REG - DWF Group PLC - Half-year Report
09/12/2021 07:00
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RNS Number : 0559V DWF Group PLC 09 December 2021
DWF Group plc
("DWF" or "the Company" or "Group")
LEI: 213800O9QREOHTOGQ266
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014. Upon the publication of this announcement, this inside information
is now considered to be in the public domain.
9 December 2021
Half-year results for the period ended 31 October 2021 (HY22)
Profitable growth, building on the FY21 transformation
DWF, the global legal business, today announces its half-year results for the
period ended 31 October 2021. The Board is delighted with the Group's
continued strong performance, building on the transformational results in FY21
with profitable growth and a stronger balance sheet.
GROUP FINANCIAL SUMMARY
£m (unless otherwise stated) HY22 HY21 Change
Revenue 203.5 196.0 3.8%
Net revenue¹ 173.3 167.6 3.4%
Gross profit 89.0 83.1 7.1%
Gross profit margin² 51.3% 49.6% 1.7ppts
Cost to income ratio¹ 39.1% 40.4% (1.3ppts)
Adjusted EBITDA¹ 31.3 24.7 26.9%
Operating profit / (loss) 13.6 (8.9)
Adjusted profit before tax ('Adjusted PBT')¹ 18.7 13.4 39.6%
Profit / (loss) before tax ('PBT') 11.0 (11.0)
Adjusted diluted EPS (pence)¹ 4.7 3.4 38.2%
Diluted EPS (pence) 2.8 (4.0)
Gross lock-up days¹ 181 196 (15)
Free cash flow¹ 4.2 19.5 (78.5%)
Net debt¹ (77.2) (58.5) (32.0%)
Leverage¹ 1.19 1.44 (0.25)
HY22 HIGHLIGHTS
· Group net revenue growth of 3%, (7% on a like-for-like³ basis), to
£173.3m:
o 2% reported growth in Legal Advisory, with like-for-like growth of 7%
o 14% growth in Connected Services (7% organic(4))
o 8% growth in Mindcrest (all organic)
· Gross margin increase of 1.7ppts from 49.6% to 51.3%, with all three
divisions showing revenue growth, gross profit increase and gross profit
margin enhancement.
· Adjusted PBT up 40% to £18.7m and a continued downward trend in cost
to income ratio dropping by 1.3ppts versus HY21 to 39.1%, reflecting
profitable revenue growth and the benefits of previously announced cost
reduction measures and restructuring.
· Reported PBT is £11m, which is a £22m improvement on the PY loss
before tax. This is due to a much lower level of adjusting items of £7.6m
comprising mainly of share-based payment charges from the partner-funded EBT.
· A 15 day (8%) reduction in lock-up days versus PY (and a five day, or
3%, reduction on April 21) reflects ongoing Group-wide initiatives to improve
working capital efficiency.
· HY22 free cash flows of £4.2m are after the repayment of £5.4m of
COVID deferrals (VAT deferred under the UK government scheme). The HY21 free
cash flow comparator of £19.5m benefitted from £10.4m of COVID deferrals
(deferral of VAT and other taxes).
· Net debt of £77.2m is higher than PY due to the repayment of COVID
deferrals, settlement of deferred consideration and a one-off outflow for the
restructuring of Australia, with combined LTM (last twelve month) outflows of
£24.8m incurred on these items.
· Total remaining COVID deferrals and deferred consideration at the
October 21 balance sheet date are £6.3m compared to £12.4m at April 21 and
£17.5m at October 20.
· Leverage has reduced to 1.19x adjusted EBITDA (HY21: 1.44x),
reflecting the downward trajectory signposted in earlier guidance.
· Net revenue¹ per partner increased by 9% to £488k (HY21: £446k).
STRATEGIC HIGHLIGHTS
· The Group continues to make good progress in line with its strategy:
o The differentiated client proposition of providing integrated legal and
business services through the Group's three divisions of Legal Advisory,
Connected Services and Mindcrest continues to generate new business. During
HY22, this Integrated Legal Management approach of providing services from two
or more divisions has gained further traction with a year-on-year increase in
both the number of clients and percentage of fees generated from such clients.
o The Group's Net Promoter Score (NPS) is now 63, up from 49 in our last
client census (November 2021). This evidences a loyal client base driven by
high levels of satisfaction with service delivery and quality. The metric is
used across industries and is derived from the proportion of clients who score
DWF a '9 or 10' (on likely to recommend), minus those who score a '1 to 6'. It
is based on responses from more than 500 clients globally.
o Management is increasing its focus on growth in Mindcrest and Connected
Services over the medium term, through a combination of organic growth
opportunities and potential M&A. The Group is investing in high quality
scalable processes, technology and infrastructure in Mindcrest which has
delivery centres in Pune, India and Chicago, US and will enable the Group to
improve its operational gearing in the future by delivering the right work at
the right level in the right location.
o A new ESG strategy has been announced today setting out long-term carbon
reduction and Diversity and Inclusion targets.
o The global "one team" culture has continued to gain traction, with the
Group's latest Pulse Survey seeing an increase of 1 percentage point in the
overall engagement index (76) since the last survey in December 2020
demonstrating that the Group's values and behaviours are well embedded.
o M&A remains central to the Group's strategy. The bolt-on acquisitions
of BCA and Zing in HY22 have contributed to the strong growth in Connected
Services. Management continue to identify a number of potential future M&A
opportunities for the Group.
o The recently announced launch of a regional headquarters for business
services in the Kingdom of Saudi Arabia, and an exclusive association with
local law firm Al-Ohaly & Partners, is already producing a strong pipeline
of new business opportunities in the Middle East.
OUTLOOK AND CURRENT TRADING
· The strong trading in HY22 is expected to continue in the second half
of FY22 as the legal sector enjoys sustained demand for services, with the
second half also expected to benefit from the normal marginally higher
weighting of revenues. The Group remains on track to deliver in line with
medium term guidance.
· The Board has approved an interim dividend of 1.5p per share,
reflecting the stated policy of paying an interim dividend that is one third
of the PY full year dividend.
Sir Nigel Knowles, Chief Executive Officer, commented:
"We are delighted with our performance for the first half of FY22. We have
continued to see strong revenue growth on a like-for-like basis, after the
decisive action taken in the prior year to exit or slim down a number of
businesses. We have seen an improvement in our gross margin and a reduction
in our overheads relative to revenue. This has led to a compelling
step-change in profitability with our adjusted pre-tax profit increasing by
40%. Our client proposition of providing integrated legal and business
services is gaining traction and leading to a strong pipeline of
instructions."
"I am also pleased that today we have announced our group ESG strategy, which
aligns with our purpose to deliver positive outcomes with our colleagues,
clients and communities. The strategy includes new and stretched targets
focused on climate action and further improving our diversity and inclusion
performance. We want to build on our established programmes to become the
market leader in ESG and we believe that the strategy announced today creates
a firm foundation to help us achieve our targets. "
The person responsible for making this announcement on behalf of the Company
is Chris Stefani, Group Chief Financial Officer.
For further information
DWF Group plc
James Igoe - Head of Communications +44 (0)7971 783533
Maitland / AMO
Sam Turvey +44(0)20 7379 5151
Sam Cartwright
About DWF
DWF is a global provider of integrated legal and business services provided
through its three offerings of Legal Advisory, Mindcrest and Connected
Services. It has offices and associations located across the globe. The
Company became the first Main Market Premium Listed legal business on the
London Stock Exchange in March 2019. DWF recorded revenue of £400.9 million
and net revenue of £338.1 million in the year ended 30 April 2021. For more
information visit: dwfgroup.com
Effective from 1 May 2021, the Group transitioned to a new internal operating
structure which it believes supports its aim of becoming the leading global
provider of integrated legal and business services. DWF has moved from its
previous five divisions (Commercial Services, Insurance Services,
International, Connected Services and Managed Services) into three more
streamlined and efficient global divisions of Legal Advisory, Connected
Services and Mindcrest.
Together, the three divisions support DWF's single Integrated Legal Management
approach through which the Group can seamlessly combine any number of these
services to deliver bespoke solutions to its clients with greater efficiency,
price certainty and transparency. This approach enables DWF to offer clients
solutions that combine traditional law firm services with new, modern legal
and business services relevant to today's companies and the challenges and
opportunities they face.
Forward looking statements
This announcement contains certain forward-looking statements with respect to
the Company's current targets, expectations and projections about future
performance, anticipated events or trends and other matters that are not
historical facts. These forward-looking statements, which sometimes use words
such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect"
and words of similar meaning, include all matters that are not historical
facts and reflect the directors' beliefs and expectations and involve a number
of risks, uncertainties and assumptions that could cause actual results and
performance to differ materially from any expected future results or
performance expressed or implied by the forward-looking statement.
(1) Described in the glossary to the condensed consolidated interim financial
statements.
(2) Gross profit margin is defined as gross profit divided by net revenue.
(3)( )Like-for-like ('LfL') revenue growth removes both the impact of
acquisitions and restructured operations.
(4) Organic revenue growth removes the impact of acquisitions.
Chief Executive Officer's Report
Continued strong performance, building on a transformational year
We are delighted with our performance in the first half of this financial
year, with further revenue and profit progression building on the
transformation delivered during FY21.
It is now more than six months since we introduced our new operating model,
which is delivering greater alignment, collaboration and integration between
our three global divisions of Legal Advisory, Connected Services and Mindcrest
and delivering to clients the benefits of our Integrated Legal Management
approach. Our differentiated proposition is resonating with clients, helping
us to win work from new and existing clients and underpinning the 3% reported
net revenue growth we have enjoyed in HY22, with 7% growth on a like-for-like
basis (excluding the restructured Australian business).
We also remain focused on continuing to improve our operational and working
capital performance. This has led to an improvement in our gross margin and a
15-day reduction in lock-up days compared with prior year, with a five-day
reduction since April. Leverage has reduced in the period as signposted in
earlier guidance and we expect net debt levels to reduce by the end of FY22.
Together, this combination of revenue growth, margin improvement and working
capital efficiency has helped to deliver a 40% increase in adjusted profit
before tax.
More broadly, we are pleased with the progress made so far this year towards
achieving the medium-term targets set out in July. We are therefore confident
that we are on-track to meet those objectives.
Living our purpose
Our purpose is to deliver positive outcomes with our colleagues, clients and
communities and I am pleased that throughout HY22 we have made progress in
each of these areas.
Colleagues
Colleague engagement is so important to our business, where everybody has a
contribution to make to our collective success. I have continued to host
regular 'Town Hall' style events for all colleagues to provide strategic
updates, but I have also enjoyed hosting our 'Coffee and Chat' events through
HY22. These sessions are for much smaller groups and provide a more informal
setting for colleagues to ask Matthew Doughty, our COO, and I any questions
they may have. They have proven popular and I have been able to spend time
with colleagues from almost all of our 30+ locations through these sessions
over the past year.
Another important theme of our engagement activities is reward and
recognition. I am pleased that through the Group Bonus Plan introduced last
year, we were able to reward around 90% of colleagues with a bonus for our
FY21 performance. These bonus payments were made during HY22 and meant that a
significantly higher proportion of our colleagues received a bonus this year
than ever before for DWF. This plan is linked to the overall performance of
the Group, aligning our colleagues with the interests of our shareholders. Our
annual colleague awards programme saw a record number of nominations this
year, with more than 800 people taking the opportunity to recognise a
colleague for a job well done, a great reflection of our culture at DWF.
Taken together, these and many other activities, contributed towards an
increase in the headline engagement score in our Pulse Survey which went up
from 75 to 76, with the response rate to the survey also increasing.
Clients
With clients, we have continued to invest in developing our skills and
capabilities through recruitment, M&A and associations. We have recruited
16 new partners in HY22 across a range of our locations and practice areas,
integrated our two Connected Services acquisitions that we announced in May
and have already developed a healthy flow of work with our two new
associations in Singapore and South Africa. I am also very pleased that in
October we announced a further new association, this time in the Kingdom of
Saudi Arabia, together with the opening in Riyadh of a new regional
headquarters for business services.
