Full-year results for the year ended 30 April 2022
21/07/2022 07:00
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RNS Number : 2325T DWF Group PLC 21 July 2022
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.
21 July 2022
Full-year results for the year ended 30 April 2022
Sustainable profitable growth, working capital improvement and increased
operating efficiency
DWF, the global legal business, today announces its full-year results for the
year ended 30 April 2022. The Board is delighted with another performance in
line with market expectations, and reflecting significant progress towards
medium term targets.
GROUP FINANCIAL SUMMARY
FY22 Full year
£m (unless otherwise stated) FY2021/22 FY2020/21 Change
Revenue 416.1 400.9 3.8 %
Net revenue(1) 350.2 338.1 3.6 %
Gross profit 180.9 171.8 5.3 %
Gross profit margin(2) 51.7% 50.8% 0.9 ppts
Cost to income ratio(1) 38.4% 39.2% (0.8) ppts
Operating profit / (loss) 27.7 (25.6)
Adjusted profit before tax ('Adjusted PBT')(1) 41.4 34.2 21.1 %
Profit / (loss) before tax ('PBT') 22.3 (30.6)
Adjusted diluted EPS (pence)(1) 10.7 7.4 3.3p
Diluted EPS (pence) 6.5 (11.9) 18.4p
Dividend per share (pence) 4.75 4.50 0.25
Lock-up days(1) 179 days 184 days (5) days
Free cash flow(1) 12.9 32.1 (59.8) %
Net debt(1) 71.8 60.2 11.6
Leverage(1) 1.08x 1.04x 0.04x
FY2021/22 HIGHLIGHTS
· Group net revenue growth of 4% (7% like-for-like)(3) to £350m.
Reported revenue growth of 4% to £416.1m.
· Gross margin improvement to 51.7% (FY21 50.8%) reflecting delivery
efficiency and pricing.
· Cost to income ratio improved by 0.8ppts versus FY21 to 38.4%, now
just 0.4 percentage points higher than the medium term guidance issued in July
21, targeting 38%.
· Adjusted PBT up 21% to £41.4m, reflecting the sustainability of top
line growth, gross margin improvement and cost control demonstrated over the
previous three reporting periods.
· Adjusted PBT margin of 11.8%, an increase of 1.7 percentage points on
FY21 and 6.7 percentage points ahead of FY20.
· Reported PBT of £22.3m (FY21 loss of £30.6m), which differs to
Adjusted PBT due to adjusting items of £19.1m (FY21 £64.8m).
· Adjusted diluted EPS of 10.7p (FY21 7.4p) a 44.6% increase on prior
year and 0.7p (7%) ahead of expectations.
· £12.9m free cash flow generated (FY21 £32.1m) after repayment of
all remaining COVID-19 VAT deferrals of £10.7m. Adjusting for timing would
give an underlying FY22 position of £23.6m. This compares to free cash flow
of £32.1m in FY21 which was a period that benefitted from cash inflows from a
significant lock-up day decrease of 20 days.
· Net debt of £71.8m is £11.6m higher than FY21 due to repayment of
COVID-19 VAT deferrals and acquisition related payments, and has reduced from
HY22 by £5.4m, highlighting the Group's cash generation. Leverage is broadly
flat at 1.08 x EBIDTA (FY21 1.04).
· Balance sheet liabilities relating to deferred consideration and
COVID-19 deferrals are £0.9m (FY21 £16m) reflecting a robust year-end
balance sheet position.
· A 5-day (3%) reduction in lock-up days versus FY21 reflects continued
progress on Group-wide initiatives to improve working capital efficiency.
· Net revenue per partner(1) increased by 6% to £975k.
STRATEGIC HIGHLIGHTS
· New 3-division operating structure fully embedded to provide a
platform for sustainable, profitable growth.
· Two acquisitions in Connected Services have bolstered an already very
strong organic trajectory and there is a significant pipeline of M&A
opportunities to explore.
· Property strategy under review with an estimated 1/3(rd) of global
office space considered as potentially surplus to requirements post-COVID,
representing a c£7m recurring annualised saving opportunity in the medium
term.
· Client stratification and pricing initiative launched to ensure key
client requirements are fully understood and priced appropriately.
· An increasing number of our clients now receive services from two or
more of Legal Advisory, Connected and Mindcrest, representing a proof point
for the Integrated Legal Management Strategy.
· Wins in FY22 include the UK central government legal services panel,
NHS Resolution, Allianz and LV=.
OUTLOOK AND CURRENT TRADING
· The first two months of trading for FY23 have been strong, showing
continued momentum in line with Q4 of FY22.
· Whilst the Board is mindful of inflationary pressures and the wider
economic backdrop, DWF has resilient revenues, a countercyclical litigation
focus, and recurring revenues in insurance providing a natural hedge against
economic headwinds. We remain well placed to continue delivering on our growth
strategy and confident in our medium-term guidance.
· Execution of the property strategy is expected to make a material
contribution towards cost control for FY23 and FY24, with other back office
initiatives offering potential for further operating efficiencies.
· For FY2021/22, the Board has declared a final dividend of 3.25p per
share, taking the total dividend for the year to 4.75p, reflecting a pay-out
ratio of 44% of adjusted profit after tax. This pay-out ratio reflects a
progressive dividend in absolute terms, but retains a proportion of FY2021/22
profits to invest in near-term growth opportunities.
Sir Nigel Knowles, Chief Executive Officer, commented:
"We are delighted with the progress we have made this year. We have achieved a
record set of results with net revenue growth taking us to £350m in scale,
adjusted profit before tax up by 21% to £41m and lock-up days continuing to
fall, down to 179. Our adjusted diluted earnings per share are up by 45% to
10.7p with our diluted earnings per share increasing to 6.5p, our strongest
results since IPO.
"These results have been made possible through the continued transformation of
our business, not least the successful implementation of our new global
operating model which was introduced on 1 May last year. As anticipated, this
has resulted in the greater integration and alignment of our colleagues and
services, for the benefit of our clients. It has also supported our integrated
legal management approach, our key differentiator which is helping us to gain
share of wallet against both traditional and new competitors.
"Despite the prospect of challenging macro-economic conditions, we remain
confident in our medium-term guidance. This confidence is supported by the
defensive nature of the Group's revenue being weighted towards litigation and
the recurring revenue base in Insurance, which has always protected the Group
both from artificial peaks in growth and hedges against a slowdown in
transactional activity. Similarly, we are confident that our balanced approach
of competitive reward, including our unique ability to offer share awards,
combined with a more progressive working environment will position us
favourably in the 'war for talent'."
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 +44 (0)7971 783533
James Igoe - Head of Communications
Maitland / AMO +44(0)20 7379 5151
Sam Turvey
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 £416m and Net
Revenue of £350.2 million in the year ended 30 April 2022. For more
information visit: dwfgroup.com
Effective from 1 May 2021, the Group transitioned to a new internal operating
structure which 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, Mindcrest and Connected Services.
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 financial statements
(2) Gross profit margin is defined as gross profit divided by net revenue.
(3)Like‐for‐like ('L4L') net revenue growth removes both the impact of
acquisitions and restructured operations (closures and scale-backs)
CONCERT PARTY UPDATE
Following consultation with The Takeover Panel ("the Panel"), the Panel has
agreed that the concert party, originally agreed with the Panel at the time of
the IPO of DWF Group plc ("DWF") in March 2019, will be amended to reflect
changes in circumstances and the passage of time.
At the time of the IPO, DWF agreed with the Panel that the following persons
were acting in concert in respect of DWF:
(a) the partners of the Group's legal businesses (current or promoted or
appointed in the future) who become shareholders of the Company; and
(b) the two Employee Benefit Trusts.
DWF has now agreed with the Panel that the persons who now form a concert
party in relation to DWF pursuant to The Takeover Code comprise the following
persons, together with their respective connected persons:
Sir Nigel Knowles Chief Executive Officer
Chris Stefani Chief Financial Officer
Matthew Doughty Group Chief Operating Officer
Jason Ford CEO - Connected Services
Helen Hill Chief People Officer
Zelinda Bennett Chief Marketing Officer
Daniel Pollick Chief Information Officer
Glyn Jones Global Head of Insurance
Stefan Paciorek Global Head of Dispute Resolution
Mollie Stoker Former Group General Counsel & Company Secretary
As at the date of this announcement, the concert party members hold 3.97 per
cent. of the Company's voting share capital in aggregate.
CHAIR'S STATEMENT
I am delighted to welcome you to our Annual Report and Accounts for the year
ended 30 April 2022. We have experienced another year of global volatility,
with the economic recovery from COVID-19 impacted by inflationary pressures
and the terrible events in Ukraine. Throughout this period, DWF has focused on
living its purpose as we seek to deliver positive outcomes with our
colleagues, clients and communities.
This focus on purpose is central to the culture of our business and a critical
reason why we have performed well. I would like to offer my thanks, and the
thanks of the whole Board, to all of our colleagues across the Group for their
continued commitment, dedication and high-quality delivery throughout the
year.
Group performance
In my statement in last year's Annual Report, I said that our FY2020/21
performance had provided the Group with a platform to deliver sustainable
profitable growth. That has certainly proven the case this year, with both
revenue and statutory profit growth and a further reduction in lock-up days,
reflecting continued progress in improving our operational efficiency.
Our like-for-like net revenue growth rate of 7% is strong and sustainable
(reported revenue growth is 4%). We have good momentum from the final quarter
of FY2021/22 which has continued into this new financial year and so we look
forward with optimism.
Our new global operating structure, which came into effect on 1 May 2021, is
delivering the benefits of greater integration and alignment of our colleagues
and services for the benefit of our clients. We see the impact of this with
more of our largest clients interested in our ability to offer a global,
Integrated Legal Management approach. We have secured a number of important
client wins including the UK central government legal services panel, NHS
Resolution, Allianz and LV=. We also saw a sharp rise in our Net Promoter
Score, which Sir Nigel talks more about in his Q&A.
Leadership
It has been a year of stability, with no changes to the Board. I would like to
thank all of our Board members for their time and focus throughout this year.
I would particularly like to thank Seema Bains and Michele Cicchetti for
their invaluable contributions and diversity of thought and experience as
Partner Directors on the Board.
Culture
Our vision is to create a culture and working environment where all colleagues
can contribute authentically at their highest level to create long-term value
aligned to our purpose and vision. This means a sustainable business where
everyone is included, engaged, valued and equipped with skills for today and
the future.
We know from our colleague engagement survey, which saw an increase in
respondents as compared with the last survey, that 89% feel treated with
respect by their colleagues and 87% feel they can be themselves at work. For
the first time, we asked colleagues if they feel supported to adopt a hybrid
model of working. We were pleased to find that 83% do feel supported, which
reflects the focus given to this topic as more and more of our colleagues work
in this way.
Our overall colleague engagement score of 76 has remained consistent despite
significant periods of change over the past two to three years, both in the
business and in the general global economic and working environment.
We are proud that our main colleague recognition programme, The Rubie Awards,
saw a record number of submissions this year. More than 800 colleagues took
the time to nominate one of their peers for an award, whilst there were around
15,000 instant recognitions through our Achievers platform. This focus on
colleague recognition is an important element of the culture we wish to
create, ensuring everyone feels recognised, respected and thanked properly for
their contribution to the overall success of the Group.
Culture is also at the heart of our workplace strategy. As we prepared for
COVID-19 restrictions to ease across our locations, we consulted regularly
with colleagues through surveys and workshops to ask them how, where and when
they want to work. Their views and preferences have been reflected and now
more of our colleagues than ever are benefiting from our hybrid working model,
which continues to develop through our workplace strategy.
Our role in society
ESG has been one of the core areas of focus for the Board this year, with
Kirsty Rogers, Group Head of ESG, joining us at our Board meetings on a
regular basis to discuss progress in the formulation and delivery of our first
global ESG Strategy. I am delighted that this strategy was published in
December, with Shareholders provided with an opportunity to hear about it at
our half-year presentation.
Through this strategy, we have committed to ambitious science-based targets to
drive climate action and to stretch targets to further improve Diversity &
Inclusion and social mobility.
Early actions taken since publication of our strategy include launching our
ESG Client Policy and establishing our Risk & Sanctions Committee. We have
also introduced D&I objectives for all people managers, secured approval
of our climate targets from the Science-Based Targets initiative and achieved
Bronze Standard from the Carbon Literacy Project.
We have also developed a programme of activities and resources to support
colleagues' physical and mental health, led by the Group's Wellbeing
Committee.
Stakeholders across the sector are holding legal services providers to account
for their actions on ESG. Employees, clients, communities and regulators,
expect firms to lead with purpose and to have a clear strategy for improving
performance on ESG matters. DWF's own research has found that companies risk
losing clients and talent if they have weak ESG performance.
ESG is a critical business issue, which is why we focus on it so closely.
I talk more about our purpose, values and culture in the Governance
introduction. You can read more detail on our priorities and actions in our
separate Sustainability Report. These will be reported in our Annual Report
and Accounts.
