REG - DSW Capital PLC - Audited Final Results
13/07/2023 07:15
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RNS Number : 8572F DSW Capital PLC 13 July 2023
13 July 2023
DSW CAPITAL PLC
("DSW Capital", "DSW" or the "Group")
(AIM: DSW)
Audited Final Results
Resilient performance in challenging market conditions
DSW Capital, a profitable, mid-market, challenger professional services
licence network and owner of the Dow Schofield Watts brand, is pleased to
announce its full year results for the year ended 31 March 2023 ("FY23" or the
"Period").
FY23 started well, with the Group delivering a strong half year performance.
This progress, however, was frustrated by the significant shift in sentiment
which followed the Autumn Mini-Budget, affecting confidence and activity in
the Group's primary market, SME M&A.
Whilst these challenging market conditions have continued into FY24, the
Board's focus is firmly on Fee Earner recruitment and the expansion of its
Network portfolio into counter-cyclical services, as demonstrated in the
Bridgewood Financial Solutions ("Bridgewood") transaction, also announced
today.
Financial highlights
· Network Revenue of £18.3m (FY22: £18.3m) - FY22's record performance matched
despite challenging H2
· Group revenue at £2.7m (FY22: £2.7m)
· Total income from licensees £3.0m (FY22: £3.0m)
· Adjusted Pre-Tax Profit of £1.4m (FY22: £2.0m), with the decline in
profitability reflecting a full year's plc costs including investment in
additional central resource
· Statutory Profit before Tax increased to £0.7m (FY22: Loss before Tax
£0.03m)
· Earnings per share 2.0 pence (FY22: loss per share (2.0) pence)
· Strong balance sheet:
- Cash balances at Period end £4.6m (FY22: £4.7m)
- Net Assets of £7.9m (FY22: £8.0m)
- Cash conversion for the period of 88% (FY22: 105%).
· Proposed Final Dividend of 2.0 pence per share, giving a total dividend per
share for the year of 3.76p (FY22: 4.22p)*
Operational highlights
· Fee Earners at Period end increased to 97 (FY22: 88), up 10.2%, demonstrating
the attractiveness of the licence model and the network's heightened profile
following IPO, with low levels of attrition at 8.4% (FY22: 16.1%)
· Launch of our Future Leaders Programme, a programme produced in conjunction
with BecomingX, investing in the next generation of DSW Leaders
· Laid the foundations for our Recruitment Drive, to build a pipeline of
ambitious professionals to join the DSW Network, partnering with Alexander
Mann Solutions and bolstering our Recruitment team
· Named by Experian** as the 11(th) most active corporate finance adviser in
the UK in 2023, moving up the rankings from 18(th) in the prior year
· Continued to deliver progress against our ESG Strategy, which was launched in
April 2022, with the publication of our second ESG report
Post year end highlights
· The Group now has a healthy pipeline of candidates, following launch of the
Recruitment Drive, with two new licensed businesses having signed heads of
terms
· Provided funding support for an MBO of Bridgewood, bringing the business into
the Network and acquiring ongoing licence fee income for DSW
- Bridgewood is a corporate recovery team of fourteen individuals
based in Nottingham
- Strengthens DSW's counter-cyclical Network Revenues
- Adds a further geographical location, the Midlands, to the
Network, which will raise the DSW's profile in that region, increasing the
likelihood of further Fee Earners joining the Network
· First DSW Group Conference announced, which will take place on 21 September
2023, bringing together our teams from across the UK
Current trading and outlook
· FY24 trading performance to date at similar levels to Q4 FY23, as
macro-economic concerns continue to restrict M&A activity
· Opportunity for organic and acquisitive growth remains significant and the
Directors are confident in the strength, resilience and appeal of the Group's
business model
· Focus remains on broadening the range of service lines in DSW's portfolio, to
build resilience in the business through economic cycles
· Investment in recruitment and supporting our existing licensees with improved
central infrastructure to ensure that DSW is well positioned for further
growth
· The Board remains cautious about its expectations for FY24 but intends to
capitalise on the recruitment opportunities that such challenging economic
conditions often create
· Whilst mindful of the pressure challenging trading conditions place on less
mature licensees, the Board remains confident about the long-term prospects
for the Group
* Full details of the dividend payments for FY22 are set out in note 12 to the
accounts.
** Experian Market IQ: 2023 Report
James Dow, Chief Executive Officer, said:
"While the outcome for FY23 was not what we expected, at the start of the
financial year, we are pleased with the progress the Group has made in other
areas. Our investment in building a strong infrastructure to support our
growth continued and we have significantly enhanced our recruitment
capabilities despite the tough market; remaining greedy whilst others are
fearful. This approach has served us well to date and we are confident that we
will benefit from this investment in subsequent trading periods.
"The post-year end addition of Bridgewood to the DSW Network demonstrates our
ambitions to re-balance the portfolio and expand the geographical presence of
the Group. We believe the increasing scrutiny and regulation facing some of
our larger competitors, in combination with the current market conditions,
will enable us to attract more quality Fee Earners to DSW, supporting our
future growth and expansion."
Definitions
Network Revenue is defined as total revenue earned by licensees, as opposed to
total revenue reported by the Company
Adjusted Pre-Tax Profit is defined as profit before tax adjusted to add back
the items not considered part of underlying trading including share-based
payment expense and IPO costs. It is a non-GAAP metric used by management and
is not an IFRS disclosure.
Cash conversion is calculated as cash generated by operations divided by
operating cash flows before movements in working capital
Total income from licensees represents statutory revenue plus share of results
in associates
FY24 is the year ended 31 March 2024
Online investor presentation
An online investor presentation and Q&A will be hosted by the management
team on Monday 17 July at 11.45am. To participate, please register with PI
World at: https://bit.ly/DSW_FY23_webinar
(https://url.avanan.click/v2/___https:/bit.ly/DSW_FY23_webinar___.YXAxZTpzaG9yZWNhcDphOm86ZjBiN2ZlNzUyMDU3OWFkYjVjYTg1M2E0ODVmZDc4ZTE6NjoxOTUwOmMzZDhlMGZhMGRhY2VhY2YxODk3YjZiYTA5ZWY3MjExZDY4YzY0ZDFjYjMyYzExMTAxYzMzYjdmZTU4NmM1OTY6cDpU)
.
Dividend and Record Pay Date
The record date for the Group's proposed dividend is 15 September 2023, and
the dividend payment date is 29 September 2023. The ex-dividend date is 14
September 2023.
Notice of AGM
The Group's annual general meeting ("AGM") will be held on 18 September
2023 at 10:00am at the Midland Hotel Manchester, 16 Peter St, Manchester
M60 2DS. Notice of the AGM will be posted with copies of the Group's report
and accounts on 18 August 2023.
For further information please contact:
DSW Capital
James Dow, Chief Executive Officer Tel: +44 (0) 1928 378 029
Nicole Burstow, Chief Financial Officer Tel: +44 (0) 1928 378 039
Shore Capital (Nominated Adviser & Broker) Tel: +44 (0)20 7408 4090
James Thomas / Mark Percy / Rachel Goldstein
Guy Wiehahn / Isobel Jones (Corporate Broking)
Belvedere Communications
Cat Valentine Tel: +44 (0) 7715 769 078
Keeley Clarke Tel: +44 (0) 7967 816 525
dsw@belvederepr.com
(https://url.avanan.click/v2/___mailto:dswcapital@belvederepr.com___.YXAxZTpzaG9yZWNhcDphOm86Yjc0Nzc1ZDRhNmI2ZDQ3ODRiMTU2MDJlZmUzYWIyOWE6NjpiM2UzOjNlNDFhZjMzOTc3YTA5ZmIzMjJlN2ExNDJmOTg4MGVjYWZhNzZkYmI3ZGY2YTQxYzA1YWZlYWI2NjhhYmZjMTg6cDpU)
About DSW Capital
DSW Capital, owner of the Dow Schofield Watts brand, is a profitable,
mid-market, challenger professional services network with a cash generative
business model and scalable platform for growth. Originally established in
2002, by three KPMG alumni, DSW is one of the first platform models disrupting
the traditional model of accounting professional services firms. DSW now
operates licensing arrangements with 23 licensee businesses with 107 fee
earners, across eight offices in England and two in Scotland. These trade
primarily under the Dow Schofield Watts brand.
DSW's vision is for the DSW Network to become the most sought-after
destination for ambitious, entrepreneurial professionals to start and develop
their own businesses. Through a licensing model, DSW gives professionals the
autonomy and flexibility to fulfil their potential. Being part of the DSW
Network brings support benefits in recruitment, funding and infrastructure.
DSW's challenger model attracts experienced, senior professionals,
predominantly with a "Big 4" accounting firm background, who want to launch
their own businesses and recognise the value of the Dow Schofield Watts brand
and the synergies which come from being part of the DSW Network.
DSW aims to scale its agile model through organic growth, geographical
expansion, additional service lines and investing in "Break Outs" (existing
teams in larger firms). The Directors are targeting high margin,
complementary, niche service lines with a strong synergistic fit with the
existing DSW Network.
Chair's Statement
On behalf of the Board, I would like to start by thanking all colleagues
across the business for their unwavering commitment and support throughout the
year. It gives me pleasure to announce DSW Capital's results for the year
ended 31 March 2023, and to welcome Bridgewood, a corporate recovery and
insolvency advisory business, based in Nottingham. Despite a strong start to
the year, the Mini-Budget in the Autumn affected confidence and activity in
our primary market, SME M&A, which inevitably impacted Group performance
in H2.
Despite these frustrations, the DSW Network demonstrated the resilience of the
individual businesses, by delivering £18.3m of Network Revenue, equal to the
record level set in the prior year. DSW continues to maintain a strong balance
sheet and an excellent capital base from which to grow the business, both
organically and through the strategic acquisition of talented individuals and
teams as opportunities arise.
The DSW Network, which comprises 23 licensee businesses, rose up the ranks to
be named by Experian as the 11(th) most active corporate finance adviser (by
number of deals) in the UK. As anticipated, the heightened profile of DSW
resulting from our IPO led to increased recruitment activity in H1 with a high
number of talented individuals joining DSW. We now have 97 Fee Earners as of
31 March 2023, an increase of 10.2% on the prior year.
Long-term vision and strategy
DSW's long-term vision is to become the most sought-after destination for
ambitious, entrepreneurial professionals to start and develop their own
businesses. We aim to scale the business through organic growth, the addition
of new service lines and geographic locations, strategic acquisition of
licence fees, and investing in "Break Outs" (existing teams in larger firms).
Being a professional services business, our focus is on the recruitment of new
partners and new teams and the recruitment of additional Fee Earners to grow
existing licensee businesses. At the year-end, the number of Fee Earners,
including partners, had grown from 88 to 97, an increase of 10.2%, and the
number of partners rose from 39 to 41.
The current market conditions can be a catalyst for ambitious professionals to
seek alternatives to the traditional employment models, as 'push' factors
become more prominent due to inflationary pressures and consequently internal
politics, and remuneration discussions can leave many disappointed. We see
this as a great opportunity for DSW to invest in our recruitment pipeline in
FY24, which we expect to benefit us in subsequent trading periods.