Our differentiated proposition and commitment to continue investing in our
services is helping to generate new business. During HY22, our Integrated
Legal Management approach of providing services from two or more of our
divisions has gained further traction with a year-on-year increase in both the
number of clients and percentage of fees generated for such clients. In
addition, fees derived from the Group's key account clients has delivered
strong double-digit year-on-year growth.
In the period, we were appointed or reappointed to 13 legal panels or
frameworks, including Hiscox and the Metropolitan Police. We also won new
contracts with adidas and Capita Commercial Insurance Services, along with
advising on high-profile cases such as the British Airways data breach
litigation.
This is also evidenced through our strong net promoter score, which in our
most recent client census rose to 63, up from 49. This evidences a loyal
client base driven by high levels of satisfaction with service delivery and
quality. The metric is used across industries and is derived from the
proportion of clients who score DWF a '9 or 10' (on how likely they are to
recommend), minus those who score a '1 to 6'. It is based on responses from
more than 500 clients globally.
Communities
We are also delivering positive outcomes with the communities in which we
operate. The DWF Foundation, an independent charity supported by the
fundraising activities of DWF colleagues, is celebrating its sixth birthday
this month. Since its formation, it has provided more than £680,000 in grants
to hundreds of charities in the UK and around the world. In the past six
months DWF Foundation grants have helped to fund more than 50 projects which
seek to deliver positive outcomes in education, health and wellbeing, and
environment and sustainability.
The DWF Foundation has also continued to benefit from DWF's listed status,
thanks to the donation of 1.8 million shares by DWF partners to the DWF
Foundation at the time of the Group's IPO. As a result of this donation, the
DWF Foundation received more than £70,000 of income from the Group's FY21
dividend, an important source of funding during the pandemic era when
fundraising activities have proven more challenging.
ESG
We have also published our global ESG strategy today. It includes ambitious
science-based targets through which we have committed to achieve carbon
emission reductions consistent with the Paris Agreement, along with new,
stretched targets to further improve the Group's diversity and inclusion
performance. ESG has been a rapidly growing issue within boardrooms over the
past 12 to 18 months and through our strategy we aim to build on our
established programmes to become a market leader in ESG.
Outlook and current trading
The strong trading in HY22 is expected to continue in the second half of FY22
as the legal sector enjoys a high demand for services, with the second half
also expected to benefit from the normal second-half weighting of revenues.
The Group remains on track to deliver in line with medium term guidance.
FINANCIAL REVIEW - PROFITABLE GROWTH, BUILDING ON THE FY21 TRANSFORMATION
Financial overview
The performance for HY22 has shown strong improvement on the same period in
FY21, particularly with respect to the Group's profitability.
All three divisions have shown revenue growth, gross profit and gross profit
margin improvement in HY22 compared to the equivalent period in the prior year
with aggregate net revenue growth of 3% (7% on a like for like basis, which
excludes the results of DWF Australia following the restructuring of
operations in March 2021). Gross margin of 51.3% (HY21: 49.6%) reflects tight
cost control and the benefit of the aforementioned FY21 restructuring of our
Australian practice. Revenue performance, combined with direct cost control,
has improved gross profit contribution. Continued strict control of overhead
expenditure together with increasing scalability of our support services have
driven a reduction to the cost to income ratio from 40.4% in HY21 to 39.1%.
This has led to growth in Adjusted Profit before Tax of 40% to £18.7m for
HY22 from £13.4m in HY21 and an increase in Profit before Tax to £11m from a
loss of £11m in HY21. Adjusted PBT Margin improved from 8.0% in HY21 to 10.8%
in HY22 with further improvement expected in the second half.
Working capital improvement has continued due to the ongoing focus on internal
operational efficiency with gross lock-up days reducing to 181 (HY21: 196
days and FY21: 186 days).
Revenue
Revenue is £203.5m for HY22 (HY21: £196.0m) representing growth of 4%.
However, the Group focuses revenue measurement on net revenue as revenue is
distorted by the level of recoverable expenses incurred on delivery of client
matters where such expenses do not necessarily reflect the activity levels of
the business.
Group net revenue increased by 3% to £173.3m for HY22 (HY21: £167.6m). The
Legal Advisory division has grown organically by 2%. After adjusting for the
impact of the Australia restructuring, the like for like growth is 7%.
Performance has been particularly strong in the UK Commercial practice areas
with strong transactional activity and a growing pipeline of opportunities.
Creditable growth continues in the Connected Services division, delivering 7%
organic, with reported growth at 14% reflecting the benefits of the
acquisitions of Zing and BCA in May 21. Mindcrest also performed well with 8%
organic net revenue growth, with further plans for more work to be
transitioned from Legal Advisory.
Direct costs
Direct costs were £84.3m, flat vs. HY21 primarily due to the impact of the
restructuring in Australia offset by further investment in headcount across
each business. Separately, selective investments have been made in 16 partner
hires in key jurisdictions where the Group believes there are revenue
opportunities which justify the additional spend.
Gross profit
Gross profit grew by 7% to £89.0m in the first half (HY21: £83.1m) together
with improved gross profit margin of 51.3%. This is reflective of the
revenue growth, tight control of direct costs and benefit following the
decision to restructure Australia.
Working capital, net debt and leverage
Working capital improvement continues to be an area of operational focus and
opportunity across the business.
There has been further progress on lock-up days, with WIP days reducing to 88
(HY21: 92) and debtor days reducing to 93 (HY21: 104). This gives overall
lock-up days of 181 (HY21: 196) which is a reduction of 15 days. There has
also been a five-day reduction from the FY21 lock-up days of 186 days,
reflecting ongoing focus and progress on working capital efficiency.
Free cash flow generation is £4.2m (HY21: £19.5m). The HY22 free cash
flows are after the repayment of £5.4m of COVID deferrals (VAT deferred under
the UK government scheme). The HY21 comparator benefitted from £10.4m of
COVID deferrals.
There are now only £5m of COVID deferrals to pay, all of which will be
settled in H2, reflecting a strengthening balance sheet position and an
expected improvement in free cash flows by FY22. The Company did not
participate in the UK furlough scheme.
Net debt is £77.2m (HY21: £58.5m). The increase is predominantly due to the
repayment of the aforementioned COVID deferrals, settlement of deferred
consideration relating to previous acquisitions and a one-off outflow for the
restructuring of Australia. Combined outflows for these items were £24.8m
over the last twelve months. Net debt is expected to reduce by the end of FY22
to between £65m and £70m.
Despite the transitory increase in net debt, the Group's level of leverage
(defined as Net debt divided by last twelve months of Adjusted EBITDA) has
reduced as profitability has improved:
April 2020 October 2020 April 2021 October 2021
Leverage 1.76 1.44 1.04 1.19
Reducing leverage remains an important medium term goal for the Group and
further progress is expected by the end of FY22.
Bank re-financing
The Group has commenced a re-financing exercise that is expected to
successfully conclude in the third quarter of FY22. The existing main facility
expires in January 2023.
Divisional Performance
The divisional performance figures reflect the new structure effective from 1
May 2021 and announced in the latest Annual Report & Accounts.
Legal Advisory
HY22 HY21 Variance Variance
£k £k £k %
Revenue 172,700 168,431 4,269 +3%
Net revenue 143,846 141,123 2,723 +2%
Direct costs (68,244) (69,700) 1,456 -2%
Gross profit 75,602 71,423 4,179 +6%
Gross margin 52.6% 50.6% +2.0ppts
LfL Net revenue 141,131 132,080 9,051 +7%
LfL Direct costs (67,049) (64,764) (2,285) +4%
LfL Gross profit 74,082 67,316 6,766 +10%
LfL Gross margin 52.5% 51.0% +1.5ppts
Excluding the impact of the restructured Australia operations, as reflected in
the Like-for-like ('LfL') results above, the newly formed Legal Advisory
division has delivered organic net revenue growth of 7% in HY22 versus HY21
(2% on a reported basis including PY Australian operations).
The extent of net revenue growth varies between service lines and geographies,
the latter slightly more impacted by local COVID implications and lockdown
restrictions. The division has seen stronger than expected revenue performance
(coupled with material direct costs savings) across territories that were
subject to restructuring programmes in FY21. In addition, increased
collaboration arising from the revised Group structure has boosted
performance.
Insurance, primarily still a UK business, has delivered net revenue growth of
3%, with the impact of lockdown restrictions (such as ongoing court backlogs)
being mitigated by COVID-related policy claims. The UK corporate, banking,
real estate and commercial businesses have collectively grown by 7%, with a
strong bounce back following the easing of pandemic restrictions and the
return of transactional activity.
Growth in HY22 has been accompanied by cost savings as a result of actions
taken during FY21 and close control of direct costs during HY22. The division
is in the process of re-balancing its workforce to reduce excess capacity and
meet recruitment needs.
The division continues to work more closely with both Mindcrest and Connected
Services, thereby increasing client opportunities, the adoption of
technology-driven solutions and delivery efficiencies. The ILM (Integrated
Legal Management) approach has already resulted in a number of large wins this
year to date.
The outlook for the second half of FY22 is positive and all areas of Legal
Advisory are reporting strong pipelines. As well as core routes to market,
focus will also be on propositions and locations where longer term growth
opportunities are anticipated. In the context of an active legal recruitment
market, whilst carefully protecting margin, investment in our people will be
key to support and incentivise performance over the course of the next six
months.
Connected Services
HY22 HY21 Variance Variance
£k £k £k %
Revenue 16,514 14,437 2,077 +14%
Net revenue 16,325 14,272 2,053 +14%
Direct costs (9,048) (8,194) (854) +10%
Gross profit 7,277 6,078 1,199 +20%
Gross margin 44.6% 42.6% +2.0ppts
Org Net revenue 15,216 14,272 944 +7%
Org Direct costs (8,519) (8,194) (325) +4%
Org Gross profit 6,697 6,078 619 +10%
Org Gross margin 44.0% 42.6% +1.4ppts
The Group's Connected Services division has had a strong first half of the
year with net revenue growth of 14% (to £16.3m) compared to prior year. Of
this, 7% of the growth is on an organic basis, with the remainder due to the
acquisition of Barnescraig & Associates ("BCA") and Zing 365 Holdings
Limited ("Zing365") in May 2021. The cultural integration of both acquisitions
has been successful and they are both working closely with colleagues across
Connected Services and the rest of the Group to share clients and enhance
their pipeline.
The division has focused on profitable growth and controlling costs, which has
resulted in direct costs increasing by 10% overall and only 4% organically
compared to the prior year. This has delivered a gross margin of 44.6% which
is 2.0 percentage points higher than the comparative period.
The strong performance in the businesses that have been providing clients with
a unified approach to COVID-19 related business interruption claims has
continued. Our integrated solution to managing such claims has contributed to
further growth in our UK Claims Management and Adjusting business and Forensic
Accounting team. We have also seen growth in the number of new claims
received, particularly property and casualty claims, as COVID-19 restrictions
are eased. Overall, our Claims Management and Adjusting business (with
presence in Australia, Canada, France, Ireland, Italy, UK and USA) has grown
by 18% and provided an increasing level of fee referrals to Legal Advisory.
Advocacy (DWF's alternative solution to the external Bar and traditional
chambers) has also performed well during HY22 with improved profitability due
to more effective structuring and management of the team.
In addition to the acquisitions, the new businesses in Connected Services are
also gaining traction. The launch of the Global Entity Management proposition
has been a success, with new clients secured and an operating system developed
in collaboration with our software team 360. One of our larger businesses,
Ges-Start (DWF Spain's Connected Service which offers Accounting, Tax and
Labour consulting), has grown net revenue by 14% due to their recurring client
base and a number of large new projects.
