Full year results for the year ended 30 April 2023
25/08/2023 07:00
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RNS Number : 4119K DWF Group PLC 25 August 2023
DWF Group PLC
("DWF" or "the company" or "Group)
The information contained within this announcement is deemed to constitute
inside information as stipulated under the Market Abuse Regulations (EU) No.
596/2014. Upon publication of this announcement, this inside information is
now considered to be in the public domain.
25 August 2023
Full year results for the year ended 30 April 2023
DWF, the global provider of integrated legal and business services, today
announces its full-year results for the year ended 30 April 2023. The Board
is pleased with the Group's performance considering the challenging backdrop
for the broader economy and the legal sector.
GROUP FINANCIAL SUMMARY
£m (unless otherwise stated) FY2022/23 FY2021/22 Change
Revenue 451.6 416.1 8.6 %
Net revenue(1) 380.1 350.2 8.5 %
Gross profit 191.7 180.9 6.0 %
Gross profit margin(2) 50.4% 51.7% (1.3) ppts
Cost to income ratio(1) 37.2% 38.4% (1.2) ppts
Adjusted EBITDA(1) 69.6 66.7 4.3 %
Operating profit 24.2 27.7 (12.4)%
Adjusted profit before tax ('Adjusted PBT') (1) 43.3 41.4 4.7 %
Profit before tax ('PBT') 17.2 22.3 (23.1)%
Adjusted diluted EPS (pence) (1) 10.2 10.7 (4.7)%
Diluted EPS (pence) 3.8 6.5 (41.5)%
Gross lock-up days(1) 196 days 179 days 17 days
Free cash flow(1) 12.9 12.9 (0.5) %
Net debt(1) 101.7 71.8 29.9
Leverage(1) 1.46x 1.08x 0.38x
FY2022/23 HIGHLIGHTS
· Group net revenue growth of 8.5% (5% like-for-like(3)) to
£380.1m. Reported revenue growth of 8.6% to £451.6m.
· Gross profit margin reduced by 1.3ppts to 50.4% (FY22 51.7%)
reflecting direct cost pressure from salary increases.
· Cost to income ratio improved by 1.2ppts versus FY22 to 37.2%,
helping to offset margin pressures.
· Adjusted PBT up 4.7% to £43.3m, with direct cost and interest
rate pressures weighing on profitability.
· Adjusted PBT margin(4) of 11.4%, a reduction of 0.4 percentage
points on FY22 reflecting cost pressures.
· Reported PBT of £17.2m (FY22 £22.3m), which differs to Adjusted
PBT due to adjusting items of £26.2m (FY22 £19.1m).
· Adjusted diluted EPS of 10.2p (FY22 10.7p) a 4.7% decrease on
prior year due to the non-recurring tax benefit in the prior year which
related to deductions for historical restructuring costs.
· Lock-up days of 196 versus prior year of 179, representing a 17
day stretch (14 excluding acquisitions) due to sector wide trend towards
extended billing and payment terms
· £12.9m free cash flow generated (FY22 £12.9m), flat on PY due
to lock-up stretch.
· Net debt of £101.7m, £29.9m higher than FY22 due to initial
consideration payments of £10m for the acquisition of Acumension and Whitelaw
Twining in the year, combined with the impact of the 17 day lock-up stretch
versus the prior year.
· Leverage has increased to 1.46x EBITDA (FY22 1.08x).
STRATEGIC HIGHLIGHTS
· Two strategic acquisitions made in the year with Acumension and
Whitelaw Twining.
· Cost efficiency programme has continued with target savings of
£15.0m offsetting salary pressures and interest rate increases.
· New divisional structure from 1(st) May 2023 further integrates
the delivery of client service by combining legal and business services which
are aligned with the needs of the Group's clients, whilst maximising the
opportunity for future profitable revenue growth.
· On 21 July 2023, we were pleased to announce the Board's
unanimous recommendation of an all cash offer for DWF Group plc from Aquila
Bidco Limited, a newly incorporated wholly-owned subsidiary of funds advised
by Inflexion ("Offer").
OUTLOOK AND CURRENT TRADING
· The first three months of trading for FY24 have been in line with
management expectations from a revenue and income perspective, however lock-up
stretch has had a balance sheet and cash impact.
· Management are considering the achievability of the lock-up
target of 170 days given economic headwinds which are driving longer billing
and payment cycles.
· With the current trends not expected to abate, the Board is not
expecting to undertake any material M&A in the short term on a stand-alone
basis as it seeks to address the ongoing challenges presented by lock-up
stretch, increasing interest costs and the balance sheet leverage.
ACQUISITION BY INFLEXION
· The acquisition by Inflexion is expected to complete during the
final quarter of this calendar year.
· As part of the Offer from Inflexion, shareholders will be
entitled to receive a special dividend of 3 pence per share. The special
dividend, payment of which will be funded by Inflexion, is conditional upon,
and only payable if, the Offer becomes effective. Absent the Offer, in light
of the broader challenges in the sector and for DWF, the Board would need to
consider the appropriate level of dividend for the 6 month period ending
Apr-23, if any, and also its medium term capital management framework
including sustainable dividend distributions.
· With respect to the recommended cash acquisition of DWF Group plc
by Inflexion Private Equity Partners LLP the shareholder Court Meetings and a
General Meeting are to be held on 12(th) September 2023 to consider the scheme
of arrangement.
· The DWF Directors recommend unanimously that DWF Shareholders
vote in favour (or procure votes in favour) of the Scheme at the applicable
Court Meetings and vote in favour (or procure votes in favour) of the
Resolution at the General Meeting as the DWF Directors who hold DWF Shares as
at the date of the Scheme Document have irrevocably undertaken to do (or
procure to be done) in respect of their own beneficial holdings, amounting to
9,655,772 DWF Shares in aggregate, representing approximately 2.8 per cent. of
the ordinary share capital of DWF as at 11 August 2023.
· Bidco has also received irrevocable undertakings to vote (or,
where applicable, procure voting) in favour of the Court Meetings and the
General Meeting from 107 DWF Partners and Senior Employees who hold DWF Shares
totalling 132,370,677 DWF Shares representing approximately 38.7 per cent. of
the existing issued ordinary share capital of DWF as at 11 August 2023.
Sir Nigel Knowles, Chief Executive Officer, commented:
"We have once again grown the business profitably in what continues to be a
very challenging economic environment. Like other legal businesses, we have
seen salary and inflationary pressures, the impact of interest rate increases
and variable demand particularly in transactional areas. Despite these
challenges, we have seen our organic growth strategy and integrated
propositions continue to resonate with clients, and have also added quality
businesses to the Group via our acquisitions of Acumension and Whitelaw
Twining"
Paul Rimmer, CEO of Commercial Services, commented:
"The Senior Partners and leaders and I wanted to take this opportunity, on
behalf of ourselves and the broader DWF partners and employees, to say thank
you to our institutional shareholders for their support since DWF's IPO. The
business has made substantial progress over the last 4.5 years in an evolving
market and we are now excited about delivering the next stage of our strategy
under private ownership. The quantum of irrevocable undertakings obtained from
the senior partners and leaders demonstrates our collective strong belief in
the rationale for the proposed acquisition, especially access to additional
capital, more flexibility on investment spend and the ability to maintain
additional leverage capacity in the business as we invest to counter macro
headwinds. This is an essential opportunity to ensure DWF has a firm footing
for growth over the medium term and we all look forward to supporting our
clients under Inflexion's ownership."
The person responsible for making this announcement on behalf of the Company
is Chris Stefani, Group Chief Financial Officer.
For further information:
H/Advisors Maitland (public relations advisers to DWF)
Sam Turvey or Sam Cartwright
+44(0)20 7379 5151
DWF Group plc
James Igoe
+44(0)7971 783533
Head of Communications & IR
About DWF Group
DWF is a global provider of integrated legal and business services. It has
approximately 4,000 people and with offices and associations located across
the globe. For more information visit: dwfgroup.com
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.
LEI: 213800O9QREOHTOGQ266
(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 the impact of
acquisitions
(4) Adjusted PBT margin is defined as Adjusted PBT divided by net revenue
Chair's Statement
Dear Shareholder,
I am delighted to introduce our Annual Report and Accounts for the year ended
30 April 2023. The past year has been marked by continued macroeconomic
volatility with considerable inflationary pressures across food, energy and
other essential consumer categories. These pressures have led, in many
countries, to a cost of living crisis and rising interest rates, which in
turn, has fuelled further uncertainty about economic growth rates.
Despite these challenging conditions, our differentiated integrated legal and
business services offering and our focus on delivering positive outcomes has
enabled us to continue to perform well relative to some challenging sentiments
in the legal sector.
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
We are focused on driving shareholder value through the delivery of
sustainable attractive growth. That is what we have achieved again this year.
The Board is pleased with the Group's performance on revenue growth,
profitability and cost control. Net revenue is up by more than 8% to £380m,
with a like-for-like growth rate of 5%. Pleasingly we have seen this rate of
growth improve in the second half of the financial year although this was
against a challenging H2 in FY22.
Adjusted profit before tax increased by 4.7% to £43.3m, supported by our cost
programme which now anticipates savings of £15m, helping to in part offset
the well-publicised upward salary cost pressures affecting the sector.
Reported profit before tax was £17.2m which represents a £5m or 23%
reduction on prior year owing to an increase in adjusting items of £7m in the
year as well as rising interest costs.
This performance reflects the impact of the Group's Integrated Legal
Management strategy and ongoing key client focus, delivering integrated
solutions to more Group clients.
Culture
We are a people business where developing a positive and inclusive culture,
underpinned by our values and behaviours, is critical to our success.
Over the past year, I have enjoyed spending more time in our offices meeting
with partners and colleagues, hearing first-hand about their experiences of
working for DWF and perspectives on the culture within our organisation.
We have been able to organise more colleague engagement activities in-person
and in different locations. This allowed the Board to hold informal meetings
with a cross-section of DWF colleagues, at every career level and from all
parts of the business. We have all found these very valuable.
I would like to express my thanks to all attendees at these meetings in
providing their thoughts and opinions in an open and constructive manner.
The feedback received at these meetings is echoed through our well established
engagement survey, where our engagement score has remained stable at 76. In
the context of macroeconomic volatility, we are pleased with this strong
performance in this key indicator.
Our role in society
ESG is core to our business model and long-term strategy and it remains a
priority focus area for the Board. FY22/23 marked the first full year since
publication of our ESG Strategy and I am pleased to report that we have made
meaningful progress in a number of areas.
This includes reductions of our Scope 1 and Scope 2 CO2 emissions of 20% and
41% respectively, compared with FY21/22. We have continued to enhance our
office space, with Pune, India and the new Edinburgh office both powered
entirely by renewable energy.
On our diversity & inclusion agenda, we increased overall ethnic minority
representation to 14%, against a target of 13% by 2025 and we invested in a
range of new and improved family friendly policies, significantly enhancing
our maternity, paternity and adoption leave schemes.
