,875 4,456 1,041 45,851 59,223
Acquisitions of
subsidiaries 543 224 82 5,224 6,073
Additions 1,292 1,176 58 3,144 5,670
Disposals (1,358) (216) (113) (1,482) (3,169)
Alignment 5 53 4 - 62
---------------- ---------------- --------- -------------- --------
As at 30 April
2022 8,357 5,693 1,072 52,737 67,859
---------------- ---------------- --------- -------------- --------
Depreciation
and impairment
As at 1 May 2020 656 1,440 268 1,995 4,359
Depreciation charge 446 761 102 3,727 5,036
Eliminated on
disposal (25) (3) (24) (84) (136)
Impairment - - - (193) (193)
Alignment 616 (416) 13 - 213
As at 30 April
2021 1,693 1,782 359 5,445 9,279
Depreciation charge 787 1,132 108 4,799 6,826
Impairment - - - 2,065 2,065
Eliminated on
disposal (860) (155) (24) (235) (1,274)
Alignment (1) 60 1 - 60
---------------- ---------------- --------- -------------- --------
As at 30 April
2022 1,619 2,819 444 12,074 16,956
---------------- ---------------- --------- -------------- --------
Carrying amount
At 30 April 2022 6,738 2,874 628 40,663 50,903
================ ================ ========= ============== ========
At 30 April 2021 6,182 2,674 682 40,406 49,944
================ ================ ========= ============== ========
At 30 April 2020 2,845 1,990 727 23,749 29,311
================ ================ ========= ============== ========
Depreciation of GBPnil (2021: GBP43,000) and net impairment of
GBP2,065,000 (2021: GBP546,000) due to leases being classified as
onerous is included in non-underlying operating costs.
See note 28 for further details of right of use assets.
23. Contract assets and liabilities
Contract Contract
assets Trade receivables liabilities
GBP'000 GBP'000 GBP'000
As at 30 April 2022 31,777 26,643 (237)
========= ================== =============
As at 30 April 2021 28,530 25,951 (216)
========= ================== =============
As at 1 May 2020 21,507 22,450 (177)
========= ================== =============
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 2022 was GBP7,804,445 (2021: GBP5,781,000).
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 GBP3,731,000 (2021:
GBP4,196,000) were acquired in business combinations.
An impairment loss of GBP41,000 has been recognised in relation
to contract assets in the year (2021: GBP30,000). 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% (2021: 0.2%) of the
balance.
Trade receivables
Trade receivables are recognised when a bill has been issued to
the client, as this is the point in time that the consideration is
unconditional because only the passage of time is required before
the payment is due. Trade receivables also includes
disbursements.
Bills are payable within thirty days of date of issue unless
otherwise agreed with the client.
Contract liabilities
When matters are billed in advance or on the basis of a monthly
retainer, this is recognised in contract liabilities and released
over time as the services are performed.
24. Trade and other receivables
30 April 30 April
2022 2021
GBP'000 GBP'000
Trade receivables 27,908 26,953
Impairment provision - trade receivables (1,265) (1,002)
Prepayments and other receivables 5,666 5,570
32,309 31,521
========= =========
Trade receivables
The average credit period taken on sales is 31 days as at 30
April 2022 (2021: 36 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 the
expected loss provision for all trade receivables. As the Group's
historical credit loss experience does not show significantly
different loss patterns for different client segments, the
provision for loss allowance is based on past due status.
The following table details the risk profile of trade
receivables (excluding disbursements) based on the Group's
provision matrix:
30 April 2022 2022 2021
Gross Expected Expected Gross Expected Expected
carrying credit credit carrying credit credit
amount losses loss rate amount losses loss rate
GBP'000 GBP'000 % GBP'000 GBP'000 %
Not past due 14,553 52 0.36 12,925 27 0.21
31-60 days past
due 3,077 14 0.45 3,958 9 0.22
61-90 days past
due 1,231 4 0.34 1,362 3 0.24
91-120 days past
due 496 11 2.29 827 10 1.17
>120 days past due 2,861 854 29.88 2,696 625 23.20
12 month ECL GBP'000 22,218 935 4.21 21,768 674 3.1
========== ========= =========== ========== ========= ===========
In addition to the above on trade receivables a further
GBP330,000 (2021: GBP328,000) impairment loss has been recognised
against disbursement balances. This is based on 100% impairment
against all disbursements with no activity on the matter for over
12 months and 0.2% against the remainder of the balance based upon
the expected credit loss of this type of asset.