Dividend
The Group's capital allocation policy prioritises having sufficient capital to
fund ongoing operating requirements, and to invest in the Group's long-term
growth. Taking this into account, the Board targets a pay-out ratio of up to
70% of adjusted profit after tax. For FY2021/22, the Board has proposed a
final dividend of 3.25 pence per share, representing an increase of 8% on the
final dividend paid last year and, taking the total dividend for the year to
4.75 pence, reflecting a pay-out ratio of 44%. This pay-out ratio reflects a
progressive dividend in absolute terms, but retains a proportion of FY2021/22
profits to invest in near-term growth opportunities. If approved by
Shareholders at the forthcoming Annual General Meeting, the final dividend
will be paid on 7 October 2022 to all Shareholders on the register on 9
September 2022. Details of our dividend policy will be reported in our Annual
Report and Accounts.
Remuneration Policy
Our Remuneration Policy is being put before Shareholders for approval at our
forthcoming Annual General Meeting. The Remuneration Policy was reviewed by
the Remuneration Committee to ensure it continues to support delivery of our
business strategy. Following that review, some minor amendments are proposed
in order to provide greater clarity and to add limited additional flexibility
in specific areas. More information is available in the Remuneration Report,
which will be reported in our Annual Report and Accounts.
Annual General Meeting 2022
The Annual General Meeting will be held on 28 September 2022.
Looking ahead
The first two months of trading for FY2022/23 have been strong, showing
continued momentum in line with Q4 of FY2021/22. As we progress through
FY2022/23, we will continue to execute effectively against our strategy to
drive profitable growth through our Integrated Legal Management proposition.
Despite the prospect of challenging macro-economic conditions, we remain
confident in our medium-term guidance.
Jonathan Bloomer
Chair
20 July 2022
CHIEF EXECUTIVE OFFICER'S Q&A
How did the Group perform this year?
We are pleased with the progress we have made this year. FY2020/21 was a
transformational year for our business and, in FY2021/22, we have continued to
transform, not least through the successful implementation of our new global
operating model. We have also embedded our working capital and client
programme initiatives introduced in the prior year and are benefiting from the
impact of various office restructures. Together, these actions have
contributed to a year of sustained profitable growth. Adjusted profit before
tax increasing by 21% against a strong prior year is a result we are proud of
and has been achieved thanks to margin improvement across each of our three
divisions combined with ongoing rigour in our control of costs. This has also
led to a return to a statutory profit before tax for the year of £22.3m
(FY2020/21: loss of £30.6m).
Our performance this year is evidence of the increasing maturity of our
business, the appeal of our offering to clients and our confidence in the
medium-term targets we have outlined to Shareholders. With like-for-like
growth of 7%, we have demonstrated that we are on track to deliver the
top-line performance implied in our guidance. Some of our transactional
practices had outstanding double-digit growth, but we also have the bedrock of
Insurance in our business which, whilst it tends to grow at a slower rate,
helps to protect the business from the volatility that can be seen in more
transactionally focused businesses.
How are clients responding to DWF's Integrated Legal Management approach?
In short, very well. We continue to see an evolution in the legal services
market, with changing buyer behaviours and an increasing demand for
alternative legal services and related business services. Our differentiated
proposition leaves us really well placed in this regard and we have seen a
growing number of our key clients taking services from more than one division.
We work with Deep-Insight, a research company with more than 20 years'
experience with large B2B organisations, to carry out regular independent
customer relationship quality assessments, including calculation of our net
promoter score.
We were delighted that our ability to provide an integrated solution to our
clients' challenges, in more markets than ever, was a factor in the strong net
promoter score of +63 in our census of more than 500 clients.
This year we commissioned independent research from Thomson Reuters, the
findings of which support our confidence in our business model. Their analysis
shows that the legal services market overall continues to grow, but with the
strongest growth in the ALSP market. They also found that traditional law
firms are evolving but are failing to adapt quickly enough to respond to new
competitors, or to differentiate their services by offering alternative
approaches.
Our highly differentiated proposition and stellar client base leaves us well
placed to compete effectively against traditional and new legal services
providers. As we talk to our largest and fastest-growing clients about the
benefits of our proposition, we are already beginning to capitalise on these
shifting market dynamics.
How has 'The Great Resignation' and the 'war for talent' affected DWF this
year?
There is no doubt that this has been one of the biggest issues facing the
legal sector and other professional services over the past 12 months. Similar
to other professional services firms, we have seen attrition levels increase
and it will remain a challenge for our business in the year ahead, but we are
confident in our balanced approach, which responds to external market factors
whilst also offering a more progressive working environment and seeking to
capitalise on our ability to use share incentives as part of our reward
strategy.
As I commented during this financial year, offering more and more money to
young people is only a sticking plaster. It is not a sincere, sustainable or
healthy solution for anyone. Of course we must ensure pay is competitive,
attractive and a fair reward, but we believe there must be more than this
one-dimensional offering.
We have emphasised our purpose-led approach, delivering positive outcomes
with colleagues, clients and communities. We have committed to clear and
ambitious targets on climate, diversity and inclusion through our ESG
strategy, offering all colleagues the opportunity to get involved and drive
progress. We have delivered a true hybrid working model through which our
offices are just one environment in which colleagues and clients work and
collaborate. Shortly after this financial year-end, we appointed advisors to
work with us on improving the design of our offices to ensure they are fit for
these new ways of working.
Furthermore, we have reviewed our reward offering, including a comprehensive
pay review, share awards to more than 650 colleagues and reducing the vest
period for colleagues to receive such awards in future. In the UK, we have
also significantly improved our family friendly policies, demonstrating to
existing and potential colleagues that we put them first when events in their
lives naturally take priority over their work commitments. Working with our
country leadership we will look to roll out many of these policies globally
moving forward.
In FY2021/22, you extended your capabilities through new offices, associations
and M&A in Saudi Arabia, Portugal, Spain and Canada. Why those markets,
and where next?
We have a client-led approach to our global expansion. In late FY2019/20 and
early FY2020/21 we conducted a global review to identify those markets where
we felt we needed a presence, either through a DWF office or via a local
association. This work helped us to identify priority markets and we are
pleased with the progress made in the past 12 months.
We returned to M&A early in FY2021/22 through two bolt-on acquisitions in
the UK and Canada within Connected Services. We also have a strong pipeline of
M&A opportunities and anticipate having more to report in the short to
medium term.
Our Saudi business is performing well and has won a number of instructions,
including with Engineer Holding Group and its subsidiary, the Saudi Media
Company. We are also pleased with our new association relationships, including
our affiliation with Hauzen LLP in Hong Kong which we announced in May this
year. We now have association relationships in eight markets, including our
first Connected Services association with RTS Group in Iberia and Latin
America.
What is the outlook for the year ahead?
The first two months of trading for FY2022/23 have been strong, showing
continued momentum in line with Q4 of FY2021/22. Despite the prospect of
challenging macro-economic conditions, we remain confident in our medium-term
guidance. This confidence is supported by the defensive nature of the Group's
revenue being weighted towards litigation and the recurring revenues in
Insurance, which has always protected the Group from artificial peaks and
hedges against a slowdown in transactional activity.
Sir Nigel Knowles
Group Chief Executive Officer
20 July 2022
FINANCIAL REVIEW
Profitable growth, working capital improvement and strong balance sheet
A record year of profitable growth
The Group has delivered another year of record results with FY2021/22 being
the first full year under new leadership. These results include reported
revenue growth of 4% to £416m (PY: £401m), net revenue growth of 4% to
£350m (PY: £338m), a 21% increase in adjusted profit before tax to £41m
(PY: £34m) and a return to statutory profit before tax of £22m (PY: loss of
£31m).
Diluted EPS has increased to 6.5p (PY: loss per share of 11.9p) and Adjusted
Diluted EPS has increased to 10.7p (PY: 7.4p), a 45% increase and a record
since IPO. The Group has also reported lock-up days of 179 (PY: 184 days), the
lowest level for six years even with revenue growth of 88% over the same time
period. The Board has declared a final dividend of 3.25p per share, taking the
total dividend for the year to 4.75p (PY: 4.5p). This reflects a progressive
dividend in absolute terms, but retains a proportion of FY2021/22 profits to
invest in near-term growth opportunities.
Strong activity levels have led to like for like(1) net revenue growth of 7%,
despite having experienced high levels of COVID related absence in Q4 as UK
COVID cases peaked due to the spread of the Omicron variant. Gross margin has
increased by 0.9% to 51.7% despite ongoing inflationary pressures including
the continued investment into reward through the annual salary and benefits
review. The Group's cost-to-income ratio has improved to 38.4% from 39.2% in
FY2020/21. This is another record for the Group since IPO and is a result of
the continued focus on cost control and operating discipline under the new
leadership team.
In FY2021/22, the German operations have been scaled-back as a result of the
ongoing focus on profitable growth. The Berlin office has been closed and a
small number of people have departed the business in other locations within
Germany. This is consistent with similar actions taken elsewhere in the past
two years, most notably in Dubai and Australia, which have seen significantly
improved performance since restructuring. Costs associated with the scale-back
of German operations have been offset by a reversal of a provision relating to
the Australia scale-back as vacant properties have been subsequently sublet.
This has resulted in a credit of £0.2m in the year for office closures and
scale-backs which has been recognised as non-underlying administrative
expenses in the income statement.
The Group has returned to M&A in the year with the acquisition of Zing 365
Holdings Limited ("Zing") and Barnescraig & Associates ("BCA") which have
been complementary acquisitions for the Connected division. The Group also has
a healthy pipeline of M&A targets as we enter FY2022/23. As well as the
return to M&A, the Group continues to grow internationally through an
expansion of its associations, in particular Al-Ohaly & Partners in the
Kingdom of Saudi Arabia, Nobre Guedes & Associados (NGA) in Portugal and
RTS Group (RTS) based in Spain. Since the year end the Group has also
announced a new association with Hauzen LLP based in Hong Kong.
The Group has produced a statutory profit before tax of £22m (FY2020/21: loss
before tax of £31m) with the prior year loss being driven by significant
adjusting items totalling £64.8m, the majority of which related to expenses
which formed part of the purchase price of the RCD acquisition. On an adjusted
basis, the Group achieved adjusted profit before tax of £41m (FY2020/21:
adjusted profit before tax of £34m), an increase of 21% on the prior year.
As well as achieving strong profitable growth in the year, the Group has also
continued to strengthen its balance sheet with net assets increasing by £16m,
which includes a £32m increase in net current assets. Net debt has increased
by £12m to £72m (FY2020/21: £60m) but this is principally down to the
payment of COVID-19 VAT deferrals and acquisition related payments totalling
£14m. The remaining deferred liabilities on the balance sheet are just
£0.9m, compared to £28m at the end of FY20.
Lock-up days have again reduced due to ongoing operational initiatives and
stand at 179 days, a 5 day reduction from April 21.
The Board is pleased to see further progress towards medium term targets which
were communicated in July 21. The Group continues to focus on profitable
growth, which moves the adjusted PBT into benchmark range with the remaining
listed legal business and some comparators in the broader professional
services space. Working capital has also improved with a further reduction in
lockup days. Whilst there are widely reported upward pressures on staff costs
in the sector and broader inflationary pressures, the Group believes it is
well placed to retain key talent and to mitigate other cost pressures through
specific cost reduction initiatives such as the premises strategy.
____________________________________
(1)Like for like net revenue growth excludes the impact of acquisitions in the
current and preceding year as well as the impact of scale-backs and closures
Revenue
Revenue for the year is £416m (FY2020/21: £401m) representing growth of 4%.
However, the Group focusses 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 projects or the business.
Net revenue for the Group was £350m (FY2020/21: £338m) representing like for
like growth of 7% which excludes the impact of the acquisitions of Zing and
BCA as well as the scale back of operations in Australia and Germany. DWF's
biggest market, the UK, has seen net revenue growth of 7%.
Divisional performance
Effective from 1 May 2021, divisional performance has been reported to the PLC
Board under the new global operating structure that comprises the three
divisions of Legal Advisory, Connected Services and Mindcrest. The
implementation of this new structure has resulted in greater integration and
alignment of our people and our services and supports the continued execution
of the Group's strategy.
Highlights of the performance by division are set out below:
Legal Advisory (83% of Group Net revenue / 85% of Group Gross profit)
£m FY2021/22 FY2020/21 Change (%)
Revenue 355.1 345.6 +2.8%
Net revenue 292.0 285.3 +2.3%
Direct costs (138.7) (137.5) +0.9%
Gross profit 153.2 147.8 +3.6%
Gross margin (%) / ppts 52.5% 51.8% +0.7ppts
Newly formed in FY2021/22, the Legal Advisory division has delivered
like-for-like net revenue growth of 7%. This growth has been accomplished
whilst holding overall direct costs in line with prior year despite
inflationary cost pressure, resulting in a 1 percentage point improvement in
gross margin to 53%.
