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 
                                        ----------------------- 
 Numis (Nomad and Broker) 
                                        ----------------------- 
 Stuart Skinner, Kevin Cruickshank       020 7260 1000 
                                        ----------------------- 
 MHP Communications (Media enquiries) 
                                        ----------------------- 
 Andrew Jaques, Katie Hunt, Eleni        020 3128 8100 
  Menikou, Robert Collett-Creedy 
                                           07736 464749 
                                           knights@mhpc.com 
                                        ----------------------- 
 

Notes to Editors

Knights is a fast-growing, legal and professional services business, ranked within the UK's top 50 largest law firms by revenue. Knights was one of the first law firms in the UK to move from the traditional partnership model to a corporate structure in 2012 and has since grown rapidly. Knights has specialists in all key areas of corporate and commercial law so that it can offer end-to-end support to businesses of all sizes and in all sectors. It is focussed on key UK markets outside London and currently operates from 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

FR GGGDRDGBDGDD

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July 12, 2022 02:00 ET (06:00 GMT)

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