Addition of Bridgewood to the Network
We were delighted to announce, this morning, that, as part of our strategy to
add new services lines, DSW supported the management buyout of Bridgewood, a
corporate recovery business based in Nottingham. The transaction with
Bridgewood strengthens our counter-cyclical offering and provides DSW with its
first office in the Midlands, which will raise DSW's profile in that region,
increasing the likelihood of further Fee Earners joining the Network.
People and Diversity
Our colleagues remain central to everything we do and achieve. Creating a
positive dynamic culture, which is attractive to talent and in which our
people can thrive, remains our top priority.
Diversity is at the core of DSW's model and a cornerstone of our ESG Strategy.
We recognise that a broad range of perspectives benefits the progression and
success of our business. DSW's commitment to diversity extends beyond gender
to ethnicity, sexual orientation, gender identity, social mobility,
disability, and other challenges which may lead to disadvantage in other
environments. DSW is committed to creating a diverse and inclusive environment
for its licensees and employees, and this continues to be a core value, as new
professionals and businesses are welcomed to the Network.
Technology
We continue to invest in the right technologies to protect our licensees and
their clients, whilst also keeping pace with the rapidly changing IT
landscape, to embed efficiencies and enhance the value and quality of service
provided to our licensees. With this investment, our licensees are able to
continue to fully embrace the flexibility and autonomy afforded to them by the
DSW model, choosing how and where their teams work to help maintain a strong
work life balance and increased collaboration.
We have also invested in an additional senior IT resource to help shape and
implement our IT Strategy and provide industry leading expert advice to the
Board. Our key focus areas include continued investment in our Cyber Security,
maintaining excellent IT Service levels and providing a platform for future
innovation.
Board and Governance
The Board consists of five directors, two of whom are executive directors and
three non-executive directors. Two of the non-executive directors, Jillian
Jones and I, are considered independent. Jon Schofield is not considered
independent. The current Board reflects a blend of different experience and
backgrounds and is considered appropriate for the scale of the business.
The Board is supported by two committees, namely the Audit and Risk Committee
and the Remuneration and Nominations Committee, with formally delegated duties
and responsibilities.
I am happy to report that DSW has complied with the QCA Corporate Governance
Code throughout FY23, and you can find more information on our governance
arrangements in the Corporate Governance Statement in the annual report.
Our approach to Risk
DSW takes a proactive approach to risk management, which starts at a strategic
level with the Board. Along with the other directors, I continue to closely
monitor and identify risks facing the Group and have strong risk mitigation
strategies in place.
DSW has a wealth of compliance and risk experience to support all licensee
businesses in related matters and provide them with regulatory guidance. We
invested in an external risk advisor to support us in raising the bar on
compliance and regulatory matters. This included refreshing our Risk
Management Framework, reviewing all policies and standards, and a series of
risk management workshops with licenses businesses.
We introduced a clear and consistent format for identifying and assessing
risks, both for DSW Capital and those risks faced by our licensees. This
framework has been rolled out across the Network and adopted by licensees as
part of their own risk assessments.
We continue to invest in our compliance support, providing relevant guidance
and training to promote a pro-active approach to risk management across the
DSW Network.
For more detail, please refer to Risk Management section in the annual report.
Environmental, Social and Governance ("ESG")
As a Board, we understand and welcome the increasing importance of ESG to
investors, employees, and clients. We are committed to creating positive
interactions with all stakeholders and intend to demonstrate this over the
long-term through our approach to ESG. The Group's ESG cornerstones and
priority areas remain high on the Board's agenda. We are delighted to publish
our second ESG report within this year's Annual Report, which provides a
review of our progress to date and the meaningful action we are taking in
areas in which we can have the most impact. You can read more detail on our
progress in the Environmental, Social and Governance report in the annual
report.
The Board continues to make voluntary SECR disclosures, as it recognises the
important role all businesses must play to reduce carbon emissions and
increase energy efficiency. Please refer to the Directors Report in the annual
report.
Dividend
The Board is committed to its long-term dividend policy and is today proposing
a final ordinary dividend for the year ended 31 March 2023 of 2.0 pence, in
line with its dividend policy to pay out 70% of adjusted profit after tax. An
interim dividend of 1.76 pence per share in respect of the six months to 30
September 2022 was paid on 11 January 2023.
If approved by shareholders, this will take total cumulative dividends that
will be paid out to shareholders post-IPO to 7.98 pence per share.
Outlook
While recognising that economic conditions remain volatile, I am confident in
the Group's ability to continue to deliver on its growth strategy. As a Board,
we firmly believe that DSW is an attractive alternative to the Big 4
accounting firms, which enables talented professionals to achieve their
potential and provides a bespoke, personalised service. Several of our
competitors continue to experience intense regulatory pressure and disruption,
making our unique model increasingly attractive to a large number of
professionals who are seeking to take greater control of their careers.
The Board looks forward to FY24 with optimism and remains excited about the
long-term prospects for the Group.
Heather Lauder
Independent Non-Executive Chair
Chief Executive Officer's Review
I am pleased to report on the year ended 31 March 2023, which was undoubtedly
a game of two halves for DSW, with our progress being frustrated by the
significant shift in sentiment that followed the fateful Autumn Mini-Budget.
Despite this disruption, we matched the record Network Revenue achieved in
FY22 to deliver £18.3m (FY22: £18.3m) and ended the year with a record
number of professionals.
The Group's admission to AIM created a strong "halo" effect, which, combined
with a resilient SME M&A market in the first half of the year, powered
strong growth right through to October 2022 with Fee Earners rising from 88 to
97.
The Mini-Budget in September softened the SME M&A market, resulting in
both lower levels of transactional activity and reduced licensee confidence in
recruitment, which meant no new Fee Earners were added between October and the
year end. Whilst the political landscape settled, business sentiment and
M&A activity has remained cautious since then.
The change in economic conditions, whilst frustrating, brings significant
expansion opportunities for the Group, particularly in terms of new partner
recruitment.
Mixed trading results
Network revenue for the year was maintained at last year's record level of
£18.3m (FY22: £18.3m), as our licensees continue to prosper and maintain
their market positions. However, average revenue per Fee Earner declined 15.1%
to £193k (FY22: £227k), reflecting the previously noted softening of
the M&A market, and reduced utilisation in the second half of the
year.
Adjusted profit before tax decreased by 29.6% to £1.4m (FY22: £2.0m), with
the decline in profitability reflecting a full year's plc costs, including
additional central resource. Revenue for the Group was £2.7m (FY22: £2.7m)
and statutory profit for the year was £485k (FY22: loss of £334k) after the
deduction of the share-based payment ("SBP") charge and IPO costs.
DSW received an average licence fee (including profit share where applicable)
of 16.6% (FY22: 16.9%), the slight reduction reflecting reduced profit share
contributions.
Balance sheet strength
With strong cash balances at the year-end of £4.6m (FY22: £4.7m) after
paying dividends of £1.26m, we remain well-resourced to execute on our
strategy.
DSW's strategy and delivery against it
Our strategic aim remains to have a more resilient and diversified group of
licensed businesses. At present, corporate finance and due diligence
represents the majority of our business (68% vs. 70% in the previous
year(1)). As communicated at the time of the AIM listing, DSW aims to scale
its licence model through organic growth of existing licensees, recruitment of
new licensees, investing in "Break Outs" (existing teams in larger firms) and
the acquisition of licence fees.
Our recruitment processes continue to improve. In March 2023, we committed
significant investment in additional central recruitment capability and
relaunched our break-out initiative with clearer messaging that we are
offering "golden hellos" to new teams.
Regarding acquisitions of licence fees, we remain in regular contact with
companies that we admire and continue to work hard to convince them of our
attractiveness, as a suitor offering the right solution for all their
stakeholders. The transaction with Bridgewood, a corporate recovery business
based in Nottingham, announced this morning demonstrates that our ability to
attract quality businesses, which strengthen and diversify the Group.
Our focus remains on attracting further high margin, complementary, niche
service lines with a strong synergistic fit with the existing DSW Network.
Continued organic growth
Being a professional services business, our focus is on the recruitment of new
partners and new teams and the recruitment of additional Fee Earners to grow
existing licensee businesses.
At the year-end, the number of Fee Earners, including partners, had grown from
88 to 97, an increase of 10.2% (FY22: 14.3%) and the number of partners rose
from 39 to 41.
Since March 2013, the number of Fee Earners has increased from 30 to 97, which
equates to a ten-year compound annual growth rate ("CAGR") of over 12%, and an
increase of 15 (18.3%) since the flotation.
The first half of the year was dominated by a scarcity of available talent and
our licensee partners led the way in recruiting employees to their teams. The
change in economic conditions in the autumn, meant existing licensees took a
more prudent approach to recruitment and, generally, there was significantly
softer demand for talent.
Empowering professionals
Since launching the business in 2002 as a three-man start-up, we have focussed
on attracting others to our path, to build their own mid-market challenger
professional service businesses. We finished the year with 21 licensed
businesses in our network, adding a new wealth advisory partner and a new
M&A advisory business.
Our vision is to become the most sought-after destination for ambitious,
entrepreneurial professionals to start and develop their own businesses. Our
focus is on partners, rather than clients.
This focus on people is our super-power. Other professional firms will profess
the importance of people but position their services and capabilities towards
their clients. DSW's clients are our partners. The strength of our business
model is this clear focus on helping people meet their aspirations.
Recruitment drive
When there is a buoyant demand for services, our ability to recruit is more
constrained as the push factors encouraging people to seek new opportunities
is significantly lower. A slowdown in activity results in lower bonuses,
disappointing salary awards and postponed promotions, which increases push
factors and the propensity of candidates to consider a move.
We know that DSW remains a desirable place to work for ambitious people, who
cherish their autonomy and want to grow their own business free from the
internal politics of larger firms.
Recognising the significant shift in recruitment conditions towards the end of
the year, we significantly increased our investment in recruitment which we
will continue through FY24. It is important that we are greedy whilst others
are fearful. This approach has served us well to date.
A growing brand and reputation
DSW must continue to demonstrate that it is a highly attractive proposition
for both clients and professionals who work within the UK mid-market. The
quality of DSW's clients and the quality of our people is reflected in our
significant average revenues per fee earner of £193k (FY22: £227k). This is
an important metric and, while lower in FY23 than anticipated at the start of
the year, this still compares very favourably with other professional service
firms.
DSW's achievements and capabilities are most notable in its original core
service areas of corporate finance and due diligence. Our prominence in
M&A was highlighted by an Experian research report for 2022, which marked
DSW as the 11(th) most active adviser (by number of deals) in the UK (18(th)
position in 2021 and 25th place in 2020(2)).
In November, DSW ranked 48(th) in Accountancy Age's top 50 accountancy firms
(based on revenue) to the year ended March 2022, compared to the previous
year's ranking of 49(th 3).
International network
DSW has an established partnership network of global advisory firms, called
"Pandea Global M&A". Pandea Global M&A comprises selected independent
firms with a primary focus on the origination and execution of middle market
M&A activities. We believe this network of 31 members is the 8(th) largest
in the world.