Within Legal Advisory, the Insurance business has delivered growth of 3%. This
has arisen from new contracts secured (for example with LV=/Allianz and NHS
Resolution), continued expansion of our specialist London Market practice and
international presence, and an increase in claim volumes following the easing
of COVID-related restrictions. This has offset the slower post-pandemic
recovery of claims volumes in other isolated sectors of Insurance and the
non-recurrence of one-off additional COVID-related work in FY2020/21 that
arose from the FCA business interruption litigation.
UK Corporate, Finance and Restructuring, and Real Estate businesses have
collectively grown by 17%, with a strong rebound in transactional areas
following the easing of lockdown and conclusion of Brexit.
The Dispute Resolution practice area has continued to attract a healthy
pipeline of work during FY2021/22, which has resulted in like for like growth
of 8% across all geographies.
A number of international locations, across Europe and the Middle East, have
seen particularly positive results (including revenue growth of 41% in Italy
and 9% in Spain), with increased collaboration as a result of the revised
Group structure enhancing the division's performance.
A year on from establishing the new divisional structure, the outlook for
FY2022/23 is positive, with a strong pipeline of work in place and greater
efficiencies being delivered through innovative ways of working, both between
practice areas and with our clients. Plans are already underway to continue
the development of key locations (in the UK and further afield) and expand
into new locations which, alongside continued investment in our people, will
support future growth.
Connected Services (10% of Group Net revenue / 8% of Group Gross profit)
£m FY2021/22 FY2020/21 Change (%)
Revenue 34.2 28.8 +18.9%
Net revenue 33.9 28.4 +19.1%
Direct costs (18.8) (16.2) +16.0%
Gross profit 15.0 12.2 +23.2%
Gross margin (%) / ppts 44.4% 42.9% +1.5ppts
The Group's Connected Services division continues to deliver strong profitable
revenue growth delivering net revenue growth of 19% to £33.9m, or 10% on a
like-for-like basis which excludes the growth brought by the acquisitions of
BCA and 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.
We are particularly pleased that all service lines have grown compared to the
prior year. Our Claims Management and Adjusting business (with presence in
Australia, Canada, France, Ireland, Italy, UK and USA) has grown by 32%, or
17% on a like-for-like basis, due to significant new client wins in the UK and
USA, an increase in claims volumes as COVID-19 restrictions eased and the
continued receipt of business interruption claims. This is despite the
disruption in Australia due to extended local lockdowns.
The launch of the Global Entity Management proposition has been a success,
with seven new clients secured and an operating system developed in
collaboration with our software team '360'. Investment in a sales and
marketing team, with an initial focus on 360, has resulted in net revenue
growth of 19% and the development of a strong pipeline as we enter the new
financial year.
One of our larger businesses, Ges-Start (DWF Spain's Connected Service which
offers Accounting, Tax and Labour consulting), has grown net revenue by 16%
and gross profit margin by 6 percentage points due to their recurring client
base being complemented by a number of large new projects and a focus on cost
control.
As the division continues to mature, profitability has improved with gross
profit margin increasing to 44%, 2 percentage points ahead of the prior year.
Although net revenue has grown by 19%, direct costs have only increased by 16%
as the division invests in technology solutions to deliver work more
efficiently and effectively.
Connected Services also plays an ever increasing role in providing integrated
solutions for clients and provided record fee referrals to Legal Advisory in
excess of £8m (PY: £7m), as the benefits of the new operating structure
start to be realised.
Management continues to look to the future with confidence, assisted by a
strong pipeline of activity across all businesses and a focus on exploring
more innovative ways to provide integrated solutions to meet our clients'
needs.
Mindcrest (7% of Group Net revenue / 7% of Group Gross profit)
£m FY2021/22 FY2020/21 Change (%)
Revenue 26.8 26.6 +0.6%
Net revenue 24.4 24.4 +0.2%
Direct costs (11.8) (12.6) -6.8%
Gross profit 12.7 11.7 +7.8%
Gross margin (%) / ppts 51.8% 48.2% +3.6ppts
COVID-19 challenges combined with Insurance Law Reform hampered US external
sales and UK Motor Volume growth respectively (the two largest Practice Areas
within the Division). However, this disappointing performance was offset by
significant growth (240%) of eDiscovery and much improved integration growth
(57%) with Group key accounts, to deliver revenue consistent with the prior
year.
COVID-19 has also impacted the speed of transition of certain legal workflows
and legal support from the Legal Advisory division into Mindcrest. The
stabilisation of COVID-19 in India will see a return to office working with
various Group and Divisional initiatives underway to maximise the opportunity
of transitioning work and optimising and standardising certain legal
workflows.
Enhancing US presence, deleveraging key client concentration, investment into
Legal Consulting and continued promotion of Service Transformation (which will
mitigate current inflationary pressures) are key strategic objectives for
FY2022/23. UK macro-economic inflation also provides growth opportunities to
capitalise on market-leading propositions in UK volume litigation (Lender
Services and Recoveries) as clients seek to control costs. It is with this
backdrop that management can look forward to an improved year for the division
in FY2022/23 focussed on unlocking significant benefits for both the division
and the wider Group through this differentiating offering.
Direct costs
Direct costs, which reflect the salary costs of fee-earning partners and
staff, have increased by £3m, or 2%, to £169m. The acquisitions of Zing and
BCA accounted for £1m of year-on-year cost increases, so the underlying trend
on direct costs was an increase of £2m. This increase reflects a combination
of tight cost and recruitment control combined with investment in salary costs
and selective hiring into growth areas of the business.
Gross profit
The combination of strong net revenue growth and strict control of costs has
delivered a gross profit of £181m, representing a £9m, or 5%, increase vs.
FY2020/21. This reflects a gross margin % of net revenue of 51.7% (FY2020/21:
50.8%). This improvement reflects uplifts across all divisions which is
particularly pleasing given higher than expected absence rates in the second
half of the year driven by COVID-19 as well as ongoing cost pressures.
Administrative expenses
Administrative expenses (including impairment) have decreased compared to the
previous year, from £197m in FY2020/21 to £153m in FY2021/22. On an
underlying basis, excluding adjusting items, administrative expenses for
FY2021/22 are £134m (FY2020/21: £133m), which is consistent with the prior
year after considering the acquisitions of Zing and BCA contributed additional
costs of over £1m. This results in a cost-to-income ratio of 38.4%, a
reduction of 0.8% from FY2020/21.
Improved cost control is a key component of the Group's strategy, ensuring the
Group's resources are deployed in areas which support sustainable profitable
growth. The control of underlying administrative expenses is therefore
pleasing given the growth in the business in the year and against a backdrop
of inflationary pressures on salaries and increases in energy costs. In
addition, fewer COVID-19 restrictions have resulted in increases in travel and
marketing costs as our colleagues spend more time working collaboratively with
each other, and with our current and prospective clients. Whilst travel and
marketing costs have increased they are still significantly below pre-COVID-19
levels, partly due to the restrictions that were in place during the year but
also as we have taken the opportunity to closely review spend in all areas of
administrative expenses.
Our cost base continues to be an area of focus for FY23, with the ongoing
execution of our premises strategy expected to generate savings as we
right-size our office space for our established hybrid working model. An
estimated 1/3(rd) of the Group's global office space is considered as
potentially surplus to requirements post-COVID which represents a c£7m
recurring annualised saving opportunity in the medium term. Travel costs will
be a particular focus area given that COVID-19 restrictions have eased but
also to ensure that our colleagues are travelling with purpose in order to
meet our ambitious environmental commitments. Other reductions in our existing
overhead base are underway, to allow additional capital to be redeployed in
areas of the business which will contribute to greater profitable growth.
Adjusting items have decreased significantly to £19m in FY2021/22 from £65m
in FY2020/21. The table below provides more details with full analysis
contained in note 2 to the financial statements:
2022 2021
£'000 £'000
Office closures and scale-backs (238) 14,898
Acquisition-related expenses 9,564 20,743
DWF RCD modification impact - 13,796
Change of CEO - 1,011
Impact of COVID-19 - 1,011
Other share-based payment expenses 9,609 13,333
Refinancing costs 146 -
Adjusting items 19,081 64,792
Adjusting items in FY2021/22 can be summarised as:
1. Office closures and scale-backs which relates to the scale-back of
operations in Australia, which began in FY21, and the scale-back of operations
in Germany which commenced at the end of FY22. The amounts reflect a charge
for working capital, impairment of assets and people costs in Germany, offset
by the reversal of a provision in Australia as a sublease has been entered
into during the year;
2. Acquisition related expenses principally relating to amortisation and
impairment of intangibles recognised on acquisition as well as acquisition
related remuneration expense from the Mindcrest acquisition, payments of which
ceased in February 2022.
3. Share based payment expenses reflecting grants from the Employee
Benefit Trust which is a pre-funded trust established on IPO; and,
4. Non-recurring costs relating to the refinancing of the Group's RCF
facility.
Net finance expense & interest payable on leases
Net finance expenses relating to bank charges and borrowings were £3.7m
(FY2020/21: £2.7m). Interest on bank borrowings increased by £0.5m as a
result of an increase in interest rates and a lower level of debt in the prior
year due to COVID deferrals. Bank and other charges includes a one-off charge
of £0.4m for accelerated amortisation of bank fees connected with the
previous RCF facility that has since been extinguished and replaced with a new
facility.
Interest payable on leases of £1.7m (FY2020/21: £2.3m) reflects the notional
interest cost relating to lease borrowings.
Profit/(loss) before tax
The Group reported a profit before tax of £22.3m (FY2020/21: £30.6m loss
before tax), with the prior year reported loss before tax being driven by
adjusting items totalling £64.8m referenced under the administrative expenses
section above.
Adjusted PBT is £41.4m (FY2020/21: £34.2m) which represents a 21% increase
on the prior year. Under new leadership the Group's strategy continues to be
implemented operationally with a greater focus on sustainable growth,
performance transformation and cost control. These factors together have
generated an adjusted PBT margin (using net revenue) for FY2021/22 of 11.8%
(FY2020/21: 10.1%).
Tax
The reported tax charge for the year, excluding prior year adjustments, is
£6.1m (PY: 4.7m) on a profit before tax of £22.3m (PY: loss of £30.6m),
representing an effective rate of tax of 27.4%. The effective tax rate was
higher than the UK statutory tax rate primarily due to tax losses that have
not been recognised as deferred tax assets (increasing the tax charge by
£2.1m) and the tax effect of non-tax-deductible expenses (increasing the tax
charge by £0.7m) offset by the effect on deferred tax resulting from the
change in the UK corporation tax rate from 19% to 25% effective from 1 April
2023 (reducing the tax charge by £0.8m).
The Group also booked prior year tax adjustments of a net credit of £4.1m.
Those adjustments arise principally as a result of (a) increased claims of the
departing Australian partners on the Group's UK profit pool following the
restructuring of the Group's Australian business in FY21 reducing the profits
subject to UK corporation tax (£5.1m), offset by (b) revaluations of the
Group's deferred tax assets relating to tax depreciation timing differences
and expected tax deductions for share based payments as at 30 April 2021
(£1.4m).
This gives a net tax charge of £2.0m for the year (FY2020/21: £4.6m).
There are no open tax audits or investigations across the group. In line
with group's tax strategy, it is not considered that any aggressive or
materially uncertain tax positions have been adopted by any of the group
entities. As such, the level of tax risk faced by the group is considered to
be low.
EPS
Diluted EPS has increased to 6.5p in FY2021/22 from a loss per share of 11.9p
in FY2020/21, the highest Diluted EPS result since the IPO. Adjusted Diluted
EPS has similarly increased in line with the increase in adjusted PBT from
7.4p in FY2020/21 to 10.7p in FY2021/22, a 45% improvement, and again a record
since the IPO.
Dividend
The Group's capital allocation policy is to prioritise having sufficient
capital to fund ongoing operating requirements and strategic investment in the
Group's long-term growth. Taking this into account the Board targets a
pay-out ratio of up to 70% of adjusted profit after tax. For FY2021/22, the
Board has declared a final dividend of 3.25p per share, taking the total
dividend for the year to 4.75p (PY: 4.5p), reflecting a pay-out ratio of 44%
of adjusted profit after tax (FY2020/21 61%). This pay-out ratio reflects a
progressive dividend in absolute terms, but retains a proportion of FY2021/22
profits to invest in near-term growth opportunities. This final dividend is
subject to approval at the AGM on 28 September 2022 and, if approved, will be
paid on 7 October 2022 to all Shareholders on the register of members at the
close of business on 9 September 2022.
Working capital, cash flow & net debt
The group measures working capital efficiency using "lock-up days". Lock-up
days are comprised of two elements: 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.
Driving working capital efficiency has continued to be a key focus for the
Group in FY2021/22, with a number of operational improvements being effected
in order to achieve a permanent reduction in the lock-up day cycle. Closing
lock-up days at the end of April were 179 (FY2020/21: 184), a five day
reduction and is the lowest level that lock-up has been for six years, despite
an 88% increase in revenue over the same time period. The five day reduction
comprises a one day increase in WIP days and a six day reduction in Debtor
days. The WIP day increase is a product of a slight change in the mix of type
of fee income, which is expected to be a timing issue only. The Debtor day
reduction reflects an increase in the Group's cash collection efficiency and
ongoing focus on operational discipline.
