Half Year Results
08/12/2022 07:00
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RNS Number : 9999I DWF Group PLC 08 December 2022
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 the publication of this announcement, this inside information
is now considered to be in the public domain.
8 December 2022
Half-year results for the period ended 31 October 2022 (HY23)
Growth, strong profitability and active management of cost pressures
DWF, the global provider of integrated legal and business services, today
announces its half-year results for the period ended 31 October 2022. The
Board is pleased with the Group's continued strong performance, particularly
given the macro-economic headwinds affecting the majority of sectors.
GROUP FINANCIAL SUMMARY
FY23 Half year
£m (unless otherwise stated) HY23 HY22 Change
Revenue 212.1 203.5 4.2%
Net revenue(1) 179.1 173.3 3.4%
Gross profit 89.3 89.0 0.4%
Gross profit margin(2) 49.9% 51.3% (1.4) ppts
Cost to income ratio(1) 37.8% 39.1% (1.3) ppts
Adjusted EBITDA(1) 32.3 31.3 3.1 %
Operating profit 16.0 13.6 17.9%
Adjusted profit before tax ('Adjusted PBT') (1) 18.5 18.7 (0.9)%
Profit before tax ('PBT') 12.9 11.0 17.1%
Adjusted diluted EPS (pence) (1) 5.1 4.7 8.5%
Diluted EPS (pence) 3.9 2.8 39.3 %
Lockup days(1) 190 181 9
Free cash flow(1) 6.4 4.2 52.6%
Net debt(1) (86.5) (77.2) (9.3)
Leverage(1) 1.27 1.19 0.08
(1) Described in the glossary to the condensed consolidated interim financial
statements.(
2) Gross profit margin is defined as gross profit divided by net revenue.
HY23 HIGHLIGHTS
· Group net revenue growth of 3.4%, (organic growth of 3.1%), to
£179.1m:
o 4% growth in Legal Advisory
o 16% growth in Connected Services
o 17% contraction in Mindcrest following a reorganisation and with recent
investment in sales resource which is generating pipeline for future growth
· Gross margin of 49.9% reflects continued salary pressure in the sector,
which is offset by cost to income ratio improvement of 1.3ppts with strict
overhead control mitigating direct cost pressure.
· Adjusted PBT of £18.5m versus a strong prior year comparator of
£18.7m.
· Reported PBT is £12.9m, which is a £1.9m (17.1%) improvement on the
prior year. This is due to a lower level of adjusting items in the period of
£5.6m comprising mainly of share-based payment charges from the
partner-funded employee benefit trust and acquisition related expenses.
· A nine day (5%) increase in lockup days versus prior year reflects
the Group's ongoing focus on efficient working capital management which has
mitigated the impact of a sector wide lockup trend where the average increase
in lockup days for the top 11-25 firms is reported (in the 2022 PwC Law Firms'
Survey) to be an 11% increase.
· HY23 free cash flows of £6.4m reflect a £2.2m or 53% improvement on
the prior year as the Group continues to improve cash generation now that
Covid, restructuring and acquisition deferrals have been paid down.
· Net debt of £86.5m is higher than prior year due to the stretch in
lockup days, which is expected to partially reverse in H2.
· Leverage remained stable at 1.27x adjusted EBITDA (HY22: 1.19x),
reflecting improving profit offsetting increased lockup days and net debt.
· Net revenue per partner¹ increased by 1% to £492k (HY22: £488k).
STRATEGIC HIGHLIGHTS
· The Group continues to make good progress in line with its
strategy:
o Capturing compelling M&A opportunities with the acquisition of
Acumension to support growth in Connected Services Costs business, and the
Whitelaw Twining transaction in Canada. This transaction bolsters the Group's
position in North America and in the global insurance market with significant
client overlap and anticipated revenue and cost synergies.
o Ongoing efficiency programme with the aim of removing £10m to £12m of
cost, with this annualised run rate expected to be achieved by the end of
FY24. Cost savings via property reduction, central function savings and
proactive resource management will help to offset gross margin pressure and
strengthen outer year (FY25 onwards) performance. The one-off cost to
achieve the savings is expected to be £3m.
o Focussed on attracting and retaining top industry talent, with Legal
Advisory recruiting 14 new partners globally and promoting nine people to
partnership.
o Good progress on key legal panels, with the Group securing more than 30
panel appointments, with the top 10 by value worth annualised revenue of
£30m, each with a minimum contract term of three years.
OUTLOOK AND CURRENT TRADING
· The strong trading in H1 is expected to continue in the second half
of FY23, with a shift expected between transactional work and our more
counter-cyclical litigation and regulatory practice areas.
· As is typical, the second half is also expected to benefit from
the higher weighting of revenues, in line with historical averages, whilst
costs are flat or in some cases being managed downwards.
· The Group remains on track to deliver adjusted PBT in line with
market expectations, adjusted for an additional £1m of interest costs due to
unexpected base rate increases.
· The Board has approved an interim dividend of 1.6p per share,
reflecting the stated policy of paying an interim dividend that is one third
of the PY full year dividend.
Sir Nigel Knowles, Group Chief Executive Officer, commented:
"We are pleased with our strong first half performance, achieved against a
challenging macro-economic backdrop. Net revenue is up by 3.4% and adjusted
profit is in-line with a stellar prior year. We have won some significant
mandates and retenders reflecting our deepening relationships with key clients
and we have extended our capabilities, both through strategic M&A,
including our recent transaction with Whitelaw Twining in Canada, and new
partner recruitment.
"This performance is thanks to the steps we have taken over the last two years
to make our business more sustainable and future focused. We have defined a
clear strategy built around integrated legal and business services and
enhanced our core strengths, such as our expertise in insurance.
"We are taking proactive steps to maximise efficiency in this economic
environment. We are well underway with an efficiency programme, through which
we aim to remove £10m to £12m of costs by the end of FY24. This will
enhance our efficiency as a business and support our strategy of pursuing
profitable growth. In line with our purpose, this will enable us to continue
to deliver positive outcomes with our colleagues, clients and the communities
in which we operate.
"As we look ahead, we see the benefits of having both a global footprint and
an established but diversified set of services through which we can provide
solutions to our clients. Given the clear counter cyclical qualities of many
of our services, such as our litigation and regulatory offerings, and the
short to medium term benefit we will see through our efficiency programme, we
maintain confidence in the outlook for the second half and beyond."
The person responsible for making this announcement on behalf of the Company
is Chris Stefani, Group Chief Financial Officer.
For further information
DWF Group plc
James Igoe - Head of Communications +44
(0) 797 178 3533
H/Advisors Maitland
Sam Turvey
+44 (0) 782 783 6246
Sam Cartwright
About DWF
DWF is a global provider of integrated legal and business services provided
through its three offerings of Legal Advisory, Mindcrest and Connected
Services. It has offices and associations located across the globe. The
Company became the first Main Market Premium Listed legal business on the
London Stock Exchange in March 2019. DWF recorded revenue of £416.1 million
and net revenue of £350.2 million in the year ended 30 April 2022. For more
information visit: dwfgroup.com
Effective from 1 May 2021, the Group transitioned to a new internal operating
structure which it believes supports its aim of becoming the leading global
provider of integrated legal and business services. DWF has moved from its
previous five divisions (Commercial Services, Insurance Services,
International, Connected Services and Managed Services) into three more
streamlined and efficient global divisions of Legal Advisory, Connected
Services and Mindcrest.