The Pandea network increases the DSW Network's access to overseas buyers,
investors, and valuable local knowledge, while providing its UK-based clients
with access to an enlarged pool of acquisition targets.
The Pandea conference held in Rotterdam in May 2023, attracted 21 of the 31
member firms.
Central team
As a team, we remain committed to delivering the highest level of service to
our partners. It is the delivery of these services which make it possible for
our Fee Earners to focus on delivering high quality work for their clients.
The team is young, talented, and extraordinary, and I thank all of them for
their considerable efforts in delivering increasing levels of support to our
licensees.
Our initiatives this year included the launch of our Future Leaders Programme
in conjunction with BecomingX. The programme is a six-month personal
development journey to prepare the next generation of DSW leaders. The
selected employees take part in inspiring training sessions, receive
individual executive coaching, and collaborate with colleagues to design and
deliver strategic initiatives. Our first cohort of 12 employees and partners
started in January of this year.
These initiatives are right at the heart of supporting our licensee partners
and employees to be the best that they can be. Their development reinforces
the foundations of our licensee businesses and therefore for DSW for the
coming years.
Our partners and their teams are our greatest ambassadors. On behalf of our
shareholders, I would like to take this opportunity to thank DSW partners for
their continuing commitment to DSW and all that it stands for.
Looking ahead
DSW is a resilient business with a long track record of growth in Fee Earners
but, with our roots in M&A advisory, we are financially impacted by the
current lower levels of deal activity in M&A - particularly the SME
segment.
The new financial year has started in line with our expectations, with trading
performance at similar levels to Q4 FY23. Consequently, we remain uncertain
as to the speed of recovery in SME M&A activity and cognisant of the macro
vulnerabilities.
Our focus, however, is firmly on recruitment, as these short-term economic
uncertainties often give rise to the greatest long-term opportunities as our
candidate pool of new partners and employees is as much fuelled by personal
disappointment as it is by significant opportunity. Accordingly, we have
significantly increased the resources committed to recruitment which has
strengthened our recruitment pipeline.
We remain very confident in the strength of our business model to continue to
attract Fee Earners, as demonstrated by the transaction with Bridgewood
announced today. We have a strong balance sheet and are confident that our
considerable efforts to acquire licence fees and recruit teams will bear
fruit.
James Dow
Chief Executive Officer
1. Calculation includes all licensing income including income from associates
2. https://dswcapital.com/dsw-ranks-11th-in-the-uks-deals-advisers-in-2022/
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3. https://dswcapital.com/dow-schofield-watts-rises-in-accountancy-top-50-50/
(https://url.avanan.click/v2/___https:/dswcapital.com/dow-schofield-watts-rises-in-accountancy-top-50-50/___.YXAxZTpzaG9yZWNhcDphOm86ZjBiN2ZlNzUyMDU3OWFkYjVjYTg1M2E0ODVmZDc4ZTE6Njo0ZTg1Ojk4YzJkMDQyNTE1NmJhMjQ0MTM3YWMwNTA1NjI4ZTFkOTEwY2ZlYzlhYTVmZTVkMmYyNWQ3MDVlMGY5MmIzZmY6cDpU)
Chief Financial Officer's Review
Key Performance Indicators
The following KPIs are used by management to monitor the financial performance
of the Group:
2023 2022 2021
Revenue (£'000) 2,714 2,681 2,354
Total income from licensees (£'000) 2,998 2,990 2,456
Adjusted EBITDA* (£'000) 1,536 2,233 1,824
Adjusted PBT (£'000) 1,409 2,002 1,592
Adjusted PBT margin (%) 51.9 74.6 67.6
Net Assets (£'000) 7,895 7,985 2,212
The Group also measures its performance using the following KPIs which are
derived from the performance of the DSW Network:
2023 2022 2021
Total revenue of all Network licensees (£'000) 18,263 18,285 15,342
Revenue per fee earner (£'000) 193 227 196
Revenue per partner (£,000) 445 446 432
Fee Earners (Number) 97 88 77
After a very strong first half of the year, the performance of the Group in
the second half was significantly disrupted by the turbulent economic
conditions that followed the Mini-Budget in the Autumn.
We have a very talented network of partners and employees and their hard work,
commitment to their clients and resourcefulness have enabled them to maintain
the record level of billings achieved in the prior year despite an overall
decline in market activity. As such, DSW has improved its market share now
ranking the 11(th) most active adviser (by number of deals) in the UK (18(th)
position in 2021**).
The difficult economic conditions have, however, impeded both organic and new
partner recruitment, which in turn frustrated the Group's ability to grow.
Additionally, with a full year of IPO costs to bear, this has further impacted
on the Group's profitability.
Our investment in central infrastructure, whilst having a short-term impact on
profit will position the Group well for the future. Our current year
initiatives have focused on increasing the appeal of the model to new recruits
whilst making it more "sticky" for existing licensees; developing future
talent; and increasing collaboration across the Network.
Income Statement
Revenue and Network Revenue
Network revenue for the year was £18.3m, which remains flat on the prior
year. While many of our businesses have reported record years, the reduced
M&A activity has impacted Corporate Finance, our most significant service
line. This reduction has lowered utilisation and revenue per fee earner by
15.1% to £193k. Our average licence fee has been maintained at 16.6% (FY22:
16.9%) resulting in consistent levels of licensing income of £3.0m (2022:
£3.1m). Referrals across the Network have increased to 14.2% of total Revenue
(2022; 13.9%) demonstrating the collegiate culture across the Group, even in
difficult trading conditions.
Fee Earners
The number of Fee Earners is a key driver of growth and we have seen a 10.2%
increase on the prior year to 97, against the backdrop of a challenging
recruitment market. The growth in Fee Earners was heavily weighted to the
first half of the year with the uncertain economic environment in the second
half causing our licensees to take a cautious approach to recruitment. These
conditions have been particularly frustrating following the boost to
recruitment experienced on the back of the IPO. Nevertheless, the downturn
creates greater push factors in the candidate pool which creates greater
opportunity. We are investing in our recruitment capabilities so that we are
well positioned to attack the opportunity and are confident that this should
generate significant benefit in the latter part of FY24 and into FY25.
Despite a reduction in revenue per Fee Earner from £227k to £193k, this KPI
remains comparable to our larger listed peers such as Knights, DWF, Gateley
and Keystone Law as well as the Big 4. Many of our businesses have improved
their market positions and our talented teams continue to be award winning in
their local markets. The strength of the DSW brand continues to grow and we
remain a genuine alternative to the largest firms.
Central Costs
We are committed to maintaining a lean cost base whilst ensuring we provide
our licensees with the support they need to thrive and fulfil their potential.
Central costs (excluding the share-based payment charge and IPO costs) have
increased by £0.55m, on the prior year. The majority of the increase is due
to the full year effect of plc costs and investment in our central
infrastructure.
We are largely insulated from wage inflation as licensee employee costs are
borne by the licensee businesses and partners are remunerated based on the
fees they bill. The fixed cost base includes 10 people (excluding directors),
8.0 full time equivalents. Similarly, the licensee businesses bear their own
property costs or work from home, therefore the Group's exposure to
inflationary pressures is limited to its one office premises.
We made two senior hires in the second half of FY22, a Talent and Resource
Manager and a Strategic Projects Director, with a full year's cost being
incurred in FY23. In the current year we have invested in senior IT resource
to develop our IT strategy and a platform for future innovation. In addition,
we recruited a marketing executive and an office administrator. We have
continued to enhance the level of compliance support provided to licenses;
increased marketing activity to improve brand awareness; and launched our
Future Leaders training program, investing in high potential employees across
the Network to develop the next generation of partners. In addition, we have
launched several initiatives to increase collaboration across the Network. Our
target is to grow the percentage of referrals as a proportion of total income
(2023: 14.2%) such that it exceeds the average licence fee (2023: 16.6%),
creating an even more compelling proposition to new partners.
Our Adjusted Pre-tax Profit was £1.4m (2022: £2.0m) which is a decrease of
29.6% on the prior year, reflecting the increased cost base noted above.
Adjusted PBT and Exceptional Costs
Adjusted PBT is calculated as follows:
2023 2022
(£000's) (£000's)
Profit / (Loss) before tax 715 (31)
Share based payments 694 1,167
IPO costs - 866
Adjusted PBT 1,409 2,002
We have a share-based payment charge in the year of £0.7m which reflects the
accounting impact of the one-off issue of growth shares to partners prior to
the IPO. The growth shares were converted to ordinary shares on IPO and there
is no dilutive impact on shareholders going forward. The charge is being
spread over the period from issue to 1-2 years post IPO depending on the
individual share conditionality. The expense is expected to reduce in future
periods and, from 16 December 2023, will represent a more normalised basis,
solely reflecting the executive LTIP scheme.
Taxation
The effective rate of tax (based on PBT excluding the share-based payments
charge which is non-deductible) is 16.3%, slightly below the statutory rate
due to an over-provision in the prior year and the reversal of certain costs
previously treated as non-deductible. The prior year effective rate (26.7%)
was higher due to non-deductible IPO costs in the period.
Earnings Per Share
Earnings per share has been diluted year on year by the shares issued and
share re-organisation on IPO. Adjusted basic earnings per share for the year
is 6p (2022: 10p). Adjusted EPS removes the impact of the share-based payment
charge and IPO costs incurred in the year (as shown above).
Balance Sheet
Cash
The Group's business model is highly cash generative as the working capital
requirement for the licensee businesses, which includes employee and property
costs, are borne by the individual licensees. In addition, partners only get
paid when their invoices are paid so they are highly motivated to collect cash
from clients. The DSW Network lock up equivalent for the year was 27 days
(calculated as amounts owed to DSW Capital from licensees divided by Network
Revenue), compared to 30 days in the prior year. This remains well below the
listed peer group.
Cash generated from operations was £1.35m (2021: £1.44m). Operating cash
conversion in the year was 88% which is lower than the prior year (2022: 105%)
due to start-up funding provided to new licensee businesses. Corporation tax
payments were £0.2m (2022: £0.5m).
Capital expenditure was minimal in the period (£0.04m) and lease payments of
£0.08m relate to the Head Office in Daresbury. Interest income (£0.1m) has
been earnt on licensee loans and the Group's cash balances.
As a result, the closing cash and cash equivalents balance before the payment
of dividends was £5.85m (2022: £4.49m), giving a net increase of £1.12m.
The Group paid dividends of £1.26m in the year (2022: £0.38m) leaving
closing cash of £4.58m (2022: £4.72m) and no debt.
Net Assets
The Group has a strong balance sheet with net assets of £7.9m at the year-end
(2022: £8.0m). In addition, the Group has significant cash resources to take
advantage of the current recruitment and strategic acquisition opportunities.
Dividend
The Board is proposing to pay a final ordinary dividend of 2.0 pence for ended
31 March 2023 in line with its dividend policy to pay out 70% of adjusted
profit after tax. An interim dividend of 1.76 pence per share in respect of
the six months to 30 September 2022 was paid on 11 January 2023.