Management are confident with the outlook for the second half of the year with
strong pipeline activity across all businesses and a focus on exploring more
innovative ways to provide integrated solutions to our clients' needs.
Mindcrest
HY22 HY21 Variance Variance
£k £k £k %
Revenue 14,276 13,082 1,194 +9%
Net revenue 13,137 12,168 969 +8%
Direct costs (7,030) (6,547) (483) +7%
Gross profit 6,107 5,621 486 +9%
Gross margin 46.5% 46.2% +0.3ppts
Mindcrest delivered net revenue growth of 8% in HY22 compared to prior year.
The US market has seen a degree of slowdown, producing flat revenues year on
year. However, investment into new eDiscovery services has yielded significant
revenue and margin growth, diversifying the traditional divisional footprint,
to bolster Mindcrest HY22 performance.
The increase in direct costs at HY22 on the same period last year is broadly
in line with the increase in revenue. US and India based delivery teams have
right-sized their operations to reflect sales projections, whilst maintaining
a realistic 'bench' for quick-turnaround, high-margin activity. Solid progress
on work transfer is evident with HY22 integrated income growth of 455%, albeit
from a low base. More opportunity exists to transition further work from Legal
Advisory to Mindcrest, and projects are in place to ensure delivery of this.
The outlook for the second half is improving, with flagship bid opportunities
together with incumbent client growth prospects expected to deliver revenue.
Macro-economic changes such as increasing interest rates could see further
pipeline growth in Lender Services and Debt Recoveries (Practice Areas which
suffered regulatory restrictions over the last 12 months).
Administrative expenses
Reported administrative expenses decreased from £92.1m in HY21 to £75.4m in
HY22. However there are two factors impacting comparability:
· The inclusion of just £1.1m of non-underlying items in HY22,
compared to £12.5m in HY21. The prior period items predominantly relate to
acquisition accounting for RCD and Mindcrest.
· A reduction in share-based payments in HY22, with an expense of
£4.7m versus £9.5m in the prior period. The prior period expense includes
acquisition accounting for RCD.
The items above, together with amortisation of acquired intangible assets and
impairment, are excluded from the adjusted administration expenses measure as
they are all either one-off, non-cash or non-trading related expenses.
On an adjusted basis, administrative expenses increased 0.2% to £67.8m (HY21:
£67.6m). The previously announced cost savings and tight cost control
together with structural savings from post-COVID ways of working that continue
to suppress travel and business development expense have prevented an increase
to overheads. The Group has improved its cost to income ratio to 39.1% (HY21:
40.4%) reflecting the stated strategy of delivering more efficient operational
gearing.
Interest
Interest expense comprises £1.0m of interest payable on leases (HY21 £1.0m)
and net finance expense of £1.6m (HY21 £1.1m) which represents bank charges,
loan interest and interest on the Group's borrowing facilities. The increase
in the net finance expense compared to HY21 is a result of a higher net debt
position for HY22. IFRS 16-related interest payable on leases of £1.0m is
recognised separately on the face of the income statement to allow for greater
understanding of the composition of finance costs of the Group.
Profit before tax
Reported profit before tax for HY22 is £11.0m compared to a loss of £11.0m
in HY21. This reported position is impacted by the higher level of
non-underlying items in HY21 referenced in the Administrative Expenses
section. Adjusted PBT is £18.7m compared to the prior period profit of
£13.4m, an increase of £5.3m or 40%. This improvement in adjusted
profitability reflects the improving activity levels in the business, the
benefit of the restructure of our Australian operations and the tight control
of costs.
Taxation
The Group is subject to corporation tax and payments on account of £0.4m
(HY21 £0.4m) have been made in the first half with a tax charge to the Income
statement of £2.0m (HY21 £0.5m). The increase in the tax charge relates to
improved profitability, offset by a deferred tax credit relating to the future
deduction for unvested share schemes.
Dividend
The Board has approved an interim dividend for FY22 of 1.5 pence per share in
line with our policy of paying one third of the prior year total dividend as
the interim dividend in the following year. The interim dividend for FY22 is
payable on 4 March 2022 to shareholders on the register as at 4 February 2022.
Capital expenditure
The Group has incurred cash outflows on tangible fixed assets of £0.9m in
HY22 (HY21: £2.9m). The prior period outflows included office fit-out expense
for the new office in Pune, India, to accommodate growth in Mindcrest.
Post-COVID ways of working have further reduced tangible fixed asset expense
and we expect this to continue for the remainder of the year.
In addition, the Group incurred £2.1m of expenditure on intangibles in HY22
(HY21: £1.2m) primarily relating to the ongoing build of the platform in
Mindcrest.
Conclusion
The Group has delivered a strong performance in HY22 against the backdrop of
an uncertain macro environment, with activity levels, revenue, cash generation
and profitability all showing improvement. Demand for services, and capacity
to deliver those services, has steadily improved over the course of HY22. The
Group has a strong pipeline of work coming into the second half of the
financial year and expects to continue to see benefits from the ongoing focus
on profitable growth, cost control and cash generation. This is expected to
lead to a further enhancement of gross margin and a reduction in leverage in
the medium term.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that the condensed
consolidated interim financial statements have been prepared in accordance
with International Accounting Standard 34 Interim Financial Reporting and the
Disclosure and Transparency Rules of the UK's Financial Conduct Authority, and
that the Interim Management Report herein includes a true and fair review of
the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the first
six months of the financial year, and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· disclosure of material related party transactions that have taken
place in the first six months of the current financial year and of any
material changes in the related party transactions described in the last
Annual Report and Financial Statements.
This responsibility statement was approved by the board of Directors on 8
December 2021 and is signed on its behalf by:
Chris Stefani
Chief Financial Officer
OFFICERS
Directors:
Jonathan Bloomer
Chairman
Chris Sullivan
Deputy Chairman and Senior Independent Director
Sir Nigel Knowles
Chief Executive Officer
Chris Stefani
Chief Financial Officer
Matthew Doughty
Chief Operating Officer
Teresa Colaianni
Independent Non-Executive Director
Luke Savage
Independent Non-Executive Director
Samantha Tymms
Independent Non-Executive Director
Michele Cicchetti
Partner Director
Seema Bains
Partner Director
Company Secretary:
Darren Drabble
Registered office:
20 Fenchurch Street
London
EC3M 3AG
United Kingdom
Tel: +44 333 320 2220
dwfgroup.com
Company registration number: 11561594
FINANCIAL STATEMENTS
Condensed Consolidated Income Statement
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
Notes £'000 £'000 £'000
Revenue 3 203,490 195,950 400,948
Recoverable expenses (30,182) (28,387) (62,818)
Net revenue 3 173,308 167,563 338,130
Direct costs (84,322) (84,441) (166,349)
Gross profit 3 88,986 83,122 171,781
Administrative expenses (73,443) (88,638) (187,471)
Trade receivables impairment (2,549) (3,045) (5,349)
Other impairment reversal / (expense) 593 (369) (4,595)
Operating profit / (loss) 13,587 (8,930) (25,634)
Net finance expense 5 (1,560) (1,132) (2,682)
Interest payable on leases 5 (999) (982) (2,284)
Profit / (loss) before tax 11,028 (11,044) (30,600)
Adjusted profit before tax 18,659 13,365 34,192
Non-underlying items, share-based payment expense, amortisation of acquired 2 (7,631) (24,409) (64,792)
intangibles, impairment and fair value gains on investments and disposal of
leases
Taxation 6 (1,950) (531) (4,567)
Profit / (loss) for the period 9,078 (11,575) (35,167)
Earnings / (losses) for the period per share attributable to the owners of the
parent:
Basic (p) 8 3.1 (4.0) (11.9)
Diluted (p) 8 2.8 *(4.0) (11.9)
*The basic and diluted EPS for the period ending 31 October 2020 has been
re-presented (Note 8).
The results for all reported periods arise from continuing operations.
Notes 1 to 22 are an integral part of these consolidated and condensed set of
financial statements.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Profit / (loss) for the period 9,078 (11,575) (35,167)
Items that are or may be reclassified subsequently to the income statement:
Foreign currency translation differences - foreign operations 596 433 (2,855)
Total other comprehensive income / (expense) for the period 596 433 (2,855)
Total comprehensive income / (expense) for the period 9,674 (11,142) (38,022)
There is no tax charge or expense on items within other comprehensive income.
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed Consolidated Statement of Financial Position
31 October 2021 Re-presented (Note 1.5) 30 April 2021
31 October 2020
Notes £'000 £'000 £'000
Non-current assets
Intangible assets 10 50,573 48,632 49,173
Property, plant and equipment 11 76,153 78,481 81,781
Investments - 277 227
Trade and other receivables 12 - 7,841 -
Deferred tax asset 5,325 3,659 4,649
Total non-current assets 132,051 138,890 135,830
Current assets
Trade and other receivables 12 183,813 203,543 183,506
Cash and cash equivalents (excluding bank overdraft) 13 24,180 32,355 34,711
Total current assets 207,993 235,898 218,217
Total assets 340,044 374,788 354,047
Current liabilities
Trade and other payables 14 65,383 77,943 85,381
Current tax liabilities 7,077 3,119 6,030
Deferred consideration 507 3,505 1,699
Lease liabilities 15 12,691 12,648 13,104
Other interest-bearing loans and borrowings 16 22,919 3,062 19,434
Provisions 4,017 5,072 3,764
Amounts due to Members of partnerships in the Group 20 29,991 41,453 31,492
Total current liabilities 142,585 146,802 160,904
Non-current liabilities
Deferred tax liability 7,242 8,708 7,584
Deferred consideration 556 - -
Lease liabilities 15 65,780 65,768 70,898
Other interest-bearing loans and borrowings 16 78,437 87,747 75,444
Provisions 2,101 1,825 1,837
Total non-current liabilities 154,116 164,048 155,763
Total liabilities 296,701 310,850 316,667
Net assets 43,343 63,938 37,380
Equity
Share capital 18 3,254 3,246 3,246
Share premium 18 89,365 88,610 88,610
Treasury shares 18 (129) (20) (129)
Other reserves 3,733 10,949 6,219
Accumulated losses (52,880) (38,847) (60,566)
Total equity 43,343 63,938 37,380
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed Consolidated Statement of Changes in Equity
Share capital Share premium Treasury shares Merger reserve Share- based payments reserve Translation reserve Accumulated losses Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
As at 1 May 2020 3,246 88,610 (20) (2,385) 9,672 (1,426) (28,500) 69,197
Loss for the period - - - - - - (11,575) (11,575)
Exchange rate differences - - - - - 433 - 433
Total comprehensive expense - - - - - 433 (11,575) (11,142)
Share-based payments - - - - 4,655 - 1,135 5,790
Tax on share-based payments - - - - - - 93 93
At 31 October 2020 3,246 88,610 (20) (2,385) 14,327 (993) (38,847) 63,938
Loss for the period - - - - - - (23,592) (23,592)
Exchange rate differences - - - - - (3,288) - (3,288)
Total comprehensive expense - - - - - (3,288) (23,592) (26,880)
Treasury shares - - (109) - - - - (109)
Dividends paid - - - - - - (6,521) (6,521)
Share-based payments - - - - (1,442) - 8,294 6,852
Tax on share-based payments - - - - - - 100 100
At 30 April 2021 3,246 88,610 (129) (2,385) 12,885 (4,281) (60,566) 37,380
Share capital Share premium Treasury shares Merger reserve Share- based payments reserve Translation reserve Accumulated losses Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 May 2021 3,246 88,610 (129) (2,385) 12,885 (4,281) (60,566) 37,380
Profit for the period - - - - - - 9,078 9,078
Exchange rate differences - - - - - 596 - 596
Total comprehensive income - - - - - 596 9,078 9,674
Issue of share capital 8 755 - - - - - 763
Dividends paid - - - - - - (9,008) (9,008)
Share-based payments - - - - (3,082) - 7,616 4,534
At 31 October 2021 3,254 89,365 (129) (2,385) 9,803 (3,685) (52,880) 43,343
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed Consolidated Statement of Cash Flows
Six months ended 31 October 2021 Re-presented (Note 1.5) Year ended 30 April 2021
Six months ended 31 October 2020
Note £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations before adjusting items 19a 16,270 32,792 65,161
Cash used to settle non-underlying items (5,513) (8,026) (13,167)
Cash generated from operations 10,757 24,766 51,994
Interest paid (2,413) (2,241) (5,064)
Tax paid (429) (417) (3,155)
Net cash generated from operating activities 7,915 22,108 43,775
Cash flows from investing activities
Acquisition of subsidiary, net of cash acquired (1,060) - -
Acquisition of subsidiary, deferred consideration (2,352) (5,467) (7,412)
Proceeds from sale of investment 227 - -
Purchase of property, plant and equipment (856) (2,872) (4,001)
Purchase of other intangible assets (2,068) (1,158) (6,635)
Net cash flows used from investing activities (6,109) (9,497) (18,048)
Cash flows from financing activities
Purchase of treasury shares - - (109)
Dividends paid (9,008) - (6,521)
Loan arrangement fee - (128) (551)
Proceeds from borrowings 2,925 4,173 19,173
Repayment of borrowings (725) (9,294) (17,553)
Repayment of lease liabilities (6,331) (6,618) (14,191)
Interest received 20 127 98
Capital contributions by Members 1,202 2,640 4,276
Repayments to former Members (489) (2,625) (4,113)
Net cash flows from financing activities (12,406) (11,725) (19,491)
Net (decrease) / increase in cash and cash equivalents (10,600) 886 6,236
Cash and cash equivalents at the beginning of period 34,580 28,727 28,727
Effects of foreign exchange rate changes on cash and cash equivalents (239) 133 (383)
Cash and cash equivalents at the end of period 13 23,741 29,746 34,580
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Notes to the Condensed Financial Statements
1 Accounting policies
1.1 General information
DWF Group plc (the 'Company'), is a public limited company incorporated on 10
September 2018, domiciled in the United Kingdom under the Companies Act 2006,
and registered in England. The registered office is 20 Fenchurch Street,
London, EC3M 3AG, United Kingdom.