The movement in the allowance for impairment in respect of trade
receivables and contract assets during the year was as follows:
2022 2021
GBP'000 GBP'000
Balance at 1 May 1,002 553
Increase in loss allowance recognised
in profit of loss during the year 1,200 1,165
Receivables written off during the year
as uncollectable (937) (716)
Balance at 30 April 1,265 1,002
======== ========
25. Share capital
Ordinary shares
Number GBP'000
As at 1 May 2020 82,076,332 164
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 75,798 -
Ordinary shares of 0.2p each issued in respect of exercised share options
equivalent to dividend
entitlement 418 -
Ordinary shares of 0.2p each issued as consideration in the purchase of
subsidiaries 454,244 1
---------------- --------------------
At 30 April 2021 (allotted, called up and fully paid) 82,606,792 165
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 844,347 2
Ordinary shares of 0.2p each issued in respect of exercised share options
equivalent to dividend
entitlement 2,137 -
Ordinary shares of 0.2p each issued as consideration in the purchase of
subsidiaries 1,187,050 2
---------------- --------------------
At 30 April 2022 (allotted, called up and fully paid) 84,640,326 169
================ ====================
Included in the consideration is the purchase of subsidiaries is
791,990 shares in respect of the purchase of Keebles LLP. The
remaining amount is for the purchase of Archers Law LLP (see note
21).
26. Finance lease receivable
The group sub-leases a floor in an office building that was an
acquired lease in previous periods. The group has classified the
sub-lease as a finance lease because the sub-lease is for the whole
of the remaining term of the head lease.
Finance lease receivable 30 April 30 April
2022 2021
GBP'000 GBP'000
> 1 year 1,091 -
< 1 year 76 -
--------- ---------
1,167 -
========= =========
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
2022 30 April 2021
GBP'000 GBP'000
Less than one year 137 -
One to five years 986 -
More than five years 164 -
Unearned finance income (120)
-------- -------------
1,167 -
======== =============
Total lease payments received for the year ended 30 April 2022
was GBP30,000 (2021:GBPnil)
27. Disposal of subsidiary - held for sale
On 25 March 2022 the Group completed the acquisition of HPL, an
entity that provides volume conveyancing services. At the time of
acquisition, it was noted that the strategic options for this
subsidiary were under review.
Following a period of internal review, in April 2022, management
committed to a plan to sell HPL. Accordingly, all assets and
liabilities are presented as a disposal of subsidary held for sale.
Efforts to sell HPL have started and on 5 July 2022, the Group
exchanged contracts to dispose of HPL, subject to regulatory
approval. Completion is expected later in July 2022.
No fair value gains or losses have been recognised on
reclassification as fair values of assets and liabilities are
deemed to be equal to the carrying value at the period end.
At 30 April 2022, HPL was stated at fair value less cost to sell
and comprised the following assets and liabilities.
30 April
2022
GBP'000
Intangible assets 111
Contract assets 526
Trade and other receivables 428
Cash and cash equivalents 130
--------
Assets held for sale 1,195
========
Trade and other payables 430
--------
Liabilities held for sale 430
========
Assets held for sale do not include GBP69,765 due from other
Group entities which have been eliminated on consolidation.
28. Lease liabilities
Incremental borrowing rates applied to individual leases ranged
between 1.68% and 6.30%.
The table below sets out the Consolidated Statement of Financial
Position as at 30 April 2022 and 30 April 2021:
30 April
2022 30 April 2021
GBP'000 GBP'000
Right-of-use assets
Property 39,691 39,420
Equipment 972 986
-------- -------------
40,663 40,406
======== =============
Lease liability
> 1 year 41,183 39,020
< 1 year 5,345 3,620
-------- -------------
46,528 42,640
======== =============
Right of use assets include additions of GBP7,452,000 (2021:
GBP20,768,000) for property and GBP916,000 (2021: GBP232,000) for
equipment. There is also depreciation of GBP4,397,000 (2021:
GBP3,398,000) for property and GBP402,000 (2021: GBP329,000) for
equipment.
The table below shows lease liabilities maturity analysis -
contractual undiscounted cash flows at 30 April 2022:
30 April 2022 30 April 2021
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Less than one year 6,213 496 6,709 4,594 349 4,943
One to five years 21,313 506 21,819 18,313 709 19,022
More than five years 22,701 1 22,702 24,834 - 24,834
---------- ----------- --------- ---------- ----------- ---------
50,227 1,003 51,230 47,741 1,058 48,799
Less unaccrued future
interest (4,663) (39) (4,702) (6,025) (134) (6,159)
---------- ----------- --------- ---------- ----------- ---------
45,564 964 46,528 41,716 924 42,640
========== =========== ========= ========== =========== =========
The table below shows amounts recognised in the Consolidated
Statement of Comprehensive Income for short term and low value
leases as at 30 April 2022:
30 April 2022 30 April 2021
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expenses relating to
short - term leases 146 41 187 244 47 291
========== =========== ========= ========== =========== =========
For right-of-use asset depreciation and lease interest charges
on leases see note 11 and 14. Total lease payments, including for
short term and low value leases, for the year ended 30 April 2022
were GBP5,488,000 (2021: GBP4,340,000).