The final dividend will be approved at the Company's AGM which will be held on
18 September 2023 at The Midland Hotel, Manchester, M60 2DS.
Since IPO in December 2021, the Group will have paid out 7.98 pence per share
in dividends, following the approval of the FY23 Final Dividend of 2.0 pence.
Nicole Burstow
Chief Financial Officer
*Adjusted EBITDA is defined as Adjusted profit before tax adjusted to add back
impairment of loans due from associated undertakings (£22k), finance costs
(£24k), depreciation (£139k), amortisation (£46k) and deduct finance income
(£104k).
** https://dswcapital.com/dsw-ranks-11th-in-the-uks-dealsadvisers-in-2022/
Consolidated statement of comprehensive income
For the year ended 31 March 2023
2023 2022
Note £'000 £'000
Continuing operations
Revenue 4 2,714 2,681
Gross profit 2,714 2,681
Share of results of associates 16 284 309
Share of results of jointly controlled entity 17 25 102
Administrative expenses (2,366) (3,018)
Operating profit 657 74
Adjusted operating profit* 1,351 2,107
Share based payments expense (694) (1,167)
IPO expenses - (866)
Operating profit 657 74
Finance income 9 104 82
Impairment of loans due from associated undertakings (22) (127)
Finance costs 10 (24) (60)
Profit / (loss) before tax 715 (31)
Income tax 11 (230) (303)
Profit / (loss) for the year 6 485 (334)
Total comprehensive income / (loss) for the year attributable to owners of the 485 (334)
Company
Earnings per share
From continuing operations
Basic 13 £0.02 (£0.02)
Diluted 13 £0.02 (£0.02)
* Adjusted Operating profit, which is defined as operating profit adjusted for
items not considered part of underlying trading including IPO costs and share
based payments, is a non GAAP metric used by management and is not an IFRS
disclosure.
Consolidated statement of financial position
As at 31 March 2023
2023 2022
Note £'000 £'000
Non-current assets
Intangible assets 14 748 794
Property, plant and equipment 15 440 525
Investments 18 922 922
Investments in associates 18 209 290
Interests in jointly controlled entities 18 39 23
Prepayments and Accrued Income 19 166 175
Deferred tax asset 21 9 4
2,533 2,733
Current assets
Trade receivables 19 924 832
Prepayments and Accrued Income 19 350 362
Other receivables 19 567 369
Cash and bank balances 4,584 4,722
6,425 6,285
Total assets 8,958 9,018
Current liabilities
Trade payables 22 162 86
Other taxation 22 211 210
Other payables 22 76 54
Accruals and Deferred Income 22 133 163
Current tax liabilities 22 95 63
Lease liability 24 91 83
768 659
Net current assets 5,657 5,626
Lease liability 24 220 302
Dilapidation provision 22 75 72
295 374
Total liabilities 1,063 1,033
Net assets 7,895 7,985
Equity
Share capital 23 55 54
Share premium 5,271 5,280
Share-based payment reserve 25 1,868 1,174
Retained earnings 701 1,477
Total Equity attributable to owners of the Company
7,895 7,985
Company statement of financial position
As at 31 March 2023
2023 2022
Note £'000 £'000
Non-current assets
Intangible assets 14 748 794
Property, plant and equipment 15 40 39
Investments 18 922 922
Investments in associates 18 209 290
Interests in jointly controlled entities 18 39 23
Prepayments and accrued income 19 166 175
Deferred tax asset 21 9 4
2,133 2,247
Current assets
Trade receivables 19 869 801
Prepayments and Accrued Income 19 293 307
Other receivables 19 696 499
Cash and bank balances 4,563 4,714
6,421 6,321
Total assets 8.554 8,568
Current liabilities
Trade payables 22 32 29
Other taxation 22 210 177
Other payables 22 76 54
Accruals and Deferred Income 22 128 154
Current tax liabilities 22 95 63
541 477
Net current assets 5,880 5,844
Total liabilities 541 477
Net assets 8,013 8,091
Equity
Share capital 23 55 54
Share premium 5,271 5,280
Share-based payment reserve 25 1,868 1,174
Retained earnings 819 1,583
Total Equity attributable to owners of the Company
8,013 8,091
The profit after tax for the Company was £497,000 (2022: loss of £305,000).
Under s408 of the Companies Act 2006, the company is exempt from the
requirement to present its own income statement.
Consolidated statement of changes in equity
For the year ended 31 March 2023
Share capital Share premium Share-based payments reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2021 2 - 7 2,203 2,212
Loss for the year - - - (334) (334)
Dividends - - - (380) (380)
Share-based payments - - 1,167 - 1,167
Issue of shares in year 52 5,280 - (12) 5,320
Balance at 31 March 2022 54 5,280 1,174 1,477 7,985
Profit for the year - - - 485 485
Dividends - - - (1,261) (1,261)
Share-based payments - - 694 - 694
Issue of shares in year 1 (9) - - (8)
Balance at 31 March 2023 55 5,271 1,868 701 7,895
Company statement of changes in equity
For the year ended 31 March 2023
Share capital Share premium Share-based payments reserve Retained earnings Total equity
£'000 £'000 £'000 £'000 £'000
Balance at 31 March 2021 2 - 7 2,280 2,289
Loss for the year - - - (305) (305)
Dividends - - - (380) (380)
Share-based payments - - 1,167 - 1,167
Issue of shares in year 52 5,280 - (12) 5,320
Balance at 31 March 2022 54 5,280 1,174 1,583 8,091
Profit for the year - - - 497 497
Dividends - - - (1,261) (1,261)
Share-based payments - - 694 - 694
Issue of shares in year 1 (9) - - (8)
Balance at 31 March 2023 55 5,271 1,868 819 8,013
Consolidated cash flow statement
For the year ended 31 March 2023
2023 2022
Note £'000 £'000
Profit / (loss) for the year 485 (334)
Adjustments for:
Income tax expense 11 230 303
Net interest income (80) (22)
Depreciation of property, plant and equipment 15 139 87
Amortisation of intangible assets 14 46 39
Share-based payment expense 25 694 1,167
Impairment of loans due from associated undertakings 22 127
Operating cash flows before movements in working capital 1,536 1,367
(Increase)/decrease in trade and other receivables (308) 192
Increase in trade and other payables 41 73
Decrease/(increase) in amounts owed from associates in relation to profit 81 (196)
share
Cash generated by operations 1,350 1,436
Income taxes paid (203) (502)
Net cash from operating activities 1,147 934
Investing activities
Purchases of property, plant and equipment 15 (43) (37)
Net cash used in investing activities (43) (37)
Financing activities
Dividends paid 12 (1,261) (380)
Finance lease payments (77) (77)
Net interest received 104 45
Repayments of loans and borrowings - (992)
(Costs of) / proceeds from issue of ordinary shares net of share issue costs (8) 4,620
Net cash (used in) / from financing activities (1,242) 3,216
Net (decrease) / increase in cash and cash equivalents (138) 4,113
Cash and cash equivalents at beginning of year 4,722 609
Cash and cash equivalents at end of year 4,584 4,722
Notes to the financial statements
1. General information
The Company was incorporated as DSW Capital Limited on 23 March 2010 under the
Companies Act 2006 (Registration number: 07200401). The Company was
re-registered as DSW Capital plc on 26 October 2021. The Company is
incorporated and domiciled in England and Wales. The principal activity of the
Company and its subsidiary, DSW Services LLP, (together referred to as the
'Group') is the licensing of the Dow Schofield Watts brand and associated
brand names for use in the professional services sector.
The address of the Company's registered office is:
7400 Daresbury Park
Daresbury
Warrington
WA4 4BS
The Financial Statements are presented in Pounds Sterling (£), which is the
currency of the economic environment in which the Group operates. All
amounts are rounded to the nearest £'000 except where noted.
2. Accounting policies
Basis of Preparation
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined by section 434 of the Companies Act
2006.
The results for the year ended 31 March 2023 have been extracted from the full
accounts of the Group for that year which received an unqualified auditor's
report and which have not yet been delivered to the Registrar of Companies.
This preliminary financial information has been prepared on the same basis as
the accounting policies adopted in those financial statements but does not
include all the disclosures required in financial statements prepared in
accordance with UK adopted International Accounting Standards and accordingly
does not itself comply with UK adopted International Accounting Standards. The
audited financial statements for the year ended 31 March 2023 were approved by
the Directors on 12 July 2023.
The financial information for the year ended 31 March 2022 is derived from the
statutory accounts for that year, which have been delivered to the Registrar
of Companies. The report of the auditor on those filed accounts was
unqualified.
The accounts for the year ended 31 March 2023 and 31 March 2022 did not
contain a statement under s498 (1) to (4) of the Companies Act 2006. The
statutory accounts for the year ended 31 March 2023 will be distributed to
shareholders on 18 August 2023, in advance of the Annual General Meeting and
made available on our website (https://dswcapital.com/investors/) or on
request by contacting the Company Secretary at the Company's Registered
Office.
Statement of Compliance
The Group financial statements have been properly prepared in accordance with
UK adopted international accounting standards; the Parent Company financial
statements have been properly prepared in accordance with UK adopted
international accounting standards and has applied in accordance with the
provisions of the Companies Act 2006.
The preparation of financial statements in compliance with adopted UK IFRS
requires the use of certain critical accounting estimates. It also requires
Group management to exercise judgment in applying the Group's accounting
policies. The areas where significant judgments and estimates have been made
in preparing the financial statements and their effect are disclosed in Note
3.
Impact of the initial application of other new and amended IFRS Standards that
are effective for the current year
In the current year, the Group has applied a number of amendments to IFRS
accounting standards issued by the International Accounting Standards Board
(IASB) that are mandatorily effective for an accounting period that begins on
or after 1 January 2022.Their adoption has not had any material impact on the
disclosures or on the amounts reported in these financial statements.
· Amendments to IAS 16 - Property Plant and Equipment: Proceeds before intended
use
· Amendments to IFRS 3 - Reference to Conceptual Framework
· Annual improvements to IFRS Standards 2018-2020 Cycle
· Amendments to IFRS 9 - Financial Instruments and IFRS 16 leases
New and revised IFRS Standards in issue but not yet effective
In preparing these financial statements, the group has not applied the
following new and revised IFRS Standards that have been issued but are not yet
effective.
· IFRS 17 - Insurance Contracts
· Amendments to IFRS 10 and IAS 28 - Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
· Amendments to IAS 1 - Classification of Liabilities as current or non-current
· Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting
Policies
· Amendment to IAS 8 - Definition of Accounting Estimates
· Amendments to IAS 12 - Deferred tax related Assets and Liabilities arising
from a Single Transaction
The directors do not expect the adoption of the Standards listed above will
have a material impact on the financial statements of the Group in future
periods.
Basis of accounting
The Financial Statements have been prepared on the historical cost basis,
except for the revaluation of financial instruments that are measured at
revalued amounts or fair values at the end of each reporting period, as
explained in the accounting policies below. Historical cost is generally based
on the fair value of the consideration given in exchange for goods and
services.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date, regardless of whether that price is directly observable
or estimated using another valuation technique.
The principal accounting policies adopted are set out below.