Together, the three divisions support DWF's single Integrated Legal Management
approach through which the Group can seamlessly combine any number of these
services to deliver bespoke solutions to its clients with greater efficiency,
price certainty and transparency. This approach enables DWF to offer clients
solutions that combine traditional law firm services with new, modern legal
and business services relevant to today's companies and the challenges and
opportunities they face.
Forward looking statements
This announcement contains certain forward-looking statements with respect to
the Company's current targets, expectations and projections about future
performance, anticipated events or trends and other matters that are not
historical facts. These forward-looking statements, which sometimes use words
such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect"
and words of similar meaning, include all matters that are not historical
facts and reflect the directors' beliefs and expectations and involve a number
of risks, uncertainties and assumptions that could cause actual results and
performance to differ materially from any expected future results or
performance expressed or implied by the forward-looking statement.
LEI: 213800O9QREOHTOGQ266
Chief Executive Officer's Report
We are pleased with our strong first half performance, achieved against a
challenging macro-economic backdrop. Net revenue is up by 3.4% and adjusted
profit is in-line with a stellar prior year. We have won some significant
mandates and retenders reflecting our deepening relationships with key clients
and we have extended our capabilities, both through strategic M&A,
including our recent transaction with Whitelaw Twining in Canada, and new
partner recruitment.
This performance is thanks to the steps we have taken over the last two years
to make our business more sustainable and future focused. We have defined a
clear strategy built around integrated legal and business services and
enhanced our core strengths, such as our expertise in insurance.
We are taking proactive steps to maximise efficiency in this economic
environment. We are well underway with an efficiency programme, through which
we aim to remove £10m to £12m of costs by the end of FY24. This will
enhance our efficiency as a business and support our strategy of pursuing
profitable growth. In line with our purpose, this will enable us to continue
to deliver positive outcomes with our colleagues, clients and the communities
in which we operate.
ESG strategy
Following the publication last December of our first global ESG strategy, I am
pleased that in September this year we published our first ESG Impact Report.
The report included a range of our ESG highlights from the last financial
year, including confirmation that the Science Based Targets initiative has
validated our corporate greenhouse gas emissions reduction target ambition,
determining that it is in line with a 1.5°C trajectory. DWF Group plc commits
to reduce absolute Scope 1 and 2 GHG emissions by 50% by 2030 from a 2019
base year. DWF Group plc also commits to reduce absolute Scope 3 GHG
emissions by 50% within the same timescale.
DWF is committed to doing business well by embedding and maintaining a culture
of operational excellence. In May we published our new ESG Client Policy,
applicable to all colleagues at DWF. This policy is designed to improve on the
quality and consistency of our risk assessment and decision-making to lead to
more informed client acceptance, on the basis of ESG material factors.
Colleagues
In June this year we announced a range of significant enhancements to our
family friendly policies in the UK. This included improvements to our
maternity, paternity, adoption and shared parental leave, as well as the
introduction of discounted nursery fees. These policy improvements, which also
included support for colleagues experiencing the loss of a child or premature
babies, are designed to ensure that everybody feels supported during major
events in their lives. We are very proud that in September we were named as
one of the Top Ten Employers for Working Families. We have also been named by
The Times as one of the Top 50 Employers for Women and this year, saw our
placing in the Social Mobility Index climb 34 places to 17th. We also saw
progress against both our gender and ethnicity targets for senior leaders with
representation increasing to 30.5% (female) and 5.7% (ethnic minorities)
respectively.
We have continued to emphasise the importance of colleague engagement, hosting
our first 'hybrid' global Town Hall with an in-person audience in London
joining more than 1,200 colleagues online to share the progress we are making
in operationalising our ESG strategy.
Recognition is another priority, which includes our annual Rubies Awards
through which we celebrate colleagues' achievements. Just this week I had the
privilege of sharing my annual CEO Award with the team behind our appointment
to the UK Government's Crown Commercial Services Panel which will be a
significant contributor to our growth this year and beyond.
We are conscious of those colleagues most impacted by the rising cost of
living. Around 400 of our colleagues in the UK are paid the Real Living Wage.
We ordinarily apply any increase in the Real Living Wage in May at the start
of our financial year. In order to support our colleagues, we are applying a
c.10% increase from January 2023 to support those colleagues less able to
cope with external economic shocks.
Clients
We have continued to focus on attracting and retaining top talent across all
of our divisions to service and support our clients. In H1 we recruited 14 new
partners, including seven partners across a range of practice areas in our
London office and two partners in Paris, two in Belfast and one in each of
Edinburgh, Warsaw and Riyadh. In addition, we promoted 9 people to partnership
for the first time. In Mindcrest, we appointed a new Global Head of Legal
Operations, Technology and Consulting, with Rachita Maker joining us from Tata
Communications.
We have also worked hard on the balance sheet, enabling us to invest with
confidence. Earlier this week we announced the completion of our transaction
with leading Canadian law firm Whitelaw Twining, expanding our global
insurance services capabilities. We also strengthened our global capabilities
through a new affiliation agreement with Hauzen LLP, a Hong Kong law firm,
specialising in financial services regulation, contentious insurance and
complex commercial matters.
We enhanced our Connected Services capabilities with the arrival of a team of
47 legal costs management specialists. This takes our team of costs experts in
the UK and Ireland to more than 100 and helps us to extend our relationship
with a number of existing clients including NHS Resolution and NFU Mutual.
The Group secured more than 30 panel appointments, with the top 10 by value
worth annualised revenue of £30m, each with a minimum contract term of three
years. Amongst others, the new panel appointments include QBE, Hiscox and a
number of appointments won via competition under the Crown Commercial Services
Framework.
The appointment of Matthew Doughty as Chief Growth and Strategy Officer is
driving further leadership focus on our strong M&A pipeline, as well as
executing our strategy of providing integrated legal and business services to
more of our key clients. Whilst Matt Glenville's appointment as Chief
Operating Officer is key to our ongoing focus on operational efficiency.
Communities
We continue to evolve and review our work in the community, by global
volunteering initiatives, our work in schools through our award winning 5 Star
Futures programmes and by streamlining the pro bono projects that we are or
will work on, that will deliver meaningful social impact. We expect to deliver
positive news about further projects as a priority in the next 12 months.
This month marks the seventh anniversary of the formation of the DWF
Foundation. The DWF Foundation, an independent charity that is supported by
colleague fundraising activities and through dividend payments on DWF shares,
has made 450 individual awards to charities and other good causes since its
formation. In total, it has distributed more than £950,000 in funds. Indeed,
the Foundation has its next grant meeting today (8 December) at which it is
expected the total grant giving figure will top £1m, a fantastic achievement
and a true reflection of the DWF values demonstrated by everybody involved.
Outlook
As we look ahead, we see the benefits of having both a global footprint and an
established but diversified set of services through which we can provide
solutions to our clients. Given the clear counter cyclical qualities of many
of our services, such as our litigation and regulatory offerings, and the
short to medium term benefit we will see through our efficiency programme, we
maintain confidence in the outlook for the second half and beyond.
Financial overview
Despite a challenging economic environment, the Group has delivered a strong
performance in HY23 and is well positioned for continued growth in line with
management expectations in the second half of the year.