During the year, the Group has settled all remaining COVID-19 VAT deferrals
totalling £10.7m. Under normal circumstances these payments would have been
made in FY2020/21. In addition, the Group has had cash outflows in the year
relating to closures & scale-backs of £3.8m. Normalising for the impact
of these would have meant free cash flow of £27.4m. This compares against a
reported free cash flow in FY2020/21 of £32.1m which benefitted from a
significant working capital improvement, with lock-up days decreasing by 20
days, driven from a combination of operational improvements and also a
catch-up of collections after the initial impact of COVID-19 led to a build-up
of trade receivables.
As well as settling remaining COVID-19 VAT deferrals in the year the Group has
also paid £3.5m in consideration for acquisitions with only £0.8m of
consideration still to be paid as at the balance sheet date. As a result of
these factors, net debt has increased to £71.8m from £60.2m at April 2021.
The Group's strategy continues to be to manage borrowings such that the
leverage ratio (borrowings as a multiple of adjusted EBITDA) reduces. Leverage
at April 2022 has increased from the prior year to 1.08 (PY: 1.04) but the
prior year included the benefit of COVID-19 VAT deferrals as explained
above. The future reduction in leverage is expected to be achieved through a
combination of profitable growth and net debt gradually reducing over time
through working capital efficiencies.
The Group successfully completed a refinancing of its rolling credit facility
('RCF') in December 2021, obtaining a £100m facility with an additional
accordion facility of up to £20m as well as a permanent relaxation of certain
covenants. The facility is for an initial three year term with two, one year
extension options. The Group expects to continue to operate well within its
available facilities and for all covenants to be compliant for the remaining
tenure.
Capital expenditure (Capex)
The Group is actively reviewing office space and will consider selective
investments in office refits in the coming years as the premises strategy is
executed, freeing up redundant space and investing cost savings into improving
the remaining space. In addition, there has been continued investment into IT
during the year as the Group builds its IT infrastructure to support our
colleagues in delivering for our clients. Overall capex (excluding
right-of-use asset additions under IFRS 16, and intangible assets recognised
from acquisitions) in FY2021/22 was £7.9m compared to £10.6m in FY2020/21.
The PY comparator included significant one-off investment into the new Pune
office.
Current trading and future outlook
The performance for FY2021/22 reflects another strong year for the Group after
a transformational recovery in FY2020/21. The results reflect record net
revenue, adjusted PBT, EPS and lockup performance for the Group. As well as
seeing significant organic growth opportunities from the existing client base,
buoyed by our NPS score and client listening insights, the Group is actively
pursuing a strong pipeline of M&A opportunities. Whilst macro-economic
conditions suggest harder times ahead, the defensive nature of the Group's
revenue being weighted towards litigation and the recurring revenue base in
Insurance, protects the Group both from artificial peaks in growth but also
hedges against a slowdown in transactional activity. The Group sees
significant opportunity to apply self-help actions to control costs, with the
premises strategy and various back-office initiatives offering protection from
inflationary pressures.
Chris Stefani
Group Chief Financial Officer
21 July 2022
FINANCIAL STATEMENTS
Consolidated income statement
Year ended 30 April 2022
2022 2021
Notes £'000 £'000
Revenue 3 416,052 400,948
Recoverable expenses 3 (65,810) (62,818)
Net revenue 3 350,242 338,130
Direct costs 3 (169,332) (166,349)
Gross profit 3 180,910 171,781
Administrative expenses (146,691) (187,471)
Trade receivables impairment 13 (2,973) (5,349)
Other impairment 4 (3,593) (4,595)
Operating profit / (loss) 4 27,653 (25,634)
Net finance expense 5 (3,664) (2,682)
Net interest expense on leases 5 (1,673) (2,284)
Profit / (loss) before tax 22,316 (30,600)
Total of adjusting items as defined under the Group's alternative performance 2 (19,081) (64,792)
measures
Adjusted profit before tax 2 41,397 34,192
Taxation 6 (2,029) (4,567)
Profit / (loss) for the year 20,287 (35,167)
Earnings / (losses) per share attributable to the owners of the parent:
Basic (p) 8 6.8 (11.9)
Diluted (p) 8 6.5 (11.9)
The results are from continuing operations.
Consolidated statement of comprehensive income
Year ended 30 April 2022
2022 2021
£'000 £'000
Profit / (loss) for the year 20,287 (35,167)
Items that are or may be subsequently reclassified to the income statement:
Foreign currency translation differences - foreign operations 83 (2,855)
Total other comprehensive income / (expense) for the year 83 (2,855)
Total comprehensive income / (expense) for the year 20,370 (38,022)
There is no taxation on items within other comprehensive income.
Consolidated statement of financial position
As at 30 April 2022
2022 Re-presented (note 1.4)
2021
Notes £'000 £'000
Non-current assets
Intangible assets 10 45,604 49,173
Property, plant and equipment 11 11,239 12,615
Right-of-use assets 12 65,234 69,166
Investments - 227
Trade and other receivables 13 1,464 -
Deferred tax assets 19 3,938 4,649
Total non-current assets 127,479 135,830
Current assets
Trade and other receivables 13 190,174 183,506
Cash and cash equivalents (excluding bank overdrafts) 14 28,310 34,711
Total current assets 218,484 218,217
Total assets 345,963 354,047
Current liabilities
Trade and other payables 15 63,325 85,381
Corporation tax liabilities 6,190 6,030
Deferred consideration 890 1,699
Lease liabilities 16 14,576 13,104
Interest-bearing loans and borrowings 17 9,786 19,434
Provisions 18 6,315 3,764
Amounts due to members of partnerships in the Group 28,243 31,492
Total current liabilities 129,325 160,904
Non-current liabilities
Deferred tax liabilities 19 5,869 7,584
Lease liabilities 16 63,163 70,898
Interest-bearing loans and borrowings 17 90,344 75,444
Provisions 18 4,147 1,837
Total non-current liabilities 163,523 155,763
Total liabilities 292,848 316,667
Net assets 53,115 37,380
Equity
Share capital 20 3,254 3,246
Share premium 20 89,365 88,610
Treasury shares 20 (129) (129)
Other reserves 4,929 6,219
Accumulated losses (44,304) (60,566)
Total equity 53,115 37,380
Consolidated statement of changes in equity
Year ended 30 April 2022
Other reserves
Share capital Share premium Treasury shares Merger reserve Share-based payments reserve Translation reserve Accumulated losses Total equity
(note 20) (note 20) (note 20)
£'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 year - - - - - - 20,287 20,287
Other comprehensive income - - - - - 83 - 83
Total comprehensive income - - - - - 83 20,287 20,370
Shares issued 8 755 - - - - - 763
Dividends paid - - - - - - (13,537) (13,537)
Share-based payments (note 21) - - - - 7,701 - - 7,701
Recycling of share-based payments (note 21) - - - - (9,074) - 9,074 -
Tax on share-based payments - - - - - - 438 438
At 30 April 2022 3,254 89,365 (129) (2,385) 11,512 (4,198) (44,304) 53,115
Year ended 30 April 2021
Other reserves
Share capital Share premium Treasury shares Merger reserve Share-based payments reserve Translation reserve Accumulated losses Total equity
(note 20) (note 20) (note 20)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 May 2020 3,246 88,610 (20) (2,385) 9,672 (1,426) (28,500) 69,197
Loss for the year - - - - - - (35,167) (35,167)
Other comprehensive expense - - - - - (2,855) - (2,855)
Total comprehensive expense - - - - - (2,855) (35,167) (38,022)
Purchase of treasury shares - - (109) - - - - (109)
Dividends paid - - - - - - (6,521) (6,521)
Share-based payments (note 21)* - - - - 12,642 - - 12,642
Recycling of share-based payments (note 21)* - - - - (9,429) - 9,429 -
Tax on share-based payments - - - - - - 193 193
At 30 April 2021 3,246 88,610 (129) (2,385) 12,885 (4,281) (60,566) 37,380
*These movements have been re-presented to separately identify the recycling
of share-based payments.
Consolidated statement of cash flows
Year ended 30 April 2022
2022 2021
Note £'000 £'000
Cash flows from operating activities
Cash generated from operations before adjusting items 23 41,623 65,161
Cash used to settle non-underlying items (8,464) (13,167)
Cash generated from operations 33,159 51,994
Interest paid (4,596) (5,064)
Tax paid (2,854) (3,155)
Net cash generated from operating activities 25,709 43,775
Cash flows from investing activities
Proceeds from sale of investment 227 -
Acquisition of subsidiary, net of cash acquired (3,540) (7,412)
Purchase of property, plant and equipment (3,581) (4,001)
Purchase of other intangible assets (4,300) (6,635)
Net cash flows used in investing activities (11,194) (18,048)
Cash flows from financing activities
Purchase of treasury shares - (109)
Dividends paid (13,537) (6,521)
Loan arrangement fee (626) (551)
Proceeds from borrowings 109,727 19,173
Repayment of borrowings (104,861) (17,553)
Repayment of principal of lease liabilities (13,396) (14,191)
Interest received 101 98
Capital contributions by members 2,132 4,276
Repayments to former members (1,072) (4,113)
Net cash flows from financing activities (21,532) (19,491)
Net (decrease) / increase in cash and cash equivalents (7,017) 6,236
Cash and cash equivalents at the beginning of year 34,580 28,727
Effects of foreign exchange rate changes on cash and cash equivalents 141 (383)
Cash and cash equivalents at the end of year 14 27,704 34,580
Consolidated notes to the financial statements
Year ended 30 April 2022
1 Accounting policies
1.1 Nature of these financial statements
The following financial information does not amount to full financial
statements within the meaning of Section 434 of Companies Act 2006. The
financial information has been extracted from the Group's Annual Report and
Financial Statements for the year ended 30 April 2022 on which an unqualified
report has been made by the Company's auditors. The 2022 statutory accounts
will be delivered to Companies House in due course.
Copies of the Annual Report and Financial Statements will be posted to
shareholders shortly and will be available from the Company's registered
office at 20 Fenchurch Street, London, EC2M 3AG.
1.2 Statement of accounting policies
The preliminary announcement for the year ended 30 April 2022 has been
produced based on the Group's annual financial statements which are prepared
in accordance with UK-adopted International Financial Reporting Standards. The
accounting policies applied in this preliminary announcement are consistent
with those reported in the Group's annual financial statements for the year
ended 30 April 2022 along with new standards and interpretations which became
mandatory for the financial year.
1.3 Going concern
The Directors have assessed the going concern basis adopted by the Group in
the preparation of the consolidated financial statements, taking into account
the current financial position including its available financing facilities,
the business model and future outlook, as well as the principal risks as
listed in the Strategic Report. The Directors conclude that the Group has
adequate resources to continue as a going concern across the period of
assessment.
Assessment of going concern
The going concern assessment has been considered for the period to 31 July
2023 and is carried out as follows:
· The Group's Board-approved budget base case is used to calculate the
net debt position, liquidity and covenant compliance and available headroom
over the going concern period.
· The assessment of going concern is carried out with reference
to available financing facilities, the ability to pay debts as they fall due
and the covenants associated with the financing facilities.
· Plausible downside scenarios are modelled to quantify the impact of an
individual risk materialising over the going concern period.
· Mitigating actions which could be taken are identified, quantified
and included in the assessment.
· The reasonable worst case scenario, along with mitigating actions,
is then used to test that the Group would continue to have headroom in its
available financing facilities, settle liabilities as they fall due and comply
with the associated financial covenants over the going concern period.
Financing facilities
The Group closed the year with committed banking facilities of £127m (of
which £97m were drawn). The largest of these is the £100m revolving credit
facility ('RCF') which was re-financed in December 2021 to increase the
facilities available to the Group. This RCF has an initial maturity of three
years, with two one-year extensions. The undrawn portion of the RCF is readily
accessible and does not require any further approval for drawdown by the
Group's banking syndicate. Associated with the facility is a further £20m
accordion facility which is available on the same terms as the original RCF
but is subject to the agreement of the banking syndicate for drawdown. The
modelled assumption is that we do not draw on this. The facility agreement
also permits the Group to obtain a further £30m of external funding and £15m
of leasing facilities, if required. The covenant thresholds across the
assessment period are set out below:
Covenant Jul-22 Oct-22 Jan-23 Apr-23 Jul-23
Net Asset Value to Consolidated Net Borrowings 1.6x 1.6x 1.6x 1.6x 1.6x
Interest Cover 4x 4x 4x 4x 4x
Leverage 1.75x 1.75x 1.75x 1.75x 1.75x
Each of the covenants noted above is measured on a pre-IFRS 16 basis in
accordance with the banking facility agreement. Interest cover is defined as
the ratio of EBITDA to interest expense, and leverage is defined as the ratio
of net debt to EBITDA. The Group's budget anticipates a cash inflow during the
going concern period, whereas 2021/22 reported a cash outflow although this
was because of the repayment of all remaining COVID-19 VAT deferrals of
£10.7m in the year as well as the payment of acquisition related
consideration.