We are also proud that in the last financial year the DWF Foundation, an
independent charity established by DWF in 2015, exceeded the £1 million mark
for grants distributed. Funded in large part by the fundraising activities of
DWF colleagues, the Foundation is an excellent example of the positive
outcomes achieved through colleagues living our values. A point reinforced by
the nearly 9,000 hours of volunteering time delivered by colleagues through
the last financial year.
I talk more about our purpose, values and culture in the Governance
introduction. You can read more detail on our priorities and actions in the
ESG section of our Annual Report and Accounts.
Annual General Meeting 2023
The Annual General Meeting will be held on 20 October 2023.
Looking ahead
On 21 July 2023, we were pleased to announce the Board's unanimous
recommendation of an all cash offer for DWF Group plc from Aquila Bidco
Limited, a newly incorporated wholly-owned subsidiary of funds advised by
Inflexion. This transaction is highly attractive not only for our internal and
external shareholders, but also for our clients, employees and other
stakeholders. The DWF board of directors recognises the opportunities that
could be delivered under private ownership with Inflexion, which includes
access to significant capital to invest in people and technology, accelerated
lateral hiring and transformative acquisitions across jurisdictions. Inflexion
has a clear ambition to support the management team to execute its strategy to
create a global professional services business emanating from the legal sector
and this will enhance the already exceptional and differentiated services that
we deliver for our clients.
Shareholders will already have received a copy of the Scheme Document which
was published on 15 August 2023. The shareholder Court Meetings and a General
Meeting to approve the scheme of arrangement have been scheduled for 12
September 2023.
Subject to shareholder approval and the satisfaction (or, where applicable,
waiver) of the Conditions and further terms set out in Part 3 of the Scheme
Document, the Acquisition is expected to become effective during Q2 FY2024.
I would like to thank all of our Board members for their time and focus
throughout this year.
Jonathan Bloomer
Chair
24 August 2023
Chief Executive Officer's Review
How did the Group perform this year?
We have once again grown the business profitably in what has been a very
challenging economic environment. Like other legal businesses, we have seen
salary and inflationary pressures, the impact of interest rate increases and
variable demand particularly in transactional areas. Despite these
challenges, we have seen our organic growth strategy and integrated
propositions continue to resonate with clients, and have also added quality
businesses to the Group via our acquisitions of Acumension and Whitelaw
Twining.
You have further extended your capabilities in North America through the
transaction with Whitelaw Twining in Canada. How is this integration
progressing and what next for this region?
We were pleased to complete this transaction with Whitelaw Twining, one of
Canada's top legal businesses which we knew would always represent a high
quality opportunity for our clients. Good progress has been made since they
became part of the DWF Group in December.
We have already expanded into the Toronto legal services market with the hire
of three partners, four additional lawyers, one paralegal and two support
staff. We are also seeing great collaboration - between our legal and business
services colleagues within Canada and between our Canadian team and colleagues
globally.
This move marked the next step in DWF's North American strategy and has given
us an integrated legal and business services offering in Canada which also
aligns to the Group's existing claims and legal operations offering in
Chicago.
In a highly-competitive talent market, what have you done this year to
strengthen your colleague proposition?
Attracting and retaining the very best talent remains a top priority. That is
why in the past year we have taken steps to continue strengthening our
colleague proposition. I would highlight two areas where we have made
particular progress, through significantly enhanced family friendly policies
and improvements made to a number of our office locations through our future
workplace strategy.
Our enhanced family friendly policies including aligning our maternity leave
provision for all colleagues and partners to offer 26 weeks at full salary,
with this same 26-week provision available to colleagues and partners taking
adoption leave. We have doubled our paternity leave entitlement from two weeks
to a four-week benefit and increased our Shared Parental Leave benefit from
two weeks with full pay, to eight weeks. These investments carry a cost, but
the improvements benefit our colleagues and support our drive to create an
inclusive culture.
Our future workplace strategy includes a commitment to reducing the amount of
overall office space and improving the quality, contributing to our ESG
commitments through our use of materials and improving colleague wellbeing
with smart and functional work areas. The actions taken this year include a
relocation in Edinburgh, where we selected a building which has been designed
with a clear focus on sustainability, creating an exceptional working
environment and having a positive impact on the local community.
We have also delivered a refit of our Bristol office, with work also underway
in Liverpool. Whilst this strategy remains a work in progress, our expectation
is that we will review all of our office space globally with the aim that our
current and future colleagues view our office spaces as places they enjoy
working from.
In March you announced changes to your global operating structure. What will
these changes allow you to do differently and how do they support your
integrated legal management approach?
The changes we announced in March were a natural evolution in our strategy as
they allow us to go further in how we deliver our integrated offering to
clients. It means our internal operations are better aligned with the services
we provide and the clients and markets we serve. Many of our largest global
clients are insurers and our integrated legal management approach is of
particular relevance to them. By bringing legal and business services
colleagues together into our two largest divisions, we are delivering a truly
integrated offering to clients, driving greater internal collaboration and
supporting profitable revenue growth.
What is the outlook for the year ahead?
We continue to be in turbulent times economically, and indeed the legal sector
has seen pressures from both rising costs and volatility in demand
particularly for transactional work. We have always viewed ourselves as
having a defensive model but are not immune to the environment in which we
operate. The margin dilution from salary and interest rate increases, which
brought us in at the bottom end of Adjusted PBT expectations, will continue to
need mitigating actions on price, productivity and cost control. We believe
we have put the right initiatives in place to protect our P&L, but are
also having to work hard to ensure lock-up stays within a sensible range as
clients are inevitably holding on to cash for longer. This has implications
for our leverage and our ability to execute our strategy. We remain confident
in our prospects, but cannot be complacent about the headwinds affecting all
businesses. Indeed, absent the Offer from Inflexion, the Board would need to
consider the appropriate level of dividend, if any, for the period ending
Apr-23 and DWF's medium term capital management framework.
Sir Nigel Knowles
Group Chief Executive Officer
24 August 2023
Financial Review
A Challenging Environment
The Group has delivered profitable growth in a particularly difficult
environment for the sector. The results include reported revenue growth of
8.6% to £452m (PY £416m), net revenue growth of 8.5% to £380m (PY £350m),
a 4.7% increase in adjusted profit before tax to £43.3m (PY £41.4m) and a
reported profit before tax reduction of 23% to £17.2m (PY £22.3m).
In addition to top-line growth rates, the Group is gradually seeing the
stabilisation and reversal of gross margin dilution from salary inflation over
the last 18 months. The gross margin gap to prior year at FY23 has reduced
compared to HY23, reflecting some improvements in pricing combined with the
cost programme announced in December 2022. Overheads and the cost-to-income
ratio are trending favourably with £11m of the previously announced cost
savings secured by the end of FY23. These dynamics help to underscore
confidence in market guidance as management has taken action to offset some of
the adverse economic circumstances not envisaged when guidance was last
issued.
Working capital performance continues to be an area of challenge in an
environment where clients are generally looking to manage their own working
capital cycle by often seeking longer billing or payment cycles. The Group
reported lock-up days of 190 at HY23 which reflected an 11 day increase on
FY22. As expected, this position stabilised in H2 with the like-for-like
lock-up day performance for the full year at 193 days (like-for-like excludes
M&A). Net debt performance follows lock-up days with FY23 net debt of
£101.7m.
Revenue
Revenue for the year is £452m (FY2021/22 £416m) representing growth of
8.6%. However, the Group focusses revenue measurement on net revenue as
revenue is distorted by the level of irrecoverable 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 is £380m (FY2021/22 £350m) representing reported
growth of 8.5% and like-for-like growth (excluding acquisitions of Acumension
and Whitelaw Twining) of 5%.
Divisional performance
Highlights of the performance by division are set out below:
Legal Advisory (83% of Group Net Revenue/85% of Group Gross Profit)
£m FY2022/23 FY2021/22 Change %/ppts
Revenue 385.3 355.1 +8.5 %
Net revenue 316.6 292.0 +8.4 %
Direct costs (154.0) (138.7) +11.0 %
Gross profit 162.6 153.2 +6.1 %
Gross margin %/ppts 51.4% 52.5% -(1.1)ppts
Legal Advisory delivered net revenue growth of 8% (LFL growth of 5%) despite
facing a number of challenges throughout FY23, including the impact of the
Russia and Ukraine conflict and significant political uncertainty in the
United Kingdom during Q2 and Q3. High single digit percentage growth in a
number of our global teams such as Dispute Resolution and Finance &
Restructuring, with double digit percentage growth in Tax & Private
Capital, has been partly offset by transactional teams which have been
impacted by the broader economic uncertainty and delays in the regulatory
pipeline. Insurance grew by 5% and is generally less affected by macro factors
due to its defensive nature. As the first financial year following the easing
of Covid-19 restrictions, FY23 chargeable activity was also adversely impacted
by increased absence as many colleagues took their first substantial holidays
since 2019.
Given these various top line headwinds, fee earner, team and location
performance levels have been closely monitored to identify potential strategic
cost savings and protect margins. Along with tight controls over recruitment,
these activities helped mitigate the impact of cost pressures that intensified
from the FY23 sector 'war on talent' and market demands including cost of
living pay increases for non-qualified grades upwards. Such actions needed to
be balanced sensibly with the longer-term needs of the division.
Recruitment has been enhanced where the future pipeline warrants investment,
for example in insurance and our new sustainable business offering and global
arbitration teams. There has been a drive to build presence in London and to
recruit high quality lateral hires into France and other overseas locations,
whilst supporting wider growth in lower cost jurisdictions to facilitate
efficient best-shoring of work.
Consequently direct costs have increased ahead of net revenue growth,
resulting in a degree of gross margin degradation. There has also been an
impact from lengthening matter lifecycles which have led to slower payments
from clients, placing pressure on working capital and increasing lock-up days.
This is consistent with trends reported across the sector and a broad range of
measures have been introduced to mitigate risks in this regard. This working
capital stretch is considered to be a timing issue which will ultimately
unwind.
The end of the year saw the launch of a number of initiatives, such as the
planned introduction of pricing technology solutions to help counteract
ongoing inflationary cost pressures.
In addition, expansion into new locations (including Saudi Arabia and Canada)
will support the drive for profitable future growth.
Connected Services (11% of Group Net Revenue/9% of Group Gross Profit)
£m FY2022/23 FY2021/22 Change %/ppts
Revenue 41.5 34.2 +21.5 %
Net revenue 40.7 33.9 +20.1 %
Direct costs (22.7) (18.8) +20.8 %
Gross profit 17.9 15.0 +19.1 %
Gross margin %/ppts 44.0% 44.4% -(0.4)ppts
Connected Services delivered net revenue growth of 20% compared to FY22 (LFL
growth of 14%). This growth was supported by the acquisition of Acumension in
September, a team of 47 legal costs management specialists in the UK, which
has expanded DWF's costs management capability and enhanced the service for
clients in the insurance and public sectors.
Whilst net revenue has grown by £6.8m, gross profit did not increase by the
same proportion, resulting in gross margin decline for the division. This was
due to cost pressures driven primarily by cost of living linked pay increases
across a number of territories, particularly the UK, US and Canada. This
margin dilution began to ease in Q4 as a result of cost measures and pricing
interventions and is expected to improve along with the rest of the Group over
time, particularly as efficiencies are secured through the new divisional
structure.