29. Borrowings
30 April 30 April
2022 2021
GBP'000 GBP'000
Secured borrowings at amortised cost:
Bank loans 32,400 24,064
Other loans 753 -
Total borrowings 33,153 24,064
--------- ---------
Amount due for settlement within 12 months 355 414
========= =========
Amount due for settlement after 12 months 32,798 23,650
========= =========
The above excludes lease liabilities.
All of the Group's borrowings are denominated in sterling.
The Group has a credit facility of GBP60,000,000 in total (2021:
GBP40,000,000). The facility remains available until 29 October
2024.
The facility is a revolving credit facility and has the ability
to roll on a monthly or quarterly basis and is due for final
repayment in October 2024. The facility is secured by a fixed and
floating charge over the Group's assets. The facility carries an
interest margin above SONIA of between 1.65% and 2.40% depending on
the leverage level. A commitment fee of one third of the applicable
margin is payable on the undrawn amounts.
30. Deferred consideration
30 April 30 April
2022 2021
GBP'000 GBP'000
Non-current liabilities
Deferred consideration 2,421 -
========= =========
Current liabilities
Deferred consideration 1,210 1,095
========= =========
Deferred consideration as at 30 April 2022 relates to the
acquisition of Langleys Solicitors LLP and is not contingent.
In addition, the Group has accrued contingent consideration
relating to acquisitions within trade and other payables. This is
contingent based upon continued employment and is being accrued on
a monthly basis in the Consolidated Statement of Comprehensive
Income in accordance with the terms of the agreements. It is
expected that employment will continue for the terms of the
agreements and, therefore, the contingent consideration will be
payable in full.
31. Deferred tax
The following are the major deferred tax liabilities and
(assets) recognised by the Group and movements thereon during the
current and prior reporting period.
Accelerated
capital Intangible Share-based IFRS 16
allowances assets payments GBP'000 Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2020 396 5,547 (207) (307) 5,429
Acquisitions of subsidiaries - 704 - - 704
Charge/(credit) for the
year 148 (411) (242) 27 (478)
----------- ---------- ----------- -------- --------
As at 30 April 2021 544 5,840 (449) (280) 5,655
Acquisitions of subsidiaries - 454 - - 454
Adjustments 125 (11) 114
Effect of change in tax
rate 244 1,611 (37) (71) 1,747
Charge/(credit) for the
year 479 (112) (33) 28 362
----------- ---------- ----------- -------- --------
As at 30 April 2022 1,392 7,782 (519) (323) 8,332
=========== ========== =========== ======== ========
Deferred tax assets and liabilities are offset where the Group
has a legally enforceable right to do so. The following is the
analysis of the deferred tax balances after offset for financial
reporting purposes:
30 April 30 April
2022 2021
GBP'000 GBP'000
Deferred tax assets (842) (729)
Deferred tax liabilities 9,174 6,384
8,332 5,655
--------- ---------
32. Trade and other payables
30 April 30 April
2022 2021
GBP'000 GBP'000
Bank overdraft - 1,852
Trade payables 4,664 3,715
Other taxation and social security 7,370 6,564
Other payables 1,978 2,293
Accrued consideration - 8,310
Accruals 7,350 9,569
21,362 32,303
========= =========
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 26 days (2021: 26 days).
No interest is charged on the trade payables.
The directors consider that the carrying amount of trade
payables approximates to their fair value.
Accrued consideration at 30 April 2021 relates the acquisition
of Keebles LLP where contracts were exchanged as at 30 April 2021
but did not formally complete until 11 June 2021.
The bank overdraft is secured by a debenture over all of the
assets of Keebles LLP. The debenture was released on 14 June 2021
and the overdraft was fully repaid.
33. Provisions
Onerous Professional
Dilapidation contract indemnity
provision provision provision Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2020 1,548 - 598 2,146
Acquisitions of subsidiaries 768 - 296 1,064
Additional provision
in the year 1,828 133 195 2,156
Utilisation of provision (145) (127) (220) (492)
------------ ---------- ------------- ---------
As at 30 April 2021 3,999 6 869 4,874
Acquisitions of subsidiaries 507 - 171 678
Additional provision
in the year 289 448 550 1,287
Utilisation of provision (333) (28) (375) (736)
------------ ---------- ------------- ---------
As at 30 April 2022 4,462 426 1,215 6,103
------------ ---------- ------------- ---------
Consisting of:
Non-current liabilities 3,998 333 - 4,331
------------ ---------- ------------- ---------
Current liabilities 464 93 1,215 1,772
------------ ---------- ------------- ---------
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
non-cancellable. The provision represents the remaining payments
and other associated property costs under the terms of the lease.