The principal activities of the Company and its subsidiary undertakings
(together referred to as the 'Group') and the nature of the Group's operations
are set out in the latest Annual Report and Financial Statements for the year
ended 30 April 2021. The entire issued share capital of the Company was
admitted to the premium listing segment of the official list of the Financial
Conduct Authority and to trading on the Main Market of the London Stock
Exchange on 15 March 2019.
The functional currency of the Group is considered British Pounds Sterling,
which reflects the currency of the primary economic environment in which the
Group operates. The Group financial statements are also presented in British
pounds sterling.
1.2 Basis of preparation
This condensed consolidated interim financial information ('Interim
Information') was approved for issue by the Board of Directors on 9 December
2021.
The Interim Information is neither reviewed nor audited and does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 30 April 2021 were approved by the
Board of Directors on 21 July 2021 and subsequently filed with the Registrar.
The report of the auditor on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain any statement under
Section 498 of the Companies Act 2006.
This Interim Information for the six months ended 31 October 2021 is prepared
in accordance with the Disclosure and Transparency Rules of the Financial
Conduct Authority and in accordance with IAS 34: Interim Financial Reporting
as adopted by the UK ('IAS 34'). The accounting policies, methods of
computation and presentation are consistent with those presented in the most
recent Annual Report and Financial Statements. The Interim Information should
be read in conjunction with the Annual Report and Financial Statements for the
year ended 30 April 2021, which have been prepared in accordance with
International Financial Reporting Standards as adopted by the UK ('IFRS'), and
are available on the Group's website: www.dwfgroup.com
(http://www.dwfgroup.com) .
The Group began reporting under UK-adopted IFRS instead of EU-adopted IFRS at
the start of this financial year. At present, there is not a significant
difference for the Group in reporting between the two frameworks.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period, except for the
estimation of income tax (see Note 6).
The Group's forecast and projections, taking account of reasonably possible
changes in trading performance, show that the Group will be able to operate
within the level of its current banking facilities. The Directors have
therefore adopted a going concern basis in preparing the Interim Information.
1.3 Alternative performance measures ('APM's)
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority ("ESMA"), additional information is provided on the APMs
used by the Group below. In the reporting of financial information, the Group
uses certain measures that are not required under IFRS.
These additional measures provide the Group's stakeholders with additional
information on the performance of the business. The measures are consistent
with those used internally, and are considered important and insightful to
understanding the financial performance and financial health of the Group. The
Group's APM's provide an important measure of how the Group is performing by
providing a meaningful comparison of how the business is managed and measured
on a day-to-day basis and achieves consistency and comparability between
reporting periods. The APM's are primarily utilised in the below ways:
- Non-statutory measures. These are often sector
specific KPI's such as lock-up days, net revenue and cost to income ratio.
These allow greater comparability of the Group's performance within the legal
sector. EBITDA and net debt are also widely utilised within the Group and are
both regularly used among the legal sector and other listed businesses.
- Adjusting items. These are adjustments to
statutory profit metrics such as PBT and operating profit. These are items
(both recurring and non-recurring) that are material in nature and include,
but are not limited to, costs relating to acquisitions, disposals and
significant events or programmes, some of which span multiple years. These
items are excluded from adjusted PBT as management believe their inclusion
distorts the underlying trading performance.
- Non-underlying items. Non-underlying items, a
subset of adjusting items, are non-trading, non-cash or one-off items where
management consider the quantum, nature or volatility of such items would
distort the view of the underlying performance of the Group. By removing these
items the reader is better able to compare like-for-like performance that
would otherwise be hard to determine given the inherent volatility within
statutory measures.
A complete list of APM's is included and fully defined in the glossary to the
condensed set of Financial Statements.
1.4 Accounting estimates and judgement
The preparation of the financial statements under IFRSs requires management to
make judgements, estimates and assumptions which affect the financial
information. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant and are
reviewed on an ongoing basis.
The key areas of judgements relate to control over the ABS and non-ABS Groups
and adjusting items used in alternative performance measures. The key areas of
estimation relate to the impairment of unbilled revenue, impairment of trade
receivables, professional indemnity provisions.
Regulations in certain jurisdictions in which the Group is represented allow
Alternative Business Structures (ABS) where legal firms can be owned by
non-lawyers. This is not the case in other jurisdictions (non-ABS). As a
result, DWF LLP, the head of the non-ABS group, is not directly owned by any
entity within the ABS group (which includes the ultimate parent DWF Group
plc).
Critical judgements in applying the Group's accounting policies
Control over the ABS and non-ABS Groups
Consolidation of DWF LLP and the other non-ABS entities depends on the
assessment of whether a member of the ABS Group is exposed, or has rights, to
variable returns from its involvement with such entity and has the ability to
affect those returns through its power over such entity.
A Governance Deed exists between DWF Law LLP (as representative of the ABS
group) and DWF LLP. This Governance Deed mandates that the executive Board of
both DWF Law LLP and DWF LLP be the same, bestowing DWF Law LLP the ability to
affect returns of DWF LLP and meaning that DWF Law LLP's members have rights
to variable returns from DWF LLP. On this basis, DWF LLP and the other non-ABS
entities are consolidated in these financial statements.
Adjusting items used in alternative performance measures
Adjusted performance measures are included to provide users of the financial
statements with additional understanding of the trading performance of the
Group by removing the impact of income and expenses that, in the Group's
opinion, do not reflect the underlying performance of the Group. In assessing
such items, the Board exercises significant judgement. Reconciliation from the
statutory measure to the adjusted measure is provided in note 2.
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 material adjustment of the carrying amounts of assets and liabilities
within the next financial year, are discussed below.
Unbilled revenue
The valuation of unbilled revenue is based on an estimate of the amount
expected to be recoverable from clients on unbilled matters based on the time
spent at a rate which is defined by factors including time spent, the
expertise and skills provided, and expenses incurred. Provision is made for
such factors as historical recoverability rates, contingencies, the outcomes
of previous matters, other forward-looking factors, clients in administration
and agreements with clients. Respective amounts are provided in Note 12.
Management considers the value of unbilled revenue to be material and has
reviewed the significant risk of material change within the next financial
year as required by IAS 1:125. A 5% increase in the per-hour recovery rate
would lead to a £3,678,000 increase in the carrying value of amounts
recoverable from clients in respect of unbilled revenue and a £3,678,000
increase in revenue. A 5% decrease in the per-hour recovery rate would lead to
an equal and opposite impact on the carrying value of amounts recoverable from
clients in respect of unbilled revenue and revenue.
Trade receivables provision
The provision for impairment involves estimation. The estimation of provisions
is established based on interactions between finance, the fee earner and
clients, mindful of the specific circumstances of clients and individual
matters and invoices and guided by calculation rules applied to the aged
population of all trade receivables (excluding those already addressed by more
specific provisions).
IFRS 9 Financial instruments requires the expected credit losses to be
measured using an unbiased and probability-weighted amount that is determined
by evaluating a range of possible outcomes, the time value of money and
reasonable and supportable information that is available without undue cost or
effort at the reporting date about past events, current conditions and
forecasts of future economic conditions. IFRS 9 allows practical expedients to
be used when measuring credit losses. The Group has uses a provision matrix
based on the ageing profile of debts and the historical credit loss rates
adjusted by a forward-looking estimate that includes the probability of a
changing economic environment / specific conditions to a particular client
over the coming quarters.
Management considers the trade receivables provision to be material and has
reviewed the significant risk of material change within the next financial
year as required by IAS 1:125. A 10% improvement in the expected credit loss
of receivables would lead to a £1,403,000 decrease in the trade receivables
provision (and a corresponding increase in the value of trade receivables). A
10% worsening in expected credit loss of receivables would lead to an equal
and opposite impact on the carrying value of the trade receivables provision
and administrative expenses
Professional indemnity insurance claims
The recognition and quantification of the potential liability associated with
claims and regulatory proceedings involves significant estimation and
judgement. Recognition is based on the assessed likelihood of an individual
claim's success as follows:
· Where a payment is probable and both the timing and amount of the
cash flow can be estimated reliably, a liability (within accruals) is
recognised for the best estimate of the cash outflow.
· Where a payment is probable but either the timing or cash outflow is
less certain, a provision is recognised for the best estimate of the cash
outflow.
· Where a payment is not probable or there is insufficient information
to arrive at a reasonable estimate, no provision is recognised but there
exists a contingent liability. Management is satisfied that there is no
exposure to the Group based on the status of these claims.
A separate asset is recognised within other receivables for the portion of any
recognised liability or provision that the Group will recover from its
insurers.
The liabilities and provisions associated with professional indemnity
insurance claims are most sensitive to the assessment of whether Management
consider a claim will be successfully defended. This assessment is based on
internal expertise and, where relevant, advice from council and the Group
insurer.
1.5 Re-presentation of a comparative period
The cash flows relating to the Group's supplier payment facility are
re-presented from borrowings to working capital following the IFRS
Interpretations Committee's conclusions around supply chain financing
arrangements published in December 2020. The re-presentation has no impact on
basic or diluted EPS.
The liability for professional indemnity reflects the expected outflow for
legal claims against the Group. This has been re-presented to better reflect
the position of claims within the claims lifecycle. Where both timing and
amount of outflows are well understood the Group recognises an accrual. Where
there is less certainty over the timing and/or amount the estimated liability
is classified as a provision. The re-presentation has no impact on basic or
diluted EPS.