The Claims Management and Adjusting business has grown by 12%. This was driven
by both the US and Canadian geographies where the strength of the North
American insurance market led to new client wins, teams in Chicago and
Vancouver were expanded and as the business benefitted from the pound
weakening against the dollar. The United Kingdom and Ireland business remained
flat as new business replaced Covid-19 Business Interruption claims work.
Combining the Claims Management and Adjusting business with Insurance Legal
Services in FY24 will promote greater client sharing and collaboration.
The Regulatory business, which largely aligns to the new Commercial Services
Division, has grown by 23% and saw an improving gross margin. With the
exception of Audit, which underwent a restructure during the year, all
businesses showed double-digit net revenue growth, reflecting a strong
pipeline of work due to our clients increasing demand for regulatory advice.
The wider Group restructure produces synergies with what was the Legal
Advisory division and presents the opportunity to reduce cost within the
division. The full impact of the cost efficiency programme began to show
through in the final quarter and, with the majority of the identified savings
being support roles, should have limited impact on revenue.
Mindcrest (6% of Group Net Revenue/6% of Group Gross Profit)
£m FY2022/23 FY2021/22 Change %/ppts
Revenue 24.8 26.8 -(7.4)%
Net revenue 22.9 24.4 -(6.3)%
Direct costs (11.7) (11.8) -(0.7)%
Gross profit 11.2 12.7 -(11.4)%
Gross margin %/ppts 49.0% 51.8% -(2.8)ppts
Mindcrest had a transitionary year as structural changes were implemented,
including a change in leadership and the recruitment of new sales resource.
The focus for H2 has been on building pipeline and embedding the new dual
go-to-market strategy, focussing both on sales to the top 450 Group clients as
well as internal work transfer to secure Group margin benefit. As with other
divisions, the cost efficiency programme has driven some cost removal but has
also facilitated investment into sales resource in the US (the largest
alternative legal services provider market globally).
Divisional net revenue contracted by 6% in the year, owing to the conclusion
of one of the division's flagship engagements which began winding down in H2
of FY22. Despite net revenue having contracted year-on-year, H2 of FY23 saw
top line growth of 9% as compared to H2 of FY22 as the division starts to
generate momentum. Certain services within the division have enjoyed
particular success, reflecting improved demand from financial services
clients. This includes eDiscovery services, which grew revenue by 15%, and
lender/recovery services, which grew by 10%.
In addition to the restructuring and refocussing activities, the division saw
similar inflationary cost of living pressure across all geographies (more so
in United Kingdom following announcement of Living Wage increases). The margin
pressures began to ease in Q4 due to cost savings and the positive pipeline
development.
Direct costs
Direct costs, which reflect the salary costs of fee-earning partners and
staff, have increased by £19m, or 11%, to £188m. The acquisitions of
Acumension and Whitelaw Twining accounted for £6.5m of year-on-year
increases, and in addition salary increases and recruitment of new partners
and fee-earners accounted for the remaining £12.5m (7%) increase. A
combination of broader inflationary pressures and the well documented legal
sector battle for talent have driven the salary uplifts.
Gross profit
Gross profit of £192m reflects the impact of organic and inorganic revenue
growth and the salary increases from recruitment and salary uplifts, with
gross profit increasing by £11m or 6% on FY2021/22. This reflects a gross
margin % of net revenue of 50.4% (FY2021/22 51.7%). This reduction reflects
the investment made in additional fee earning resources and the impact of
salary increases driven by sector and broader inflationary pressures.
Pricing and productivity are areas of focus which are expected to help
mitigate the gross margin dilution.
Administrative expenses
Administrative expenses (including impairment) have increased to £168m
(FY2021/22 £153m) which is a £14m or 9% increase. However, on an
underlying basis excluding adjusting items, administrative expenses for
FY2022/23 are £141m (FY2021/22 £134m), an increase of £7m or 5%.
Approximately two thirds of the year-on-year increase is attributable to the
additional overheads from the acquisitions of Acumension and Whitelaw
Twining. The balance predominantly represents increases in support staff
salaries, travel, business development and IT costs.
The restriction of underlying overhead growth to 5% has delivered a
cost-to-income ratio of 37.2% (FY2021/22 38.4%).
During the year, the Group announced a cost efficiency programme with the aim
of reducing both direct and indirect costs to help offset other inflationary
pressures. The outturn on administrative expenses and the resulting
reduction in cost-to-income ratio is partly attributable to the savings
delivered by this cost programme, which began to reflect in the numbers in the
final quarter of the year. In May, the Group announced an increase in the
cost savings target from £10-£12m to £15m in recognition of the continuing
(and in the case of interest rates, increasing) pressure on the Group's
'Adjusted Profit Before Tax' guidance. Cost control will continue to be an
area of focus with savings in property (via estate reduction), project spend
and other discretionary overheads helping to mitigate ongoing salary inflation
and interest increases.
Adjusting items (the difference between reported and underlying administrative
expenses) were £26m (FY2021/22 £19m). The increase is due to additional
share based payment charges, accelerated depreciation for vacant property,
acquisition fees and restructuring costs. The table below provides more
details with full analysis contained in note 2 to the financial statements:
£m FY2022/23 FY2021/22
Office closures and scale-backs 10.0 (0.2)
Acquisition related expenses 6.5 9.6
Gain on bargain purchase (4.5) -
Other share based payments 10.8 9.6
Restructuring costs 3.3 -
Refinancing costs - 0.1
Total adjusting items 26.2 19.1
Adjusting items in FY2022/23 can be summarised as:
1. Historical office closures, impairments and scalebacks where some
final costs were charged to the income statement in the year in relation to
Germany and the Pune lease for the unused 8(th) floor was impaired;
2. Acquisition related expenses principally relating to amortisation
and impairment of intangibles recognised on acquisition, acquisition related
remuneration for Acumension and Whitelaw Twining and acquisition related
advisory fees;
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 execution of the cost reduction
programme
Net finance expense and interest payable on leases
Net finance expenses relating to bank charges and borrowings were £5.3m
(FY2021/22 £3.7m). Interest on bank borrowings increased as a result of a
combination of higher interest rates and an increase in the level of net debt
due to acquisition outflows and higher lock-up.
Interest payable on leases of £1.7m (FY2021/22 £1.7m) reflects the notional
interest cost relating to lease borrowings.
Profit before tax
The Group reported a profit before tax of £17.2m (FY2021/22 £22.3m) which
represents a £5m or 23% reduction on the prior year. The reduction is
primarily driven by the £7m increase in adjusting items as detailed above in
the administrative expenses section.
Adjusted PBT is £43.3m (FY2021/22 £41.4m) which represents a 4.7% increase
on the prior year. The key factors driving the slightly lower "drop-through"
from revenue growth are the gross margin dilution due to direct cost increases
and significant interest increases from both base rate rises and sector
lock-up stretch driving higher net debt. These factors are partially, but
not wholly, offset by the initial impacts from the cost programme which means
the adjusted PBT margin of 11.4% represents a 0.4ppts reduction on prior year
(FY2021/22 11.8%).
Tax
The reported tax charge for the year, excluding prior year adjustments, is
£5.7m (FY2021/22 £6.1m) on a profit before tax of £17.2m (FY2021/22
£22.3m). This represents an effective rate of tax of 32.9%. The effective
tax rate was higher than the UK statutory tax rate primarily due to current
year tax losses that have not been recognised as deferred tax assets
(increasing the tax charge by £2.5m) and the tax effect of non-deductible
expenses (increasing the tax charge by £1.7m) offset by the utilisation of
unrecognised losses brought forward (reducing the tax charge by £2.1m).
The Group also booked prior year adjustments of a net credit of £1.0m.
Those adjustments principally arise as a result of (a) finalisation of prior
period partnership tax returns and partner drawings impacting the profits
subject to UK corporation tax (£0.5m), and (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 2022 (£0.5m).
This gives a net tax charge of £4.7m for the year (FY2021/22 £2.0m).
There are no open tax audits or investigations across the Group. In line
with Group 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 decreased to 3.8p in FY2022/23 compared to 6.5p in
FY2021/22. The reduction is due to three factors: an increase in one-off
(adjusting items) compared to the prior year, reducing the reported profit; an
increase in tax charge compared to prior year, which benefitted from
deductions from historical closures and scalebacks; and an increase in the
share count from the acquisition of Whitelaw Twining during the second half of
the year.
Adjusted diluted EPS has decreased to 10.2p (FY2021/22 10.7p), a reduction of
0.5p or 5%. This reduction is due to the aforementioned one-off benefit in
the prior year tax charge which enhanced the prior year EPS by an estimated
0.9p.
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. Under normal circumstances, the Board targets a
pay-out ratio of up to 70% of adjusted profit after tax. For FY2022/23,
however, no final dividend has yet been declared given the proposed
acquisition of DWF Group by Inflexion (which will include a special dividend
payment of 3 pence per share if the Offer becomes effective) and unanimous
recommendation that DWF Shareholders vote in favour of the deal. If the Offer
does not become effective, the Board will need to consider the appropriate
level of dividend, if any, for H2 2022/23.
Working capital, cash flow and 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.
During the year, the Group saw a stretch in lock-up days to 190 days at the
half year, after achieving consistent reductions over the previous four
reporting periods. This lock-up increase was in line with reported lock-up
stretch in the legal sector as client demands have driven either extended
billing cycles or longer payment terms. Whilst the lock-up increase for the
Group, at 5% at half year, outperformed the sector-wide increase of 10% it
nevertheless has driven a higher overall lock-up balance and resultant net
debt outcome. The stated intention at the half-year was to stabilise the
position and this was broadly achieved with year-end lock-up of 196 days (193
on a like-for-like basis excluding Whitelaw Twining acquisition). In an
inflationary environment with rising interest rates the upward pressure on
billing and collection terms is potentially an ongoing risk. Whilst the
Group will continue to mitigate this by improving the efficiency of internal
influencing factors, the external environment is not expected to enable
significant near-term reductions in lock-up.
The Group expects to continue to operate well within its available facilities
and for all covenants to be compliant for the remaining tenure of the RCF.
Capital expenditure
The main capital expenditure requirements of the Group are for IT
infrastructure, replenishment and project work and office refurbishments.
Overall capex (excluding right-of-use asset additions under IFRS 16, and
intangible assets recognised from acquisitions) in FY2022/23 was £6.3m
compared to £7.9m in FY2021/22.
Current trading and future outlook
The performance in FY2022/23 reflects another year of profitable growth,
albeit delivering an Adjusted PBT figure at the lower end of expectations.
Whilst profits increased year-on-year, gross and net margins were diluted
primarily as a result of direct cost pressures from increased salaries
demanded across the sector. The Group has taken actions to mitigate these
cost challenges via the cost programme which has made good progress and is
expected to help to mitigate the ongoing upward cost pressures.
The balance sheet, specifically lock-up, has proved to be a continuing
challenge with the lock-up stretch seen in H1 sustaining through H2 and into
the new year. This increase in lock-up days has led to increases in net debt
and leverage and reflects sector-wide pressures on billing frequencies and
payment terms. Working capital efficiency remains a key focus of the Group
in order to maximise cash generation to manage borrowing costs. Inevitably,
there are conflicting pressures between lock-up management, borrowing costs,
leverage, investments in M&A and dividend requirements which are being
carefully managed and considered by management and the Board.