Future lease payments are offset against the provision.
The professional indemnity provision relates to a number of
disputes in the ordinary course of business for all claims where
costs are likely to be incurred and represents the cost of
defending and concluding claims and any excess that may become
payable. The Group carries professional indemnity insurance and no
separate disclosure is made of the cost of claims covered by
insurance as to do so could seriously prejudice the position of the
Group.
34. Financial instruments
Categories of financial instruments
30 April 30 April
2022 2021
GBP'000 GBP'000
Financial assets
Amortised cost
Contract assets 31,777 28,530
Trade and other receivables (excluding
prepayments) 26,919 26,421
Lease receivable 1,167 -
Cash and cash equivalents 4,097 4,783
Financial liabilities
Amortised cost
Borrowings 33,153 24,064
Bank overdraft - 1,852
Deferred consideration 3,631 1,095
Trade and other payables 13,992 23,887
Leases 46,528 42,640
Financial risk management objectives
The Group's finance function monitors and manages the financial
risks relating to the operations of the Group. These risks include
market risk (interest rate risk), credit risk, liquidity risk and
cash flow interest rate risk.
Market risk
The Group's activities expose it primarily to the financial
risks of changes in interest rates (see below). Market risk
exposures are measured using sensitivity analysis.
There has been no change to the Group's exposure to market risks
or the manner in which these risks are managed and measured.
Interest rate risk management
The Group is exposed to interest rate risk because the Group
borrows funds at floating interest rates. The risk is managed by
the Group by keeping the level of borrowings at a manageable
level.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the
exposure to interest rates for financial instruments at the end of
the reporting period. For floating rate liabilities, the analysis
is prepared assuming the amount of the liability outstanding at the
end of the reporting period was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other
variables were held constant, the Group's profit for the year ended
30 April 2022 would decrease/increase by GBP166,000 (2021:
decrease/increase by GBP120,000). 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 during
the current year mainly due to the increase in the borrowings of
the Group.
Credit risk management
Note 24 details the Group's maximum exposure to credit risk and
the measurement bases used to determine expected credit losses.
The risk of bad debts is mitigated by the Group having a policy
of performing credit checks or receiving payments on account for
new clients when practical and ensuring that the Group's exposure
to any individual client is tightly controlled, through credit
control policies and procedures.
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the financial charges on its debt instruments and
repayments of principal. There is a risk that the Group will
encounter difficulty in meeting its financial obligations as they
fall due or not meet its required covenants. The Group manages this
risk and its cash flow requirements through detailed annual,
monthly and daily cash flow forecasts. These forecasts are reviewed
regularly to ensure that the Group has sufficient working capital
to enable it to meet all of its short-term and long-term cash flow
needs. In addition, during the year the Group extended its facility
to GBP60,000,000.
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 2022 < 1 2-5 years Total
year 1-2 years GBP'000 GBP'000
GBP'000 GBP'000
Borrowings 355 - 32,798 33,153
Deferred consideration 1,210 1,210 1,211 3,631
Trade and other payables 13,992 - - 13,992
========= ========== ========== =========
30 April 2021 < 1 2-5 years Total
year 1-2 years GBP'000 GBP'000
GBP'000 GBP'000
Borrowings 414 - 23,650 24,064
Deferred consideration 1,095 - - 1,095
Bank overdraft 1,852 - - 1,852
Trade and other payables 23,887 - - 23,887
========= ========== ========== =========
The Group has met its covenant tests during the year.
For lease maturity see note 28.
Capital management
The capital structure of the Group consists of borrowings (as
disclosed in note 29 ) and equity of the Group (comprising issued
capital, reserves, and retained earnings as disclosed in the
Statement of Changes in Equity).
In managing its capital, the Group's primary objective is to
provide a return for its equity shareholders through capital growth
and future dividend income. The Group seeks to maintain a gearing
ratio that balances risk and returns at an acceptable level and
also to maintain a sufficient funding base to enable the Group to
meet its working capital and strategic investment needs and
objectives.
Gearing ratio
The gearing ratio at the year end is as follows:
30 April 30 April
2022 2021
GBP'000 GBP'000
Borrowings (note 29 ) 33,153 24,064
Cash and cash equivalents (4,097) (4,783)
Asset held for sale (note 27) (130) -
--------- ---------
Bank overdraft - 1,852
--------- ---------
Net debt 28,926 21,133
--------- ---------
Equity 85,659 82,689
--------- ---------
% %
Net debt to equity ratio 34 26
========= =========
Significant accounting policies
Details of the significant accounting policies and methods
adopted (including the criteria for recognition, the basis of
measurement and the bases for recognition of income and expenses)
for each class of financial asset, financial liability and equity
instrument are disclosed in note 2 .