Going concern
In considering the appropriateness of the going concern basis of preparation,
the Directors have considered the cash balance and the forecasts for the next
twelve months following the date of this report, which includes detailed cash
flow forecasts and working capital availability. These forecasts show that
sufficient resources remain available to the business for the foreseeable
future. The Group has a significant cash balance of £4.6m, no debt, has a
model which is strongly cash generative and a limited fixed cost base. At 31
March 2023, the Group has net assets of £7.9m (2022: £8.0m) and net current
assets of £5.7m (2022: £5.6m) which reflects the strong financial position
for the Group. In addition, the Group is profitable with adjusted profit after
tax of £1.2m in the year ended 31 March 2023.
Scenario analysis has been performed on the underlying forecasts and, given
the Group's cash balance is over two times the size of the forecast annual
cost base, this demonstrates that the Company and the Group have adequate
resources to continue in operational existence for the foreseeable future. As
stated in note 28, the Group completed a transaction with Bridgewood Financial
Solutions Limited on 12(th) July 2023 to acquire licence fee income and
provide funding to support a management buyout. The transaction will be
funded out of the Group's available cash resources and will provide loans
totaling £880,000 of cash, of which £100,000 will be a working capital loan
to Bridgewood. Following the completion of the transaction, the Directors
remain comfortable that the Company and the Group have sufficient funds to
comfortably cover its cost base for at least 12 months from the date of
signing the accounts.
As such, the Group financial statements have been prepared on a going concern
basis as the Directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the foreseeable
future.
Basis of consolidation
The consolidated Financial Statements incorporate the Financial Statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 March each year. Control is achieved when the Company:
· has the power over the investee;
· is exposed, or has rights, to variable returns from its involvement with the
investee; and
· has the ability to use its power to affects its returns.
The Company reassesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control listed above.
When the Company has less than a majority of the voting rights of an investee,
it considers that it has power over the investee when the voting rights are
sufficient to give it the practical ability to direct the relevant activities
of the investee unilaterally. The Company considers all relevant facts and
circumstances in assessing whether or not the Company's voting rights in an
investee are sufficient to give it power, including:
· the size of the Company's holding of voting rights relative to the size and
dispersion of holdings of the other vote holders;
· potential voting rights held by the Company, other vote holders or other
parties;
· rights arising from other contractual arrangements; and
· any additional facts and circumstances that indicate that the Company has, or
does not have, the current ability to direct the relevant activities at the
time that decisions need to be made.
All intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between the members of the Group are eliminated on
consolidation.
Investments in associates and jointly controlled entities
An associate is an entity over which the Group has significant influence and
that is neither a subsidiary nor an interest in a jointly controlled entity.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee but is not control or joint control
over those policies.
A jointly controlled entity is a joint arrangement whereby the parties that
have joint control of the arrangement have rights to the net assets of the
joint arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.
The results and assets and liabilities of associates or jointly controlled
entities are incorporated in these Financial Statements using the equity
method of accounting.
Under the equity method, an investment in an associate or a jointly controlled
entity is recognised initially in the consolidated statement of financial
position at cost and adjusted thereafter to recognise the Group's share of the
profit or loss and other comprehensive income of the associate or jointly
controlled entity. The Group's share of the profit or loss is driven by the
contractual arrangements in place. The Group's share of the profit or loss is
defined by the economic interest in the associate or jointly controlled entity
as stipulated in the legal arrangements, which differs from the percentage
voting rights held.
The requirements of IAS 36 are applied to determine whether it is necessary to
recognise any impairment loss with respect to the Group's investment in an
associate or a jointly controlled entity. When necessary, the entire carrying
amount of the investment is tested for impairment in accordance with IAS 36 as
a single asset by comparing its recoverable amount (higher of value in use and
fair value less costs of disposal) with its carrying amount.
The Group discontinues the use of the equity method from the date when the
investment ceases to be an associate or a jointly controlled entity.
Other Investments
Where long-term loans are made to licensees, the Directors of the Company have
accounted for them as investments under IFRS 9. These loans are accounted for
using the amortised cost method. See note 3 for associated critical judgements
involved in determining the appropriate classification of long-term loans to
licensees.
Revenue recognition
Revenue comprises revenue recognised by the Group in respect of services
supplied during the year, exclusive of Value Added Tax.
The Group recognises revenue from the following major sources:
· Licence fee income
· Profit share income
Licence fee income is recognised at the point at which the performance
obligations, as defined by the contractual arrangements, have been satisfied
which is primarily when revenue has been invoiced by the licensees over time.
Profit share income is only recognised at the point at which the risk of
reversal is deemed to be remote.
Leases
The Group applies IFRS 16 to account for leases. At inception of a contract,
the Group assesses whether a contract is, or contains, a lease. A contract is,
or contains, a lease if the contract conveys the right to control the use of
an identified asset for a period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability at the lease
commencement date. The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to restore the underlying asset, less
any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line
method from the commencement date to the earlier of the end of the useful life
of the right-of-use asset or the end of the lease term. In addition, the
right-of-use asset is periodically reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease liabilities.
The lease liability is initially measured at the present value of lease
payments that were not paid at the commencement date, discounted using the
Group's incremental borrowing rate. The incremental borrowing rate applied to
lease liabilities during the year is 5.55%.
The lease liability is measured at amortised cost using the effective interest
method. If there is a remeasurement of the lease liability, a corresponding
adjustment is made to the carrying amount of the right-of-use asset or is
recorded directly in profit or loss if the carrying amount of the right-of-use
asset is zero.
Short-term leases and low value assets
The Group has elected not to recognise right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months or less
or leases of low value assets. These lease payments are expensed on a
straight-line basis over the lease term.
Dilapidations provision
The Group recognises a provision for the future costs of dilapidations on
leased office space. The provision is an estimate of the total cost to return
applicable office space to its original condition at the end of the lease
term.
Operating profit
Operating profit is stated after charging the share of results of associates
and jointly controlled entities, but before finance income and finance costs.
Retirement and termination benefit costs
Payments to defined contribution retirement benefit plans are recognised as an
expense in the consolidated statement of comprehensive income in the periods
during which services are rendered by employees. Payments made to
state-managed retirement benefit plans are accounted for as payments to
defined contribution plans where the Group's obligations under the plans are
equivalent to those arising in a defined contribution retirement benefit plan.
Short-term and other long-term employee benefits
Wages, salaries, paid annual leave and sick leave and bonuses are accrued in
the period in which the associated services are rendered by employees of the
Group.
Taxation
The income tax expense represents the sum of the tax currently payable and
deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the consolidated statement of
comprehensive income because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by
the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the Financial
Statements and on unused tax losses or tax credits available to the Group.
Deferred tax is determined using tax rates and laws that have been enacted or
substantively enacted by the reporting date.
Property, plant and equipment
Property, plant and equipment is stated in the statement of financial position
at cost less accumulated depreciation and accumulated impairment loss.
Depreciation is charged so as to write off the cost of assets over their
estimated useful lives, as follows:
Office equipment 33% straight line
Office fixtures & fittings 20% straight line
The estimated useful lives, residual values and depreciation method are
reviewed at the end of each reporting period, with the effect of any changes
in estimate accounted for on a prospective basis.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are
carried at cost less accumulated amortisation and accumulated impairment
losses. Amortisation is recognised on a straight-line basis over their
estimated useful lives which are disclosed below. The estimated useful life
and amortisation method are reviewed at the end of each reporting period, with
the effect of any changes in estimate being accounted for on a prospective
basis. The estimated useful life of intangible assets is as follows:
Intangible assets 10 - 25 years
The intangibles relate to intellectual property and trademarks acquired.
Financial instruments
Financial assets and financial liabilities are recognised in the Group's
statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair
value, except for trade receivables that do not have a significant financing
component which are measured at transaction price. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair
value of the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
Financial assets
The Group's financial assets include cash and cash equivalents and trade and
other receivables that arise from the business operations and loans to
licensees.
All financial assets are recognised and derecognised on a trade date where the
purchase or sale of a financial asset is under a contract whose terms require
delivery of the investment within the timeframe established by the market
concerned, and are initially measured at fair value, plus transaction costs.
All recognised financial assets are measured subsequently in their entirety at
amortised cost.
Classification of financial assets
Amortised cost and effective interest method
(a) Trade and other receivables
Trade receivables are stated at their original invoiced value. Trade
receivables are reduced by appropriate allowances for estimated irrecoverable
amounts. See Note 3 for details of the loss allowance.
(b) Loans owing from licensees
Loans are measured at amortised cost at their effective interest rates. The
amortised cost of a loan is the amount at which the loan is measured at
initial recognition minus the principal repayments, plus the cumulative
amortisation using the effective interest method of any difference between
that initial amount and the maturity amount, adjusted for any loss allowance.
The gross carrying amount of a financial asset is the amortised cost of a
financial asset before adjusting for any loss allowance.
(c) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and other short-term highly
liquid investments that are readily convertible to a known amount of cash and
are subject to insignificant risk of changes in value.
Interest income is recognised in profit or loss and is included in the
"finance income" line item (Note 9).
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on the
Group's loans to licensees and trade receivables. The amount of expected
credit losses is updated at each reporting date to reflect changes in credit
risk since initial recognition of the respective financial asset.
The expected loss rates for these financial assets are based on the Group's
historical credit losses experienced over the three-year period prior to the
period end. An additional portfolio expected loss provision is calculated in
which the historical loss rates are then adjusted for current and
forward-looking information on macroeconomic factors affecting the Group's
licensees. The Group has identified the changing insolvency rates in the UK as
the key macroeconomic factor.
(i) Definition of default
The Group considers when a licensee business is terminated or ceases to trade
as default events.
(ii) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of
default, loss given default (i.e., the magnitude of the loss if there is a
default), and the exposure at default. The assessment of the probability of
default and loss given default is based on historical data adjusted by
forward-looking information as described above. As for the exposure at
default, for financial assets, this is represented by the assets' gross
carrying amount at the reporting date.
For financial assets, the expected credit loss is estimated as the difference
between all contractual cash flows that are due to the Group in accordance
with the contract and all the cash flows that the Group expects to receive,
discounted at the original effective interest rate.
The Group recognises an impairment loss in the consolidated statement of
comprehensive income for all financial instruments with a corresponding
adjustment to their carrying amount through a loss allowance account.
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
Financial liabilities
All financial liabilities are measured subsequently at amortised cost using
the effective interest method.
Financial liabilities are included in the statement of financial position as
trade and other payables and borrowings.
(a) Trade and other payables
Trade payables are stated at their original invoiced value. Accounts payable
are classified as current liabilities if the company does not have an
unconditional right, at the end of the reporting period, to defer settlement
of the creditor for at least twelve months after the reporting date. If there
is an unconditional right to defer settlement for at least twelve months after
the reporting date, they are presented as non-current liabilities.
(b) Borrowings
All borrowings are initially recorded at the amount of proceeds received, net
of transaction costs. Borrowings are subsequently carried at amortised cost
and the interest expense is recognised on the basis of the effective interest
method and is included in finance costs. Borrowings are classified as current
liabilities unless the Group has an unconditional right to defer settlement of
the liability for at least 12 months after the reporting date.