The following table summarises the amount of the adjustment for each financial
statement line item affected:
Period ended 31 October 2020 As previously presented Supplier payment facility Professional indemnity Re-presented
£'000 £'000 £'000 £'000
Consolidated Statement of Cash Flows
Decrease in trade and other payables (1,356) (146) (737) (2,239)
Increase in provisions 263 - 737 1,000
Movement in supplier payments facility (146) 146 - -
Consolidated Statement of cash flows - Total of line items affected (1,239) - - (1,239)
Net Debt - Supplier Payment Facility
Cash flow 146 899 - 1,045
Non-cash movement - (899) - (899)
Net Debt - Total of line items affected 146 - - 146
Consolidated Statement of Financial Position
Other payables 12,451 - (4,212) 8,239
Accruals 17,523 - 392 17,915
Provisions 1,252 - 3,820 5,072
Consolidated Statement of Financial Position - Total of line items affected 31,226 - - 31,226
2 Alternative performance measures
Alternative performance measures (APM's) are not intended to supplant IFRS
measures but are included in response to investor feedback or to provide
readers of the financial statements with additional understanding of the
underlying trading performance of the Group.
A complete list of APM's is included and fully defined in the glossary to the
condensed set of Financial Statements.
Adjusted profit before tax and adjusted EBITDA reconcile to profit / (loss)
before tax as follows:
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Profit / (loss) before tax ('PBT') 11,028 (11,044) (30,600)
Amortisation of intangible assets - acquired 2,513 2,101 4,609
Impairment (reversal) / expense (593) 369 4,595
Gain on investment - - (23)
Non-underlying items 1,052 12,457 27,101
Share-based payments expense 4,659 9,482 28,510
Adjusted PBT 18,659 13,365 34,192
Depreciation of right-of-use asset 6,394 5,967 11,977
Other depreciation and amortisation 3,687 3,223 6,989
Interest payable on leases 999 982 2,284
Net finance expense 1,560 1,132 2,682
Adjusted EBITDA 31,299 24,669 58,124
The £593,000 impairment reversal relates to a reduction in the impairment,
initially recognised in FY21, of a right-of-use asset as part of the
Australian scale-back of operations. The calculation of the impairment
reversal includes future sublease income, and hence has been reversed by the
amount of expected future cash flows.
Adjusted PBT reconciles to profit / (loss) before tax with reconciling items
by nature as follows:
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Profit / (loss) before tax ('PBT') 11,028 (11,044) (30,600)
Office closures and scale-backs (336) 5,764 14,898
Acquisition-related expenses 3,308 7,141 20,743
DWF RCD modification impact - - 13,796
Change of CEO - 1,011 1,011
Impact of COVID-19 - 1,011 1,011
Other share-based payment expenses 4,659 9,482 13,333
Adjusted PBT 18,659 13,365 34,192
Acquisition related expenses comprise of £643,000 costs related to the
Mindcrest acquisition that were classified as remuneration and not
consideration under IFRS 3, £2,513,000 amortisation on acquired intangibles
and £152,000 fees for the acquisitions of Zing and BCA.
The cost-to-income ratio is used to assess the levels of operational gearing
in the Group. The cost-to-income ratio is defined as administrative expenses
less adjusting items and divided by net revenue.
The cost-to-income ratio is calculated as follows:
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Revenue 203,490 195,950 400,948
Recoverable expenses (30,182) (28,387) (62,818)
Net revenue 173,308 167,563 338,130
Administrative expenses 75,399 92,052 197,415
Amortisation of intangible assets - acquired (2,513) (2,101) (4,609)
Impairment reversal / (expense) 593 (369) (4,595)
Non-underlying items (1,052) (12,457) (27,101)
Share-based payment expenses (4,659) (9,482) (28,510)
Gain on investments - - 23
Adjusted administrative expenses 67,768 67,643 132,623
Cost-to-income ratio 39.1% 40.4% 39.2%
3 Reporting segments
In accordance with IFRS 8: Operating Segments ('IFRS 8'), the Group's
operating segments are based on the operating results reviewed by the Board,
who represent the chief operating decision maker ('CODM'). The Group has the
following three strategic divisions, which are its reportable segments. These
divisions offer different services and are reported separately because of
different specialisms within teams in the business Group.
The following summary describes the operations of each reportable segment:
Reportable segment Operations
Legal Advisory Services Premium legal advice, commercial intelligence and relevant industry
experience.
Connected Services Collection of products and business services that enhance and complement our
legal offerings.
Mindcrest Outsourced and process-led legal services, designed to standardise, systemise,
scale and optimise legal workflows.
The revenue and operating profits are attributable to the principal activities
of the Group.
Effective from 1 May 2021, the Group changed from five strategic divisions to
three more streamlined, consistent and efficient global divisions that match
the Group's strategy.
The comparative period tables below have been re-presented to reflect the
current divisional structure.
For period ended 31 October 2021 - Reported
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 172,700 16,514 14,276 203,490
Recoverable expenses (28,854) (189) (1,139) (30,182)
Segment net revenue 143,846 16,325 13,137 173,308
Direct costs (68,244) (9,048) (7,030) (84,322)
Gross profit 75,602 7,277 6,107 88,986
Gross margin % 52.6% 44.6% 46.5% 51.3%
Administrative expenses (75,399)
Operating profit 13,587
Net finance expense (1,560)
Interest payable on leases (999)
Profit before tax 11,028
Taxation (1,950)
Profit for the period 9,078
For period ended 31 October 2020 - Re-presented
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Gross revenue 168,431 14,437 13,082 195,950
Recoverable expenses (27,308) (165) (914) (28,387)
Segment net revenue 141,123 14,272 12,168 167,563
Direct costs (69,700) (8,194) (6,547) (84,441)
Gross profit 71,423 6,078 5,621 83,122
Gross margin % 50.6% 42.6% 46.2% 49.6%
Administrative expenses (92,052)
Operating loss (8,930)
Net finance expense (1,132)
Interest payable on leases (982)
Loss before tax (11,044)
Taxation (531)
Loss for the period (11,575)
For year ended 30 April 2021 - Re-presented
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Gross revenue 345,559 28,752 26,637 400,948
Recoverable expenses (60,233) (329) (2,256) (62,818)
Segment net revenue 285,326 28,423 24,381 338,130
Direct costs (137,487) (16,225) (12,637) (166,349)
Gross profit 147,839 12,198 11,744 171,781
Gross margin % 51.8% 42.9% 48.2% 50.8%
Administrative expenses (197,415)
Operating loss (25,634)
Net finance expense (2,682)
Interest payable on leases (2,284)
Loss before tax (30,600)
Taxation (4,567)
Loss for the period (35,167)
There are no intra-segmental revenues which are material for disclosure.
Administrative expenses represent indirect costs that are not specifically
allocated to segments.
Revenue and net revenue by region
The UK is the Group's country of domicile and the Group generates the majority
of its revenue from external clients in the UK. The geographical analysis of
revenue and net revenue is on the basis of the country of origin in which the
client is invoiced.
The Group's revenue and net revenue by geographical region are as follows:
Revenue
Six months ended 31 October 2021 Six months ended 31 October 2020 Re-presented
£'000 £'000 Year ended
31 April 2021
£'000
UK 153,379 140,019 290,966
Spain 16,500 15,726 33,530
Asia 4,948 4,877 9,260
Rest of World 28,663 35,328 67,192
Total 203,490 195,950 400,948
Net Revenue
Six months ended 31 October 2021 Six months ended 31 October 2020 Re-presented
£'000 £'000 Year ended
31 April 2021
£'000
UK 125,524 114,775 234,824
Spain 16,501 15,726 33,530
Asia 4,286 4,203 7,976
Rest of World 26,997 32,859 61,800
Total 173,308 167,563 338,130
Total assets and liabilities for each reportable segment are not provided to
the CODM and therefore not presented.
4 Non-underlying items
The following items have been charged to the Income Statement during the
period but are considered to be non-underlying in nature (note 1.3) so are
shown separately:
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Acquisition-related advisory fees - successful a 152 31 31
Acquisition-related advisory fees - aborted b - - (544)
Acquisition-related expense c 643 5,010 15,222
COVID-19-related costs d - 1,011 1,011
Closure and scale-back of operations e 257 5,394 10,370
Costs associated with the change of CEO f - 1,011 1,011
Total non-underlying items 1,052 12,457 27,101
a. The Group periodically considers and analyses potential acquisition targets
and recognises there is inherent complexity and risk associated with
acquisitions. The Group manages this by employing external professional
advisors to perform legal, financial, commercial and tax due diligence on
targets. These costs relate to opportunities the Group identifies and pursues,
of which a portion result in successful acquisitions. Acquisition fees in the
current period relate to the acquisitions of Zing and BCA.
b. No fees have been incurred in the current period for aborted acquisitions.
Prior year aborted acquisition-related advisory fees are releases of accruals
for work done in FY20 that were no longer due following the decision to abort
the transaction.
c. The current period includes costs related to the Mindcrest acquisition in
FY20 that were classified as remuneration and not consideration under IFRS 3.
As these costs are not considered recurring and will cease in February 2022,
management have included them within adjusting items in order to give greater
clarity of underlying trading performance. Prior period expenses are of the
same nature, and relate to the Mindcrest and RCD acquisitions.
d. COVID-19 related costs were incurred between March 2020 and October 2020
and relate to one-off additional expenses for IT support and sanitisation of
offices that covers the period of the first UK national lockdown. As the Group
was not making use of its UK offices during this period and was already
supporting agile working across its workforce, these costs are one-off and
specifically as a result of COVID-19.
e. Closure and scale-back of operations in the current year relate to the
scale-back of the operations in Australia, which began in March FY21, with the
cost in the current year reflecting an additional impairment of assets since
the estimate made at FY21. The prior year costs relate to the board decision
to close the Singapore and Brussels offices and to scale-back the operations
in Dubai and Australia. These costs comprise people and supplier exit expenses
and the impairment of assets that are deemed potentially irrecoverable as a
result of the decision taken. An impairment reversal associated with the
decision to scale-back Australia has also been recognised in the period which
generates a credit of £593k and is included within adjusting items, but not
within non-underlying items. This reversal of impairment is due to having now
entered into a sublease agreement for a vacated premises in Australia, and
hence the impairment of right-of-use assets recognised in FY21 has been
partially reversed.
f. No costs have been incurred in the current period for the change in CEO.
Net finance expense and interest payable on leases
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Finance income
Interest receivable 20 127 98
20 127 98
Finance expense - other
Interest payable on bank borrowings 1,034 925 1,767
Other interest payable 42 25 47
Bank and other charges 504 309 966
1,580 1,259 2,780
Net finance expense 1,560 1,132 2,682
Finance expense - leases
Interest payable on leases 999 982 2,284
999 982 2,284
5 Taxation
The tax charge is recognised based on management's best estimate of the full
year effective tax rates by geographical unit applied to pre-tax income for
the six-month period, which is then adjusted for tax adjusting items arising
in the period ended 31 October 2021. The estimated effective tax rate includes
the impact of re-measuring deferred tax balances at the end of the year due to
the substantive enactment of the increase in the UK corporation tax rate to
25% from 1 April 2023.
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
UK corporation tax on profit 2,628 275 5,582
Foreign tax on profit 523 443 1,576
Adjustments in respect of prior periods - - (129)
Current tax expense 3,151 718 7,029
Deferred tax credit (1,248) (187) (2,468)
Adjustments in respect of prior periods 47 - 6
Deferred tax credit (1,201) (187) (2,462)
Taxation 1,950 531 4,567
6 Dividends
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
pence per share pence per share pence per share
Final dividends recognised as distributions in the year 3.00 - 0.75
Interim dividends recognised as distributions in the year - - 1.50
Interim dividends recognised as distributions in the year - - -
Total dividends paid in the period 3.00 - 2.25
Interim and final dividend proposed 1.50 1.50 3.00
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Final dividends recognised as distributions in the year 9,008 - 2,162
Interim dividends recognised as distributions in the year - - 4,359
Interim dividends recognised as distributions in the year - - -
Total dividends paid in the period 9,008 - 6,521
Interim and final dividend proposed 4,880 4,868 9,737
On 7 September 2020, the Board approved a final dividend for the year ended 30
April 2020 of 0.75 pence per share. The dividend was paid on 5 November 2020
to all shareholders on the Register of Members on 25 September 2020.