The Group continues to grow revenue, with 4% growth in HY23 driven by Legal
Advisory and Connected Services. Whilst the well publicised effects of a
tight labour market and salary inflation has reduced gross margin vs HY22, the
tight management of overheads has ensured that the cost to income ratio has
largely mitigated the margin dilution. The decrease in cost to income ratio to
37.8% (HY22 39.1%) has delivered Adjusted PBT for HY23 of £18.5m which is
consistent with HY22 (£18.7m). It should be noted that HY22 was a
particularly strong reporting period in both revenue and profit generation,
with the second half of FY22 delivering a weaker performance. FY23
anticipates a normalised H1 / H2 split which is in line with the rest of the
sector and historical averages.
As we enter a period of sustained low economic growth, the Group has embarked
on an efficiency programme with the aim of removing £10m to £12m of cost,
with this annualised run rate expected to be achieved by the end of FY24.
The impact of this efficiency programme in the short-to-medium term, together
with the Group's defensive business model which includes significant
litigation capability and recurring revenues from the insurance sector,
provides continued confidence in the Group's trading performance despite the
anticipated economic slowdown.
Revenue
Revenue is £212.1m for HY23 (HY22: £203.5m) representing growth of 4%.
However, the Group focuses revenue measurement on net revenue as revenue is
distorted by the level of recoverable expenses incurred on delivery of client
matters where such expenses do not necessarily reflect the activity levels of
the business.
Group net revenue increased by 3% to £179.1m for HY23 (HY22: £173.3m). The
Legal Advisory division has grown by 4% (all of which is like for like which
excludes the impact of any M&A, disposals or closures), with strong
performance from the European businesses delivering 8% growth and the
insurance practice area reliably delivering 4% revenue growth. The Connected
Services division continues to deliver double-digit growth with net revenue
growth of 16% (or 14% on a like for like basis). Mindcrest has had a mixed
performance as it executed a divisional restructure, refreshing its
go-to-market strategy and positioning itself for faster organic growth in the
future. With the effects of a flagship long-term contract coming to an end in
the period offsetting positive progress in other practice areas, net revenue
has declined by 17%. Investments have been made in sales resources in order
to build pipeline for future growth.
Direct costs
Direct costs have increased during the year to £89.8m (HY22: £84.3m) as we
continue to invest in our talent through increases in pay and make targeted
investments in growth areas including through lateral hires, notably in the UK
and France. This investment is expected to deliver incremental revenues in
H2 onwards.
Gross profit
Gross profit is consistent with the prior period at £89.3m (HY22: £89.0m) as
the increase in direct costs decreases the overall gross margin percentage.
The labour market continues to be tight, however this is expected to improve
as lower global demand, particularly for transactional work, may lead to
resource capacity as heavily transaction focussed firms shed capacity.
Working capital, net debt and leverage
Working capital in the legal sector is measured by lockup days, being the
length of time between performing work and collecting cash. The PwC 2022 Law
Firms' Survey reported a sector wide increase in lockup days as practices
return to some normality post the Covid-19 pandemic. The Group's debtor days
are consistent with FY22 at 96 days (HY22: 93 days) despite revenue growth.
However, WIP days have increased to 94 days (HY22: 88 days) taking total
lockup days to 190 days (HY22: 181 days). Whilst this represents a 5% increase
in lockup days, this increase is favourable versus DWF's peer group, where
firms in the top 11-25 of PwC's rankings have seen an 11% increase in lockup
days.
The increase to lockup days in the period is partly due to timing differences
with some material contingent matters being billed in October but have yet to
be collected as well as a greater proportion of the WIP book representing
matters which have been contracted with end-of-case billing terms.
Reported free cash flow is up £2.2m to £6.4m (HY22 £4.2m). The HY22
comparator included £5.4m of outflows deferred from prior periods due to
Covid-19 that did not affect HY23. The normalised free cash flow comparator is
£9.6m indicating a reduction in free cash flows of £3.2m, a result of the
aforementioned lockup increases.
Net debt is £86.5m (HY22 £77.2m). The majority of the increase is due to
£3.6m of acquisition-related outflows and £2.0m of cash payments in relation
to office scale-backs and closures, with the balance being a function of
increased lockup.
Consequently, leverage (defined as net debt divided by last twelve months of
adjusted EBITDA inclusive of pro-forma adjustments for acquisitions) has
increased slightly (by 8 basis points) compared to HY22:
October 2022 April 2022 October 2021 April 2021
Leverage 1.27 1.08 1.19 1.04
Divisional Performance
As consistent with the prior period, the Group reports its results against
three divisions:
Legal Advisory
HY23 HY22 Variance Variance
£k £k £k %
Revenue 180,977 172,700 8,277 5%
Net revenue 149,328 143,846 5,482 4%
Direct costs (73,229) (68,244) (4,985) (7%)
Gross profit 76,099 75,602 497 1%
Gross margin 51.0% 52.6% (1.6ppts)
Despite the more challenging macro-economic background, Legal Advisory has
delivered net revenue growth of 4% in HY23 versus a particularly strong HY22.
Insurance practice areas have grown by 4% versus prior year and, despite
political uncertainty and global turbulence in recent months, transactional
areas of the division have also fared well through HY23. The Corporate,
Finance & Restructuring, Tax and Real Estate businesses have continued
their strong performance from prior year, with collective net revenue growth
of 8%. The European teams have also contributed positively, delivering growth
of 13%, benefitting from the "one-team" strategy launched in FY21.
Net revenue growth through HY23 has been supported in part by direct cost
increases, as headcount in the division has increased versus prior year (6%
higher overall) - and specifically as a result of strategic lateral hire
recruits, which have bolstered our offerings in key locations such as London
and which are expected to fuel future growth.
Whilst carefully managing our people investment and experience (given the
ongoing pressure surrounding legal recruitment, sector attrition and cost of
living), H2 will see management continue to manage resource and capacity to
further improve productivity and the effectiveness of the divisional
structure, and so to boost profitability over the course of the next six
months.
Focus for H2 will be on enhancing the revenue growth seen in HY23 through
tactical programmes centred on pricing, the division's core clients and key
propositions.
Connected Services
HY23 HY22 Variance Variance
£k £k £k %
Revenue 19,249 16,514 2,735 17%
Net revenue 18,849 16,325 2,524 16%
Direct costs (10,772) (9,048) (1,724) (19%)
Gross profit 8,077 7,277 800 11%
Gross margin 42.9% 44.6% (1.7ppts)
The Group's Connected Services division delivered net revenue growth of 16%
compared to HY22, or 10% on a like for like basis. The growth is bolstered 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 £2.5m, the gross profit increase is £0.8m
due to the front-loading of investment in the first half of the year in order
to materially grow Connected Services, in line with the Group's Integrated
Legal Management strategy. As such, an increase in recruitment, travel and
marketing has impacted profitability, with return on this investment expected
in the second half of the year.
The accelerated recruitment has increased average headcount (excluding
Acumension) compared to the prior year by 11% to 425 which has impacted gross
margin, which reduced by 1.7 percentage points, due to the lead time in fee
earners ramping up to full capacity.