35. Reconciliation of profit before taxation to net cash
generated from operations
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Profit before taxation 1,056 5,509
Adjustments for:
Amortisation 3,936 2,704
Depreciation - property, plant and equipment 2,027 1,309
Depreciation - right-of-use assets (net
of GBPnil (2021: GBP43,000) included
in non-underlying costs) 4,799 3,684
Loss on disposal (net of GBP967,000 (2021:
GBP284,000) included in non-underlying
costs) 16 33
Contingent consideration expense 6,267 5,933
Non-underlying operating costs 6,572 3,755
Share based payments 835 1,387
Interest income (296) (398)
Interest expense 2,364 1,881
------------- -------------
Operating cash flows before movements
in working capital 27,576 25,797
Decrease/(increase) in contract assets 628 (2,827)
Decrease/(increase) in trade and other
receivables 570 (135)
Increase/(decrease) in provisions 469 (263)
Increase in contract liabilities 21 39
Decrease in trade and other payables (4,204) (2,233)
Cash generated from operations 25,060 20,378
------------- -------------
36. Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's Consolidated Statement of Cash Flows as cash flows
from financing activities.
Borrowings Leases
GBP'000 GBP'000
As at 1 May 2020 28,650 23,844
New borrowings and leases 19,000 16,763
Acquired 2,801 4,657
Interest charged (net of GBP22,000 included
in non-underlying) 704 1,177
Interest paid (573) (1,199)
Non-cash movement (131) 22
Disposals - (60)
Repayments (net of GBP308,000 included
in non-underlying) (26,387) (2,564)
---------- --------
As at 1 May 2021 24,064 42,640
New borrowings/leases 47,350 3,083
Acquired borrowings/leases 3,239 4,695
Interest charged (net of GBP25,000 included
in non-underlying) 952 1,412
Interest paid (648) (1,412)
Non-cash movement (301) -
Repayments (net of GBP296,000 included
in non-underlying) (41,503) (3,890)
As at 30 April 2022 33,153 46,528
========== ========
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
comparison of how the Group's business is managed and measured on a
day-to-day basis.
The Group's alternative performance measures and key performance
indicators are aligned to the Group's strategy and together are
used to measure the performance of the business.
Alternative performance measures are non-GAAP (Generally
Accepted Accounting Practice) measures and provide supplementary
information to assist with the understanding of the Group's
financial results and with the evaluation of operating performance
for all the periods presented. Alternative performance measures,
however, are not a measure of financial performance under
UK-adopted International Financial Reporting Standards ('IFRS') and
should not be considered as a substitute for measures determined in
accordance with IFRS. As the Group's alternative performance
measures are not defined terms under IFRS they may therefore not be
comparable with similarly titled measures reported by other
companies.
Reconciliations of alternative performance measures to the most
directly comparable measures reported in accordance with IFRS are
provided below.
a) Underlying EBITDA
Underlying EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the Group
excluding the effects of depreciation, amortisation and
non-underlying items.
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Operating profit 3,398 7,390
Depreciation and amortisation charges
(note 11) 10,778 7,730
Non-underlying costs (note 13) 13,260 10,288
Underlying EBITDA 27,436 25,408
============= =============
b) Underlying profit before tax (PBT)
Underlying PBT is presented as an alternative performance
measure to show the underlying performance of the Group excluding
the effects of amortisation of intangible assets and non-underlying
items.
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Profit before tax 1,056 5,509
Amortisation (adjusted for amortisation
on computer software) 3,815 2,622
Non-underlying costs (note 13) 13,260 10,288
Underlying profit before tax 18,131 18,419
============= =============
c) Underlying profit after tax (PAT) and adjusted earnings per
share (EPS)
Underlying PAT and EPS are presented as alternative performance
measures to show the underlying performance of the Group excluding
the effects of amortisation of intangible assets, share-based
payments and non-underlying items.
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
(Loss)/profit after tax (2,531) 3,402
Effect of change in deferred tax
rate 1,747 -
Amortisation (adjusted for amortisation
on computer software) 3,815 2,622
Non-underlying operating costs (note
13) 13,260 10,288
Tax in respect of the above (1,869) (1,272)
Underlying profit after tax 14,422 15,040
------------ ------------
Underlying earnings per share Pence Pence
Basic underlying earnings per share 17.23 18.30
Diluted underlying earnings per share 17.14 18.07
============ ============
Tax has been calculated at the corporation tax rate of 19%
(2021:19%) and deferred tax rate of 25% (2021:19%)
d) Free cash flow and cash conversion %
Free cash flow measures the Group's underlying cash generation.