Dividend Policy
The Board has adopted a progressive dividend policy to reflect the expectation
of future cash flow generation and long-term earnings potential of the Group.
The Board may, however, revise the Group's dividend policy from time to time
in line with the actual results of the Group.
Dividends are recognised once they have been paid.
Related Party Transactions
Details of related party transactions entered into by members of the Group are
set out in Note 29.
Share-based payments
Equity-settled share-based payments to employees and others providing similar
services are measured at the fair value of the equity instruments at the grant
date. The fair value excludes the effect of non-market-based vesting
conditions. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in Note 25.
The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based
on the Group's estimate of the number of equity instruments that will
eventually vest. At each reporting date, the Group revises its estimate of the
number of equity instruments expected to vest as a result of the effect of
non-market-based vesting conditions. The impact of the revision of the
original estimates, if any, is recognised in the consolidated statement of
comprehensive income such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to reserves.
3. Critical accounting judgements and key sources of estimation uncertainty
In applying the Group's accounting policies, which are described in note 2,
the Directors are required to make judgements (other than those involving
estimations) that have a significant impact on the amounts recognised and to
make 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.
Critical judgements in applying the Group's accounting policies
The following are the critical judgements, apart from those involving
estimations (which are presented 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.
Consideration of control over a licensee
Where the Group holds voting rights in an underlying licensee, an assessment
of the ability to exert control over these entities is made based on whether
the Group has the practical ability to direct the relevant activities of these
entities unilaterally. Investments in associates have been recognised for
entities where the Group holds between 20% and 50% of the voting rights and
does not have any unilateral powers other than protective ones. Where the
Group has more than 20% of the voting rights, it is deemed to have significant
influence over the licensees and thus they are accounted for as investment in
associates.
There is one entity in which the Group has 51% of the voting rights and 16.7%
of the economic rights. However, all significant operational decisions require
the unanimous consent of the parties. As such this entity has been
recognised as an investment in a jointly controlled entity.
Classification of long-term loans to licensees
Where long-term loans are made to licensees, these are accounted for as
investments under IFRS 9 using the amortised cost method. The long-term loan
provided to a licensee has a 20-year term and is only repayable at the end of
the term and therefore in substance, is more akin to an investment. The
interest rate is 7.1%.
Share based payments
In the year ended 31 March 2023, the Group operated three equity share based
payment plans. Management have formed a judgement on the vesting period over
which the associated charge should be spread. This has been formed with
reference to the individual conditionality associated with the different
classes of share awards and ranges between one to three years from the date of
the statement of financial position.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty at 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.
Calculation of expected loss allowance for related party loans
When measuring expected credit loss ("ECL"), the Group uses reasonable and
supportable forward-looking information, which is based on assumptions for the
future movement of different economic drivers and how these drivers will
affect each other.
Probability of default constitutes a key input in measuring ECL. Probability
of default is an estimate of the likelihood of default over a given time
horizon, the calculation of which includes historical data, assumptions and
expectations of future conditions for the licensee business.
The Group assesses each licensee individually as to the probability of default
on their loans based on their cash balances and their ability to pay the cash
flows due.
Also, the Group has elected to calculate an additional portfolio expected loss
provision in which the historical loss rates are adjusted for current and
forward-looking information on macroeconomic factors affecting the Group's
licensees. The Group has identified the changing insolvency rates in the UK as
the key macroeconomic factor as the failure of corporates is deemed to be a
reasonable macroeconomic predictor for the likely failure of a licensee
business on a portfolio basis.
4. Revenue
The disclosure of revenue by product line is consistent with the revenue
information that is disclosed for each reportable segment under IFRS 8 (see
Note 5).
Disaggregation of revenue
2023 2022
£'000 £'000
External revenue by product line
License Fee Income 2,549 2,531
Profit Share Income 165 150
Total 2,714 2,681
A further breakdown of revenue by reporting line is shown below:
2023 2022
£'000 £'000
External revenue by reporting line
License fees attributable to Mergers & Acquisition ('M&A') 1,817 1,889
License fees attributable to Other 732 642
Profit share attributable to M&A 165 150
Total Revenue 2,714 2,681
5. Operating segments
Products and services from which reportable segments derive their revenues
Operating segments are reported in a manner consistent with the internal
reporting provided to the Chief Operating Decision Marker (CODM). The CODM,
who is responsible for allocating resources and assessing performance of the
operating segments, has been identified as the Group's Chief Executive.
The Group has four reporting lines, identified above, which divide license
fees and profit share income between those attributable to M&A and Other,
but the Group only has one operating segment due to the nature of services
provided across the whole Group being the same, being revenue derived from
licensing of the Dow Schofield Watts brand and associated brand names for use
in the professional services sector. The Group's revenues, costs, assets,
liabilities and cash flows are therefore totally attributable to this
reporting segment.
Internal management reports are reviewed by the Directors monthly, including
revenue information by licensee. Such revenue information alone does not
constitute sufficient information upon which to base resource allocation
decisions.
Performance of the segment is assessed based on revenue data only.
As the Group only has one reportable segment, all segmented information is
provided by the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated statement of
changes in equity and the consolidated statement of cash flows.
Geographical information
The Group has operations in one geographic location, the United Kingdom, and
therefore the Group only has one reporting geographic operating segment. This
is in line with internal reporting.
Information about major customers
Included in revenues arising from License fees attributable to M&A are
revenues of approximately £0.68m (2022: £0.96m) which arose from license fee
income from the Group's largest licensee. No other single licensee contributed
10 per cent or more to the Group's revenue in either 2023 or 2022.
6. Profit for the year
Profit for the year has been arrived at after charging/(crediting):
2023 2022
£'000 £'000
Depreciation of property, plant and equipment 139 87
Amortisation 46 39
Employee pension 14 36
IPO costs - 866
Expected credit loss - license fees 130 (6)
Expected credit loss - outstanding loans 22 127
Expected credit loss - profit share (84) 14
7. Auditors' remuneration
2023 2022
£'000 £'000
Audit of the Group financial statements 63 60
Fees payable to the Company's auditors in respect of:
Interim financial reporting - 16
Reporting Accountants - 126
Total auditors' remuneration 63 202
Non-audit services relate to the appointment of BDO LLP as reporting
accountants during the IPO and the interim review of financial information by
the Company's auditors which was completed as part of the IPO.
8. Staff costs
The average number of persons employed by the Group (including Directors)
during the year, analysed by category was as follows:
2023 2022
Number Number
Central Heads 15 16
15 16
Their aggregate remuneration comprised:
2023 2022
£'000 £'000
Wages and salaries 790 669
Social security costs 98 74
Other pension costs (see note 26) 14 36
902 779
'Other pension costs' relate to the defined contribution plan charge as
detailed in Note 26.
Aggregate Directors' remuneration
2023 2022
£'000 £'000
Wages and salaries 455 393
Social security costs 63 49
Other pension costs (see note 26) 8 31
526 473
The highest paid Director's total emoluments in the year were £213,500 (2022:
£276,308) of which £nil (2022: £31,321) related to pension costs.
Directors' transactions
Dividends totaling £1,260,953 were paid in the year in respect of ordinary
shares (2022: £379,995). Of the dividends, £324,682 (2022: £379,995) were
paid to Directors of the Company who were currently serving at the time of
payment. See Note 12 for details.
9. Finance income
2023 2022
£'000 £'000
Interest income:
Loan Interest 80 80
80 80
Other finance income 24 2
Total finance income 104 82
10. Finance costs
2023 2022
£'000 £'000
Interest on bank loans - (36)
Amortisation of debt issue costs - (11)
Interest costs on lease (19) (11)
Other finance costs (5) (2)
(24) (60)
11. Income Tax
2023 2022
£'000 £'000
Corporation income tax:
Current year 260 340
Adjustments in respect of prior years (25) (36)
235 304
Deferred tax (see note 21)
Origination and reversal of temporary differences (5) (1)
230 303
The standard rate of corporation tax applied to reported profit is 19 per cent
(2022: 19 per cent).
The charge for the year can be reconciled to the profit before tax as follows:
2023 2022
£'000 £'000
Profit / (loss) before tax on continuing operations 715 (31)
Tax at the UK corporation tax rate of 19 per cent (2022: 19 per cent) 136 (6)
Tax effect of expenses that are not deductible in determining taxable profit (14) 128
and reversal of prior year expenses not deducted previously
Depreciation in excess of capital allowances 7 5
Other tax effects 4 3
Tax effect of adjustments in relation to prior periods (25) (36)
Tax effect of income not taxable in determining taxable profit (5) (12)
Movement in deferred tax assets/liabilities (5) (1)
Tax effect of share based payment adjustment 132 222
Tax expense for the year 230 303
From 1 April 2023, there is no longer a single corporation tax rate for
non-ring-fenced profits. At the spring budget 2021, the government announced
that the corporation tax rate for non-ring-fenced profits would increase to
25% for profits above £250k. Companies with profits between £50,000 and
£250,000 will pay tax at the main rate, reduced by a marginal relief.
12. Dividends
2023 2022
Amounts recognised as distributions to equity holders in the year: £'000 £'000
Final dividend for the year to 31 March 2022 consisting of:
Interim catch up dividend for the year to 31 March 2022 of £0.0056 per share 118 -
(2021: £nil)
Final dividend for the year ended 31 March 2022 of £0.0366 per share (2021: 772 127
£0.0667 per share)
Interim dividend for the year ended 31 March 2023 of £0.0176 per share (2022: 371 253
£0.133 per share)
1,261 380
Proposed final dividend for the year ended 31 March 2023 consisting of:
Prior year interim catch up dividend for the year to 31 March 2022 of £0.0056
per share
- 120
Final dividend for the year to 31 March 2023 of £0.02 per share (2022: 439 786
£0.0366 per share)
439 906
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 14 September 2023.
13. Earnings per share
From continuing operations
The calculation of the basic and diluted earnings per share is based on the
following data:
2023 2022
Earnings £'000 £'000
Earnings for the purposes of basic earnings per share being net profit / 485 (334)
(loss) attributable to owners of the Company
Effect of dilutive potential ordinary shares: - -
Earnings for the purposes of diluted earnings per share 485 (334)
2023 2022
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings 21,075,581 17,014,850
per share
Effect of dilutive potential ordinary shares:
Share Options 674,454 122,844
Weighted average number of ordinary shares for the purposes of diluted 21,750,035 17,137,694
earnings per share
From continuing operations
2023 2022
Earnings £ £
Basic earnings per share 0.02 (0.02)
Diluted earnings per share 0.02 (0.02)
Adjusted earnings per share is included as an Alternative Performance Measure
('APM') and is not presented in accordance with IAS 33. It has been calculated
using adjusted earnings calculated as profit after tax but before:
· Share-based payments expense;
· IPO costs; and
· The tax effect of the above items
The calculation of adjusted basic and adjusted diluted earnings per share is
based on:
2023 2022
£'000 £'000
Profit / (loss) after tax on continuing operations 485 (334)
Adjusted for:
Share-based payment expense 694 1,167
IPO Costs - 866
Tax effect of adjustments above - (43)
Adjusted earnings for the purposes of adjusted basic and adjusted diluted 1,179 1,656
earnings per share
2023 2022
Earnings £ £
Adjusted basic earnings per share 0.06 0.10
Adjusted diluted earnings per share 0.05 0.10
Tax adjustments of £nil (2021: £43,000) have been made in arriving at the
adjusted earnings per share. This is based on an estimated full year
equivalent tax rate, which is largely driven by the UK corporation tax rate of
19% adjusted upwards to take into account the effect of non-deductible
expenses.