The Claims Management and Adjusting business has grown by 14%. This growth is
driven by the USA due to the strength of the American insurance market, new
client wins and expansion of the team in Chicago. This is partially offset by
a reduction in claims received from Covid-19 in the UK (both Business
Interruption and following the easing of restrictions), however the pipeline
for the second half of the year is strong, with a number of new client wins on
board from November. The growth of the global Claims Management and Adjusting
business is key to delivering Integrated Legal Management and this service
continues to provide increased fee referrals to Legal Advisory.
The Regulatory area of the division, which includes the less-mature incubator
businesses, has grown by 27%. One of our larger businesses, Ges-Start (DWF
Spain's Connected Service which offers Accounting, Tax and Labour consulting),
has grown net revenue by 18% due to their recurring client base and a number
of large new projects.
The outlook for the second half of FY23 is positive and all areas of Connected
Services are reporting strong pipelines. In the context of a tight labour
market and the current macro-economic environment, whilst carefully protecting
margin, investment in our people will be key to support and incentivise
performance over the course of the next six months.
Mindcrest
HY23 HY22 Variance Variance
£k £k £k %
Revenue 11,872 14,276 (2,404) (17%)
Net revenue 10,953 13,137 (2,184) (17%)
Direct costs (5,811) (7,030) 1,219 17%
Gross profit 5,142 6,107 (965) (16%)
Gross margin 46.9% 46.5% 0.5ppts
Mindcrest has delivered mixed results in the first six months of FY23.
Year-on-year growth in the Financial Services' sector (12%) across both
regulated consumer Lender Services and unregulated client Recoveries is
reflective of global financial instability and consequential client
requirements for cost-effective, market-leading, outsourced solutions. In
addition, the timely introduction of a disruptive Legal Technology offering,
delivering high quality at optimised cost, provides avenues for future
growth. Conversely, challenges have been encountered - the conclusion of
client automation solutions resulted in the maturity of a decade+ flagship
engagement which has diluted the US portfolio. Furthermore, an increased
competitive marketplace sees "buying" of work in the Contract Management &
Litigation arena. The persistence of inflationary pressures and necessity to
invest to remain competitive in the talent market also continues to pose a
margin challenge. However, significant progress has been made in overcoming
regulatory and technological hurdles which will enable best-shoring options
and help drive an improved financial performance moving into H2 and beyond.
Investment in sales resource is expected to build pipeline to drive future
growth.
During HY23 the division underwent a significant reorganisation which has
enabled refocussed investment into core services. A revitalised go-to-market
strategy, global footprint expansion of existing services into new markets
delivered from multinational delivery centres, as well as advancing
proprietary technology through consultancy, are key objectives. Continued
transition of Legal Advisory and support functions also remain a strategic
priority with significant progress having been made in the first half of the
year.
Administrative expenses
Reported administrative expenses decreased from £75.4m in HY22 to £73.3m in
HY23. However this is impacted by the level of adjusting items in the
respective periods, with a £7.6m charge in HY22 compared to £5.6m charge in
HY23. This is driven by a £2.6m reduction in the HY23 share-based payments
charge due to a reduction in the number of awards expected to vest as well as
a small increase in the expected attrition rate.
The share-based payments charge, together with non-underlying items and
amortisation of acquired intangible assets and impairment, are excluded from
the adjusted administration expenses measure as they are all either one-off,
non-cash or non-trading related expenses.
On an adjusted basis, administrative expenses were flat vs the prior period at
£67.7m (HY22: £67.8m). Despite the inflationary environment we currently
face, the Group has held its overheads flat as we start to see some of the
benefits of the efficiency programme and premises strategy which are
offsetting inflationary pressures on salaries and other costs. The Group has
improved its cost to income ratio to 37.8% (HY22: 39.1%), beating the guided
medium-term target, as the Group strives to deliver greater operational
efficiency and value for money in its cost base. Further progress is
expected as the property, overhead and resource costs being removed as part of
the efficiency programme drop out of the income statement during FY24 and
beyond.
Interest
Interest expense comprises £0.8m of interest payable on leases (HY22: £1.0m)
and net finance expense of £2.3m (HY22: £1.6m) which represents bank
charges, loan interest and interest on the Group's borrowing facilities. The
Group has variable interest rates for most of its debt facilities so the
increase in net finance expense compared to HY22 is a result of central banks
increasing base rates in response to rising inflation in the western economy
as well as a corresponding higher net debt position of the Group compared to
the prior period.
Profit before tax
Reported profit before tax for HY23 is £12.9m, a 17% increase on the prior
period (HY22: £11.0m). This reported position is impacted by the decrease in
the quantum of non-underlying items in HY23 as referenced in the
Administrative Expenses section. Adjusted PBT is £18.5m which is in line with
the prior period of £18.7m. Management consider this a strong performance
given the difficult trading environment and that the comparative period was
one which had seen significant growth and activity levels.
Taxation
The Group is subject to corporation tax and payments on account of £0.6m
(HY22: £0.4m) have been made in the first half with a tax charge to the
Income statement of £0.7m (HY22: £2.0m). The decrease in the tax charge
relates to the impact of an impairment of intercompany balances between
subsidiaries previously subjected to closure or scaleback in which there is a
deduction available for UK corporation tax.
Dividend
The Board has approved an interim dividend for FY23 of 1.6 pence per share in
line with our policy of paying one third of the prior year total dividend as
the interim dividend in the following year. The interim dividend for FY23 is
payable on 3 March 2023 to shareholders on the register as at 3 February 2023.
Capital expenditure
The Group has incurred cash outflows on tangible fixed assets of £0.8m in
HY23 (HY22: £0.9m). In addition, the Group incurred £3.0m of expenditure on
intangibles in HY22 (HY21: £2.1m) which relates to internal development of
technologies to support our fee earners in the efficient delivery of work as
well as the finalisation of the platform build in Mindcrest.
Conclusion
The Group has delivered a strong performance in HY23 against the backdrop of
an uncertain macro-environment, with activity levels, revenue, cash generation
and profitability all showing improvement. Demand for services, and capacity
to deliver those services, has steadily improved over the course of HY23. The
Group has a strong pipeline of work coming into the second half of the
financial year and expects to continue to see benefits from the ongoing focus
on profitable growth, cost control and cash generation. This is expected to
lead to a further enhancement of margin and a reduction in leverage in the
medium term.
Statement of Directors' responsibilities
The Directors confirm to the best of their knowledge that the condensed
consolidated interim financial statements have been prepared in accordance
with International Accounting Standard 34 Interim Financial Reporting and the
Disclosure and Transparency Rules of the UK's Financial Conduct Authority, and
that the Interim Management Report herein includes a true and fair review of
the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the
first six months of the financial year, and their impact on the condensed set
of financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· disclosure of material related party transactions that have taken
place in the first six months of the current financial year and of any
material changes in the related party transactions described in the last
Annual Report and Financial Statements.