Cash conversion % measures the Group's conversion of its underlying
PAT into free cash flows. Free cash flow is calculated as the total
of net cash from operating activities after adjusting for tax paid
and the impact of IFRS 16. Cash conversion % is calculated by
dividing free cash flow by underlying PAT, which is reconciled to
profit after tax above.
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Cash generated from operations (note
35) 25,060 20,378
Tax paid (4,095) (2,125)
Total cash outflow for IFRS16 leases (5,302) (3,741)
------------- -------------
Free cashflow 15,663 14,512
Underlying profit after tax 14,422 15,040
Cash conversion (%) 109% 96%
------------- -------------
(e) Net debt
Net debt is presented as an alternative performance measure to
show the net position of the Group after taking account of bank
borrowings and cash at bank and in hand.
30 April 30 April
2022 2021
GBP'000 GBP'000
Borrowings (note 29) 33,153 24,064
Cash and cash equivalents (4,097) (4,783)
Asset held for sale (note 27) (130) -
Bank overdraft - 1,852
--------- ---------
Net debt 28,926 21,133
========= =========
38. Capital commitments
As at 30 April 2022 there is a capital commitment of GBP72,000
(2021: GBP71,000) in relation to an ongoing office
refurbishment.
39. Defined benefit pension schemes
The Stonehams Pension Scheme
The Group operates a 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 2022. The scheme is closed and provides benefits
for 43 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 2018. The results of that
valuation were updated to 30 April 2022 allowing for cashflows in
and out of the Scheme and changes to assumptions over the period.
An actuarial valuation as at 31 December 2021 is currently
underway, but has not been finalised as at the date of these
accounts.
From January 2020 the Employer started to make annual
contributions of GBP35,000 per annum towards administration
expenses. No change in this is expected for the next financial
year. Administration expenses from 1 November 2017 to 31 December
2019 have been 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 16 years.
--------------------------------------------------
Actuarial assumptions
Principal actuarial assumptions
30 April 2022 30 April 2021
% %
Discount rate 3.05 1.83
Retail Prices Index ("RPI") Inflation 4.00 3.53
Consumer Price Index ("CPI") Inflation 3.30 2.83
Pension increase (LPI 5%) 3.72 3.36
Pension increase (LPI 2.5%) 2.34 2.24
Post retirement mortality 90%/100% (m/f) S2PA 90%/100% (m/f) S2PA
CMI_2020 projections CMI_2020 projections
(with standard smoothing (with standard smoothing
parameter of 7.5) parameter of 7.5)
using a long-term using a long-term
improvement rate improvement rate
of 1.0% pa of 1.0% pa
Commutation 80% of members are 80% of members are
assumed to take assumed to take
the maximum tax the maximum tax
free cash possible free cash possible
using current commutation using current commutation
factors factors
Life expectancy at age 65 of male
aged 45 22.6 22.6
Life expectancy at age 65 of male
aged 65 24.2 24.1
Life expectancy at age 65 of female
aged 45 23.6 23.5
Life expectancy at age 65 of female
aged 65 25.3 25.3
The average duration of the Scheme's obligations is 16 years.
The current asset split is as follows
Asset allocation
at Asset allocation
30 April 2022 at 30 April 2021
Equities and growth assets 70% 78%
Bonds, LDI and cash 30% 22%
Value as at Value as at
30 April 2022 30 April 2021
GBP'000 GBP'000
Fair value of assets 3,047 3,255
Present value of funded obligations (2,355) (2,791)
-------------------------- --------------------------
Surplus in scheme 692 464
Deferred tax - -
-------------------------- --------------------------
Net defined benefit surplus after
deferred tax 692 464
========================== ==========================
The fair value of the assets can be
analysed as follows:
Value as at Value as at
30 April 2022 30 April 2021
GBP'000 GBP'000
Low risk investment funds 625 720
Credit Investment funds 1,513 1,673
Matching funds - 691
Cash 909 171
-------------------------- --------------------------
Fair value of assets 3,047 3,255
========================== ==========================
30 April 2022 30 April 2021
GBP'000 GBP'000
Administration costs 28 29
Net interest on liabilities (8) (10)
Total charge to the Statement of
Comprehensive Income 20 19
-------------------------- --------------------------
Remeasurements over the period since
acquisition
30 April 2022 30 April 2021
GBP'000 GBP'000
Loss on assets in excess of interest (115) (17)
Gain/ (loss) on scheme obligation
from assumptions and experience 361 (157)
Gain on scheme obligations due to
scheme experience 2 5
Total remeasurements 248 (169)
-------------------------- --------------------------
The change in value of assets
30 April 2022 30 April 2021
GBP'000 GBP'000
Fair value of assets brought forward 3,255 3,384
Interest on assets 58 50
Benefits paid (123) (133)
Administration costs (28) (29)
Loss on assets in excess of interest (115) (17)
-------------------------- --------------------------
Fair value of assets carried forward 3,047 3,255
========================== ==========================
Actual return on assets (57) 33
-------------------------- --------------------------
Change in value of liabilities
30 April 2022 30 April 2021
GBP'000 GBP'000
Value of liabilities brought forward 2,791 2,732
Interest cost 50 40
Benefits paid (123) (133)
Actuarial gain (363) 152
-------------------------- --------------------------
Value of liabilities carried forward 2,355 2,791
========================== ==========================
Sensitivity of the value placed on
the liabilities
Approximate effect on liability
30 April 2022 30 April 2021
GBP'000 GBP'000
Discount rate
Minus 0.50% 191 229
Inflation
Plus 0.50% 139 164
Life Expectancy
Plus 1.0 years 102 113
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 contracts were exchanged on 5 March 2020 and the
transaction completed on 17April 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 2022 30 April 2021
GBP'000 GBP'000
Total assets 80,100 92,200
Total liabilities excluding
expenses (78,500) (88,600)
------------- -------------
Surplus 1,600 3,600
------------- -------------
Funding level 102% 104%
Allocation to the Group
The estimated share of the Scheme liabilities is 0.790%.