Shares held in trust are issued shares that are owned by the Group's employee
benefit trusts for future issue to employees as part of share incentive
schemes. The future exercise of the share awards and options is the dilutive
effect of share awards granted to employees that have not yet vested.
Shares held in trust are deducted from the weighted average number of shares
for basic earnings per share. For its adjusted basic measure, the group uses
the weighted average number of ordinary shares.
14. Intangible assets
Intellectual Property & Trademarks
£'000
Cost
At 1 April 2021 747
Additions 160
At 31 March 2022 907
Additions -
At 31 March 2023 907
Amortisation
At 1 April 2021 74
Charge for the year 39
At 31 March 2022 113
Charge for the year 46
At 31 March 2023 159
Carrying amount
At 31 March 2022 794
At 31 March 2023 748
All intangible assets relate to intellectual property on which license fees
are charged. £676k of the carrying amount as at 31 March 2023 (2022: £707k)
relates to Camlee Group.
15. Property, plant and equipment - Group
Right of Use Asset Office Fixtures, Fittings & Equipment Total
£'000 £'000 £'000
Cost
At 1 April 2021 - 184 184
Additions 520 37 557
At 31 March 2022 520 221 741
Additions 11 43 54
At 31 March 2023 531 264 795
Accumulated depreciation
At 1 April 2021 - 129 129
Charge for the year 52 35 87
At 31 March 2022 52 164 216
Charge for the year 105 34 139
At 31 March 2023 157 198 355
Carrying amount
At 31 March 2022 468 57 525
At 31 March 2023 374 66 440
Property, plant and equipment - Company
Office Fixtures, Fittings & Equipment
£'000
Cost
At 1 April 2021 97
Additions 31
At 31 March 2022 128
Additions 28
At 31 March 2023 156
Accumulated depreciation
At 1 April 2021 62
Charge for the year 27
At 31 March 2022 89
Charge for the year 27
At 31 March 2023 116
Carrying amount
At 31 March 2022 39
At 31 March 2023 40
16. Associates
As none of the individual associates are deemed to be material associates,
they have been grouped together in aggregate below.
Aggregate information of associates that are not individually material
2023 2022
£'000 £'000
The Group's share of profit from continuing operations 284 309
The Group's share of profit and total comprehensive income 284 309
Change in the Group's ownership interest in an associate
Where the Company is a member of a licensee's business, a profit share
arrangement is in place which entitles the Company to profits over a
contractual threshold which is stated within an LLP agreement. The Group
accounts for associates based on their economic share as stated in the legal
agreements, rather than based on the Company's voting rights. Therefore, the
accounting always mirrors the economic arrangement. When there is a change in
profit share, this is not deemed to constitute a change in the Group's
ownership interest in an associate as this relates to a change in economic
interest only, hence there is no change to the equity accounting basis. A
change in the Group's ownership interest therefore is only recognised where
there is a change in the Company's voting rights.
17. Jointly controlled entities
The jointly controlled entity is not deemed to be a material jointly
controlled entity.
Information of jointly controlled entity that is not individually material
2023 2022
£'000 £'000
The Group's share of profit from continuing operations 25 102
The Group's share of profit and total comprehensive income 25 102
18. Investments - Group and Company
2023 2022
£'000 £'000
Financial assets measured under the equity method
Investment in Associates 209 290
Investment in jointly controlled entities 39 23
Financial assets measured at amortised cost
Other investments 922 922
Total Investments 1,170 1,235
Where long-term loans are made to licensees, which are disclosed within "Other
investments" above, the Directors of the Company have accounted for them as
investments under IFRS 9. These loans are accounted for using the amortised
cost method.
The movement in Investment in Associates and Investment in jointly controlled
entities is included in the cashflow statement as increase in amounts due from
associates.
19. Trade and other receivables
Company 2023 Company 2022 Group Group
2023 2022
£'000 £'000 £'000 £'000
Trade receivables 910 879 965 910
Loss allowance (41) (78) (41) (78)
869 801 924 832
Other receivables 804 686 805 686
Loss Allowance (238) (317) (238) (317)
566 369 567 369
Prepayments and Accrued Income 471 574 528 629
Loss Allowance (12) (92) (12) (92)
459 482 516 537
1,894 1,652 2,007 1,738
Amounts due from subsidiary undertakings 130 130 - -
2,024 1,782 2,007 1,738
Included in prepayments and accrued income for both the company and the group
are £166k (2022: £175k) due in greater than 1 year. Other receivables are
made up from loans due from licensees and prepayments and accrued income
relates to profit share due from licensees. Amounts due from subsidiary
undertakings, in other receivables on the consolidated statement of financial
position, are interest free and repayable on demand.
Trade receivables
The Group assessed each licensee individually as to their probability of
default based on previous credit loss history which is adjusted for current
and forward-looking information. It is not appropriate to group the licensee
trade receivable balances as there are specific circumstances associated with
each business, notably, service line, sector, location and maturity of the
business.
Average Credit Period taken is 102 Days (2022: 84 days) and no interest is
charged on the receivables.
The ageing of trade receivables net of the loss allowance at the reporting
date was as followed;
2023 2022
£'000 £'000
Not past due 772 698
Past due 61 to 90 days 7 -
Past due 91 to 120 days 53 51
Past due over 120 days 92 83
924 832
The provision for impairment of trade receivables is the difference between
the carrying value and the present value of the expected proceeds. The
Directors consider that the carrying value of trade receivables approximates
to fair value.
20. Borrowings
Analysis of changes in net debt
01 April 2021 Cash flow Amortisation of debt issue costs Non-cash debt items 31 March 2022
Cash & bank balances 609 4,113 - - 4,722
Bank Loans (942) 942 - - -
Debt issue costs 41 - (41) - -
Convertible Loan Notes (540) - - 540 -
New Loans (50) 50 - - -
Net Debt (882) 5,105 (41) 540 4,722
01 April 2022 Cash flow Amortisation of debt issue costs Non-cash debt items 31 March 2023
Cash & bank balances 4,722 (138) - - 4,584
Net Debt 4,722 (138) - - 4,584
Balances at 31 March 2023 comprise:
Current assets
£'000
Cash and bank balances 4,584
21. Deferred tax - Group and Company
The following are the major deferred tax liabilities and assets recognised by
the Group and movements thereon during the current and prior reporting period.
2023 2022
£'000 £'000
At the beginning of the year asset 4 3
Credited in the year 5 1
At the end of the year asset 9 4
22. Trade and other payables
Company Company Group Group
2023 2022 2023 2022
£'000 £'000 £'000 £'000
Trade payables 32 29 162 86
Other taxation and social security 210 177 211 210
Other payables 76 54 76 54
Accruals and Deferred Income 128 154 133 163
Corporation Tax 95 63 95 63
541 477 677 576
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. The Group has financial risk management policies
in place to ensure that all payables are paid within the pre-agreed credit
terms.
The Directors consider that the carrying amount of trade payables approximates
to their fair value.
Amounts falling due in greater than one year include:
2023 2022
£'000 £'000
Dilapidation provision 75 72
75 72
23. Share capital - Group and Company
2023 2022
Number £'000 Number £'000
Authorised, issued and fully paid:
Ordinary shares 21,926,360 55 21,482,508 54
21,926,360 55 21,482,508 54
2023
Number £'000
As at 31 March 2022 21,482,508 54
Share issue 443,852 1
As at 31 March 2023 21,926,360 55
On the 26(th) August 2022, the following transactions took place in relation
to the Company's share capital;
i. 417,185 ordinary shares were issued as part of the PSP award scheme, further
details of which can be found in Note 25.
ii. 26,667 ordinary shares were issued to James Dow in respect of his FY22
performance bonus as disclosed in the FY22 Annual Report.
24. Leases
DSW Services, a subsidiary of DSW Capital PLC, entered into a formal lease
arrangement for the Daresbury office, effective from 1 October 2021. Prior to
this date, the lease had been recognised as a short-term lease and therefore
did not meet the criteria under IFRS 16. Further detail on the lease
accounting policy can be found in note 2.
The consolidated statement of financial position and consolidated statement of
comprehensive income show the following amounts relating to leases:
Right-of-use assets Total
£'000
Balance at 1 April 2021 -
Additions in the year 520
Depreciation (52)
Balance at 31 March 2022 468
Additions in the year 11
Depreciation (105)
Balance at 31 March 2023 374
Lease liabilities Total
£'000
Balance at 1 April 2021 -
New leases recognised in the year 451
Interest expense 11
Lease amounts invoiced and paid in the year (77)
Balance at 31 March 2022 385
New leases recognised in year 11
Interest expense 19
Lease amounts invoiced and paid in the year (77)
Lease amounts invoiced and included within creditors at 31 March 2023 (27)
Balance at 31 March 2023 311
Income Statement 2023 2022
£'000 £'000
Interest expense (note 10) 19 11
Expense relating to leases of low-value assets 10 7
Expense relating to short-term leases 63 61
At 31 March 2023 92 79
As at the 31 March 2023, the Group recognised lease liabilities in respect of
outstanding commitments for future minimum lease payments under
non-cancellable lease contracts, which fall due as follows;
2023 2022
£'000 £'000
Within one year 91 83
In one to two years 96 87
In two to three years 101 92
In three to four years 23 98
In over four years - 25
311 385
The total cash outflow in the year paid in respect of leases was £76,800
(2022: £76,800). Under the terms of the lease, £105,472 per annum is charged
until the first break date in October 2026.
25. Share-based payments
In the year ended 31 March 2023 the Group operated three equity-settled
share-based payment plans as described below.
The Group recognised total expenses of £693,787 in respect of equity-settled
share-based payment transactions in the year ended 31 March 2023.
The charge to the income statement is set out below:
Share plans: 2023 2022
Growth share plan 368,269 1,060,453
Legacy Awards 253,301 73,879
Performance bonus - 30,000
PSP Awards 72,217 2,761
Total SBP expense 693,787 1,167,093
Share-based payments movement for the year ended 31 March 2023:
SBP Expense (£) SBP Reserve (£)
Growth share plan 368,269 (368,269)
Legacy Awards 253,301 (253,301)
PSP Awards 72,217 (72,217)
Total movement 693,787 (693,787)
Share-based payments movement for the year ended 31 March 2022:
SBP Expense (£) SBP Reserve (£)
Growth share plan 1,060,453 (1,060,453)
Legacy Awards 73,879 (73,879)
Performance bonus 30,000 (30,000)
PSP Awards 2,761 (2,761)
Total movement 1,167,093 (1,167,093)
Details of Directors' share awards are set out in the Directors' Remuneration
report.