This responsibility statement was approved by the board of Directors on 7
December 2022 and is signed on its behalf by:
Chris Stefani
Group Chief Financial Officer
OFFICERS
Directors:
Jonathan Bloomer
Chair
Chris Sullivan
Deputy Chairman and Senior Independent Director
Sir Nigel Knowles
Group Chief Executive Officer
Chris Stefani
Group Chief Financial Officer
Matthew Doughty
Group Chief Growth & Strategy Officer
Teresa Colaianni
Independent Non-Executive Director
Luke Savage
Independent Non-Executive Director
Samantha Tymms
Independent Non-Executive Director
Michele Cicchetti
Partner Director
Seema Bains
Partner Director
Company Secretary:
Darren Drabble
Registered office:
20 Fenchurch Street
London
EC3M 3AG
United Kingdom
Tel: +44 333 320 2220
dwfgroup.com
Company registration number: 11561594
FINANCIAL STATEMENTS
Condensed consolidated income statement
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
Notes £'000 £'000 £'000
Revenue 3 212,098 203,490 416,052
Recoverable expenses (32,968) (30,182) (65,810)
Net revenue 3 179,130 173,308 350,242
Direct costs (89,812) (84,322) (169,332)
Gross profit 3 89,318 88,986 180,910
Administrative expenses (71,925) (73,443) (146,691)
Trade receivables impairment (1,373) (2,549) (2,973)
Other impairment reversal / (expense) - 593 (3,593)
Operating profit 16,020 13,587 27,653
Net finance expense 4 (2,281) (1,560) (3,664)
Interest payable on leases 4 (829) (999) (1,673)
Profit before tax 12,910 11,028 22,316
Total of adjusting items as defined under the Group's alternative performance (5,572) (7,631) (19,081)
measures
Adjusted profit before tax 2 18,482 18,659 41,397
Taxation 5 (746) (1,950) (2,029)
Profit for the period 12,164 9,078 20,287
Earnings for the period per share attributable to the owners of the parent:
Basic (p) 7 4.0 3.1 6.8
Diluted (p) 7 3.9 2.8 6.5
The results for all reported periods arise from continuing operations.
Notes 1 to 22 are an integral part of these consolidated and condensed set of
financial statements.
Condensed consolidated statement of comprehensive income
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Profit for the period 12,164 9,078 20,287
Items that are or may be reclassified subsequently to the income statement:
Foreign currency translation differences - foreign operations (3,175) 596 83
Total other comprehensive (expense) / income for the period (3,175) 596 83
Total comprehensive income for the period 8,989 9,674 20,370
There is no taxation on items within other comprehensive income.
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed consolidated statement of financial position
31 October 2022 30 April 2022
Re-presented (note 1.5)
31 October 2021
Notes £'000 £'000 £'000
Non-current assets
Intangible assets 9 47,397 50,573 45,604
Property, plant and equipment 10 10,258 11,604 11,239
Right-of-use assets 11 61,778 64,549 65,234
Trade and other receivables 12 1,187 - 1,464
Deferred tax assets 3,911 5,325 3,938
Total non-current assets 124,531 132,051 127,479
Current assets
Trade and other receivables 12 204,049 183,813 190,174
Cash and cash equivalents (excluding bank overdraft) 13 31,820 24,180 28,310
Total current assets 235,869 207,993 218,484
Total assets 360,400 340,044 345,963
Current liabilities
Trade and other payables 14 57,940 65,383 63,325
Corporation tax liabilities 6,725 7,077 6,190
Deferred consideration 2,552 507 890
Lease liabilities 15 13,320 12,691 14,576
Interest-bearing loans and borrowings 16 13,088 22,919 9,786
Provisions 6,365 4,017 6,315
Amounts due to Members of partnerships in the Group 20 30,659 29,991 28,243
Total current liabilities 130,649 142,585 129,325
Non-current liabilities
Deferred tax liabilities 7,290 7,242 5,869
Deferred consideration - 556 -
Lease liabilities 59,759 65,780 63,163
Interest-bearing loans and borrowings 16 105,218 78,437 90,344
Provisions 4,506 2,101 4,147
Total non-current liabilities 176,773 154,116 163,523
Total liabilities 307,422 296,701 292,848
Net assets 52,978 43,343 53,115
Equity
Share capital 18 3,254 3,254 3,254
Share premium 18 89,365 89,365 89,365
Treasury shares 18 (1,172) (129) (129)
Other reserves 625 3,733 4,929
Accumulated losses (39,094) (52,880) (44,304)
Total equity 52,978 43,343 53,115
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed consolidated statement of changes in equity
Other reserves
Share capital Share premium Treasury shares Merger reserve Share-based payments reserve Translation reserve Accumulated losses Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 May 2021 3,246 88,610 (129) (2,385) 12,885 (4,281) (60,566) 37,380
Profit for the period - - - - - - 9,078 9,078
Exchange rate differences - - - - - 596 - 596
Total comprehensive income - - - - - 596 9,078 9,674
Issue of share capital 8 755 - - - - - 763
Dividends paid - - - - - - (9,008) (9,008)
Share-based payments - - - - 4,534 - - 4,534
Recycling of share-based payments - - - - (7,616) - 7,616 -
At 31 October 2021 3,254 89,365 (129) (2,385) 9,803 (3,685) (52,880) 43,343
Profit for the period - - - - - - 11,209 11,209
Exchange rate differences - - - - - (513) - (513)
Total comprehensive expense - - - - - (513) 11,209 10,696
Dividends paid - - - - - - (4,529) (4,529)
Share-based payments - - - - 3,167 - - 3,167
Recycling of share-based payments - - - - (1,458) - 1,458 -
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
Other reserves
Share capital Share premium Treasury shares Merger reserve Share-based payments reserve Translation reserve Accumulated losses Total equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
At 1 May 2022 3,254 89,365 (129) (2,385) 11,512 (4,198) (44,304) 53,115
Profit for the period - - - - - - 12,164 12,164
Exchange rate differences - - - - - (3,175) - (3,175)
Total comprehensive income - - - - - (3,175) 12,164 8,989
Treasury shares (1,043) - - - - (1,043)
Dividends paid - - - - - - (9,821) (9,821)
Share-based payments - - - - 2,730 - - 2,730
Recycling on share-based payments - - - - (3,859) - 3,859 -
Tax on share-based payments - - - - - - (992) (992)
At 31 October 2022 3,254 89,365 (1,172) (2,385) 10,383 (7,373) (39,094) 52,978
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Condensed consolidated statement of cash flows
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
Note £'000 £'000 £'000
Cash flows from operating activities
Cash generated from operations before adjusting items 19a 21,076 16,270 41,623
Cash used to settle non-underlying items (2,246) (5,513) (8,464)
Cash generated from operations 18,830 10,757 33,159
Interest paid (2,873) (2,413) (4,596)
Tax paid (645) (429) (2,854)
Net cash generated from operating activities 15,312 7,915 25,709
Cash flows from investing activities
Proceeds from sale of investment - 227 227
Acquisition of subsidiary, net of cash acquired (3,312) (3,412) (3,540)
Purchase of property, plant and equipment (838) (856) (3,581)
Purchase of other intangible assets (3,007) (2,068) (4,300)
Net cash flows used in investing activities (7,157) (6,109) (11,194)
Cash flows from financing activities
Dividends paid (9,821) (9,008) (13,537)
Loan arrangement fee - - (626)
Proceeds from borrowings 14,800 2,925 109,727
Repayment of borrowings (3,530) (725) (104,861)
Repayment of principal of lease liabilities (7,345) (6,331) (13,396)
Interest received 29 20 101
Capital contributions by Members 1,333 1,202 2,132
Repayments to former Members (657) (489) (1,072)
Net cash flows from financing activities (5,191) (12,406) (21,532)
Net increase / (decrease) in cash and cash equivalents 2,964 (10,600) (7,017)
Cash and cash equivalents at the beginning of period 27,704 34,580 34,580
Effects of foreign exchange rate changes on cash and cash equivalents 470 (239) 141
Cash and cash equivalents at the end of period 13 31,138 23,741 27,704
Notes 1 to 22 are an integral part of these consolidated and condensed
financial statements.