The Group continues to see growth and profit opportunities but the various
performance levers will require cautious management in what continues to be a
challenging environment.
Chris Stefani
Group Chief Financial Officer
24 August 2023
FINANCIAL STATEMENTS
Consolidated income statement
Year ended 30 April 2023
2023 2022
Notes £'000 £'000
Revenue 3 451,641 416,052
Recoverable expenses 3 (71,505) (65,810)
Net revenue 3 380,136 350,242
Direct costs 3 (188,395) (169,332)
Gross profit 3 191,741 180,910
Administrative expenses (162,220) (146,691)
Gain on bargain purchase 9 4,459 -
Trade receivables impairment 13 (1,454) (2,973)
Accelerated depreciation/amortisation 4 (6,452) -
Other impairment 4 (1,856) (3,593)
Operating profit 4 24,218 27,653
Net finance expense 5 (5,310) (3,664)
Net interest expense on leases 5 (1,739) (1,673)
Profit before tax 17,169 22,316
Total of adjusting items as defined under the Group's alternative performance 2 (26,158) (19,081)
measures
Adjusted profit before tax 2 43,327 41,397
Taxation 6 (4,722) (2,029)
Profit for the year 12,447 20,287
Earnings per share attributable to the owners of the parent:
Basic (p) 8 4.0 6.8
Diluted (p) 8 3.8 6.5
The results are from continuing operations.
Consolidated statement of comprehensive income
Year ended 30 April 2023
2023 2022
£'000 £'000
Profit for the year 12,447 20,287
Items that are or may be subsequently reclassified to the income statement:
Foreign currency translation differences - foreign operations (1,388) 83
Total other comprehensive (expense)/income for the year (1,388) 83
Total comprehensive income for the year 11,059 20,370
There is no taxation on items within other comprehensive income.
Consolidated statement of financial position
As at 30 April 2023
2023 2022
Notes £'000 £'000
Non-current assets
Intangible assets 10 49,890 45,604
Property, plant and equipment 11 9,300 11,239
Right-of-use assets 12 57,223 65,234
Trade and other receivables 13 412 1,464
Deferred tax assets 20 4,320 3,938
Total non-current assets 121,145 127,479
Current assets
Trade and other receivables 13 243,339 190,174
Cash and cash equivalents (excluding bank overdrafts) 14 36,404 28,310
Total current assets 279,743 218,484
Total assets 400,888 345,963
Current liabilities
Trade and other payables 15 59,855 63,325
Corporation tax liabilities 9,366 6,190
Deferred consideration 583 890
Lease liabilities 16 13,712 14,576
Interest-bearing loans and borrowings 17 23,512 9,786
Provisions 18 6,898 6,315
Amounts due to members of partnerships in the Group 27 30,700 28,243
Total current liabilities 144,626 129,325
Non-current liabilities
Deferred tax liabilities 20 7,501 5,869
Lease liabilities 16 58,298 63,163
Interest-bearing loans and borrowings 17 114,640 90,344
Provisions 18 3,772 4,147
Total non-current liabilities 184,211 163,523
Total liabilities 328,837 292,848
Net assets 72,051 53,115
Equity
Share capital 21 3,420 3,254
Share premium 21 91,940 89,365
Treasury shares 21 (129) (129)
Other reserves 22 17,021 4,929
Accumulated losses 22 (40,201) (44,304)
Total equity 72,051 53,115
Consolidated statement of changes in equity
Year ended 30 April 2023
Other reserves
Share capital Share premium Treasury shares Merger reserve Share-based payments reserve Translation reserve Accumulated losses Total equity
(note 21) (note 21) (note 21) (note 22) (note 22) (note 22) (note 22)
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 May 2022 3,254 89,365 (129) (2,385) 11,512 (4,198) (44,304) 53,115
Profit for the year - - - - - - 12,447 12,447
Other comprehensive income - - - - - (1,388) - (1,388)
Total comprehensive income - - - - - (1,388) 12,447 11,059
Shares issued 166 2,575 - - - 2,741
Dividends paid - - - - - - (15,113) (15,113)
Share-based payments (note 23) - - - - 20,774 - - 20,774
Recycling of share-based payments (note 23) - - - - (7,294) - 7,294 -
Tax on share-based payments - - - - - - (525) (525)
At 30 April 2023 3,420 91,940 (129) (2,385) 24,992 (5,586) (40,201) 72,051
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 21) (note 21) (note 21) (note 22) (note 22) (note 22) (note 22)
£'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 23) - - - - 7,701 - - 7,701
Recycling of share-based payments (note 23) - - - - (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
Consolidated statement of cash flows
Year ended 30 April 2023
2023 2022
Note £'000 £'000
Cash flows from operating activities
Cash generated from operations before adjusting items 26 42,929 41,623
Cash used to settle non-underlying items (6,756) (8,464)
Cash generated from operations 36,173 33,159
Interest paid (5,979) (4,596)
Interest received 468 -
Tax paid (3,713) (2,854)
Net cash generated from operating activities 26,949 25,709
Cash flows from investing activities
Proceeds from sale of investment - 227
Acquisition of subsidiary, net of cash acquired 9 (16,807) (3,540)
Purchase of property, plant and equipment (2,874) (3,581)
Purchase of other intangible assets (3,452) (4,300)
Net cash flows used in investing activities (23,133) (11,194)
Cash flows from financing activities
Dividends paid 7 (15,113) (13,537)
Loan arrangement fee (163) (626)
Proceeds from borrowings 37,089 109,727
Repayment of borrowings (10,908) (104,861)
Repayment of principal of lease liabilities 16 (14,447) (13,396)
Interest received - 101
Capital contributions by members 27 7,237 2,132
Repayments to former members 27 (4,807) (1,072)
Net cash flows used in financing activities (1,112) (21,532)
Net increase/(decrease) in cash and cash equivalents 2,704 (7,017)
Cash and cash equivalents at the beginning of year 27,704 34,580
Effects of foreign exchange rate changes on cash and cash equivalents 188 141
Cash and cash equivalents at the end of year 14 30,596 27,704
Consolidated notes to the financial statements
Year ended 30 April 2023
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 2023 on which an unqualified
report has been made by the Company's auditors. The 2023 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 2023 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 2023 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 October
2024 and is carried out as follows:
· The Group's Board-approved budget base case is used to calculate the
net debt position, liquidity, covenant compliance and available headroom over
the going concern period.
· The going concern assessment has been carried out on two different
base cases, the first of which assumes the recommendation of an all cash offer
for DWF Group plc from Aquila Bidco Limited is accepted, and the second of
which assumes that the business continues as a Plc.
· The assessment of going concern is carried out with reference
to available financing facilities under both scenarios, 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 a variety of risks 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 £158m (of
which £139m were drawn). The largest of these is the £120m revolving credit
facility ('RCF'), which was increased through exercising the accordion
facility in February 2023. This RCF matures in December 2025, with one
additional 12-month extension option. The undrawn portion of the RCF is
readily accessible and does not require any further approval for drawdown by
the Group's banking syndicate. The facility agreement also permits the Group
to obtain a further £25m of external funding and £15m of leasing facilities,
if required. The covenant thresholds across the assessment period are set out
below:
Covenant Oct-23 Jan-24 Apr-24 Jul-24 Oct-24
Net Asset Value to Consolidated Net Borrowings 1.60x 1.60x 1.60x 1.60x 1.60x
Interest Cover 4.00x 4.00x 4.00x 4.00x 4.00x
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.
If the recommendation of an all cash offer for DWF Group plc from Aquila Bidco
Limited is approved, the current facilities will be fully repaid on
completion, and new committed banking facilities of £330m will become
available to the Group. The new facilities have long-term maturity dates, and
include two working capital facilities, comprising £30m initial, with an
additional optional £40m to drawdown on. There is also an additional £60m
facility available to be utilised for future acquisitions, subject to lender
approval. There are different covenant thresholds across the facilities, but
the minimum covenant ratio has been modelled for the assessment period and
these are as follows:
Covenant Oct-23 Jan-24 Apr-24 Jul-24 Oct-24
Leverage - - - 4.50x 4.50x
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, adjusted to include
Whitelaw Twining, has been used to measure the going concern and future
viability of the Group. This assessment has been performed on the same two
bases as going concern. 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 downside scenarios arising from the
principal risks and uncertainties.
In particular, the Board has considered the impact of both a de-listing and
business-as-usual scenario, including impacts on cash flows and covenants. In
addition the assessment considers the potential 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 each 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 reduction strategy
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 a stretch in working capital 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, under either scenario.
Conclusion
Based on this assessment, the Directors have a reasonable expectation that the
Group and Company has sufficient resources to continue its operations for the
period of assessment. In particular the Directors have a reasonable
expectation that the Group and Company 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 and Company to adopt the going concern
basis in preparing these financial statements.
The directors are satisfied that under the no deal basis there is sufficient
support and knowledge of the cash flows and operations of the business to
adopt a going concern basis for the Group and Company. The all cash offer for
DWF Group plc from Aquila Bidco Limited outlined above remains subject to
shareholder approval. Assuming such approval is received, the transaction is
expected to complete within 12 months of these Financial Statements. Aquila
Bidco Limited have stated their intentions surrounding the Group's future
outlook and funding plans and these align to the Group's current business plan
and strategy. However, as the decisions around future strategy and intentions
will no longer be in the exclusive control of the DWF Group PLC Directors,
this creates a material uncertainty that may cast significant doubt on the
Group and Company's ability to continue as a going concern as at 24th August
2023. The financial statements do not include the adjustments that would
result if the Group or Company were unable to continue as a going concern.
2 Alternative performance measures
APM's are not intended to supplant IFRS measures but are included in response
to investor feedback or to provide readers of the financial statements with
additional understanding of the underlying trading performance of the Group.
APMs are fully defined and information as to why they are useful is provided
in the glossary. Adjusted profit before tax reconciles to profit before tax as
follows:
2023 2022
£'000 £'000
Profit before tax 17,169 22,316
Adjusting items:
Amortisation of intangible assets - acquired 3,929 4,655
Impairment of intangible assets 1,494 2,966
Impairment of tangible and right of use assets 362 627
Accelerated depreciation/amortisation 6,452 -
Non-underlying items 6,248 1,224
Gain on bargain purchase (4,459) -
Share-based payments expense 12,132 9,609
Total of adjusting items 26,158 19,081
Adjusted PBT 43,327 41,397
In FY23, an accelerated depreciation charge of £6.5m (FY22: £nil) was
recognised in relation to the right of use, and other fixed assets located
within a vacant floor in the Pune office. There are no future plans to occupy
this space given the adoption of hybrid working, therefore associated assets
have been fully depreciated in the year.