Future outlook, risks and uncertainties
The going concern and viability assessments are closely linked and therefore
the conclusions of the going concern assessment are directly relevant to and
should be read in conjunction with the viability statement. The Board-approved
base case combined with the annual three-year plan have been used to measure
the going concern and future viability of the Group. This includes monitoring
net debt positions and cash management activities of the Group and their
effect on covenant testing. The going concern and viability of the Group have
been assessed taking into account the potential impact of certain scenarios
arising from the principal risks and uncertainties.
In particular, the Board has considered the impact of a range of potential
M&A activities including impacts on net assets, cash flows and covenants.
In addition the assessment considers the reduction in demand caused by either
macro environmental factors, commercial pipeline, our ability to retain or
attract the correct level of talent as well as inflationary pressures over and
above the base case.
Mitigating actions
If faced with the reasonable worst-case scenario, the Board also considers
possible mitigating actions available to the Group to maintain liquidity and
covenant compliance. These can be swiftly implemented should the worst-case
scenario arise and include (but are not limited to):
· freezing recruitment and a slowdown in investment in recruitment and
reward;
· reducing discretionary operating spend such as marketing and travel;
· reducing non-committed capital expenditure;
· revision of the existing dividend policy; and
· cost cutting measures in non-fee earning areas including an
acceleration of the execution of the Group's real estate strategy and a
reduction in headcount.
Reverse stress test
In addition to the modelling of the above scenarios, a reverse stress test was
conducted by the Group to assess the quantum of increased inflationary
pressures and downside on trading performance that would materially impact our
ability to comply with financial covenants. Such a material impact is not
considered a reasonable scenario to adversely impact the going concern
assessment.
Conclusion
Based on this assessment, the Directors have a reasonable expectation that the
Group has sufficient resources to continue its operations for the period of
assessment. In particular the Directors have a reasonable expectation that it
will operate under its existing financing facilities, will comply with all
covenants with adequate headroom and settle all other liabilities as they fall
due. The Directors therefore consider it appropriate for the Group to adopt
the going concern basis in preparing these financial statements.
1.4 Re-presentation of comparative period
The consolidated statement of financial position has been re-presented for the
comparative period to present the IFRS 16 right-of-use assets as a standalone
financial statement line item in order to provide users with clearer
information on the leased assets. note 11 now comprises solely the property,
plant and equipment information, and note 12 comprises solely IFRS 16
right-of-use asset information.
This note is intended to disclose material re-presentations within the primary
financial statements. For other re-presentations within note disclosures,
explanations have been provided within the note that has been changed.
2 Alternative performance measures ('APMs')
APMs 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.
APMs are fully defined and information as to why they are useful is provided
in the glossary.
Adjusted profit before tax reconciles to profit / (loss) before tax as
follows:
2022 2021
£'000 £'000
Profit / (loss) before tax 22,316 (30,600)
Adjusting items:
Amortisation of intangible assets - acquired 4,655 4,609
Impairment of intangible assets 2,966 1,411
Impairment of tangible and right of use assets 627 3,134
Impairment of investments - 50
Non-underlying items 1,224 27,101
Share-based payments expense 9,609 28,510
Gain on investment - (23)
Total of adjusting items 19,081 64,792
Adjusted PBT 41,397 34,192
Adjusted PBT reconciles to profit / (loss) before tax with reconciling items
by nature as follows:
2022 2021
£'000 £'000
Profit / (loss) before tax 22,316 (30,600)
Office closures and scale-backs (238) 14,898
Acquisition-related expenses 9,564 20,743
DWF RCD modification impact - 13,796
Change of CEO - 1,011
Impact of COVID-19 - 1,011
Other share-based payment expenses 9,609 13,333
Refinancing costs 146 -
Adjusted PBT 41,397 34,192
Cash used to settle non-underlying items includes £3.8m (FY2021: £2.3m)
relating to closures and £4.6m (FY2021: £6.9m) relating to the remuneration
element of purchase price payments for acquisitions.
Non-underlying items are set out in the table below:
2022 2021
£'000 £'000
Acquisition-related advisory fees - successful a 336 31
Acquisition-related advisory fees - aborted b - (544)
Acquisition-related expense c 1,104 15,222
COVID-19-related costs d - 1,011
Closure and scale-back of operations e (362) 10,370
Costs associated with the change of CEO f - 1,011
Non-underlying items within operating profit 1,078 27,101
Non-underlying finance expense g 146 -
Total non-underlying items 1,224 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 FY2020 that were credited following the
decision to abort the transaction.
c. Acquisition-related expense relates to the remuneration expense from
the acquisition of Mindcrest in FY2020. Payments to the sellers of Mindcrest
were deemed to be remuneration (and not consideration) under IFRS 3, and
therefore expensed over the deemed service period rather than included in
goodwill. As these costs are not considered recurring and ceased in February
2022, they have been included within adjusting items in order to give greater
clarity of underlying trading performance. The prior year comparator is of the
same nature but relates to both the Mindcrest and RCD acquisitions, including
the costs relating to the modification of the RCD acquisition agreement (see
note 9).
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 FY2021, and Germany.
The credit in the current year principally reflects working capital provisions
made for Germany, offset by the reversal of a provision made for Australia in
FY2021. 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 as a result
of the decision taken.
f. Costs of the prior year relate to the one-off costs for the change in
CEO.
g. These costs are associated with the re-financing and include
professional fees incurred that are significant in value and by their nature
are not recurring annually. More detail around the refinancing can be found in
note 17.
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 and is calculated as follows:
2022 2021
£'000 £'000
Net revenue 350,242 338,130
Administrative expenses and impairment 153,257 197,415
Total of adjusting items (19,081) (64,792)
Less: re-financing costs included in adjusting items 146 -
Adjusted administrative expenses 134,322 132,623
Cost to income ratio 38.4% 39.2%
3 Operating segments
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
executive directors of 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, net revenue and gross profit 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 table below has been re-presented to reflect the
current divisional structure.
For year ended 30 April 2022
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 355,063 34,181 26,808 416,052
Recoverable expenses (63,110) (324) (2,376) (65,810)
Net revenue 291,953 33,857 24,432 350,242
Direct costs (138,729) (18,828) (11,775) (169,332)
Gross profit 153,224 15,029 12,657 180,910
Gross margin % 52.5% 44.4% 51.8% 51.7%
Administrative expenses (146,691)
Trade receivables impairment (2,973)
Other impairment (3,593)
Operating profit 27,653
Net finance expense (3,664)
Net interest expense on leases (1,673)
Profit before tax 22,316
Taxation (2,029)
Profit for the year 20,287
For year ended 30 April 2021 - Re-presented
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 345,559 28,752 26,637 400,948
Recoverable expenses (60,233) (329) (2,256) (62,818)
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 (187,471)
Trade receivables impairment (5,349)
Other impairment (4,595)
Operating loss (25,634)
Net finance expense (2,682)
Net interest expense on leases (2,284)
Loss before tax (30,600)
Taxation (4,567)
Loss for the year (35,167)
There are no inter-segmental revenues which are material for disclosure.
Administrative expenses represent indirect costs that are not specifically
allocated to segments.
Non-current assets, 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 non-current assets, net revenue and revenue by geographical region
are as follows:
Non-current assets Revenue Net revenue
2022 2021 2022 Re-presented* 2022 Re-presented*
2021 2021
£'000 £'000 £'000 £'000 £'000 £'000
UK 57,141 71,758 310,381 290,966 250,584 234,824
Spain 23,935 26,087 36,515 33,530 36,515 33,530
Asia 14,063 15,701 11,107 9,260 8,838 7,976
Rest of World 26,938 17,408 58,049 67,192 54,305 61,800
Total allocated to geographical regions 122,077 130,954 416,052 400,948 350,242 338,130
Deferred tax assets 3,938 4,649
Non-current other trade receivables 1,464 -
Investments - 227
Total 127,479 135,830
*The revenue and net revenue for 2021 have been re-presented for consistent
comparison with 2022 to reflect a change in the allocation of which countries
were included in Asia and Rest of World.
Total assets and liabilities for each reportable segment are not provided to
the CODM and therefore not presented.
4 Operating profit and auditor's remuneration
2022 2021
£'000 £'000
Recognised in the income statement
Impairment of intangible assets 2,966 1,411
Amortisation of intangible assets - acquired 4,655 4,609
Impairment of property, plant and equipment and right-of-use assets 627 3,134
Impairment of investment - 50
Gain on sale of investment - (23)
Non-underlying items (less: non-underlying finance expense) 1,078 27,101
Share-based payments expense (note 21) 9,609 28,510
Total of adjusting items within operating profit 18,935 64,792
Members' remuneration charged as an expense 43,670 41,361
Net foreign exchange gain (1,856) (55)
Amortisation of intangible assets - software and capitalised development costs 4,251 2,244
Depreciation of tangible assets 2,960 4,745
Depreciation of right-of-use assets 12,737 11,977
Gain on disposal of leases - (775)
Auditor's remuneration
Audit of the Group financial statements 510 369
Audit fees in respect of prior periods - 99
Total audit fees 510 468
Amounts payable to the Company's auditor and its associates in respect of:
Audit of financial information of subsidiaries, subsidiary undertakings and 125 158
partnerships of the DWF Group plc
Other assurance services - 44
Other services pursuant to legislation or regulation 105 107
Total fees 740 777
5 Net finance expense
2022 2021
£'000 £'000
Finance income
Interest receivable 101 98
101 98
Finance expense
Interest payable on bank borrowings 2,300 1,767
Other interest payable 54 47
Bank and other charges 1,265 966
Non-underlying finance expense 146 -
3,765 2,780
Net finance expense 3,664 2,682
Net interest expense on leases
Interest expense on lease liabilities 1,673 2,284
1,673 2,284
6 Taxation
2022 2021
£'000 £'000
UK corporation tax on profit / loss 5,639 5,582
Foreign tax on profit 2,822 1,576
Adjustments in respect of prior periods (5,443) (129)
Current tax expense 3,018 7,029
Deferred tax credit (2,354) (2,468)
Adjustments in respect of prior periods 1,365 6
Total deferred tax credit (989) (2,462)
Total tax charge for the year 2,029 4,567
The effective tax rate is lower (2021: higher) than the average rate of
corporate tax in the UK of 19% (2021: 19%), and excluding prior year
adjustments the effective tax rate is higher than the average rate of
corporate tax in the UK. The difference is explained below:
2022 2021
£'000 £'000
Profit / (loss) before taxation 22,316 (30,600)
Tax on Group profit / (loss) at standard UK corporation tax rate of 19% (2021: 4,240 (5,814)
19%)
Foreign tax rate differences (4) (128)
Non-deductible expenses 706 7,620
Temporary differences on intangible assets - -
Adjustments in respect of prior periods (4,079) (123)
Brought forward tax losses utilised (263) (84)
Tax losses not recognised as assets 2,060 2,622
Impact of share price on expected tax deduction 203 474
Effect on deferred tax of change in corporation tax rate (834) -
Group total tax charge for the year 2,029 4,567
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
corporation tax rate will increase to 25%. The proposal to increase the rate
to 25% was substantively enacted on 24 May 2021, therefore the relevant
deferred tax balances have been remeasured. The impact of the change in tax
rate has been recognised in tax expense in the income statement, except to the
extent that it relates to items previously recognised outside the income
statement.
The reported tax charge for the year, excluding prior year adjustments, is
£6.1m on a profit before tax of £22.3m, representing an effective rate of
tax of 27.4%. The effective tax rate was higher than the UK statutory tax rate
primarily due to tax losses that have not been recognised as deferred tax
assets (increasing the tax charge by £2.1m) and the tax effect of non-tax
deductible expenses (increasing the tax charge by £0.7m) offset by the effect
on deferred tax resulting from the change in the UK corporation tax rate from
19% to 25% effective from 1 April 2023 (reducing the tax charge by £0.8m).
The Group also booked prior year tax adjustments of a net credit of £4.1m.
Those adjustments arise principally as a result of (a) increased claims of the
departing Australian partners on the Group's UK profit pool following the
restructuring of the Group's Australian business in FY2021 reducing the
profits subject to UK corporation tax (£5.1m), offset by (b) revaluations of
the Group's deferred tax assets relating to tax depreciation timing
differences and expected tax deductions for share based payments as at 30
April 2021 (£1.4m).