On 9 December 2020, the Board approved an interim dividend for the year ended
30 April 2021 of 1.50 pence per share. The dividend was paid on 5 March 2021
to all shareholders on the Register of Members on 29 January 2021.
On 28 September 2021, the Board approved a final dividend for the year ended
30 April 2021 of 3.00 pence per share. The dividend was paid on 8 October 2021
to all shareholders on the Register of Members on 10 September 2021.
The payment of the dividends noted above did not have any tax consequences for
the Group.
An interim dividend for the year ending 30 April 2022 of 1.50 pence per share
was approved by the board on 8 December 2021. The dividend will be paid on 4
March 2022 to all shareholders on the Register of Members as at 4 February
2022.
7 Earnings per share
Six months ended 31 October 2021 Restated Year ended 30 April 2021
Six months ended 31 October 2020
Earnings attributable to owners of the parent £'000 £'000 £'000
Earnings / (loss) for the period for the purpose of basic earnings per share 9,078 (11,575) (35,167)
Number Number Number
(*restated)
Weighted average number of ordinary shares for the purposes of basic earnings 297,234,446 291,558,260 294,392,422
per share
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options 25,225,294 4,384,890 17,067,508
Weighted average number of ordinary shares for the purposes of diluted 322,459,740 295,943,150 311,459,930
earnings per share
Earnings / (loss) for the period per share attributable to the owners of the
parent:
Basic earnings per share (p) 3.1 (4.0) (11.9)
Diluted earnings per share (p) 2.8 (4.0) (11.9)
The weighted average number of ordinary shares for the purpose of basic
earnings per share, and thus the basic earnings per share, for the comparative
period ended 31 October 2020 have been restated as they were previously
reported in error. The diluted earnings per share figure for this period has
also been restated as it was previously reported as being antidilutive.
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Earnings / (loss) for the period for the purpose of adjusted earnings per 9,078 (11,575) (35,167)
share
Add/(remove):
Impairment (reversal) / expense (593) 369 4,594
Amortisation of intangible assets - acquired 2,513 2,101 4,609
Gain on investments - - (23)
Non-underlying items 1,052 12,457 27,101
Share-based payments expense 4,659 9,482 28,510
Tax effect of adjustments above (1,513) (1,851) (5,503)
Adjusted earnings for the purposes of adjusted earnings per share 15,196 10,983 24,121
Number Number Number
(*re-presented)
Weighted average number of ordinary shares for the purposes of adjusted basic 297,234,446 291,558,260 294,392,422
earnings per share
Ordinary shares for the purposes of adjusted diluted earnings per share 325,352,865 324,554,653 324,554,653
Adjusted basic earnings per share (p) 5.1 3.8 8.2
Adjusted diluted earnings per share (p) 4.7 3.4 7.4
Tax adjustments of £1,513,000 (31 October 2020: £1,851,000; 30 April 2021:
£5,503,000) have been made in arriving at the adjusted earnings per share.
This is based on an estimated full year equivalent effective adjusted tax
rate.
*The definitions of adjusted basic earnings per share and adjusted diluted
earnings per share were modified by management during the year ended 30 April
2021, and the prior year comparative for the period ended 31 October 2020 has
been represented accordingly. The definitions of adjusted basic earnings per
share and adjusted diluted earnings per share are fully defined in the
glossary to the condensed set of Financial Statements.
8 Acquisitions of subsidiaries
Acquisitions in the six months to 31 October 2021
Business combinations are accounted for using the acquisition accounting
method as at the acquisition date, which is the date at which control is
transferred to the Group.
Two acquisitions were made in the period to 31 October 2021; Zing 365 Holdings
Limited "Zing" and BCA Claims and Consulting Limited "BCA". Details of the
acquisitions are as follows:
Country of incorporation Nature of activity Date of acquisition Consideration £'000 Percentage ownership
Zing UK Training and compliance 24 May 2021 1,157 100%
BCA Canada Claims and adjusting 25 May 2021 2,297 100%
Zing is a compliance training business based in Bristol, and was purchased to
further support growth in the Connected division through offering additional
services to the Group's customers. BCA is a legal claims business based in
Vancouver, and was a market leader at the time of acquisition, so was acquired
in order to increase the Group's presence in the local market.
The provisional fair values of the assets and liabilities and the associated
goodwill arising from the acquisitions are as follows:
Zing BCA
£'000 £'000
Intangible assets 659 1,064
Trade and other receivables 123 524
Cash and cash equivalents 69 148
Trade and other payables (276) (158)
Loans and borrowings (331) -
Deferred consideration (341) -
Deferred tax liability (149) (282)
Net (liabilities) / assets acquired (246) 1,296
Purchase consideration 1,157 2,297
Purchase consideration satisfied by:
Initial cash consideration 394 884
Deferred cash consideration - 1,413
Shares issued to Zing/BCA shareholders 763 -
Provisional goodwill 1,403 1,001
Within the £2.3m consideration for BCA, £1.4m is deferred and payable over
three years post-acquisition. This is not contingent on future performance
targets. £0.35m of this has been paid in the period.
The goodwill is attributable to the benefits of operating two already
well-established businesses in the relevant sector that are expected to be
achieved from incorporating the businesses into the Group's operations. As the
purchases were not made with any qualifying intellectual property, all
goodwill acquired is non-tax deductible.
Goodwill is measured at the acquisition date as the fair value of
consideration transferred, plus non-controlling interests and the fair value
of any previously held equity interests less the net recognised amount (which
is generally fair value) of the identifiable assets and liabilities assumed.
Goodwill is subject to an annual review for impairment (or more frequently if
necessary) in accordance with our accounting policies. Any impairment is
charged to the income statement as it arises.
The following intangible assets were recognised at acquisition. These have
been measured at their fair value through the multi-period excess earnings
method (customer relationships) and royalty relief method (brand).
Zing BCA
£'000 £'000
Intangible assets - brands - 248
Intangible assets - customer relationships 659 816
Deferred tax (149) (282)
Total fair value on acquisition 510 782
Cash flows arising from the acquisition were as follows:
Zing BCA
£'000 £'000
Purchase consideration (393) (884)
Cash and cash equivalents acquired 69 148
Total fair value on acquisition (324) (736)
Deferred consideration paid in the period - (353)
Net cash outflow (324) (1,089)
The acquired businesses, Zing and BCA, contributed revenues of £307,000 and
£802,000 respectively to the group for the period.
Transaction costs comprised mainly advisor fees, including financial, tax and
legal due diligence. These are all included within administrative expenses
(non-underlying) within Note 4.
9 Intangible assets and goodwill
Acquired
Goodwill Customer relationships Brand Software costs Capitalised development costs Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 May 2021 11,141 35,608 1,633 4,322 11,311 64,015
Additions - internally developed - - - - 1,588 1,588
Additions - externally purchased - - - 480 - 480
Additions through acquisitions 2,404 1,475 248 - - 4,127
Effect of movements in foreign exchange 123 (688) 1 (2) - (566)
At 31 October 2021 13,668 36,395 1,882 4,800 12,899 69,644
Amortisation and impairment
At 1 May 2021 1,356 6,128 1,041 1,587 4,729 14,841
Amortisation for the period - 2,050 463 667 1,185 4,365
Effect of movements in foreign exchange - (133) (1) (1) - (135)
At 31 October 2021 1,356 8,045 1,503 2,253 5,914 19,071
Net book value
At 31 October 2021 12,312 28,350 379 2,547 6,985 50,573
At 1 May 2021 9,784 29,480 592 2,735 6,582 49,173
10 Property, plant and equipment
Right-of-use asset Leasehold improvements Office equipment and fixtures and fittings Computer equipment Total
£'000 £'000 £'000 £'000 £'000
Cost
At 1 May 2021 94,769 16,179 15,366 38,499 164,813
Additions 1,840 330 334 197 2,701
Remeasurement adjustment (342) - - - (342)
Effect of movements in foreign exchange (314) (8) (47) (1) (370)
At 31 October 2021 95,953 16,501 15,653 38,695 166,802
Accumulated depreciation
At 1 May 2021 25,603 13,287 8,235 35,907 83,032
Charge for the period 6,394 404 826 618 8,242
Impairment reversal (593) - - - (593)
Effect of movements in foreign exchange - (3) (23) (6) (32)
At 31 October 2021 31,404 13,688 9,038 36,519 90,649
Net book value
At 31 October 2021 64,549 2,813 6,615 2,176 76,153
At 1 May 2021 69,166 2,892 7,131 2,592 81,781
See Note 2 for details of the impairment reversal on the Right-of-use asset.
11 Trade and other receivables
31 October 2021 31 October 2020 30 April 2021
£'000 £'000 £'000
Trade receivables (net of allowance for doubtful receivables) 84,679 93,334 91,185
Other receivables 3,511 2,741 4,898
Amounts recoverable from clients in respect of unbilled revenue 73,566 76,301 66,671
Unbilled disbursements 9,353 9,077 9,437
Prepayments 11,852 21,238 10,463
Reimbursement asset 852 852 852
183,813 203,543 183,506
Non-current
Other receivables - 152 -
Prepayments and accrued income - 7,689 -
- 7,841 -
Current prepayments and accrued income include £439,000 (31 October 2020:
£9,891,000; 30 April 2021: £1,064,000) and non-current prepayments and
accrued income include £nil (31 October 2020: £7,689,000; 30 April 2021:
£nil) both relating to acquisition-related remuneration expense.
12 Cash and cash equivalents
31 October 2021 31 October 2020 30 April 2021
£'000 £'000 £'000
Cash and cash equivalents (excluding bank overdrafts) 24,180 32,355 34,711
Bank overdrafts (note 16) (439) (2,609) (131)
Cash and cash equivalents per Statement of Cash Flows 23,741 29,746 34,580
13 Trade and other payables
31 October 2021 Re-presented (Note 1.5) 31 October 2020 30 April 2021
£'000 £'000 £'000
Trade payables 24,507 26,514 28,236
Other taxation and social security 17,795 25,275 27,375
Other payables 4,846 8,239 10,337
Accruals 18,235 17,915 19,433
65,383 77,943 85,381
Accruals include £2,322,000 (31 October 2020: £1,662,000; 30 April 2021:
£4,905,000) relating to acquisition-related remuneration expense. The Group
has participated in the UK Government's VAT deferral scheme, which was
launched to assist businesses in their response to COVID-19. During the period
the Group paid £5,352,000 in VAT that had been deferred due to the Group's
participation in the scheme. Within other taxation and social security there
remains £5,348,000 (30 April 2021: £10,700,000) of VAT payable which has
been deferred from March 2020. This will be fully repaid by February 2022.