Notes to the condensed financial statements
1 Accounting policies
1.1 General information
DWF Group plc (the 'Company'), is a public limited company domiciled in the
United Kingdom under the Companies Act 2006, and registered in England. The
registered office is 20 Fenchurch Street, London, EC3M 3AG.
The principal activities of the Company and its subsidiary undertakings
(together referred to as the 'Group') and the nature of the Group's operations
are set out in the latest Annual Report and Financial Statements for the year
ended 30 April 2022.
The presentational currency of the Group financial statements is British
Pounds Sterling, which is the functional currency of the Parent Company.
1.2 Basis of preparation
This condensed consolidated interim financial information ('Interim
Information') was approved for issue by the Board of Directors on 8 December
2022.
The Interim Information is neither reviewed nor audited and does not comprise
statutory accounts within the meaning of Section 434 of the Companies Act
2006. Statutory accounts for the year ended 30 April 2022 were approved by the
Board of Directors on 20 July 2022 and subsequently filed with the Registrar.
The report of the auditor on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain any statement under
Section 498 of the Companies Act 2006.
This Interim Information for the six months ended 31 October 2022 is prepared
in accordance with the Disclosure and Transparency Rules of the Financial
Conduct Authority and in accordance with IAS 34: Interim Financial Reporting
as adopted by the UK ('IAS 34'). The accounting policies, methods of
computation and presentation are consistent with those presented in the most
recent Annual Report and Financial Statements. The Interim Information should
be read in conjunction with the Annual Report and Financial Statements for the
year ended 30 April 2022, which have been prepared in accordance with
International Financial Reporting Standards as adopted by the UK ('IFRS'), and
are available on the Group's website: www.dwfgroup.com
(http://www.dwfgroup.com) .
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period, except for the
estimation of income tax (see Note 5).
The Group's forecast and projections, taking account of reasonably possible
changes in trading performance, show that the Group will be able to operate
within the level of its current banking facilities. The Directors have
therefore adopted a going concern basis in preparing the Interim Information.
1.3 Alternative performance measures ('APM's)
In accordance with the Guidelines on APMs issued by the European Securities
and Markets Authority ("ESMA"), additional information is provided on the APMs
used by the Group below. In the reporting of financial information, the Group
uses certain measures that are not required under IFRS.
These additional measures provide the Group's stakeholders with additional
information on the performance of the business. The measures are consistent
with those used internally, and are considered important and insightful to
understanding the financial performance and financial health of the Group. The
Group's APM's provide an important measure of how the Group is performing by
providing a meaningful comparison of how the business is managed and measured
on a day-to-day basis and achieves consistency and comparability between
reporting periods. The APM's are primarily utilised in the following ways:
- Non-statutory measures; These are often sector
specific KPIs such as lock-up days, net revenue and cost to income ratio.
These allow greater comparability of the Group's performance within the legal
sector.
EBITDA and net debt are also widely utilised within the Group and are both
regularly used among the listed legal sector and other listed businesses.
- Adjusting items; These are adjustments to
statutory profit metrics such as profit before tax ('PBT') and operating
profit. These are items (both recurring and non-recurring) that are material
in nature and include, but are not limited to, costs relating to acquisitions,
disposals and significant events or programmes, some of which span multiple
years. These items are excluded from adjusted PBT as management believe their
inclusion distorts the underlying trading performance.
- Non-underlying items; Non-underlying items, a
subset of adjusting items, are non-trading, non-cash or one-off items where
management consider the quantum or nature of such items would distort the view
of the underlying performance of the Group. By removing these items the reader
is better able to compare like-for-like performance that would otherwise be
hard to determine.
The following are included by the Group in its assessment of non-underlying
items:
· Transaction expenses associated with acquisitions
· Purchase price relating to acquisitions not treated as consideration
· Expenses and impairment charges associated with office closures or
scale-back of operations; and
· Costs associated with re-financing.
A complete list of APM's is included and fully defined in the glossary to the
condensed set of Financial Statements.
1.4 Accounting estimates and judgement
The preparation of the financial statements under IFRS requires management to
make judgements, estimates and assumptions which affect the financial
information. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant and are
reviewed on an ongoing basis. The critical judgements and key estimates
applicable to these financial statements are set out below.
Critical judgement in applying the Group's accounting policies
Control over the ABS and non-ABS Groups
Regulations in certain jurisdictions in which the Group is represented allow
Alternative Business Structures ('ABS') where legal firms can be owned by
non-lawyers. This is not the case in other jurisdictions ('non-ABS'). As a
result, DWF LLP, the head of the non-ABS group, is not directly owned by any
entity within the ABS group (which includes the ultimate parent, DWF Group
plc).
Consolidation of DWF LLP and the other non-ABS entities depends on the
assessment of whether a member of the ABS group is exposed, or has rights, to
variable returns from its involvement with such entity and has the ability to
affect those returns through its power over such entity. Therefore, judgement
is required in this assessment to determine if the non-ABS entities should be
consolidated in the Group accounts.
A Governance Deed exists between DWF Law LLP (as representative of the ABS
group) and DWF LLP. This Governance Deed mandates that the executive Board of
both DWF Law LLP and DWF LLP be the same, bestowing DWF Law LLP the ability to
affect returns of DWF LLP and meaning that DWF Law LLP's members have rights
to variable returns from DWF LLP. On this basis, DWF LLP and the other non-ABS
entities are consolidated in these financial statements.
Key sources of estimation uncertainty
The key assumption concerning the future, and other key source of estimation
uncertainty at the reporting period that may have a significant risk of
causing material adjustment of the carrying amounts of assets and liabilities
within the next financial year, is discussed below.
Revenue recognition and valuation of unbilled revenue
The amount of variable consideration to be constrained in a time and material
contract and the stage of completion of fixed fee contracts are key sources of
estimation uncertainty. When services are invoiced, the uncertainty is removed
so this applies to the unbilled revenue only, recorded as amounts recoverable
from clients in respect of unbilled revenue in the statement of financial
position (the contract asset). Respective amounts are provided in note 12.
For the estimates of revenue constraint and stage of completion, the Group
estimates the value of the services provided to date as a proportion of the
expected revenue under the contract. The expected revenue under the contract
is either the anticipated level of price concession or the fixed fee. These
estimates are based on specific client agreements, historical performance and
forward-looking factors including improving efficiencies.
In valuing the Group's unbilled revenue a per-hour recovery rate is used. A 5%
increase in the per-hour recovery rate would lead to a £3,913,850 increase in
the carrying value of amounts recoverable from clients in respect of unbilled
revenue and a £3,913,850 increase in revenue, profit before tax and equity. A
5% decrease in the per-hour recovery rate would lead to an equal and opposite
impact on the carrying value of amounts recoverable from clients in respect of
unbilled revenue and revenue.
1.5 Re-presentation of a comparative period
The condensed consolidated statement of financial position has been
re-presented for the comparative period to present the IFRS 16 right-of-use
assets as a standalone financial statement line item in order to provide users
with clearer information on the leased assets. Note 10 now comprises solely
the property, plant and equipment information. Note 11 now comprises solely
the right-of-use assets information.