7 Dividends
Distributions to owners of the parent in the year:
2022 2021
pence per share pence per share
Final dividend recognised as distributions in the year 3.00 0.75
Interim dividend recognised as distributions in the year 1.50 1.50
Total dividend paid in the year 4.50 2.25
Final dividend proposed 3.25 3.00
2022 2021
£'000 £'000
Final dividend recognised as distributions in the year 9,008 2,162
Interim dividend recognised as distributions in the year 4,529 4,359
Total dividend paid in the year 13,537 6,521
Final dividend proposed 10,574 9,737
The Board recommended a final dividend for the year ended 30 April 2022 of
3.25 pence per share on 20 July 2022 which is subject to Shareholder approval
at the Annual General Meeting on 28 September 2022. If approved by the
Shareholders, the dividend will be paid on 7 October 2022 to all shareholders
on the Register of Members on 9 September 2022.
8 Earnings per share
2022 2021
£'000 £'000
Profit / (loss) for the year for the purpose of basic earnings per share 20,287 (35,167)
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 298,898,991 294,392,422
per share
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options 13,639,188 17,067,508
Weighted average number of ordinary shares for the purposes of diluted 312,538,179 311,459,930
earnings per share
Earnings / (loss) per share attributable to the owners of the parent:
Basic earnings per share (p) 6.8 (11.9)
Diluted earnings per share (p) 6.5 *(11.9)
*For the year ended 30 April 2021, potential ordinary shares of 17,067,508 are
anti-dilutive, as their inclusion in the diluted loss per share calculation
would reduce the loss per share, and hence have been excluded.
Adjusted basic and adjusted diluted earnings per share are APMs (as defined in
the glossary) and have been calculated using profit / (loss) for the purpose
of basic earnings share adjusted for total adjusting items and the tax effect
of those items.
Adjusted basic and adjusted diluted earnings per share may be reconciled to
basic earnings per share as follows:
2022 2021
£'000 £'000
Profit / (loss) for the year 20,287 (35,167)
Add/(remove):
Total of adjusting items (note 2) 19,081 64,792
Tax effect of adjustments above (4,651) (5,503)
Adjusted profit for the purpose of adjusted earnings per share 34,717 24,121
Number Number
Weighted average number of ordinary shares for the purposes of adjusted basic 298,898,991 294,392,422
earnings per share
Ordinary shares for the purposes of adjusted diluted earnings per share 325,352,865 324,554,653
Adjusted basic earnings per share (p) 11.6 8.2
Adjusted diluted earnings per share (p) 10.7 7.4
Shares held in trust are issued shares that are owned by the Group's employee
benefit trusts for future issue to employees as part of share incentive
schemes. These are recognised on consolidation as treasury shares. The future
exercise of share awards and options is the dilutive effect of share awards
granted to employees that have not yet vested.
Share held in trust are deducted from the weighted average number of ordinary
shares for basic earnings per share. For its adjusted basic measure, the Group
uses the weighted average number of ordinary shares.
The definitions of adjusted basic earnings per share and adjusted diluted
earnings per share can be found in the glossary to these financial statements.
9 Acquisitions of subsidiaries and transactions related to previous acquisitions
Acquisitions in the year to 30 April 2022
Two acquisitions were made in the year; 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
support growth in the Connected Services division through offering additional
services to the Group's clients. BCA is a market-leading claims handling
business based in Vancouver, acquired to increase the Group's presence in the
local market.
The 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 -
Goodwill 1,403 1,001
Of the £2.3m consideration for BCA, £1.4m is deferred and payable over two
years post-acquisition. This is not contingent on future performance targets.
During the period £0.61m of deferred consideration has been paid.
The goodwill is attributable to the benefits of operating two already
well-established businesses in the relevant sector and the synergies 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.
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 (394) (884)
Cash and cash equivalents acquired 69 148
Total fair value on acquisition (325) (736)
Deferred consideration paid in the year - (612)
Net cash outflow (325) (1,348)
The table below outlines the revenue and PBT of the acquirees since the
acquisition date, which is included in the consolidated statement of
comprehensive income for the year, and the annualised revenue and PBT of the
acquirees had the acquisition dates for the business combinations been at the
beginning of the year:
Revenue contributed post-acquisition PBT contributed post-acquisition Revenue in year of acquisition PBT in year of acquisition
£'000 £'000 £'000 £'000
Zing 750 38 819 41
BCA 1,779 43 1,939 47
Transaction costs comprised mainly advisor fees, including financial, tax and
legal due diligence. These are all included within administrative expenses
(non-underlying items) within note 2.
Acquisitions in the year to 30 April 2021
There were no acquisitions during the year.
On 22 January 2021 DWF Group plc and the original sellers of Rousaud Costas
Duran S.L.P. ('RCD'), a Spanish subsidiary, mutually agreed to modify the
acquisition agreement and related documents ('RCD Documents') entered into on
20 December 2019 to help facilitate the integration of DWF-RCD into the wider
Group as part of moving to the new operating model effective from 1 May 2021.
Full details of the modification can be found in the Annual Report and
Accounts 2021 at www.dwfgroup.com (http://www.dwfgroup.com) .
10 Intangible assets
Acquired
Goodwill Customer relationships Brand External 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 - - - - 2,854 2,854
Additions - externally purchased 2,403 1,475 248 1,446 - 5,572
Disposals - - - (354) - (354)
Asset transfers - - - 1,347 - 1,347
Effect of movements in foreign exchange 490 (271) 52 1 - 272
At 30 April 2022 14,034 36,812 1,933 6,762 14,165 73,706
Amortisation and impairment
At 1 May 2021 1,357 6,128 1,041 1,587 4,729 14,842
Amortisation for the year - 3,945 711 1,593 2,658 8,907
Disposals - - - (94) - (94)
Impairment - 2,955 - 11 - 2,966
Asset transfers - - - 1,347 - 1,347
Effect of movements in foreign exchange - 104 30 - 134
At 30 April 2022 1,357 13,132 1,782 4,444 7,387 28,102
Net book value
At 30 April 2022 12,677 23,680 151 2,318 6,778 45,604
At 1 May 2021 9,784 29,480 592 2,735 6,582 49,173
Acquired
Goodwill Customer relationships Brand External software costs Capitalised development costs Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 May 2020 11,691 35,211 1,685 1,923 7,083 57,593
Additions - internally developed - - - - 4,228 4,228
Additions - externally purchased - - - 2,407 - 2,407
Disposals - - - (10) - (10)
Effect of movements in foreign exchange (550) 397 (52) 2 - (203)
At 30 April 2021 11,141 35,608 1,633 4,322 11,311 64,015
Amortisation and impairment
At 1 May 2020 1,356 1,351 159 1,007 3,066 6,939
Amortisation for the year - 3,695 914 581 1,663 6,853
Disposals - - - (10) - (10)
Impairment - 1,409 - 2 - 1,411
Effect of movements in foreign exchange 1 (327) (32) 7 - (351)
At 30 April 2021 1,357 6,128 1,041 1,587 4,729 14,842
Net book value
At 30 April 2021 9,784 29,480 592 2,735 6,582 49,173
At 1 May 2020 10,335 33,860 1,526 916 4,017 50,654
Individual intangible assets that are material to the financial statements are
set out below:
· Customer relationships - Spain: Net book value at 30 April 2022
£19.5m (2021: £23.0m) - remaining amortisation period is 8 years
· Customer relationships - Mindcrest: Net book value at 30 April 2022
£0.8m (2021: £4.1m) - remaining amortisation period is 8 years
· Customer relationships - Poland: Net book value at 30 April 2022
£2.2m (2021: £2.3m) - remaining amortisation period is 7 years
Goodwill
Goodwill considered significant in comparison to the Group's total carrying
amount of such assets has been allocated to CGUs or groups of CGUs as follows:
2022 2021
£'000 £'000
Mindcrest (note 3) 9,127 8,569
Other individually immaterial CGUs 3,550 1,215
12,677 9,784
The recoverable amounts of the CGUs are determined from value in use
calculations. The calculations have been based on a discounted cash flow model
covering a period of five years using forecast revenues and costs, extended to
perpetuity. The inputs into the model appropriately consider the relevant
market maturity and local factors. The first year of the forecast is
established from the budget for FY2023 which is underpinned by the business
plan that has been signed off by the Board. Cash flows for FY2023 through to
FY2026 have been included on a consistent basis with the Board approved
strategy. In each case, the calculations use a long term growth rate of 2%
(2021: 2%) consistent with the sector average and a pre-tax discount rate of
10-12% (2021: 10-11%). These pre-tax discount rates reflect current market
assessments for the time value of money and the specific risks associated with
each CGU. The long-term growth rates used are based on management's
expectations of future changes in the markets for each CGU.
Goodwill that has been allocated to other individually immaterial CGUs in the
table above is monitored at a lower level than operating segment. Significant
headroom exists for each CGU. No reasonable worst-case scenario gives rise to
a material impairment risk.
Customer relationships
The impairment charge of £3.0m includes £3.0m relating to the impairment of
customer relationship assets which were recognised on acquisition of Mindcrest
in FY2020. The impairment trigger, and subsequent reduction in value of the
associated intangible asset, is due to Mindcrest delivering services under
certain contracts in an increasingly efficient manner and passing those
savings on to the customers whilst maintaining a consistent gross margin
percentage. The scale of the efficiencies gained and the resulting decrease in
absolute margin was not anticipated as part of the valuation methodology at
the point of the acquisition. The recoverable amount for the customer
relationship asset has been determined based on fair value less cost of
disposal as at 30 April 2022. The fair value calculation was based on cash
flow projections from financial budgets covering a one year period, with a
degradation rate applied for the following six years (the remaining useful
economic life). The post-tax discount rate applied to cash flow projections is
9%, and cash flows have assumed degradation at 2% per annum. It was concluded
that the value in use did not exceed the fair value less cost of disposal. The
remaining carrying amount as at 30 April 2022 was £0.8m. The impairment
charge is recorded within other impairment in the income statement.
11 Property, plant and equipment
Leasehold improvements Office equipment and fixtures and fittings Computer equipment Total
£'000 £'000 £'000 £'000
Cost
At 1 May 2021 16,179 15,366 38,499 70,044
Additions 508 1,169 1,903 3,580
Disposals (669) (448) (1,584) (2,701)
Asset transfers 2,130 (2,130) (1,347) (1,347)
Effect of movements in foreign exchange 22 (19) 20 23
At 30 April 2022 18,170 13,938 37,491 69,599
Accumulated depreciation
At 1 May 2021 13,287 8,235 35,907 57,429
Charge for the year 778 1,029 1,153 2,960
Disposals (463) (129) (608) (1,200)
Impairment 402 84 17 503
Asset transfers 46 (46) (1,347) (1,347)
Effect of movements in foreign exchange 16 (10) 9 15
At 30 April 2022 14,066 9,163 35,131 58,360
Net book value
At 30 April 2022 4,104 4,775 2,360 11,239
At 1 May 2021 2,892 7,131 2,592 12,615
The impairment expense includes £0.5m relating to asset write-offs following
the scale-back of operations in Australia and Germany (see note 2).
Leasehold improvements Office equipment and fixtures and fittings Computer equipment Re-presented (note 1.4) Total
£'000 £'000 £'000 £'000
Cost
At 1 May 2020 16,782 12,282 39,838 68,902
Additions 59 3,310 632 4,001
Disposals (666) (232) (1,964) (2,862)
Effect of movements in foreign exchange 4 6 (7) 3
At 30 April 2021 16,179 15,366 38,499 70,044
Accumulated depreciation
At 1 May 2020 12,736 7,188 34,860 54,784
Charge for the year 935 919 2,891 4,745
Disposals (392) (232) (1,964) (2,588)
Impairment - 370 128 498
Effect of movements in foreign exchange 8 (10) (8) (10)
At 30 April 2021 13,287 8,235 35,907 57,429
Net book value
At 30 April 2021 2,892 7,131 2,592 12,615
At 1 May 2020 4,046 5,094 4,978 14,118
12 Right-of-use assets
Leases as a lessee
Property Equipment Re-presented (note 1.4) Total
£'000 £'000 £'000
Right-of-use assets
At 1 May 2020 69,615 42 69,657
Additions 14,258 2,315 16,573
Depreciation (11,712) (265) (11,977)
Impairment (2,832) - (2,832)
Disposals (4,061) - (4,061)
Remeasurement adjustment 2,367 - 2,367
Effect of movements in foreign exchange (562) 1 (561)
At 30 April 2021 67,073 2,093 69,166
Additions 10,467 - 10,467
Depreciation (12,264) (473) (12,737)
Impairment (124) - (124)
Disposals (1,110) - (1,110)
Remeasurement adjustment (1,156) - (1,156)
Effect of movements in foreign exchange 729 (1) 728
At 30 April 2022 63,615 1,619 65,234
The impairment expense during the year includes £1.2m relating to the
scale-backs of operations in Australia and Germany (see note 2). The
remeasurement adjustment relates to the impact of term and rent changes on
property leases during the year.
Leases as a lessor
During FY2022, the Group has sub-leased property in Australia. In the
recognition of the lease receivables pertaining to the sub-leased property,
the Group has reversed impairment of £1.0m (2021: £nil) which was previously
recorded against the right-of-use assets.