Growth Shares
DSW Capital implemented a Growth Share Plan in March 2021 for key members of
its management team and a number of individuals within the licensees from
which DSW receives licence fees.
Any value received for the Growth Shares was conditional on a future Exit
event taking place and certain individual restrictions.
After the IPO, 214,308 C Growth Shares and 17,268 E Growth shares were
converted to 1,150,548 ordinary shares in issue. 45,479 D Growth Shares were
converted to Deferred Shares which were cancelled at the AGM in September
2022. The Group recognised total expenses of £368,269 related to the Growth
Share Plan in the year ended 31 March 2023.
The Growth Shares have been valued using the Black-Scholes pricing model.
Management have formed a judgement on the vesting period over which the
associated charge should be spread. This has been formed with reference to the
individual conditionality associated with the different classes of share
awards and ranges between one to three years from the balance sheet date.
Legacy Awards
Following the IPO in December 2021, a Legacy Award was awarded to be held by
the Chief Financial Officer entitling them to 1.53% of the equity value in
excess of £26m. The CFO Legacy Award was subject to continuing employment
until 31 March 2023, with such awards vesting on 31 March 2023. Further, it
was agreed that certain employees of Dow Schofield Watts CF Leeds were
entitled to approximately 1.53% of equity value up to a maximum equity value
of £26m (the "Leeds Legacy Awards"). To fulfil these obligations, those
individuals will be granted options to acquire the interest below a £26m
equity value in the same 1.53% shareholding that the CFO Legacy Award is
granted over, similarly vesting on 31 March 2023. The Share price per award is
£1.00 with an exercise price per award of nil.
The Legacy Awards have been valued using the Black-Scholes pricing model. The
charge for the year is £253,301. The key assumptions used in the calculation
of the fair value of the share-based payments are as follows:
Leeds Legacy Award CFO Award
Spot price 100p 100p
Strike price 0.025p 122p
Volatility 35% 35%
Risk Free Rate 0.02% 0.02%
Dividend Yield 0% 0%
Fair Value per share 9.1p 8.6p
Details of the share options outstanding during the year are as follows:
2023 2022
No. of share options No. of share options
Outstanding at beginning of year 328,000 -
Granted during the year - 328,000
Exercised during the year - -
Outstanding at the end of the year 328,000 328,000
Exercisable at the end of the year - -
There were no share options exercised, forfeited or expired within the period.
The Legacy Awards vested on 31 March 2023. Following vesting, the CFO will be
entitled to exchange a proportion of her interest in the shares with the
Trustee's interest in shares so that each party has a number of whole shares
equivalent in value to their respective interests. For a period of four years
after vesting, the Leeds participants will be entitled to exercise their
options to acquire the Legacy Shares beneath the hurdle.
PSP Awards
The Board recognises the importance of ensuring that members of the Group are
effectively and appropriately incentivised and their interests aligned with
those of DSW Capital. Similarly, the Board believes that the ongoing success
of the DSW Network depends to a high degree on retaining and incentivising the
performance of its key people.
To that end, the Group has adopted the Performance Share Plan ("PSP"), to
align the interests of Executive Directors and key employees ("Participants")
with those of the Shareholders. The PSP will be a long-term incentive plan
which will form the primary long-term incentive arrangement for the Executive
Directors. The Remuneration and Nominations Committee will consider the
granting of PSP awards to the participants on an annual basis.
A summary of the structure of the rules of the Plan is set out below:
· Annual awards will be determined by reference to a number of shares equal in
value to a maximum of 200 per cent. of base salary of participants;
· Grants shall be subject to a three-year vesting period (subject to the
satisfaction of the performance conditions);
· Following vesting, there will be a further 24 month holding period before
participants are able to sell any Shares; and
· Awards are subject to malus and clawback provisions.
Challenging performance conditions will be set for each award under the PSP.
For the first awards, the Remuneration and Nominations Committee intends that
the awards will vest based on relative total shareholder return ("TSR")
targets against an applicable comparator group. The share price per award is
£1.00 with an exercise price per award of nil.
Awards outstanding at 31 March 2023 are shown below:
2023 2022
No. of share options No. of share options
Outstanding at beginning of year 95,000 -
Granted during the year 417,185 95,000
Outstanding at the end of the year 512,185 95,000
Exercisable at the end of the year - -
There were no awards forfeited, exercised or expired in the period.
The Group used the Black Scholes Model to calculate the anticipated value of
the PSP awards. The charge for the year is £72,217.
26. Retirement benefit plans
Defined contribution plans
The Group operates defined contribution retirement benefit plans for all
qualifying employees.
The Group is required to contribute a specified percentage of payroll costs to
the retirement benefit plan to fund the benefits. The only obligation of the
Group with respect to the retirement benefit plan is to make the specified
contributions.
The total expense recognised in profit or loss of £14,274 (2022: £35,679)
represents contributions payable to these plans by the Group at rates
specified in the rules of the plans. As at 31 March 2023 there was £1,895
(2022: £nil) which had not been paid over to the plans and is included within
creditors due in less than 1 year.
27. Financial Instruments
In common with other businesses, the Group is exposed to risks that arise from
its use of financial instruments. This note describes the Group's objectives,
policies and processes for managing those risks and the methods used to
measure them. Further quantitative information in respect of these risks is
presented throughout these financial statements.
The significant accounting policies regarding financial instruments are
disclosed in Note 2. The principal financial instruments used by the Group,
from which financial instrument risk arises, are as follows:
Financial assets
Held at amortised cost
Company 2023 Company 2022 Group 2023 Group 2022
£'000 £'000 £'000 £'000
Cash and cash equivalents 4,563 4,714 4,584 4,722
Trade and other receivables 1,565 1,300 1,491 1,201
6,128 6,014 6,075 5,923
Financial Liabilities
Held at amortised cost
Company 2023 Company 2022 Group 2023 Group 2022
£'000 £'000 £'000 £'000
Trade and other payables 236 237 371 303
Borrowings - - - -
236 237 371 303
There is no significant difference between the fair value and carrying value
of the financial instruments.
(a) Financial risk management objectives
The Board has overall responsibility for the oversight of the Group's risk
management framework. A formal process for reviewing and managing risk in the
business has been developed. A register of strategic and operational risk is
maintained and reviewed by the Board, who also monitor the status of agreed
actions to mitigate key risks. The Board's objective in managing financial
risks is to ensure the long-term sustainability of the Group.
The overall objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group's competitiveness and
flexibility. Further details regarding these policies are set out below:
(b) Credit risk management
Credit risk refers to the risk that the counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group's
credit risk is primarily attributable to its startup loans provided to
licensees. The Group mitigates this risk by encouraging ongoing engagement of
senior management with network members and monthly reporting which allows
close monitoring of emerging credit risks and facilitates early support and
advice to mitigate or remediate performance.
Credit risk with cash and cash equivalents is reduced by placing funds with
banks with high credit ratings.
(b)(i) Overview of the Group's exposure to credit risk
The Group recognises a loss allowance for expected credit losses on the
Group's loans to licensees and trade receivables.
The amount of expected credit losses is updated at each reporting date to
reflect changes in credit risk since initial recognition of the respective
financial asset. The expected loss rates for these financial assets are based
on the Group's historical credit losses experienced over the three-year period
prior to the period end.
An additional portfolio expected loss provision is calculated in which the
historical loss rates are then adjusted for current and forward-looking
information on macroeconomic factors affecting the Group's customers. The
Group has identified the changing insolvency rates in the UK as the key
macroeconomic factor.
The Group applies the IFRS 9 simplified approach to measuring expected credit
losses which uses a lifetime expected loss allowance for all trade receivables
and contract assets.
(c) Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has established an appropriate liquidity risk management
framework for management of the Group's short, medium and long-term funding
and liquidity management requirements. The Group manages liquidity risk by
maintaining adequate reserves and banking facilities and by continuously
monitoring forecast and actual cash flows.
Network members in difficulty are asked to provide short-term cash flow
forecasts on a monthly basis to support risk monitoring and potential funding
requirements and Partners may be asked to reduce drawings on a temporary
basis.
(c)(i) Liquidity and interest risk
The bank loan was repaid in the year ended 31 March 2022. There is no interest
payable on trade payable balances and the operations of the Group are not
dependent on the finance income received.
(c)(ii) Financing facilities
The Group is using the cash inflows from the financial assets and in the prior
year previously available bank facilities to manage liquidity.
(d) Capital risk management
The Group considers its capital to comprise its ordinary share capital and
retained profits as its equity capital. In managing its capital, the Group's
primary objective is to provide return for its equity shareholders through
capital growth and future dividend income.
The Group's policy is to seek to maintain a gearing ratio that balances risks
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.
In making decisions to adjust its capital structure to achieve these aims,
either through new share issues or the issue of debt, the Group considers not
only its short-term position but also its long-term operational and strategic
objectives.
Details of the Group's capital are disclosed in the statement of changes in
equity and Note 23.
28. Events after the reporting period
Since the year end the Directors have recommended the payment of a final
ordinary dividend of £0.02 per share for the year ended 31 March 2023.
Furthermore, on 12th July 2023, DSW Capital completed a transaction with
Bridgewood Financial Solutions Ltd, to acquire licence fee income and provide
funding to support a management buyout. DSW Capital will licence the DSW
trademark to DSW Bridgewood and its subsidiary companies in return for licence
fee income.
29. Related party transactions
Balances and transactions between the Company and its subsidiary, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note. Transactions between the Group and its related parties are
disclosed below.
Related parties are those licensees where the Company is a member of the
related LLP.
Revenue and Cost Recharges
Group entities entered into the following transactions with related parties
who are not members of the Group. All entities other than DSW Investments 2
LLP are licensee businesses. DSW Investments 2 LLP is an entity owned by
current shareholders.
2023 2022
Revenue and Cost Recharges Revenue and Cost Recharges
£'000 £'000
PHD Equity Partners - -
PHD Industrial Holdings 252 200
DSW Investments 2 LLP 104 99
Other investments 684 920
Totals 1,040 1,219
Other investments relate to routine and similar transactions which arose in
the ordinary course of business, with DSW CF Leeds, DSW Wealth Advisory, DSW
TS Leeds and DSW Business Recovery.
Amounts due from/to related parties
Group entities had the following balances, including loans to related parties,
outstanding at year end with related parties who are not members of the Group:
2023 2022
Amounts due from related parties Amounts due from related parties
£'000 £'000
PHD Equity Partners - -
PHD Industrial Holdings - 1
DSW Investments 2 LLP 33 -
Other investments 277 497
Totals 310 498
Salary and fees payable to James Dow and Jon Schofield are as disclosed in the
Remuneration and Nominations Committee Report. Salary totalling £41,300
(2022: £18,761) has been paid to Susie Dow in the year.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS.
2023 2022
£'000 £'000
Wages and salaries 540 431
Social security costs 74 54
Other pension costs (see note 26) 9 32
623 517
This includes amounts in respect of a previous director who provided services
and was remunerated by the Group in the year.
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