14 Lease liabilities
31 October 2021 31 October 2020 30 April 2021
£'000
£'000
£'000
Balance at the beginning of the period 84,002 84,678 84,678
Additions 1,840 13 16,573
Interest expense related to lease liabilities 999 982 2,284
Net foreign currency translation (gain) / loss (217) 343 (589)
Disposals - (4,836)
Remeasurement adjustment (823) - 2,367
Repayment of lease liabilities (including interest) (7,330) (7,600) (16,475)
Balance at the end of the period 78,471 78,416 84,002
Current lease liabilities 12,691 12,648 13,104
Non-current lease liabilities 65,780 65,768 70,898
78,471 78,416 84,002
The maturity of lease liabilities at 31 October 2021 were as follows:
Lease payments 31 October 2021 31 October 2020 30 April
£'000
£'000
2021
£'000
Period to 30 April 2022 7,128 7,396 14,978
Year to 30 April 2023 14,298 13,851 14,501
Year to 30 April 2024 13,566 13,086 13,270
Year to 30 April 2025 12,133 11,342 11,827
Year to 30 April 2026 10,991 9,884 -
Later years 27,045 29,898 36,775
85,161 85,457 91,351
Effect of discounting (6,652) (6,952) (7,350)
Effect of movement in foreign currency translation rates (38) (89) 1
Closing lease liability 78,471 78,416 84,002
15 Other interest-bearing loans and borrowings
Obligations under interest-bearing loans and borrowings
31 October 2021 31 October 2020 30 April 2021
£'000 £'000 £'000
Current liabilities
Bank loans 18,612 289 19,099
Supplier payments facility 3,868 164 204
Bank overdrafts 439 2,609 131
22,919 3,062 19,434
Non-current liabilities
Bank loans 78,929 88,120 76,085
Capitalised loan arrangement fees (492) (373) (641)
78,437 87,747 75,444
101,356 90,809 94,878
Analysis of cash and cash equivalents and other interest-bearing loans and borrowings:
1 May 2021 Cash flow Exchange movement Non-cash movement 31 October 2021
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 34,580 (10,600) (239) - 23,741
Bank loans (94,544) (2,200) 175 (480) (97,049)
Supplier payments facility (204) 1,572 - (5,236) (3,868)
Total net debt (excluding IFRS 16) (60,168) (11,228) (64) (5,716) (77,176)
1 May 2020 Re-presented (Note 1.5) Exchange movement Re-presented (Note 1.5) 31 October 2020
Cash flow Non-cash movement
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 28,727 886 133 - 29,746
Bank loans (93,279) 5,249 - (6) (88,036)
Supplier payments facility (310) 1,045 - (899) (164)
Total net debt (excluding IFRS 16) (64,862) 7,180 133 (905) (58,454)
1 May 2020 Cash flow Exchange movement Non-cash movement 30 April 2021
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 28,727 6,236 (383) - 34,580
Bank loans (93,279) 1,069 (205) (2,129) (94,544)
Supplier payments facility (310) 23,144 - (23,038) (204)
Total net debt (excluding IFRS 16) (64,862) 30,449 (588) (25,167) (60,168)
Non-cash movements within Bank loans relate to the amortisation of fees incurred on arrangement of the facility, over the life of the facility. Non-cash movements within the Supplier payments facility relate to the utilisation of the facility to settle liabilities with suppliers, with the Supplier payments facility being settled via cash when the liability becomes due.
16 Financial instruments
The Group's principal financial instruments comprise trade and other
receivables, unbilled revenue, cash and cash equivalents, trade and other
payables, lease liabilities, bank borrowings and capital contributions from
members.
Fair value measurement
The fair value of each class of financial assets and liabilities approximates
the carrying value. The table below sets out the Group's accounting
classification of each category of financial assets and liabilities and their
carrying values at the end of each reporting period:
31 October 2021 31 October 2020 30 April 2021
Notes £'000 £'000 £'000
Cash and cash equivalents 13 23,741 29,746 34,580
Measured at amortised cost:
Trade and other receivables 12 171,109 181,453 172,191
Fair value through the profit or loss:
Investments - 227 254
Total financial assets 194,850 211,426 207,025
Measured at amortised cost:
Trade and other payables 14 65,383 81,763 85,381
Deferred consideration 1,063 3,505 1,699
Lease liabilities 15 78,471 78,416 84,002
Borrowings 16 101,356 90,809 94,878
Amounts due to members of partnerships in the Group 20 29,991 41,453 31,492
Total financial liabilities 276,264 295,946 297,452
17 Share capital
Number Ordinary shares Share premium Total
Treasury shares
of 1p each £'000 £'000 £'000 £'000
Issued and fully paid ordinary shares
At 31 October 2020 324,554,653 3,246 88,610 (20) 91,836
Purchase of treasury shares - - - (109) (109)
At 30 April 2021 324,554,653 3,246 88,610 (129) 91,727
Shares issued in acquisition of Zing 365 Holdings Ltd 798,212 8 755 - 763
At 31 October 2021 325,352,865 3,254 89,365 (129) 92,490
On 24 May 798,212 ordinary shares were issued as a result of the acquisition
of Zing.
18 Cash generated from operations
a) Cash used in operations before adjusting items
Re-presented (Note 1.5)
Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Cash flows from operating activities
Profit / (loss) before tax 11,028 (11,044) (30,600)
Adjustments for:
Impairment (reversal) / expense (593) 369 4,595
Amortisation of acquired intangible assets 2,513 2,101 4,609
Depreciation of right-of-use asset 6,394 5,967 11,977
Other depreciation and amortisation 3,687 3,223 6,989
Gain on disposal of leases and investments - (23) (798)
Non-underlying items 1,052 12,457 27,101
Share-based payments expense 4,659 9,482 27,818
Interest payable on leases 999 982 2,284
Net finance expense 1,560 1,132 2,682
Operating cash flows before movements in working capital 31,299 24,646 56,657
(Increase) / decrease in trade and other receivables (2,583) 3,390 13,120
Decrease in trade and other payables (11,887) (2,239) (176)
Increase / (decrease) in provisions 442 1,000 (296)
(Decrease) / increase in amounts due to Members of partnerships in the Group (1,001) 5,995 (4,144)
Cash generated by operations before adjusting items 16,270 32,792 65,161
b) Free cash flows
Six months ended 31 October 2021 Re-presented (Note 1.5) Year ended 30 April 2021
Six months ended 31 October 2020
£'000 £'000 £'000
Free cash flows
Operating cash flows before movements in working capital 31,299 24,646 56,657
Net working capital movement (14,028) 2,151 12,648
Amounts due to Members of partnerships in the Group (1,001) 5,995 (4,144)
Cash generated from operations before adjusting items 16,270 32,792 65,161
Net interest paid (2,393) (2,241) (5,064)
Tax paid (429) (417) (3,155)
Repayment of lease liabilities (6,331) (6,618) (14,191)
Purchase of property, plant and equipment (856) (2,872) (4,001)
Purchase of other intangible assets (2,068) (1,158) (6,635)
Free cash flows 4,193 19,486 32,115
c) Working capital measures
31 October 2021 31 October 2020 30 April 2021
£'000 £'000 £'000
WIP days
Amounts recoverable from clients in respect of unbilled revenue 73,566 76,301 66,671
Unbilled disbursements 9,353 9,077 9,437
Total WIP 82,919 85,378 76,108
Annualised net revenue 345,612 337,277 338,130
WIP days 88 92 82
Debtor days
Trade receivables (net of allowance for expected credit loss) 84,679 93,334 91,185
Other receivables 3,511 2,741 4,898
Total debtors 88,190 96,075 96,083
Annualised net revenue 345,612 337,277 338,130
Debtor days 93 104 104
Gross lock-up days
Total WIP 82,919 85,378 76,108
Total debtors 88,190 96,075 96,083
Total gross lock-up 171,109 181,453 172,191
Annualised net revenue 345,612 337,277 338,130
Gross lock-up days 181 196 186
Annualised net revenue reflects the total net revenue for the previous
12-month period inclusive of pro-forma adjustments for acquisitions and
discontinuations.
19 Amounts due to Members of partnerships in the Group
Amounts due to Members of partnerships in the Group comprise Members' capital
and other amounts due to Members. Members' capital is repayable on retirement
of the Member and is therefore classified as a liability. As Members may
retire with less than one year's notice and typically have their capital
repaid within one year of serving notice, Members' capital is shown as being
due within one year. Other amounts due to Members classified as a liability
relate to undistributed profits and Members' taxation reserves. Amounts due to
Members are classified as liabilities as follows:
Members' capital Other amounts due to Members Total amounts due to Members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2021 13,348 18,144 31,492
Members' remuneration charged as an expense - 20,793 20,793
Unrealised foreign exchange translation differences 31 159 190
Capital introduced by Members 1,202 - 1,202
Repayments of capital (489) - (489)
Drawings - (23,197) (23,197)
At 31 October 2021 14,092 15,899 29,991
Members' capital Other amounts due to Members Total amounts due to Members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2020 13,231 22,621 35,852
Members' remuneration charged as an expense - 20,727 20,727
Unrealised foreign exchange translation differences (1) (408) (409)
Capital introduced by Members 2,640 - 2,640
Repayments of capital (2,625) - (2,625)
Drawings - (14,732) (14,732)
At 31 October 2020 13,245 28,208 41,453
Members' capital Other amounts due to Members Total amounts due to Members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2020 13,231 22,621 35,852
Members' remuneration charged as an expense - 41,361 41,361
Unrealised foreign exchange translation differences (46) (333) (379)
Capital introduced by Members 4,276 - 4,276
Repayments of capital (4,113) - (4,113)
Drawings - (45,505) (45,505)
At 30 April 2021 13,348 18,144 31,492
The average number of Members during the period was as follows:
31 October 2021 31 October 2020 30 April 2021
Average number of Members of partnerships held by the Group during the period 362 382 373
20 Seasonality
Historically, the Group generates one to two percentage points more revenue in
the second half of the year when compared to the first. This is due to the
number of working days, the timing of annual leave, the timing of resource
investments and new client wins.
21 Events after the reporting period
The following event occurred after 31 October but before the approval of the
half year results.
On 30 November 2021, the Group agreed a 12-month loan facility from Premium
Credit Ltd, this is within the ordinary course of business. The facility is
for £7.8m, is unsecured and is repayable within 12 months.
Principal risks and uncertainties
Risk management is key to assisting us in protecting our business for the
benefit of all of our stakeholders and helps us to deliver long-term
Shareholder value. The Group's strategy takes into account risks, as well as
opportunities, which need to be actively managed. Risk management activities
include identifying risks and principal risks, undertaking risk assessments
and determining mitigating actions. These activities are regularly reviewed
against the Group's risk appetite throughout the year by those parties
responsible, including the Executive Risk Committee, Internal Audit, the Risk
Committee, our Group Chief Operating Officer and ultimately our Board.
The principal risks and uncertainties faced by the Group remain in line with
those set out in our Annual Report and Accounts 2021: business, commercial,
strategy; conduct and ethics; recruiting and retaining our people;
operational; financial and reporting; and financial crime. There have been no
significant changes to the principal risks expected for the remaining six
months of the year.
Appendix 1
As explained in Note 3, the group changed from five strategic divisions to
three.
Reconciliation to previously reported global operating structure for the
period ended 31 October 2020 is presented as follows.
As reported for the period ended 31 October 2020 Impact of restructure Re-presented under new operating structure for the period ended 31 October
2020
£'000 £'000 £'000
Segment net revenue
Legal Advisory - 141,123 141,123
Commercial Services 55,799 (55,799) -
Insurance Services 51,470 (51,470) -
International 40,251 (40,251) -
Connected Services 12,840 1,432 14,272
Mindcrest (FY21: Managed Services) 7,203 4,965 12,168
Net revenue 167,563 - 167,563
Segment direct cost
Legal Advisory - (69,700) (69,700)
Commercial Services (24,347) 24,347 -
Insurance Services (25,896) 25,896 -
International (23,808) 23,808 -
Connected Services (7,307) (887) (8,194)
Mindcrest (FY21: Managed Services) (3,083) (3,464) (6,547)
Direct cost (84,441) - (84,441)
Segment gross profit
Legal Advisory - 71,423 71,423
Commercial Services 31,452 (31,452) -
Insurance Services 25,574 (25,574) -
International 16,443 (16,443) -
Connected Services 5,533 545 6,078
Mindcrest (FY21: Managed Services) 4,120 1,501 5,621
Gross profit 83,122 - 83,122
Reconciliation to previously reported global operating structure - period
ended 30 April 2021
As reported for the year ended 30 April 2021 Impact of restructure Re-presented under new operating structure for the period ended 30 April 2021
£'000 £'000 £'000
Segment net revenue
Legal Advisory - 285,326 285,326
Commercial Services 110,667 (110,667) -
Insurance Services 103,884 (103,884) -
International 85,255 (85,255) -
Connected Services 25,338 3,085 28,423
Mindcrest (FY21: Managed Services) 12,986 11,395 24,381
Net revenue 338,130 - 338,130
Segment direct cost
Legal Advisory - (137,487) (137,487)
Commercial Services (46,245) 46,245 -
Insurance Services (51,560) 51,560 -
International (49,012) 49,012 -
Connected Services (14,406) (1,819) (16,225)
Mindcrest (FY21: Managed Services) (5,126) (7,511) (12,637)
Direct cost (166,349) - (166,349)
Segment gross profit
Legal Advisory - 147,839 147,839
Commercial Services 64,422 (64,422) -
Insurance Services 52,324 (52,324) -
International 36,243 (36,243) -
Connected Services 10,932 1,266 12,198
Mindcrest (FY21: Managed Services) 7,860 3,884 11,744
Gross profit 171,781 - 171,781
Glossary
Alternative Performance Measures ("APMs")
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority ("ESMA"), additional information is provided on the APMs
used by the Group below. In the reporting of financial information, the Group
uses certain measures that are not required under IFRS.