13 Trade and other receivables
2022 *Re-presented 2021
£'000 £'000
Current
Trade receivables 88,949 91,185
Amounts recoverable from clients in respect of unbilled revenue 71,958 66,671
Unbilled disbursements 7,982 9,437
Contract assets 79,940 76,108
Trade receivables and contract assets 168,889 167,293
Other receivables 2,216 2,890
Amounts due from Members of partnerships 2,238 2,008
Lease receivables 432 -
Reimbursement asset 4,040 852
Prepayments 12,359 10,463
190,174 183,506
Non-current
Other receivables 938 -
Lease receivables 526 -
1,464 -
The comparative year has been re-presented so as to split out the Amounts due
from Members of partnerships from other receivables, in order to provide
clearer information as to the nature of the balance.
The reimbursement asset is attributable to the FOIL provision and the
professional indemnity provision (see note 18).
Prepayments include £nil (2021: £1.1m) relating to acquisition-related
remuneration expense.
Ageing of trade receivables, amounts recoverable from clients in respect of
unbilled revenue and unbilled disbursements
2022 2021
£'000 £'000
Trade receivables not past due 14,794 22,235
Trade receivables past due
0 - 90 days 59,876 53,271
91 - 180 days 8,846 9,417
181 - 270 days 3,337 4,597
271 - 365 days 2,366 3,603
More than 365 days 11,459 11,093
Gross trade receivables 100,678 104,216
Amounts recoverable from clients in respect of unbilled revenue 71,958 66,671
Unbilled disbursements 7,982 9,437
Expected credit losses (8,588) (11,192)
Other impairment provisions (3,141) (1,839)
Total trade receivables and contract assets 168,889 167,293
Lifetime expected credit losses are used to measure the loss allowance. These
balances are held against trade receivables, amounts recoverable from clients
in respect of unbilled revenue and unbilled disbursements. Other impairment
provisions are applied against the trade receivables which are not based on
the average expected credit loss rates presented below. The other categories
of trade and other receivables do not contain impaired assets.
Expected credit loss rates
To measure the expected credit losses, trade receivables and contract assets
have been grouped based on shared credit risk characteristics and the days
past due. The contract assets relate to unbilled revenue and have
substantially the same risk characteristics as the trade receivables for the
same types of contracts.
The average expected credit loss rates for trade receivables and contract
assets are presented below.
Group rates Spain rates
2022 2021 2022 2021
0 - 90 days 0.5% 1.7% 0.9% 0.9%
91 - 180 days 3.4% 6.6% 4.2% 4.2%
181 - 270 days 10.5% 14.3% 13.1% 13.1%
271 - 365 days 19.9% 25.5% 20.7% 20.7%
More than 365 days 50.6% 62.4% 45.0% 45.0%
Movement in provision for impairment
2022 2021
£'000 £'000
At 1 May 13,031 11,871
Provision utilised and other movements (4,275) (4,189)
Charges to income statement 2,973 5,349
At 30 April 11,729 13,031
Other movements include expected credit loss provisions acquired from business
combinations in the year of £61,500.
Trade receivables, unbilled disbursements and contracts assets are written off
where there is no reasonable expectation of recovery. For trade receivables
and unbilled disbursements, impairment losses are presented as net impairment
losses within operating profit whereas contract asset impairment losses are
presented as a reduction in revenue. Subsequent recoveries of amounts
previously written off are credited against the same line item.
14 Cash and cash equivalents
2022 2021
£'000 £'000
Cash at bank and in hand 28,310 34,711
Bank overdrafts (606) (131)
Cash and cash equivalents 27,704 34,580
15 Trade and other payables
2022 *Re-presented 2021
£'000 £'000
Trade payables 27,896 28,236
Other payables 3,748 10,337
Other taxation and social security 15,284 27,375
Deferred income 2,014 757
Accruals 14,383 18,676
Trade and other payables 63,325 85,381
Deferred income has been re-presented for the prior year to split it out as a
separate line from accruals.
Other payables relates principally to payroll-related creditors but has
largely reduced due to the utilisation of amounts recognised relating to the
closure and scale-back of operations (note 2) which were included in the
balance in the prior year.
Accruals include £nil (2021: £4.9m) relating to acquisition-related
remuneration expense (see note 2).
In 2020 the Group participated in the UK Government's VAT deferral scheme,
which was launched to assist businesses in their response to COVID-19. Within
other taxation and social security in FY2021 was £10.7m of VAT payable, which
was deferred from March 2020. This has been fully repaid in FY2022.
In FY2021 the Group's Polish and US businesses benefited from local COVID-19
assistance programs totalling £984,000. Of the assistance, £307,000 was
recognised in the P&L (within administrative expenses) in FY2021 as the
conditions attached to the assistance had been satisfied. The remaining
£677,000 was held in other payables as at 30 April 2021. In FY2022, a further
£515,000 was recognised in the P&L as the relevant conditions for those
elements of Government assistance had been met. The remaining £161,000 is
included within other payables as at 30 April 2022, which is due to be repaid
to the Polish Government as remaining conditions will not be met.
16 Lease liabilities
2022 2021
£'000 £'000
At 1 May 84,002 84,678
Additions 7,683 16,573
Interest expense related to lease liabilities 1,673 2,284
Net foreign currency translation loss / (gain) 763 (589)
Disposals - (4,836)
Remeasurement adjustment (1,313) 2,367
Repayment of lease liabilities (including interest) (15,069) (16,475)
At 30 April 77,739 84,002
Current lease liabilities 14,576 13,104
Non-current lease liabilities 63,163 70,898
77,739 84,002
The undiscounted contractual cash flows relating to lease liabilities
accounted for in accordance with IFRS 16 is £82.9m (2021: £91.4m).
Operating costs, included within administrative expenses, relating to
short-term and low value leases during the year were £1.6m (2021: £1.6m).
17 Interest-bearing loans and borrowings
This note provides information about the Group's interest-bearing loans and
borrowings, which are measured at amortised cost.
Obligations under interest-bearing loans and borrowings
2022 2021
£'000 £'000
Current liabilities
Bank loans 9,093 19,099
Supplier payment facility 87 204
Bank overdrafts 606 131
9,786 19,434
Non-current liabilities
Bank loans 90,907 76,085
Unamortised finance costs (563) (641)
90,344 75,444
100,130 94,878
On 22 December 2021, the Group completed a refinancing of its principal RCF.
The new facility was increased to £100m and matures in fiscal year ending
2025 with two 12-month extension options and additional headroom on some
covenants (with no reduction in headroom in any covenant) that better aligns
to the current business structure and operations. The refinancing also moves
the facility from a fixed LIBOR benchmark rate to a variable SONIA rate. The
non-current borrowings relating primarily to the principal RCF.
The Group operates a supplier payment facility with HSBC, which has a limit of
£11m. This facility is utilised in paying certain suppliers from time to time
and repaid in the short-term.
Analysis of cash and cash equivalents and other interest-bearing loans and borrowings:
1 May 2021 Cash flow Exchange movement Non-cash movement 30 April 2022
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 34,580 (7,017) 141 - 27,704
Bank loans (94,544) (4,240) 227 (880) (99,437)
Supplier payments facility (204) 15,683 - (15,566) (87)
Total net debt (excluding IFRS 16) (60,168) 4,426 368 (16,446) (71,820)
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 expected 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 with cash when the liability becomes
due.
Net debt including lease liabilities is £149.6m (2021: £144.2m).
Net debt is an APM and is defined in the glossary to the report.
18 Provisions
Dilapidation provision FOIL provision Professional indemnity provision Total
£'000 £'000 £'000 £'000
At 1 May 2021 1,837 1,252 2,512 5,601
Utilised in the year - - (3,472) (3,472)
Released in the year (100) (552) (507) (1,159)
Provisions made in the year 2,725 - 7,717 10,442
Reclassified to other payables - (700) (250) (950)
At 30 April 2022 4,462 - 6,000 10,462
Current 315 - 6,000 6,315
Non-current 4,147 - - 4,147
4,462 - 6,000 10,462
Professional indemnity provision
The provision for professional indemnity reflects the Group's expected outflow
for legal claims brought against the Group relating to historic professional
services rendered. A provision is only recognised where an outflow is
probable. The probability is established by reference to whether a claim is
more likely than not to be successful. A professional indemnity liability for
a claim that is agreed (i.e. the timing and amount of payments are well
understood) is recognised in accruals (see note 15). Claims are assessed as
being settled in full within the next 5 years.
Separately, the Group recognises expected reimbursements from professional
indemnity insurance when it is virtually certain that the reimbursement will
be received (note 13). No separate disclosure is made of the detail of such
claims or proceedings, or the costs recovered by insurance, as such detail
would be seriously prejudicial to the position of the Group. Note that in the
prior year the professional indemnity provision and the reimbursement asset is
presented net within provisions within the financial statements. This prior
year presentation has not been restated to match the current year
presentation.
There are circumstances of which the Group is aware but there is insufficient
information available to either estimate whether a claim will develop or,
where a claim appears possible, make an assessment of the outflow. Such
circumstances are contingent liabilities of the Group.
Dilapidation provision
Dilapidation provisions are established for restoration and reinstatement
costs for property leases, held at the date of the statement of financial
position. Such provisions are estimated at the start of the lease and updated
annually. The Group's current lease portfolio terminates over the course of
the next 10 years.
The Group has engaged external valuators to perform a review of the Group's
property portfolio and they have provided updated estimates of required
dilapidations at the end of the lease terms. The increase in the dilapidations
provision for the various properties has been reflected in the corresponding
right-of-use assets and is depreciated over the remaining lease term.
FOIL provision
The Forum of Insurance Lawyers (FOIL) provision represents the total VAT
(partial exemption) exposure on historic claims handling engagements. During
FY2022, a settlement amount has been agreed with HMRC, and therefore the
settlement amount has been reclassified as other payables.
19 Deferred taxation
The deferred tax asset is as follows:
2022 2021
£'000 £'000
Assets
At 1 May 4,649 3,522
Deferred tax debit recognised directly in equity 438 193
Deferred tax (charge) / credit in the income statement for the year (1,173) 1,092
Exchange rate translation 24 (158)
At 30 April 3,938 4,649
Deferred tax assets of £3.9m have been recognised in respect of tax
depreciation timing differences (£1.3m), expected tax deductions for
share-based payments (£2.3m) and other temporary differences (£0.3m). It is
anticipated that the Group and certain related subsidiary undertakings will
make sufficient taxable profit to allow the benefit of the deferred tax asset
to be utilised. A potential deferred tax asset of £11.7m (2021: £5.2m) has
not been recognised relating to tax losses in subsidiary undertakings that are
not anticipated to make sufficient taxable profit to allow the benefit of the
deferred tax asset to be utilised.
The deferred tax liability as at 30 April 2022 is as follows:
2022 2021
£'000 £'000
Non-current liabilities
At 1 May 7,584 8,884
Arising on acquisition intangibles 503 -
Deferred tax credit in the income statement for the year (2,163) (1,427)
Exchange rate translation (55) 127
At 30 April 5,869 7,584
The Group deferred tax liability relates to the recognition of acquired
intangible assets arising on consolidation.
20 Share capital
Number Share capital Share premium Total
Treasury shares
of 1p each £'000 £'000 £'000 £'000
At 1 May 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 on acquisition of Zing 365 Holdings Ltd 798,212 8 755 - 763
At 30 April 2022 325,352,865 3,254 89,365 (129) 92,490
On 24 May 2021 798,212 ordinary shares were issued as a result of the
acquisition of Zing.
The Group has 24,322,488 (2021: 30,162,231) shares held in treasury.
21 Share-based payments
Share-based payment arrangements
The Group operates three share-based payment plans (2021: two plans), all of
which are equity settled and consist only of share awards.
· The equity incentive plan ('EIP'): This is used to incentivise and
reward performance from primarily Directors, upper-level management and
members. Within the EIP are the following schemes: The EIP-IPO award, the
career level 1-3 award, the long-term incentive plan ('LTIP') and the
promotion award.
· The buy-as-you-earn ('BAYE') plan: All employees, excluding members,
are eligible for the BAYE plan which is used to incentivise retention and
reward contribution. Within the BAYE are the following schemes: The BAYE-IPO
award, the free-share award and the share incentive plan matching award ('SIP
matching award').
· The deferred bonus plan: This comprises the deferred bonus award
scheme. This plan is used as an alternative to cash bonuses for eligible
employees and awards may be made following year-end results announcements.
The social security expenses in relation to share-based payment arrangements
are based on the rates and treatment prevailing in each jurisdiction. This is
accounted for as a cash-settled award.
Details of Directors' share awards are set out in the Directors' Remuneration
Report.