Over the year to 30 April 2022, the Section's funding position
remained as a small surplus.
30 April 2022 30 April 2021
GBP'000 GBP'000
Estimated cost of providing
benefits (620) (700)
Value of assets 633 728
------------- -------------
Resulting surplus 13 28
------------- -------------
Funding level 102% 104%
The surplus has not been recognised as management consider this
to be temporary and not material.
The Trustee continues to monitor the funding position.
The Trustee reserves the right to withdraw, replace or amend the
policy for the allocation between employers in the future.
40. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions
between the Group and its other related parties are disclosed
below.
KPV Propco Ltd is a company controlled by Mr DA Beech, a person
with significant influence over the Group and a member of key
management personnel.
The Group leases a property from KPV Propco Ltd. During the year
rents of GBP376,000 (2021: GBP376,000) were charged by KPV Propco
Ltd to the Group. A FRI lease of The Brampton, Newcastle-under-Lyme
was granted for a term of 25 years from and including 24 July 2017
to 24 July 2039 at a current rent of GBP376,000 per annum
(excluding VAT).
The Group received a contribution for repair work in the year
from KPV Propco Ltd of GBPnil (2021: GBP26,000). These repairs
relate to the building and site and were therefore paid by KPV
Propco Ltd.
During the year Knights Professional Services Limited charged
KPV Propco Ltd for professional services totalling GBP1,000 (2021:
GBP126,000).
At 30 April 2022, there was an amount of GBP55,000 owed by the
Group to KPV Propco Ltd (2021: GBP3,000 owed to KPV Propco Ltd by
the Group).
During the year Knights Professional Services Limited provided
legal services to the Directors in an individual capacity of
GBP77,000 (2021: GBP154,000). At 30 April 2022, there was an amount
of GBPnil (2021: GBP1,000) owed to the Group from the
Directors.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is
set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures.
Year ended Year ended
30 April 30 April
2022 2021
GBP'000 GBP'000
Short-term employee benefits and social
security costs 1,424 1,193
Gains on exercise of options 913 -
Pension costs 25 22
Share-based payments (132) 209
2,230 1,424
=========== ===========
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 GBP250,000 (2021: GBPnil) were paid in the
year in respect of ordinary shares held by the Company's
directors.
41. Post balance sheet events
On 19 May 2022 the Group exchanged contracts to acquire 100% of
the voting rights of Coffin Mew LLP, an independent law firm based
primarily in Portsmouth with offices in Southampton, Brighton and
Newbury. Total consideration payable is GBP11.5million subject to
working capital adjustments at the time of completion. This
comprises GBP5.5 in cash, GBP1m of new ordinary shares in the
Group, along with deferred cash consideration of GBP5m to be paid
on over three years. The acquisition of Coffin Mew, provides
Knights with entry into new markets and provides scale to the
Group's existing service offerings. The transaction completed on 8
July 2022 and the assets and liabilities of Coffin Mew LLP were
hived up into Knights Professional Services Limited.
Initial accounting for the business combination is not yet
complete and the fair value of net assets acquired has not yet been
determined; accordingly, details of the assets acquired and
liabilities assumed, and goodwill arising on the acquisition,
cannot be given.