Adjusted profit before tax reconciles to profit before tax with reconciling
items by nature as follows:
2023 2022
£'000 £'000
Profit before tax 17,169 22,316
Office closures and scale-backs 9,972 (238)
Acquisition-related expenses 6,493 9,564
Gain on bargain purchase (4,459) -
Share-based payment expense 10,822 9,609
Restructuring costs 3,330 -
Refinancing costs - 146
Adjusted PBT 43,327 41,397
Cash used to settle non-underlying items includes £5.4m (FY22: £3.8m)
relating to closures and other restructure costs and £1.4m (FY22: £4.6m)
relating to acquisition-related advisory fees.
Non-underlying items are set out in the table below:
2023 2022
£'000 £'000
Acquisition-related advisory fees a 1,254 336
Acquisition-related expenses b - 1,104
Closure and scale-back of operations c 1,664 (362)
Restructuring costs d 3,330 -
Non-underlying items within operating profit 6,248 1,078
Non-underlying finance expense e - 146
Total non-underlying items 6,248 1,224
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 Acumension and Whitelaw Twining
as well as fees for aborted acquisitions.
b. Acquisition-related expense relates to the remuneration expense from the
acquisition of Mindcrest in FY20. 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.
c. Closure and scale-back of operations in the current year relate to
ongoing costs relating to the scale-back of operations in Germany which
commenced in FY21 and final costs for the completion of closures and
scale-backs in other jurisdictions such as Singapore. These costs comprise
people and supplier exit expenses as a result of the decision taken.
d. During the year, the Group commenced an efficiency programme with the aim
of removing cost from the business. Costs of executing the restructuring are
considered non-recurring as a restructuring of this size is one-off and as a
result is reported as a non-underlying item to provide clarity of underlying
trading performance.
e. These costs are associated with the FY22 re-financing and include
professional fees incurred that are significant in value and by their nature
are not recurring annually.
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:
2023 2022
£'000 £'000
Net revenue 380,136 350,242
Administrative expenses, gain on bargain purchase, accelerated depreciation 167,523 153,257
and impairment
Total of adjusting items (26,158) (19,081)
Less: re-financing costs included in adjusting items - 146
Adjusted administrative expenses 141,365 134,322
Cost to income ratio 37.2% 38.4%
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 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 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 2023, the Group changed from the above strategic
divisions to:
Reportable segment Operations
Commercial Services Combining our commercial Legal Advisory teams with business services including
Global Entity Management, Forensic Accountants, ESG Consulting and Regulatory
Consulting.
Insurance Services Combining our insurance-focused legal and business services expertise under a
single leadership team.
Legal Operations Our alternative legal services provider, delivering services including
eDiscovery, contract management, compliance, legal technology, consulting and
operations, and knowledge management.
These changes to the Group's internal structure are a natural evolution to
those made at the start of FY22, and will allow DWF to go further in how it
delivers its integrated offering to clients.
For year ended 30 April 2023
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 385,263 41,547 24,831 451,641
Recoverable expenses (68,685) (894) (1,926) (71,505)
Net revenue 316,578 40,653 22,905 380,136
Direct costs (153,959) (22,749) (11,687) (188,395)
Gross profit 162,619 17,904 11,218 191,741
Gross margin % 51.4% 44.0% 49.0% 50.4%
Administrative expenses (162,220)
Gain on bargain purchase 4,459
Trade receivables impairment (1,454)
Other impairment (1,856)
Accelerated depreciation/amortisation (6,452)
Operating profit 24,218
Net finance expense (5,310)
Net interest expense on leases (1,739)
Profit before tax 17,169
Taxation (4,722)
Profit for the year 12,447
In FY23, an accelerated depreciation charge of £6.5m (FY22: £nil) was
recognised in relation to the right of use, and other fixed assets located
within a vacant floor in the Pune office. There are no future plans to occupy
this space given the adoption of hybrid working, therefore associated assets
have been fully depreciated in the year.
Within administrative expenses, there is an impairment loss of £1.5m
recognised relating to the Zing CGU. This is attributable to the Connected
Services segment.
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
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 Parent Company'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
2023 2022 2023 2022 2023 2022
£'000 £'000 £'000 £'000 £'000 £'000
UK 75,702 57,141 333,442 310,381 268,284 250,584
Spain 23,419 23,935 40,241 36,515 40,241 36,515
North America 14,331 12,100 23,833 7,717 23,828 7,702
Asia 1,464 14,063 11,654 11,107 10,312 8,838
Rest of World 1,497 14,838 42,471 50,332 37,471 46,603
Total allocated to geographical regions 116,413 122,077 451,641 416,052 380,136 350,242
Deferred tax assets 4,320 3,938
Non-current other trade receivables 412 1,464
Total 121,145 127,479
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
2023 2022
£'000 £'000
Recognised in the income statement
Impairment of intangible assets 1,494 2,966
Amortisation of intangible assets - acquired 3,929 4,655
Impairment of property, plant and equipment and right-of-use assets 362 627
Accelerated depreciation/amortisation 6,452 -
Gain on bargain purchase (4,459) -
Non-underlying items (less: non-underlying finance expense) 6,248 1,078
Share-based payments expense (note 23) 12,132 9,609
Total of adjusting items within operating profit 26,158 18,935
Members' remuneration charged as an expense 44,829 43,670
Net foreign exchange gain (1,431) (1,856)
Amortisation of intangible assets - software and capitalised development costs 3,268 4,251
Depreciation of tangible assets 3,562 2,960
Depreciation of right-of-use assets 12,365 12,737
Auditor's remuneration
Audit of the Group financial statements 535 510
Total audit fees 535 510
Amounts payable to the Company's auditor and its associates in respect of:
Audit of financial information of subsidiaries, subsidiary undertakings and 150 125
partnerships of the DWF Group plc
Other services pursuant to legislation or regulation 429 105
Total fees 1,114 740
5 Net finance expense and net interest expense on leases
2023 2022
£'000 £'000
Finance income
Interest receivable 861 101
861 101
Finance expense
Interest payable on bank borrowings 4,969 2,300
Other interest payable 112 54
Bank and other charges 1,090 1,265
Non-underlying finance expense - 146
6,171 3,765
Net finance expense 5,310 3,664
Net interest expense on leases
Interest expense on lease liabilities 1,739 1,673
1,739 1,673
6 Taxation
2023 2022
£'000 £'000
UK corporation tax on profit 4,858 5,639
Foreign tax on profit 2,188 2,822
Adjustments in respect of prior periods (445) (5,443)
Current tax expense 6,601 3,018
Deferred tax credit (1,341) (2,354)
Adjustments in respect of prior periods (538) 1,365
Total deferred tax credit (1,879) (989)
Total tax charge for the year 4,722 2,029
The effective tax rate is higher (2022: lower) than the average rate of
corporate tax in the UK of 19.5% (2022: 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:
2023 2022
£'000 £'000
Profit before taxation 17,169 22,316
Tax on Group profit at standard UK corporation tax rate of 19.5%/25% (2022: 3,348 4,240
19%)
Foreign tax rate differences 498 (4)
Non-deductible expenses 1,656 706
Adjustments in respect of prior periods (983) (4,079)
Brought forward tax losses utilised (2,115) (263)
Tax losses in year not recognised as assets 2,478 2,060
Impact of share price on expected tax deduction - 203
Effect on deferred tax of change in corporation tax rate (160) (834)
Group total tax charge for the year 4,722 2,029
In the Spring Budget 2021, the Government announced that from 1 April 2023 the
corporation tax rate would increase to 25%. 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
£5.7m on a profit before tax of £17.2m, representing an effective rate of
tax of 33%. 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 £2.5m) and the tax effect of non-tax
deductible expenses (increasing the tax charge by £1.6m) offset by the effect
of the utilisation of unrecognised losses brought forward (reducing the tax
charge by £2.1m). Please refer to Note 20 for further details.
7 Dividends
Distributions to owners of the parent in the year:
2023 2022
pence per share pence per share
Final dividend recognised as distributions in the year 3.25 3.00
Interim dividend recognised as distributions in the year 1.60 1.50
Total dividend paid in the year 4.85 4.50
Final dividend proposed - 3.25
2023 2022
£'000 £'000
Final dividend recognised as distributions in the year 9,821 9,008
Interim dividend recognised as distributions in the year 5,292 4,529
Total dividend paid in the year 15,113 13,537
Final dividend proposed - 10,574
The Directors are not proposing a final dividend for the financial year ended
30 April 2023. A special dividend, which is conditional upon the scheme of
arrangement becoming effective, is proposed as described in the scheme
document published by the Company on 15 August 2023.
8 Earnings per share
2023 2022
£'000 £'000
Profit for the year for the purpose of basic earnings per share 12,447 20,287
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 311,419,070 298,898,991
per share
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options 12,001,403 13,639,188
Weighted average number of ordinary shares for the purposes of diluted 323,420,473 312,538,179
earnings per share
Earnings per share attributable to the owners of the parent:
Basic earnings per share (p) 4.0 6.8
Diluted earnings per share (p) 3.8 6.5
Adjusted basic and adjusted diluted earnings per share are APMs (as defined in
the glossary) and have been calculated using profit for the purpose of basic
earnings per 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:
2023 2022
£'000 £'000
Profit for the year 12,447 20,287
Add / (remove):
Total of adjusting items (note 2) 26,158 19,081
Tax effect of adjustments above (3,763) (4,651)
Adjusted profit for the purpose of adjusted earnings per share 34,842 34,717
Number Number
Weighted average number of ordinary shares for the purposes of adjusted basic 311,419,070 298,898,991
earnings per share
Ordinary shares for the purposes of adjusted diluted earnings per share 341,979,578 325,352,865
Adjusted basic earnings per share (p) 11.2 11.6
Adjusted diluted earnings per share (p) 10.2 10.7
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.
Shares held in trust are deducted from the weighted average number of ordinary
shares for basic earnings per share and adjusted basic earnings per share.
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 2023
Business combinations are accounted for using the acquisition accounting
method as at the acquisition date, which is the date at which control is
transferred to the Group.
Two acquisitions were made in the year; Acuhold Limited ('Acumension') and
Whitelaw Twining Law Corporation ('Whitelaw Twining'). Details of the
acquisitions are as follows:
Country of incorporation Nature of activity Date of acquisition Consideration £'000 Percentage ownership
Acumension UK Costs management 2 September 2022 5,530 100%
Whitelaw Twining Canada Insurance 5 December 2022 5,260 100%
Acumension is a leading specialist in legal costs management headquartered in
Manchester, focused on utilising technological capability to deal with complex
defendant costs, and will expand our existing Costs business within the
Connected Services division.
Whitelaw Twining, is a leading Canadian law firm headquartered in Vancouver,
specialising in insurance, commercial litigation, personal injury and dispute
resolution. Whitelaw Twining brings a strong strategic fit, greater scale and
an enhanced platform in North America, with synergy opportunities alongside
DWF's existing Canadian claims and adjusting businesses.