This note is intended to disclose material re-presentations within the primary
financial statements. For other re-presentations within note disclosures,
explanations have been provided within the note that has been changed.
2 Alternative performance measures
APMs 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 to the financial statements.
Adjusted profit before tax reconciles to profit before tax as follows:
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Profit before tax 12,910 11,028 22,316
Adjusting items:
Amortisation of intangible assets - acquired 1,926 2,513 4,655
Impairment of intangible assets - - 2,966
Impairment (reversal) / expense of tangible and right-of-use assets - (593) 627
Non-underlying items 1,548 1,052 1,224
Share-based payments expense 2,098 4,659 9,609
Total of adjusting items 5,572 7,631 19,081
Adjusted PBT 18,482 18,659 41,397
The £593,000 impairment reversal in the comparative period relates to a
reduction in the impairment, initially recognised in FY21, of a right-of-use
asset as part of the Australian scale-back of operations. The calculation of
the impairment reversal included future sublease income, and hence was
reversed by the amount of expected future cash flows.
Adjusted PBT reconciles to profit before tax with reconciling items by nature
as follows:
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Profit before tax 12,910 11,028 22,316
Office closures and scale-backs 729 (336) (238)
Acquisition-related expenses 2,745 3,308 9,564
Share-based payments expense 2,098 4,659 9,609
Refinancing costs - - 146
Adjusted PBT 18,482 18,659 41,397
Acquisition-related expenses comprise costs of £319,000 related to the
Acumension and Whitelaw Twining acquisitions (note 8), £500,000 of costs
related to an aborted acquisition, and £1,926,000 amortisation on acquired
intangibles.
Non-underlying items are set out in the table below:
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Acquisition-related advisory fees a 819 152 336
Acquisition-related expenses b - 643 1,104
Closure and scale-back of operations c 729 257 (362)
Non-underlying items within operating profit 1,548 1,052 1,078
Non-underlying finance expense - - 146
Total non-underlying items 1,548 1,052 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 £500,000 relating to an aborted acquisition.
b. The previous periods included costs related to the Mindcrest acquisition in
FY20 that were classified as remuneration and not consideration under IFRS 3.
As these costs were not considered recurring, management included them within
adjusting items in order to give greater clarity of underlying trading
performance. These costs ceased in February 2022.
c. Closure and scale-back of operations expense in the current year relate to
the scale-back of the operations in Singapore and Germany. These costs
comprise people and supplier exit expenses and the impairment of assets that
are deemed potentially irrecoverable as a result of the decision taken. The
current year costs also include expenses associated with a restructure in the
Mindcrest division. The prior period costs relate to the scale-back of the
operations in Australia which began in March FY21, reflecting an additional
impairment of assets since the estimate made at FY21.
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:
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Net revenue 179,130 173,308 350,242
Administrative expenses and impairment 73,298 75,399 153,257
Total of adjusting items (5,572) (7,631) (19,081)
Less: re-financing costs included in adjusting items - - 146
Adjusted administrative expenses 67,726 67,768 134,322
Cost to income ratio 37.8% 39.1% 38.4%
3 Reporting segments
In accordance with IFRS 8: Operating Segments ('IFRS 8'), the Group's
operating segments are based on the operating results reviewed by the Board,
who represent the chief operating decision maker ('CODM'). The Group has the
following three strategic divisions, which are its reportable segments. These
divisions offer different services and are reported separately because of
different specialisms within teams in the business Group.
The following summary describes the operations of each reportable segment:
Reportable segment Operations
Legal Advisory Services Premium legal advice, commercial intelligence and relevant industry
experience.
Connected Services Collection of products and business services that enhance and complement our
legal offerings.
Mindcrest* Outsourced and process-led legal services, designed to standardise, systemise,
scale and optimise legal workflows.
The revenue, net revenue and gross profit are attributable to the principal
activities of the Group.
For period ended 31 October 2022
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 180,977 19,249 11,872 212,098
Recoverable expenses (31,649) (400) (919) (32,968)
Net revenue 149,328 18,849 10,953 179,130
Direct costs (73,229) (10,772) (5,811) (89,812)
Gross profit 76,099 8,077 5,142 89,318
Gross margin % 51.0% 42.9% 46.9% 49.9%
Administrative expenses (71,925)
Trade receivables impairment (1,373)
Other impairment -
Operating profit 16,020
Net finance expense (2,281)
Interest payable on leases (829)
Profit before tax 12,910
Taxation (746)
Profit for the period 12,164
For period ended 31 October 2021
Legal Advisory Connected Services Mindcrest Total
£'000 £'000 £'000 £'000
Revenue 172,700 16,514 14,276 203,490
Recoverable expenses (28,854) (189) (1,139) (30,182)
Net revenue 143,846 16,325 13,137 173,308
Direct costs (68,244) (9,048) (7,030) (84,322)
Gross profit 75,602 7,277 6,107 88,986
Gross margin % 52.6% 44.6% 46.5% 51.3%
Administrative expenses (73,443)
Trade receivables impairment (2,549)
Other impairment 593
Operating profit 13,587
Net finance expense (1,560)
Interest payable on leases (999)
Profit before tax 11,028
Taxation (1,950)
Profit for the period 9,078
For 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 intra-segmental revenues which are material for disclosure.
Administrative expenses represent indirect costs that are not specifically
allocated to segments.
Revenue and net revenue by region
The UK is the Group's country of domicile and the Group generates the majority
of its revenue from external clients in the UK. The geographical analysis of
revenue and net revenue is on the basis of the country of origin in which the
client is invoiced.
The Group's revenue and net revenue by geographical region are as follows:
Revenue
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended
£'000 £'000 31 April 2022
£'000
UK 158,087 153,379 310,381
Spain 17,911 16,500 36,515
Asia 4,144 4,948 11,107
Rest of World 31,956 28,663 58,049
Total 212,098 203,490 416,052
Net Revenue
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended
£'000 £'000 31 April 2022
£'000
UK 128,012 125,524 250,584
Spain 17,911 16,501 36,515
Asia 3,336 4,286 8,838
Rest of World 29,871 26,997 54,305
Total 179,130 173,308 350,242
Total assets and liabilities for each reportable segment are not provided to
the CODM and therefore not presented.
4 Net finance expense and net interest expense on leases
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Finance income
Interest receivable 29 20 101
29 20 101
Finance expense - other
Interest payable on bank borrowings 1,732 1,034 2,300
Other interest payable 50 42 54
Bank and other charges 528 504 1,265
Non-underlying finance expense - - 146
2,310 1,580 3,765
Net finance expense 2,281 1,560 3,664
Net interest expense on leases
Interest expense on lease liabilities 829 999 1,673
829 999 1,673
5 Taxation
The tax charge is recognised based on management's best estimate of the full
year effective tax rates by geographical unit applied to pre-tax income for
the six-month period, which is then adjusted for tax adjusting items arising
in the period ended 31 October 2022.
The Finance Act 2021 enacted on 10 June 2021 increased the main rate of UK
corporation tax from 19% to 25%, effective from 1 April 2023. Deferred taxes
on the balance sheet have been measured at 25% which represents the future
corporation tax rate that was enacted at the balance sheet date. The UK fiscal
statement on 23 September 2022 included measures to cancel the planned
increase in the corporation tax rate to 25%. Subsequent events in the UK
economy led the government to reverse the cancellation of the increase in the
corporate income tax rate to 25% as announced in the September UK fiscal
statement. As a result, the UK corporate income tax is due to rise as
originally scheduled to 25% on 1 April 2023.