Charge to the income statement
The charge to the income statement is set out below:
2022 2021
£'000 £'000
Share plans:
Equity incentive plan 6,721 24,098
Buy-as-you-earn plan 871 3,720
Deferred bonus plan 109 -
7,701 27,818
Social security expenses 1,908 692
Total expense 9,609 28,510
Impact of SBP movement in 2022:
SBP expense SBP reserve Accumulated losses Prepayments Other taxation and social security
£'000 £'000 £'000 £'000 £'000
Share-based payment schemes 7,701 (7,701) - - -
Recycling of vested shares - 9,074 (9,074) - -
Social security expenses 1,908 - - - (1,908)
Total movement 9,609 1,373 (9,074) - (1,908)
Impact of SBP movement in 2021:
SBP expense SBP reserve Accumulated losses Prepayments Other taxation and social security
£'000 £'000 £'000 £'000 £'000
DWF-RCD acquisition* 15,176 - - (15,176) -
Share-based payment schemes 12,642 (12,642) - - -
Recycling of vested shares - 9,429 (9,429) - -
Social security expenses 692 - - - (692)
Total movement 28,510 (3,213) (9,429) (15,176) (692)
*The charge for 2021 includes the accelerated expense, post-modification of
the acquisition agreement, for shares awarded as part of the purchase price
for the acquisition of DWF-RCD. This was charged against the related
prepayment, which was released in full.
Summary of share awards
The following table shows the movements in share awards across all plans for
the year:
2022 2021
Number of shares Number of shares
'000 '000
Number of shares awards outstanding 1 May 33,046 24,286
Awards granted during the year 12,331 19,149
Awards vested during the year (8,598) (7,186)
Awards lapsed during the year (2,706) (3,203)
Number of shares awards outstanding 30 April 34,073 33,046
The weighted average remaining contractual life at the end of the period is
1.8 years (2021: 1.9 years).
The exercise price of all share awards is nil. The weighted average share
price at the vesting date for all awards vested during the year was £1.07
(2021: £0.63).
Details of the Group's share awards are as follows:
Share awards under the DWF Group plc 2019 EIP - IPO award
At IPO, conditional and restricted share awards were granted to a limited
number of the senior management team.
The awards are subject to a service condition and have an entitlement to
receive dividend equivalents. A portion of the awards were previously subject
to performance targets, but these have subsequently been removed.
Share awards under the DWF Group PLC EIP - Career level 1-3 award
This scheme is to incentivise senior employees for performance and exceptional
contributions to the Group, on promotion or as a lateral or senior hire to the
Group. Additionally, as part of the RCD acquisition, shares are ring-fenced
for future grant to employees of the acquired business which fall under this
award.
All of the awards under this scheme are subject to service conditions and a
portion of the awards are also subject to performance targets. There is an
entitlement to receive dividend equivalents on the awards.
Share awards under the DWF Group PLC EIP - Long-Term Incentive Plan
The Group incentivises its Executive Board with long-term rewards based on
challenging performance targets.
The awards under this scheme are also subject to service conditions. There is
no dividend or dividend equivalent entitlement until such time as they vest
and after a holding period.
Share awards under the DWF Group PLC EIP - Promotion award
The Group may incentivise its employees on promotion with a share award from
this scheme.
All of the awards under this scheme are subject to service conditions. A
portion of the awards were previously subject to performance targets, but
these have subsequently been removed. There is an entitlement to receive
dividend equivalents on the awards.
Share awards under the DWF Group plc BAYE - IPO award
At IPO, awards were granted to eligible employees.
The awards under this scheme were subject to service conditions. There was no
entitlement to receive dividends or dividend equivalents on the awards until
such time as they vested.
Share awards under the DWF Group plc BAYE - Free-share award
The Group incentivises its employees for exceptional contributions from this
scheme.
The awards under this scheme are subject to service conditions. There is no
entitlement to receive dividends or dividend equivalents until such time as
they vest.
Share awards under the DWF Group plc BAYE - Plan matching award ('BAYE
matching shares award')
The Group offers its employees in the UK, Spain and the US the opportunity to
actively buy shares in DWF Group plc and become an investor in the business.
The Group will match a certain number of awards, subject to service
conditions.
There is no entitlement to receive dividends or dividend equivalents until
such time as they vest.
Share awards under the DWF Group plc - Deferred bonus plan
The Group may make awards under this scheme to eligible employees as part of
the bonus plan.
The awards under this scheme are subject to service conditions. There is no
entitlement to receive dividends or dividend equivalents until such time as
they vest.
Share awards granted
The Black Scholes method was used to value all share awards granted during the
year. The following table outlines the inputs and assumptions used:
2022 2021
EIP BAYE Deferred bonus EIP BAYE
Weighted average fair value at measurement date 1.14 1.10 0.95 0.70 0.68
Weighted average share price at grant date 1.19 1.20 1.17 0.74 0.72
Expected volatility 42.96% 43.46% 43.52% 45.05% 50.23%
Expected life (years) 2.87 1.37 2.87 2.96 1.30
Expected dividend yield 1.33% 5.72% 6.57% 5.00% 5.00%
Risk free interest rate 0.50% 0.51% 0.18% 0.07% 0.03%
Estimate of attrition 21.60% 9.42% 20.46% 25.0% 25.0%
Estimate of performance conditions being met 85.70% N/A N/A 94.15% N/A
The expectations and estimates used represent the average across the tranches
granted. Expected volatility was determined by reference to the period for
which the share price history is available. The expected life used is the
vested date of the award.
22 Employee information and their pay and benefits
The average number of persons employed by the Group (including Executive
Directors) during the year, analysed by category, and the aggregate payroll
costs of these persons were as follows:
2022 2021
No. No.
Legal advisors 2,426 2,405
Support staff 1,222 1,265
3,648 3,670
£'000 £'000
Wages and salaries 199,828 192,493
Social security costs 11,694 11,528
Contributions to defined contribution plans 6,698 6,822
218,220 210,843
The Group operates defined contribution pension plans. The total annual
pension cost for the defined contribution plan was £6.7m (FY2021: £6.8m) and
the outstanding balance at 30 April 2022 was £0.9m (30 April 2021: £0.9m).
23 Cash generated from operations
a) Cash generated from operations before adjusting items
2022 2021
£'000 £'000
Cash flows from operating activities
Profit / (loss) before tax 22,316 (30,600)
Adjustments for:
Other impairment 3,593 4,595
Amortisation of acquired intangible assets 4,655 4,609
Depreciation of right-of-use asset 12,737 11,977
Other depreciation and amortisation 7,211 6,989
Gain on disposal of leases and investments - (798)
Non-underlying items 1,224 27,101
Share-based payments expense 9,609 27,818
Interest expense on lease liabilities 1,673 2,284
Net finance expense 3,518 2,682
Operating cash flows before movements in working capital 66,536 56,657
(Increase) / decrease in trade and other receivables (8,031) 13,120
Decrease in trade and other payables (17,641) (176)
Decrease in provisions 4,798 (296)
Decrease in amounts due to members of partnerships in the Group (4,039) (4,144)
Cash generated in operations before adjusting items 41,623 65,161
b) Free cash flows
Free cash flows is an APM and is defined in the glossary to the report.
2022 2021
£'000 £'000
Free cash flows
Operating cash flows before movements in working capital 66,536 56,657
Net working capital movement (20,874) 12,648
Amounts due to members of partnerships in the Group (4,039) (4,144)
Cash generated from operations before adjusting items 41,623 65,161
Net interest paid (4,596) (5,064)
Tax paid (2,854) (3,155)
Repayment of lease liabilities (13,396) (14,191)
Purchase of property, plant and equipment (3,581) (4,001)
Purchase of other intangible assets (4,300) (6,635)
Free cash flows 12,896 32,115
c) Working capital measures
2022 2021
£'000 £'000
WIP days
Amounts recoverable from clients in respect of unbilled revenue 71,958 66,671
Unbilled disbursements 7,982 9,437
Total WIP 79,940 76,108
Annualised net revenue 350,490 338,130
WIP days 83 82
Debtor days
Trade receivables (net of allowance for doubtful receivables) 88,949 91,185
Other receivables* 3,154 2,890
Total debtors 92,103 94,075
Annualised net revenue 350,490 338,130
Debtor days 96 102
Total lock-up days
Total WIP 79,940 76,108
Total debtors 92,103 94,075
Total lock-up 172,043 170,183
Annualised net revenue 350,490 338,130
Total lock-up days 179 184
*In a change to the calculation of lock-up days from the prior year, other
receivables is shown excluding amounts due from members of partnerships as it
does not represent part of the Group's normal working capital. The comparator
has been restated for consistency. This has the impact of reducing the current
and prior year lock-up days by two days each. Under both methods of
calculation, lock-up days have reduced by five days and therefore the change
in calculation has had no impact on the reduction of lock-up days for the
year.
Annualised net revenue, an APM as defined in the glossary, reflects the total
net revenue for the previous 12-month period inclusive of pro-forma
adjustments for acquisitions and scale-backs.
Lock-up days is an APM and is defined in the glossary to the financial
statements.
The Group also measures lockup as above but excluding other receivables as
this more closely aligns with lockup measurement of other businesses in the
legal sector and also as other receivables do not represent sales outstanding.
Excluding other receivables, lockup days are 176 days (2021: 180 days).
UNAUDITED INFORMATION
Appendix
Reconciliation to new global operating structure - re-presented year ended 30
April 2021
The following reconciliation shows how the prior year's revenue and gross
profit has been re-presented from the old operating structure to the new
global operating structure:
As reported for the year ended 30 April 2021 Impact of restructure As reported under new global operating structure effective 1 May 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 (FY2021: 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 (FY2021: 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 (FY2021: Managed Services) 7,860 3,884 11,744
Gross profit 171,781 - 171,781
UNAUDITED INFORMATION
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
insightful for understanding the financial performance 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.
Changes to APMs
The Directors and management have redefined adjusted diluted earnings per
share ('adjusted DEPS') to aid comparability and simplicity. The denominator
reflects the aggregate of shares in issue and those shares held in trust, to
represent a fully diluted EPS. In addition, the denominator for the adjusted
earnings per share ('adjusted EPS') has been made consistent to the basic EPS
measure to provide further consistency to the statutory measure. The
definitions of adjusted DEPS and adjusted EPS are fully defined below.
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 vary significantly
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 2022 2021
£'000 £'000
Revenue 416,052 400,948
Recoverable expenses (65,810) (62,818)
Net revenue 350,242 338,130
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 or cash flow metrics in order to present further measures of
the Group's performance.
These include items which are significant in size 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, as well as allows our results to be compared more
fairly with other similar businesses.
Share-based payment charges within adjusting items relate to shares allocated
from the pre-funded employee benefit trust, which are not dilutive to
shareholders.
Reconciliation
See note 2
APM
Adjusted earnings before interest, tax, depreciation and amortisation
('adjusted EBITDA')
Closest equivalent statutory measure
Operating profit / (loss)
Definition and purpose
Operating profit adjusted for adjusting items as 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, and adjusting items as described above, as well as items
relating to capital structure (finance costs and income) and items outside the
control of management.
Reconciliation 2022 2021
£'000 £'000
Operating profit / (loss) 27,653 (25,634)
Depreciation of right-of-use asset 12,737 11,977
Other depreciation and amortisation 7,211 6,989
Total of adjusting items 19,081 64,792
Adjusted EBITDA 66,682 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 2022 2021
£'000 £'000
Profit / (loss) before tax 22,316 (30,600)
Total of adjusting items (note 2) 19,081 64,792
Adjusted profit before tax 41,397 34,192
APM
Cost to income ratio
Closest equivalent statutory measure
Not applicable
Definition and purpose
Adjusted administrative expenses and impairment 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 2022 2021
£'000 £'000
Net revenue 350,242 338,130
Adjusted administrative expenses and impairment (note 2) 134,322 132,623
Cost to income ratio 38.4% 39.2%
APM
Adjusted administrative expenses
Closest equivalent statutory measure
Administrative expenses and impairment
Definition and purpose
Adjusted administrative expenses are defined as administrative expenses plus
impairment 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 (excluding IFRS 16)
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 statement of financial position and can be a useful measure of the
indebtedness of the Group. This metric excludes the Group's lease liabilities
under IFRS 16 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 17
APM
Lock-up days
Closest equivalent statutory measure
Not applicable
Definition and purpose
Lock-up days comprise 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 are calculated as unbilled revenue divided by annualised net revenue
multiplied by 365 days. Debtor days are calculated as trade and other
receivables, excluding amounts due from members of partnerships, divided by
annualised net revenue multiplied by 365 days. Annualised net revenue is the
total net revenue for the previous 12 month period with adjustments for
acquisitions and discontinuations.
Reconciliation
See note 23
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:
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.
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
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 and Germany following
the scale back of operations in March 2021 and April 2022 respectively, along
with the results for current year acquisitions, Zing and BCA.
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 and German business was a significant 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 2022 2021
£'000 £'000
Legal Advisory 896 842
Connected Services 1,382 1,428
Mindcrest 12,216 16,254
Group 975 924
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 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 23
APM
Leverage
Closest equivalent statutory measure
Not applicable
Definition and purpose
Leverage is calculated as net debt, divided by the last 12 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 2022 2021
£'000 £'000
Adjusted EBITDA (last 12 months) 66,682 58,124
Net debt 71,820 60,168
Leverage 1.08 1.04
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