The fair values of the assets and liabilities and the associated goodwill
arising from the acquisitions are as follows:
Acumension Whitelaw Twining
£'000 £'000
Intangible assets 223 8,453
Property, plant and equipment 89 -
Right-of-use asset - 4,835
Trade and other receivables 2,854 15,204
Cash and cash equivalents 1,690 91
Trade and other payables (352) (4,466)
Lease liabilities - (4,835)
Provisions - (342)
Amounts due to members - (3,361)
Loans and borrowings - (3,614)
Deferred tax liability (81) (2,246)
Net assets acquired 4,423 9,719
Purchase consideration 5,530 5,260
Purchase consideration satisfied by:
Initial cash consideration 4,368 304
Deferred cash consideration 1,086 2,347
Assets transferred as consideration 76 -
Contingent consideration - 15
Shares issued to shareholders - 2,594
Provisional goodwill / (gain on bargain purchase) 1,107 (4,459)
Within the £5,530,000 consideration for Acumension, £1,086,000 is deferred
and payable over one year post-acquisition and is not contingent on future
performance targets. Of this deferred consideration, £760,000 has been paid
in the period. Contingent consideration of £1,250,000 was payable based on
certain KPIs being met in the first year post-acquisition. These targets were
deemed to be unlikely to be met as at the acquisition date and therefore not
included within the fair value assessment of consideration. The provisional
fair values in relation to Acumension as disclosed in the FY23 interim
accounts have been updated resulting in an increase to goodwill of £452,000
and a decrease in acquired net assets of £1,761,000.
Of the £5,260,000 consideration for Whitelaw Twining, £2,347,000 was
deferred and payable in February 2023. This was not contingent on future
performance targets. During the period, all deferred consideration was paid.
An additional consideration of £15,000 was contingent on future performance
targets in FY23. These were achieved, and the contingent consideration paid in
March 2023.
In addition to the consideration paid for Whitelaw Twining, 13,143,000 of
shares were issued that vest over a period of between one and five years to
July 2027. These shares are contingent on continuing service of the sellers.
This is accounted for as remuneration and within the scope of IFRS 2
Share-Based Payments. An IFRS 2 charge of £1,293,000 has been recognised in
the income statement for FY23, and a balance of £9,234,000 included within
prepayments.
The goodwill for Acumension is attributable to the benefits of operating an
already well-established business in the relevant sector and the synergies
that are expected to be achieved from incorporating the business into the
Group's operations. The goodwill will be allocated to the Costs CGU. As the
purchase was not made with any qualifying intellectual property, all goodwill
acquired is non-tax deductible.
Goodwill is measured at the acquisition date as the fair value of
consideration transferred, plus non-controlling interests and the fair value
of any previously held equity interests less the net recognised amount (which
is generally fair value) of the identifiable assets and liabilities assumed.
Goodwill is subject to an annual review for impairment (or more frequently if
necessary) in accordance with our accounting policies. Any impairment is
charged to the income statement as it arises.
The following intangible assets were recognised at acquisition. These have
been measured at their fair value through the multi-period excess earnings
method (customer relationships) and royalty relief method (brand).
Acumension Whitelaw Twining
£'000 £'000
Intangible assets - brands - 2,086
Intangible assets - customer relationships 223 6,235
Total fair value of intangibles on acquisition 223 8,321
Deferred tax recognised as a result of the intangibles (57) (2,246)
Total fair value on acquisition 166 6,075
Cash flows arising from the acquisition were as follows:
Acumension Whitelaw Twining
£'000 £'000
Initial purchase consideration (4,368) (304)
Cash and cash equivalents acquired 1,690 (3,523)
Total fair value on acquisition (2,678) (3,827)
Deferred consideration paid in the year (760) (2,347)
Net cash outflow in the year (3,438) (6,174)
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
Acumension 2,233 427 3,137 126
Whitelaw Twining 10,025 877 23,676 997
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.
During FY23, the Group has concluded on the fair value of the net assets in
respect of acquisitions completed, resulting in an increase of of £3.9m in
net assets and a corresponding decrease in goodwill.
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').
Full details of the acquisitions can be found in the Annual Report and
Accounts 2022 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 2022 14,034 36,812 1,933 6,762 14,165 73,706
Additions - internally developed - - - - 2,726 2,726
Additions - externally purchased - - - 731 - 731
Additions through acquisitions 1,107 6,458 2,086 132 - 9,783
Effect of movements in foreign exchange (38) (110) 263 (58) - 57
At 30 April 2023 15,103 43,160 4,282 7,567 16,891 87,003
Amortisation and impairment
At 1 May 2022 1,357 13,132 1,782 4,444 7,387 28,102
Amortisation for the year - 3,743 186 987 2,281 7,197
Accelerated Amortisation - - - 133 - 133
Impairment 1,403 91 - - - 1,494
Effect of movements in foreign exchange - 172 36 (21) - 187
At 30 April 2023 2,760 17,138 2,004 5,543 9,668 37,113
Net book value
At 30 April 2023 12,343 26,022 2,278 2,024 7,223 49,890
At 1 May 2022 12,677 23,680 151 2,318 6,778 45,604
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
Individual intangible assets that are material to the financial statements are
set out below:
· Customer relationships - Whitelaw Twining: Net book value at 30 April
2023 £6.0m (2022: £nil) - remaining amortisation period is 13.5 years
· Customer relationships - Spain: Net book value at 30 April 2023
£18.0m (2022: £19.5m) - 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 CGU's or groups of CGU's as
follows:
2023 2022
£'000 £'000
Insurance 3,921 3,921
Claims Management and Adjusting 2,150 2,150
Costs 1,398 1,398
Other individually immaterial CGUs 4,874 5,208
12,343 12,677
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 FY24 which is underpinned by the business plan
that has been signed off by the Board. Cash flows for FY24 through to FY27
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% (2022: 2%)
consistent with the sector average and a pre-tax discount rate of 12-13%
(2022: 10-12%). 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.
The review for the Zing 365 CGU indicated that the recoverable amount was
lower than the carrying value by £1.5m. The carrying value of the CGU has
therefore been reduced to its recoverable amount, resulting in a Goodwill
impairment charge of £1.4m, with the remaining £0.1m impairment allocated
against the Customer Relationships intangible. This charge is recognised
within administrative expenses in the Group income statement, and is
attributable to the Connected Services segment.
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, with the exception of the Zing 365 CGU. No other
reasonable worst-case scenario gives rise to a material impairment risk.
11 Property, plant and equipment
Leasehold improvements Office equipment and fixtures and fittings Computer equipment Total
£'000 £'000 £'000 £'000
Cost
At 1 May 2022 18,170 13,938 37,491 69,599
Additions 855 1,160 871 2,886
Acquired through business combinations - 89 - 89
Disposals (68) (322) (151) (541)
Effect of movements in foreign exchange (209) (29) (20) (258)
At 30 April 2023 18,748 14,836 38,191 71,775
Accumulated depreciation
At 1 May 2022 14,066 9,163 35,131 58,360
Charge for the year 789 1,367 1,406 3,562
Accelerated depreciation 985 190 - 1,175
Disposals - (319) (57) (376)
Effect of movements in foreign exchange (32) (181) (33) (246)
At 30 April 2023 15,808 10,220 36,447 62,475
Net book value
At 30 April 2023 2,940 4,616 1,744 9,300
At 1 May 2022 4,104 4,775 2,360 11,239
In FY23, an accelerated depreciation charge of £1.2m (FY22: £nil) was
recognised in relation to leasehold improvements and office equipment located
within a vacant floor in the Pune office. There are no future plans to occupy
this space given the adoption of hybrid working, therefore associated assets
have been fully depreciated in the year.
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
12 Right-of-use assets
Leases as a lessee
Property Equipment Total
£'000 £'000 £'000
Right-of-use assets
At 1 May 2021 67,073 2,093 69,166
Additions 10,467 - 10,467
Acquisitions - - -
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
Additions 3,487 - 3,487
Acquisitions 4,835 - 4,835
Depreciation (11,907) (458) (12,365)
Accelerated depreciation (5,144) - (5,144)
Impairment (362) - (362)
Remeasurement adjustment 1,559 (23) 1,536
Effect of movements in foreign exchange 2 - 2
At 30 April 2023 56,085 1,138 57,223
In FY23, an accelerated depreciation charge of £5.1m (FY22: £nil) was
recognised in relation to the right of use asset for a vacant floor in the
Pune office. There are no future plans to occupy this space given the adoption
of hybrid working, therefore associated assets have been fully depreciated in
the year. The remeasurement adjustment relates to the impact of term and rent
changes on property leases during the year.
Leases as a lessor
During FY22, 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 £nil (2022: £1.0m) which was previously
recorded against the right-of-use assets.
13 Trade and other receivables
2023 2022
£'000 £'000
Current
Trade receivables 104,593 88,949
Amounts recoverable from clients in respect of unbilled revenue 92,890 71,958
Unbilled disbursements 11,232 7,982
Contract assets 104,122 79,940
Trade receivables and contract assets 208,715 168,889
Other receivables 4,143 2,216
Amounts due from Members of partnerships 2,441 2,238
Lease receivables 310 432
Reimbursement asset 4,962 4,040
Prepayments 22,768 12,359
243,339 190,174
Non-current
Other receivables 225 938
Lease receivables 187 526
412 1,464
The reimbursement asset is principally attributable to the professional
indemnity provision (see note 18). Prepayments include £9.2m (2022: £nil)
relating to acquisition-related remuneration expense (see note 9).
Ageing of trade receivables, amounts recoverable from clients in respect of
unbilled revenue and unbilled disbursements
2023 2022
£'000 £'000
Trade receivables not past due 18,286 14,794
Trade receivables past due
0 - 90 days 68,522 59,876
91 - 180 days 11,432 8,846
181 - 270 days 4,538 3,337
271 - 365 days 2,746 2,366
More than 365 days 10,615 11,459
Gross trade receivables 116,139 100,678
Amounts recoverable from clients in respect of unbilled revenue 92,890 71,958
Unbilled disbursements 11,232 7,982
Expected credit losses (8,438) (8,588)
Other impairment provisions (3,108) (3,141)
Total trade receivables and contract assets 208,715 168,889
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
2023 2022 2023 2022
0 - 90 days 0.9% 0.5% 2.7% 0.9%
91 - 180 days 3.5% 3.4% 8.7% 4.2%
181 - 270 days 7.6% 10.5% 19.8% 13.1%
271 - 365 days 12.5% 19.9% 25.8% 20.7%
More than 365 days 63.4% 50.6% 49.1% 45.0%
Movement in provision for impairment
2023 2022
£'000 £'000
At 1 May 2022 11,729 13,031
Provision utilised and other movements (1,637) (4,275)
Charges to income statement 1,454 2,973
At 30 April 2023 11,546 11,729
Other movements include expected credit loss provisions acquired from business
combinations in the year of £421,000 (2022: £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
2023 2022
£'000 £'000
Cash at bank and in hand 36,404 28,310
Bank overdrafts (5,808) (606)
Cash and cash equivalents 30,596 27,704
15 Trade and other payables
2023 2022
£'000 £'000
Trade payables 28,716 27,896
Other payables 3,101 3,748
Other taxation and social security 14,164 15,284
Deferred income 1,795 2,014
Accruals 12,079 14,383
Trade and other payables 59,855 63,325
Other payables relates principally to payroll-related creditors.