In its unaudited accounts for the year ended 31 March 2022,
Coffin Mew reported revenue of GBP11.3m with a corporatised PBT
margin of circa 8%. Following full integration and realisation of
all synergies, the Board expect Coffin Mew to contribute a PBT
margin of circa 16% which, combined with a typical level of revenue
churn post-acquisition, means the acquisition is expected to be
immediately earnings enhancing.
On 5 July 2022, contracts were exchanged in relation to the sale
of HPL. The sale is expected to complete later in July 2022,
subject to regulatory approval.
Glossary of Terms
Financial Performance Measure
This document contains certain financial measures that are not
defined or separately recognised under IFRS. These measures are
used by the Board and other users of the accounts to evaluate the
Group's underlying trading performance excluding the impact of any
non-recurring items and items that do not reflect the underlying
day-to-day trading of the Group. These measures are not audited and
are not standard measures of financial performance under IFRS.
There are no generally accepted principles governing the
calculation of these measures and the criteria upon which these
measures are based can vary from company to company. Accordingly,
these measures should be viewed as supplemental to, not as a
substitute for, the financial measures calculated under IFRS.
Underlying EBITDA
Underlying EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the Group
excluding the effects of depreciation, amortisation, and
non-underlying items.
Year ended Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Operating profit 3,398 7,390
Depreciation and amortisation charges 10,778 7,730
Non-underlying costs (note 13) 13,260 10,288
--------------- ---------------
Underlying EBITDA 27,436 25,408
=============== ===============
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 Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Profit before tax 1,056 5,509
Amortisation of acquired intangibles 3,815 2,622
Non-underlying costs (note 13) 13,260 10,288
Underlying profit before tax 18,131 18,419
=============== ===============
Underlying Operating profit to Underlying Profit Before Tax
(PBT)
Year ended Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Operating profit before non-underlying
charges 16,658 17,678
Less: Finance costs (2,364) (1,881)
Add: Amortisation of acquired intangibles 3,815 2,622
Add: Finance income 22 -
Underlying profit before tax 18,131 18,419
=============== ===============
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 Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
(Loss)/Profit after tax (2,531) 3,402
Effect of change in deferred tax rate 1,747 -
Amortisation of acquired intangibles 3,815 2,622
Non-underlying operating costs (note 13) 13,260 10,288
Tax in respect of the above (1,869) (1,272)
--------------- ---------------
Underlying profit after tax 14,422 15,040
=============== ===============
Underlying earnings per share Pence Pence
Basic underlying earnings per share 17.23 18.30
Diluted underlying earnings per share 17.14 18.07
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, tax paid and
cash outflows for IFRS 16 leases. Cash conversion % is calculated
by dividing free cash flow by underlying PAT, which is reconciled
to profit after tax above.
Year ended Year ended
30 April 2022 30 April 2021
GBP'000 GBP'000
Cash generated from operations (note 35) 25,060 20,378
Tax paid (4,095) (2,125)
Total cash outflow for IFRS16 leases (5,302) (3,741)
--------------- ---------------
Free cashflow 15,663 14,512
--------------- ---------------
Underlying profit after tax 14,422 15,040
Cash conversion (%) 109% 96%
--------------- ---------------
Net debt
Net debt is presented as an alternative performance measure to
show the net position of the Group after taking account of bank
borrowings and cash at bank and in hand.
30 April
30 April 2022 2021
GBP'000 GBP'000
Borrowings (note 29) 33,153 24,064
Cash and cash equivalents (4,097) (4,783)
Asset held for sale (note 27) (130) -
Bank overdraft - 1,852
-------------- ---------
Net debt 28,926 21,133
============== =========
Working Capital
Working capital is calculated as:
30 April 2022 30 April 2021
GBP'000 GBP'000
Current assets
Contract assets 31,777 28,530
Trade and other receivables 32,309 31,521
Corporation tax receivable 1,815 -
--------------- ---------------
Total current assets 65,901 60,051
--------------- ---------------
Current liabilities
Trade and other payables 21,362 32,303
Overdraft included in payables - (1,852)
Less accrued consideration included within
trade and other payables - (8,310)
Contract liabilities 237 216
Corporation tax liability - 765
--------------- ---------------
Total current liabilities 21,599 23,122
--------------- ---------------
Net working capital 44,302 36,929
=============== ===============
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.
Fee Earner Concentration
This is calculated taking the largest fees allocated to an
individual fee earner as a percentage of the total turnover for the
year and demonstrates the Group's reliance on the fee earning
potential of an individual fee earner.
Client Concentration
On an individual basis this is calculated as the percentage of
total turnover for the financial year that arises from fees of the
largest client. For the top 10 client concentration calculation
this takes the fee income from the 10 largest clients for the year
as a percentage of the total turnover for the year.
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.
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END
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July 12, 2022 02:00 ET (06:00 GMT)
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