These additional measures (commonly referred to as APMs) provide the Group's
stakeholders with additional information on the performance of the business.
These measures are consistent with those used internally, and are considered
important and insightful to understanding the financial performance and
financial health of the Group. The Group's APMs provide an important measure
of how the Group is performing by providing a meaningful comparison of how the
business is managed and measured on a day-to-day basis and achieves
consistency and comparability between reporting periods.
These APMs may not be directly comparable with similar measures reported by
other companies and they are not intended to be a substitute for, or superior
to, IFRS measures. All Income Statement measures are provided for continuing
operations unless otherwise stated.
APM
Net revenue
Closest equivalent statutory measure
Revenue
Definition and purpose
Revenue less recoverable expenses.
Recoverable expenses do not attract a profit margin and can significantly vary
month-to-month such that they may distort the link between Revenue and the
performance of the Group. Net Revenue is widely reported in the legal sector
as the key measure reflecting underlying trading, and allows greater
comparability with other legal businesses.
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Revenue 203,490 195,950 400,948
Recoverable expenses (30,182) (28,387) (62,818)
Net revenue 173,308 167,563 338,130
APM
Adjusting items
Closest equivalent statutory measure
None
Definition and purpose
Those items which the Group excludes from its statutory metrics to arrive at
adjusted profit metrics in order to present a further measure of the Group's
performance.
These include items which are significant in size or volatility or by nature
are non-trading or non-recurring. This provides a comparison of how the
business is managed and measured on a day-to-day basis and provides
consistency and comparability between reporting periods.
Reconciliation
See Note 2.
APM
Adjusted earnings before interest, tax, depreciation and amortisation
('adjusted EBITDA')
Closest equivalent statutory measure
Operating (loss) / profit
Definition and purpose
Operating profit adjusted for adjusting items detailed in Note 2, and adding
back depreciation and amortisation.
Adjusted EBITDA is useful as a measure of comparative operating performance
between both previous periods, and other companies as it is reflective of
adjustments for adjusting items and other factors that affect operating
performance. Adjusted EBITDA removes the effect of depreciation and
amortisation, material volatile items, share based payments expense, capital
structure (primarily finance costs/income) and items outside the control of
management (primarily taxes).
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Operating profit / (loss) 13,587 (8,930) (25,634)
Depreciation of right-of-use asset 6,394 5,967 11,977
Other depreciation and amortisation 3,687 3,223 6,989
Amortisation of intangible assets - acquired 2,513 2,101 4,609
Impairment (593) 369 4,595
Non-underlying items 1,052 12,457 27,101
Share based payments expense 4,659 9,482 28,510
Gain on investment - - (23)
Adjusted EBITDA 31,299 24,669 58,124
APM
Adjusted profit before tax ("adjusted PBT")
Closest equivalent statutory measure
Profit / (loss) before tax
Definition and purpose
Profit before tax and after reflecting the impact of adjusting items.
Adjusted PBT is useful as a measure of comparative operating performance
between both previous periods, and other companies as it is reflective of
adjustments for non-underlying items, amortisation of acquired intangibles,
share based payments expense, impairment/impairment reversal and other factors
that affect operating performance. Adjusted PBT is used to provide a useful
and consistent measure of the ongoing performance of the Group. Adjusted
measures are reconciled to statutory measures in Note 2.
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Profit / (loss) before tax 11,028 (11,044) (30,600)
Adjusting items to profit / (loss) before tax (Note 2) 7,631 24,409 64,792
Adjusted profit before tax 18,659 13,365 34,192
APM
Cost to income ratio
Closest equivalent statutory measure
Not applicable
Definition and purpose
Adjusted administrative expenses as detailed in Note 2, divided by Net revenue
as defined above.
After adjusting for significant items that are one-off in nature, the cost to
income ratio is an essential metric in assessing the levels of underlying
operational gearing in the Group. The Group uses the cost to income ratio to
measure the efficiency of its activities, a decrease in cost to income ratio
indicates an improvement to efficiency, and likewise an increase indicates a
decline. Management note that the usefulness of the cost to income ratio is
inherently limited by the fact that it is a ratio and thus does not provide
information on the absolute amount of operating revenue and expenses.
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Net revenue 173,308 167,563 338,130
Adjusted administrative expenses (Note 2) 67,768 67,643 132,623
Cost to income ratio 39.1% 40.4% 39.2%
APM
Adjusted administrative expenses
Closest equivalent statutory measure
Administrative expenses
Definition and purpose
Adjusted administrative expenses are defined as administrative expenses less
adjusting items (as defined above).
Adjusted administrative expenses provide a useful and consistent measure of
the ongoing administrative expenses of the Group. In particular, the adjusted
administrative expenses are utilised within the Group's definition of 'Cost to
income ratio' which is also defined above.
Reconciliation
See Note 2
APM
Net debt
Closest equivalent statutory measure
Cash and cash equivalents less borrowings
Definition and purpose
Net debt comprises cash and cash equivalents less interest-bearing loans and
borrowings (including the supplier payments facility).
Net debt is one measure that can be used to indicate the strength of the
Group's Balance Sheet position and can be a useful measure of the indebtedness
of the Group. This metric excludes the Group's lease liabilities in order to
provide consistency with how the Group manages and reports its indebtedness
and also providing consistency with the definition of Net debt under the
Group's banking agreement.
Reconciliation
See Note 16
APM
Gross lock-up days ("lock-up days"), WIP days and debtor days
Closest equivalent statutory measure
Not applicable
Definition and purpose
Definition and purpose
Gross lock-up days comprises of work-in-progress ("WIP") days, representing
the amount of time between performing work and invoicing clients; and debtor
days, representing the length of time between invoicing and cash collection.
WIP days is calculated as unbilled revenue divided by annualised net revenue
multiplied by 365 days. Debtor days is calculated as trade receivables divided
by annualised net revenue multiplied by 365 days. Pro-forma net revenue is
the total net revenue for the previous 12 month period with adjustments for
acquisitions and discontinuations.
Lock up, WIP and debtor days are sector specific KPI's. These allow greater
comparability of the Group's performance within the legal sector.
Reconciliation
See Note 19
APM
Adjusted diluted earnings per share ("adjusted DEPS")
Closest equivalent statutory measure
Diluted earnings per share ("DEPS")
Definition and purpose
Adjusted earnings divided by the total number of ordinary shares in issue,
where:
Adjusted earnings is defined as (loss) / earnings from continuing operations
adjusted for:
- non-underlying items;
- share-based payments expense;
- gain on investment;
- amortisation of acquired intangible assets;
- impairment; and
- the tax effect of the above items;
Whilst this metric is not prepared in accordance with IAS 33 'Earnings per
Share', it is an important APM to provide the Group's stakeholders with a
fully diluted EPS metric using the Group's adjusted earnings for the period
that is consistent year on year.
Changes to APMs
During FY21, the Directors and management redefined Adjusted Diluted Earnings
per Share ("adjusted DEPS") to aid comparability and simplicity. The
denominator reflects all ordinary shares in issue, to represent a fully
diluted EPS. The difference between the number of shares used for Adjusted
Basic EPS and Adjusted Diluted EPS is the number of shares held in trust and
the effect of the weighting calculation within the Adjusted Basic EPS
denominator.
In addition, the denominator for the Adjusted basic earnings per Share
("adjusted EPS") has been made consistent to the basic EPS measure to provide
further consistency to the statutory measure. The definition of adjusted DEPS
and adjusted EPS are fully defined below.
Reconciliation
See Note 8
APM
Adjusted earnings per share ("adjusted EPS")
Closest equivalent statutory measure
Basic EPS
Definition and purpose
Adjusted earnings divided by weighted average number of ordinary shares for
the purposes of the basic earnings per share calculation. See Adjusted Diluted
EPS definition and purpose above for details of adjusting measures.
This metric provides the Group's stakeholders with an EPS metric using the
Group's adjusted profitability but with a denominator consistent with the
statutory basic EPS measure.
Reconciliation
See Note 8
APM
Organic net revenue growth
Closest equivalent statutory measure
Revenue
Definition and purpose
Year on year growth of net revenue of any business unit that has been in the
Group for at least 12 months, always excluding the first 12 months of any
business unit that was acquired.
This metric allows the Group's stakeholders to compare net revenue performance
without the impact of acquisitions, and therefore on a consistent basis with
the prior year.
Reconciliation
Not applicable
APM
Like for like ('L4L')
Closest equivalent statutory measure
N/A
Definition and purpose
Like for like metrics, are applied to Net revenue, Direct Costs, Gross Profit
and Gross margin to exclude the results of DWF Australia following the scale
back of operations in March 2021.
This metric allows the Group's stakeholders to compare the performance of the
business on a consistent basis with the prior period, given that the scale
back of the Australian business was a material change to the Group.
Reconciliation
Not applicable
APM
Revenue per partner
Closest equivalent statutory measure
Revenue
Definition and purpose
Revenue per partner is defined as net revenue divided by average number of
partners (on a full time equivalent basis) for the period.
This metric allows the Group's stakeholders to view the performance of the
business based on average revenue per partner, split by division (this
includes both member and employee partners).
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Legal Advisory 445 404 842
Connected Services 692 717 1,428
Mindcrest 6,569 12,168 16,254
Group Total 488 446 924
APM
Annualised net revenue
Closest equivalent statutory measure
Revenue
Definition and purpose
Annualised net revenue reflects the total net revenue for the previous
12-month period inclusive of pro-forma adjustments for acquisitions and
discontinuations/closures/scale-backs.
This metric is utilised as a denominator for gross lock up, WIP and debtor day
calculations which allow greater comparability within the legal sector
consistent with prior and full year metrics.
Reconciliation
Not applicable
APM
Free cash flows
Closest equivalent statutory measure
Not applicable
Definition and purpose
Free cash flow is the amount by which the operating cash flow exceeds working
capital, amounts payable to members, tax, interest and capital expenditure.
This metric provides the Group's stakeholders detail around the efficiency of
cash generation and utilisation.
Reconciliation
See Note 19
APM
Leverage
Closest equivalent statutory measure
Not applicable
Definition and purpose
Leverage is calculated as net debt, divided by the last twelve months adjusted
EBITDA (both defined above).
This metric provides the Group's stakeholders detail around the Group's
ability to repay debt and meet payment obligations. Leverage should be
compared with a benchmark, or industry average and is widely used by analysts
and credit rating agencies.
Reconciliation Six months ended 31 October 2021 Six months ended 31 October 2020 Year ended 30 April 2021
£'000 £'000 £'000
Adjusted EBITDA (Last 12 months) 64,771 41,515 58,124
Net debt 77,176 58,454 60,168
Leverage 1.19 1.44 1.04
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