16 Lease liabilities
2023 2022
£'000 £'000
At 1 May 2022 77,739 84,002
Additions 3,387 7,683
Acquisitions 4,835 -
Interest expense related to lease liabilities 1,738 1,673
Net foreign currency translation (gain)/loss (379) 763
Remeasurement adjustment 875 (1,313)
Repayment of lease liabilities (including interest) (16,185) (15,069)
At 30 April 2023 72,010 77,739
Current lease liabilities 13,712 14,576
Non-current lease liabilities 58,298 63,163
72,010 77,739
The maturity of lease liabilities can be found in note 19. The undiscounted
contractual cash flows relating to lease liabilities accounted for in
accordance with IFRS 16 is £78.1m (2022: £82.9m). Operating costs, included
within administrative expenses, relating to short-term and low value leases
during the year were £2.2m (2022: £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. For more information about
the contractual terms and the Group's exposure to interest rate and foreign
currency risk, refer to note 19.
Obligations under interest-bearing loans and borrowings
2023 2022
£'000 £'000
Current liabilities
Bank loans 11,425 9,093
Supplier payment facility 6,279 87
Bank overdrafts 5,808 606
23,512 9,786
Non-current liabilities
Bank loans 115,069 90,907
Unamortised finance costs (429) (563)
114,640 90,344
138,152 100,130
On 22 December 2021, the Group completed a refinancing of its principal
rolling credit facility ('RCF'). The new facility was increased to £120m in
February 2023 and matures in December 2025 with one additional 12-month
extension option.
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 2022 Cash flow Exchange movement Non-cash movement 30 April 2023
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 27,704 2,705 187 - 30,596
Bank loans (99,437) (26,017) (313) (297) (126,064)
Supplier payments facility (87) 34,831 - (41,023) (6,279)
Total net debt (excluding IFRS 16) (71,820) 11,519 (126) (41,320) (101,747)
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)
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 in scope of IFRS 16 is £173.8m (2022:
£149.6m).
Net debt is an APM and is defined in the glossary.
18 Provisions
Dilapidation provision Professional indemnity provision Total
£'000 £'000 £'000
At 1 May 2022 4,462 6,000 10,462
Utilised in the year (213) (2,428) (2,641)
Released in the year (68) (414) (482)
Provisions made in the year 107 4,014 4,121
Acquired through business combinations 342 - 342
Reclassified to other payables - (1,132) (1,132)
At 30 April 2023 4,630 6,040 10,670
Current 858 6,040 6,898
Non-current 3,772 - 3,772
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 five 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.
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 eleven years.
19 Financial instruments
The Directors have overall responsibility for the oversight of the Group's
risk management framework. Further explanation on management of risk factors
is provided in the risk section of the Strategic report.
The Group's trading and financing activities expose it to various financial
risks that if left unmanaged could adversely impact on current or future
earnings. These risks can be categorised as credit risk, liquidity risk,
market risk (interest rate risk and foreign currency risk) and capital risk.
Credit risk
Credit risk is the risk of financial loss to the Group if a client or
counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group's trade receivables. Credit
checks are performed for new clients and ongoing monitoring takes place for
existing clients. A provision is carried for expected credit losses, see note
13.
In connection with the Group's financial instruments there is not believed to
be a material concentration risk based on the nature of the instruments.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due. The Group maintains sufficient cash or
working capital facilities to meet the cash requirements of the Group in order
to mitigate this risk.
The Group is financed through a combination of members' capital (repayable on
retirement of the member), undistributed profits, cash and bank borrowing
facilities.
The Group's principal facility is a £120m (2022: £100m) RCF. Details of
amounts drawn can be found in note 17. Management maintain a rolling 12-month
cash flow and covenant forecasts to ensure visibility of short-term liquidity
and manage facility usage, in addition to annual budgets and longer-term
planning. The RCF matures in 2025, with one 12-month extension option and
there are no contracted repayments until that date. The Group anticipates
continued utilisation of the facility to fund working capital.
Note 1.3 sets out the financial covenants attached to the RCF held with the
Group's banking syndicate, and more information on how the Group manages
liquidity risk.
The Group has bank guarantees of £0.7m denominated in euros (2022: £0.7m).
The Group has issued rental guarantees of £2.1m denominated in Euros and
Australian dollars (2022: £2.1m).
Maturity analysis
The table below presents the outstanding contractual maturity profile by
fiscal year for the Group's interest-bearing loans and borrowings and lease
liabilities. Trade and other payables are excluded from this profile as they
fall due within a year.
The majority of the Group's borrowings comprise the drawn-down balance on the
RCF, as discussed above. The payments shown below reflect the contractual
repayments upon expiry of the facility, excluding the extension options, so if
the facility is extended these repayments will be deferred.
Borrowings Lease liabilities
2023 2022 2023 2022
Payments £'000 £'000 £'000 £'000
Year to 2023 - 9,180 - 16,030
Year to 2024 11,451 - 15,364 14,639
Year to 2025 - 90,907 14,212 13,056
Year to 2026 115,042 - 13,102 11,850
Year to 2027 - - 11,867 -
Later years - - 23,553 27,326
126,493 100,087 78,098 82,901
Effect of discounting cash flows - - (6,088) (5,162)
Carrying value 126,493 100,087 72,010 77,739
Market risk
Market risk is the risk that changes in market prices, such as foreign
exchange rates and interest rates, will affect the Group's income. The Group's
exposure to market risk predominantly relates to interest and currency risk.
Interest rate risk
The Group's bank borrowings incur both fixed and variable interest charges.
The variable rates on its principal borrowing facilities are linked to SONIA
or EURIBOR plus a margin.
The Group's principal facility exposure to variable interest rates poses a
risk in both the cash flows and the impact on the income statement with
potential interest increases expected in FY24.
Foreign currency risk
The Group has overseas operations in Europe, the Middle East, Asia, Australia,
and North America and is therefore exposed to changes in the respective
currencies in these territories. The Group maintains bank balances in local
currency. Cash positions are monitored and any imbalances are dealt with by
purchasing currency at the spot rate.
Capital risk
The capital structure of the Group consists of net debt, as disclosed in note
17, and equity. The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern and to provide optimal
returns for shareholders. The Group manages its capital structure and makes
adjustments to it, in light of changes to economic conditions and the
strategic objectives of the Group.
Fair value measurement
Financial assets and liabilities are measured in accordance with the fair
value hierarchy and assessed as Level 1, 2 or 3 based on the following
criteria:
· Level 1: fair value measurement based on quoted prices (unadjusted)
in active markets for identical assets or liabilities;
· Level 2: fair value measurements derived from inputs other than
quoted prices that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices);
· Level 3: fair value measurements derived from valuation techniques
that include inputs for the asset or liability that are not based on
observable market data.
Investments, held at fair value through profit or loss, are a Level 3
financial asset. The remaining financial instruments are measured at amortised
cost. The carrying values of the Group's financial assets and liabilities
approximate their fair values.
The table below sets out the Group's accounting classification of each
category of financial assets and liabilities and their carrying values at the
end of the financial year.
2023 2022
Notes £'000 £'000
Measured at amortised cost:
Cash and cash equivalents 14 30,596 27,704
Trade and other receivables 13 220,983 179,279
Total financial assets 251,579 206,983
Measured at amortised cost:
Trade and other payables 15 58,360 61,311
Lease liabilities 16 72,010 77,739
Borrowings 17 132,773 100,087
Amounts due to members of partnerships in the Group 27 30,700 28,243
Total financial liabilities 293,843 267,380
Financial instruments sensitivity analysis
The Group has exposure to interest rate and foreign exchange rate movements
given the nature of its borrowings and operations. At the end of the year, the
effect of hypothetical changes in interest and currency rates are as follows.
Interest rate sensitivity
At 30 April 2023, based upon the amount of variable rate debt outstanding, the
Group's pre-tax profits would change by approximately £1.1m for each one
percentage point change in interest rates applicable to the variable rate debt
and, after tax effect, equity would change by approximately £0.9m.
Foreign exchange rate sensitivity
The Group transacts in a range of currencies, but is primarily exposed to
changes in the Euro and US Dollar exchange rates.
A 20% (FY22: 20%) strengthening and weakening of the above currencies against
Pound Sterling would have the following impacts on net assets and profit shown
below.
This calculation assumes that the change occurred at the statement of
financial position date and had been applied to risk exposures existing at
that date. This analysis assumes that all other variables, in particular
interest rates, remain constant. The analysis is performed on the same basis
for comparative periods.
Effect of change in Effect of change in
Strengthening Year EUR rate USD rate
Impact on equity FY23 2,041 194
Impact on equity FY22 1,796 203
Impact on profit or loss FY23 (1,541) (31)
Impact on profit or loss FY22 (647) (207)
Effect of change in Effect of change in
Weakening Year EUR rate USD rate
Impact on equity FY23 (1,361) (129)
Impact on equity FY22 (1,198) (135)
Impact on profit or loss FY23 1,027 1
Impact on profit or loss FY22 431 138
20 Deferred taxation
The deferred tax asset is as follows:
2023 2022
£'000 £'000
Assets
At 1 May 2022 3,938 4,649
Deferred tax (credit)/debit recognised directly in equity (525) 438
Deferred tax credit/(charge) in the income statement for the year 894 (1,173)
Exchange rate translation 13 24
At 30 April 2023 4,320 3,938
Deferred tax assets of £4.3m have been recognised in respect of tax
depreciation timing differences (£1.6m), expected tax deductions for
share-based payments (£2.5m) and other temporary differences (£0.2m). 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 £14.2m (2022: £11.7m) 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 2023 is as follows:
2023 2022
£'000 £'000
Non-current liabilities
At 1 May 2022 5,869 7,584
Arising on acquisition of intangibles 2,303 503
Deferred tax credit in the income statement for the year (985) (2,163)
Exchange rate translation 314 (55)
At 30 April 2023 7,501 5,869
The deferred tax liability principally relates to the recognition of acquired
intangible assets arising on consolidation.
21 Share capital
Number Share capital Share premium Total
Treasury shares
of 1p each £'000 £'000 £'000 £'000
At 1 May 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
Shares issued on transaction 16,626,713 166 2,575 - 2,741
with Whitelaw Twining
At 30 April 2023 341,979,578 3,420 91,940 (129) 95,231
On 6 December 2022, 16,504,757 ordinary shares were issued as a result of the
transaction with Whitelaw Twining Law Corporation. A further 121,956
ordinary shares were issued on 31 March 2023 in relation to the same
transaction.
The Group has 11,309,876 (2022: 24,322,488) shares held in treasury.
22 Reserves
The following describes the nature and purpose of each reserve within equity:
Share premium The amount subscribed for share capital in excess of the nominal value.
Treasury shares The treasury shares reserve represents shares in DWF Group plc held by the
Group's share trusts. The trusts are consolidated in the Group's financial
statements.
Merger reserve The difference between the nominal value of shares acquired by the Company in
the share-for-share exchange with the former DWF LLP members and the nominal
value of shares issued to acquire them.
Share-based payments reserve The cumulative share-based payment expense net of release of amounts in
respect of option exercised.
Translation reserve Gains / losses in translating the net assets of overseas operations into GBP.
Accumulated losses All other net gains and losses and transactions with owners not recognised
elsewhere.
23 Share-based payments
Share-based payment arrangements
The Group operates three share-based payment plans (2022: three 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.
Charge to the income statement
The charge to the income statement is set out below:
2023 2022
£'000 £'000
Share plans:
Equity incentive plan 11,229 6,721
Buy-as-you-earn plan 174 871
Deferred bonus plan 236 109
11,639 7,701
Social security expenses 493 1,908
Total expense 12,132 9,609
Impact of share-based payments ('SBP') movement in 2023:
SBP expense SBP reserve Accumulated losses Prepayments Other taxation and social security
£'000 £'000 £'000 £'000 £'000
Acquisition of Whitelaw Twining 1,310 (10,445) - (9,234) -
Share-based payment schemes 10,329 (10,329) - - -
Recycling of vested shares - 7,294 (7,294) - -
Social security expenses 493 - - - (493)
Total movement 12,132 (13,480) (7,294) (9,234) (493)
Prepaid share-based payments charge in the year relates to shares issued as
part of the Whitelaw Twining acquisition that is treated as remuneration
rather than consideration. Refer to Note 9 for further detail.
Impact of share-based payments ('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)
Summary of share awards
The following table shows the movements in share awards across all plans for
the year:
2023 2022
Number of shares Number of shares
'000 '000
Number of shares awards outstanding 1 May 34,073 33,046
Awards granted during the year 26,849 12,331
Awards vested during the year (7,805) (8,598)
Awards lapsed during the year (6,026) (2,706)
Number of shares awards outstanding 30 April 47,091 34,073
The weighted average remaining contractual life at the end of the period is
1.3 years (2022: 1.8 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 £0.86
(2022: £1.07).
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:
2023 2022
EIP BAYE Deferred bonus EIP BAYE Deferred bonus
Weighted average fair value at measurement date 0.75 0.65 0.78 1.14 1.10 0.95
Weighted average share price at grant date 0.84 0.65 0.93 1.19 1.20 1.17
Expected volatility 38.55% 35.14% 43.21% 42.96% 43.46% 43.52%
Expected life (years) 1.71 1.96 2.92 2.87 1.37 2.87
Expected dividend yield 6.85% 7.60% 7.67% 1.33% 5.72% 6.57%
Risk free interest rate 2.99% 4.00% 2.03% 0.50% 0.51% 0.18%
Estimate of attrition 16.98% 25.18% 27.94% 21.60% 9.42% 20.46%
Estimate of performance conditions being met 88.47% N/A N/A 85.70% N/A 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.
24 Key management personnel
Compensation paid to key management personnel
2023 2022
£'000 £'000
Remuneration of the PLC Board
Short-term employee benefits 1,899 2,717
Post-employment benefits 101 92
Share-based payments 555 640
2,555 3,449
Key management personnel comprise the PLC Board of Directors. The amount paid
to the highest paid member of key management was £0.8m (2022: £0.8m).
Related parties
Zeus Capital Limited was a related party of the Group by virtue of Sir Nigel
Knowles being Chairman of Zeus Capital Limited. Total sales by the Group to
Zeus Capital in the period were £5,000 (PY: £255,000) relating to the
provision of legal services. Zeus Capital Limited also act as broker to the
Group, and fees payable to Zeus Capital Limited in the period was £50,000
(PY: £43,750). No amounts were payable or outstanding at the year end or at
the prior year end.
Onedome Limited is also a related party of the Group by virtue of Sir Nigel
Knowles being a director of the company. Total sales to Onedome Limited in the
period were £78,000 (PY: £nil) relating to the provision of legal services.
An amount of £94,000 was outstanding from Onedome Limited as at the year end
(PY: £nil).
Cannaray Limited is a related party of the Group by virtue of Sir Nigel
Knowles being a director of the company. Total sales by the Group to Cannaray
Limited in the period were £11,000 (PY: £30,000) relating to the provision
of legal services. An amount of £13,000 was outstanding from Cannaray Limited
as at the year end (PY: £nil).
25 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:
2023 2022
No. No.
Legal advisors 2,542 2,426
Support staff 1,296 1,222
3,838 3,648
£'000 £'000
Wages and salaries 217,504 199,828
Social security costs 13,390 11,694
Contributions to defined contribution plans 7,843 6,698
238,737 218,220
The Group operates defined contribution pension plans. The total annual
pension cost for the defined contribution plan was £7.8m (2022: £6.7m) and
the outstanding balance at 30 April 2023 was £1.3m (30 April 2022: £0.9m).
26 Cash generated from operations
a) Cash generated from operations before adjusting items
2023 2022
£'000 £'000
Cash flows from operating activities
Profit before tax 17,169 22,316
Adjustments for:
Amortisation of acquired intangible assets 3,929 4,655
Impairment of intangible assets 1,494 -
Impairment of tangible and right of use assets 362 -
Accelerated depreciation/amortisation 6,452 3,593
Depreciation of right-of-use asset 12,365 12,737
Other depreciation and amortisation 6,830 7,211
Non-underlying items 6,248 1,224
Gain on bargain purchase (4,459) -
Share-based payments expense 12,132 9,609
Interest expense on lease liabilities 1,739 1,673
Net finance expense 5,310 3,518
Operating cash flows before movements in working capital 69,571 66,536
Increase in trade and other receivables (24,775) (8,031)
(Decrease) in trade and other payables (79) (17,641)
(Decrease)/increase in provisions (1,309) 4,798
Decrease in amounts due to members of partnerships in the Group (479) (4,039)
Cash generated in operations before adjusting items 42,929 41,623
b) Free cash flows
Free cash flow is an APM and is defined in the glossary.
2023 2022
£'000 £'000
Free cash flows
Operating cash flows before movements in working capital 69,571 66,536
Net working capital movement (26,163) (20,874)
Amounts due to members of partnerships in the Group (479) (4,039)
Cash generated from operations before adjusting items 42,929 41,623
Net interest paid (5,511) (4,596)
Tax paid (3,713) (2,854)
Repayment of lease liabilities (14,447) (13,396)
Purchase of property, plant and equipment (2,874) (3,581)
Purchase of other intangible assets (3,452) (4,300)
Free cash flows 12,932 12,896
c) Working capital measures
2023 2022
£'000 £'000
WIP days
Amounts recoverable from clients in respect of unbilled revenue 92,890 71,958
Unbilled disbursements 11,232 7,982
Total WIP 104,122 79,940
Annualised net revenue 396,757 350,490
WIP days 96 83
Debtor days
Trade receivables (net of allowance for doubtful receivables) 104,593 88,949
Other receivables 4,368 3,154
Total debtors 108,961 92,103
Annualised net revenue 396,757 350,490
Debtor days 100 96
Total lock-up days
Total WIP 104,122 79,940
Total debtors 108,961 92,103
Total lock-up 213,083 172,043
Annualised net revenue 396,757 350,490
Total lock-up days 196 179
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.
Lock-up days is an APM and is defined in the glossary.
The Group also measures lock-up as above but excluding other receivables as
this more closely aligns with lock-up measurement of other businesses in the
legal sector and also as other receivables do not represent sales outstanding.
Excluding other receivables, lockup days are 192 days (2022: 176 days).
27 Amounts due to members of partnerships in the Group
Amounts due to members of partnerships in the Group comprise members' capital
and other amounts due to members classified as liabilities as follows:
Members' capital Other amounts due to members Total amounts due to members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2022 14,370 13,873 28,243
Members' remuneration charged as an expense - 44,829 44,829
Unrealised foreign exchange translation differences 54 452 506
Capital introduced by members 7,237 - 7,237
Repayments of capital (4,807) - (4,807)
Drawings - (45,308) (45,308)
At 30 April 2023 16,854 13,846 30,700
Members' capital Other amounts due to members Total amounts due to members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2021 13,348 18,144 31,492
Members' remuneration charged as an expense - 43,670 43,670
Unrealised foreign exchange translation differences (38) (80) (118)
Capital introduced by members 2,132 - 2,132
Repayments of capital (1,072) - (1,072)
Drawings - (47,861) (47,861)
At 30 April 2022 14,370 13,873 28,243
The average number of members during the year was as follows:
2023 2022
Average number of members of partnerships held by the Group during the year 385 366
28 Events after the reporting date
On 21 July 2023, the Board unanimously announced the recommendation of an all
cash offer for DWF Group Plc from Aquila Bidco Limited, a newly incorporated
wholly-owned subsidiary of funds advised by Inflexion. It is not possible to
estimate the financial effect on the Company as a result of this change in
ultimate parent ownership.
UNAUDITED INFORMATION
Appendix
Reconciliation to new global operating structure - year ended 30 April 2023
The following reconciliation shows how the current year's revenue, net revenue
and gross profit would be presented under the new operating structure:
As reported for the year ended 30 April 2023 Impact of restructure Under new global operating structure effective 1 May 2023
£'000 £'000 £'000
Net revenue
Legal Advisory 316,577 (316,577) -
Connected Services 40,653 (40,653) -
Commercial Services - 203,118 203,118
Insurance Services - 162,930 162,930
Mindcrest 22,906 (22,906) -
Legal Operations - 14,088 14,088
Net revenue 380,136 - 380,136
Direct cost
Legal Advisory (153,959) 153,959 -
Connected Services (22,749) 22,749 -
Commercial Services - (98,343) (98,343)
Insurance Services - (83,842) (83,842)
Mindcrest (11,687) 11,687 -
Legal Operations - (6,210) (6,210)
Direct cost (188,395) - (188,395)
Gross profit
Legal Advisory 162,618 (162,618) -
Connected Services 17,904 (17,904) -
Commercial Services - 104,775 104,775
Insurance Services - 79,088 79,088
Mindcrest 11,219 (11,219) -
Legal Operations - 7,878 7,878
Gross profit 191,741 - 191,741
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 to 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.
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 2023 2022
£'000 £'000
Revenue 451,641 416,052
Recoverable expenses (71,505) (65,810)
Net revenue 380,136 350,242
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
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 affect 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 2023 2022
£'000 £'000
Operating profit 24,218 27,653
Depreciation of right-of-use assets 12,365 12,737
Other depreciation and amortisation 6,830 7,211
Total of adjusting items 26,158 19,081
Adjusted EBITDA 69,571 66,682
APM
Adjusted profit before tax ('adjusted PBT')
Closest equivalent statutory measure
Profit 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 2023 2022
£'000 £'000
Profit before tax 17,169 22,316
Total of adjusting items (note 2) 26,158 19,081
Adjusted profit before tax 43,327 41,397
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 2023 2022
£'000 £'000
Net revenue 380,136 350,242
Adjusted administrative expenses and impairment (note 2) 141,365 134,322
Cost to income ratio 37.2% 38.4%
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 principal 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 26
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 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 acquisitions of Acumension and Whitelaw
Twining.
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
acquisitions of Acumension and Whitelaw Twining were 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 2023 2022
£'000 £'000
Legal Advisory 937 896
Connected Services 1,457 1,382
Mindcrest 8,589 12,216
Group 1,001 975
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 flow
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 26
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 2023 2022
£'000 £'000
Adjusted EBITDA (last 12 months) 69,571 66,682
Net debt 101,747 71,820
Leverage 1.46 1.08
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