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
UK corporation tax on profit 2,702 2,628 5,639
Foreign tax on profit 636 523 2,822
Adjustments in respect of prior periods (2,071) - (5,443)
Current tax expense 1,267 3,151 3,018
Deferred tax charge / (credit) 64 (1,248) (2,354)
Adjustments in respect of prior periods (585) 47 1,365
Total deferred tax credit (521) (1,201) (989)
Total tax charge for the year 746 1,950 2,029
A timing difference has resulted in subsidiaries recognising an impairment of
intercompany loans between subsidiaries subsequent to when the Group reported
results for FY22. A net tax impact of £2.1m has been adjusted for in respect
of prior periods. The tax impact arises due to an allowed deduction for UK tax
purposes relating to the impairment, which will be claimed by the Group
undertaking for the year ending 30 April 2022.
6 Dividends
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
pence per share pence per share pence per share
Final dividends recognised as distributions in the period 3.25 3.00 3.00
Interim dividends recognised as distributions in the period - - 1.50
Total dividends paid in the period 3.25 3.00 4.50
Interim and final dividend proposed 1.60 1.50 3.25
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Final dividends recognised as distributions in the period 9,821 9,008 9,008
Interim dividends recognised as distributions in the period - - 4,529
Total dividends paid in the period 9,821 9,008 13,537
Interim and final dividend proposed 5,206 4,880 10,574
On 20 July 2022, the Board approved a final dividend for the year ended 30
April 2022 of 3.25 pence per share. The dividend was paid on 7 October 2022 to
all shareholders on the Register of Members on 9 September 2022. The payment
of the dividend did not have any tax consequences for the Group.
An interim dividend for the year ending 30 April 2023 of 1.60 pence per share
was approved by the board on 7 December 2022. The dividend will be paid on 3
March 2023 to all shareholders on the Register of Members as at 3 February
2023.
7 Earnings per share
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
Earnings attributable to owners of the parent £'000 £'000 £'000
Earnings for the period for the purpose of basic earnings per share 12,164 9,078 20,287
Number Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 301,248,054 297,234,446 298,898,991
per share
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options 12,268,283 25,225,294 13,639,188
Weighted average number of ordinary shares for the purposes of diluted 313,516,337 322,459,740 312,538,179
earnings per share
Earnings per share attributable to the owners of the parent:
Basic earnings per share (p) 4.0 3.1 6.8
Diluted earnings per share (p) 3.9 2.8 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 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:
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Profit for the period 12,164 9,078 20,287
Add/(remove):
Total of adjusting items (note 2) 5,572 7,631 19,081
Tax effect of adjustments above (1,161) (1,513) (4,651)
Adjusted profit for the purpose of adjusted earnings per share 16,575 15,196 34,717
Number Number Number
Weighted average number of ordinary shares for the purposes of adjusted basic 301,248,054 297,234,446 298,898,991
earnings per share
Ordinary shares for the purposes of adjusted diluted earnings per share 325,352,865 325,352,865 325,352,865
Adjusted basic earnings per share (p) 5.5 5.1 11.6
Adjusted diluted earnings per share (p) 5.1 4.7 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.
Share held in trust are deducted from the weighted average number of ordinary
shares for basic earnings per share. For its adjusted basic measure, the Group
uses the weighted average number of ordinary shares.
8 Acquisitions of subsidiaries
Acquisitions in the six months to 31 October 2022
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.
The acquisition of Acuhold Limited, and subsidiary Acumension Limited
(collectively "Acumension") was made in the period to 31 October 2022. As a
post balance sheet event, the acquisition of Whitelaw Twining Law Corporation
was completed on 5 December 2022. Please see Note 22 for further details of
this.
Details of the acquisition are as follows:
Country of incorporation Nature of activity Date of acquisition Consideration £'000 Percentage ownership
Acumension UK Costs management 2 September 2022 6,780 100%
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.
The provisional fair values of the assets and liabilities and the associated
goodwill arising from the acquisition are as follows:
£'000
Intangible assets 2,446
Property, plant and equipment 89
Work in progress 843
Trade and other receivables 2,104
Cash and cash equivalents 1,690
Trade and other payables (351)
Loans and borrowings -
Deferred tax liability (637)
Net assets acquired 6,184
Purchase consideration 6,780
Purchase consideration satisfied by:
Initial cash consideration 4,368
Deferred cash consideration 1,086
Assets transferred as consideration 76
Contingent consideration 1,250
Provisional goodwill 596
Within the £6,780,000 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, £436,000 has been paid
in the period. Additionally, there is contingent consideration of £1,250,000
which is payable based on certain KPIs being met in the 12 months following.
100% of the contingent consideration has been recognised as payable as at 31
October 2022, as management believe that the related KPIs will be met.
The goodwill is attributable to the benefits of operating an already
well-established business in the relevant sector that is expected to be
achieved from incorporating the business into the Group's operations. As the
purchases were not made with any qualifying intellectual property, all
goodwill acquired is non-tax deductible.
Goodwill is measured at the acquisition date as the fair value of
consideration transferred, plus non-controlling interests and the fair value
of any previously held equity interests less the net recognised amount (which
is generally fair value) of the identifiable assets and liabilities assumed.
Goodwill is subject to an annual review for impairment (or more frequently if
necessary) in accordance with our accounting policies. Any impairment is
charged to the income statement as it arises.
The following intangible assets, not including the provisional goodwill, 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).
£'000
Intangible assets - brand 569
Intangible assets - customer relationships 1,877
Total fair value of intangibles on acquisition 2,446
Deferred tax recognised as a result of the intangibles (611)
Total fair value on acquisition 1,835
Cash flows arising from the acquisition were as follows:
£'000
Purchase consideration (4,368)
Cash and cash equivalents acquired 1,690
Total fair value on acquisition (2,678)
Deferred consideration paid in the period (436)
Net cash outflow in the period (3,114)
Acumension contributed revenues of £500,000 to the group for the period.
Transaction costs comprised mainly advisor fees, including financial, tax and
legal due diligence. These are all included within administrative expenses
(non-underlying) within Note 2.
9 Intangible assets and goodwill
Acquired
Goodwill Customer relationships Brand Software costs Capitalised development costs Total
£'000 £'000 £'000 £'000 £'000 £'000
Cost
At 1 May 2022 14,034 36,812 1,933 6,762 14,165 73,706
Additions - internally developed - - - - 2,545 2,545
Additions - externally purchased - - - 369 - 369
Additions through acquisitions 596 1,877 569 - - 3,042
Effect of movements in foreign exchange 18 (126) 16 (5) - (97)
At 31 October 2022 14,648 38,563 2,518 7,126 16,710 79,565
Amortisation and impairment
At 1 May 2022 1,357 13,132 1,782 4,444 7,387 28,102
Amortisation for the period - 1,799 127 670 1,508 4,104
Effect of movements in foreign exchange 20 (35) (21) (2) - (38)
At 31 October 2022 1,377 14,896 1,888 5,112 8,895 32,168
Net book value
At 31 October 2022 13,271 23,667 630 2,014 7,815 47,397
At 1 May 2022 12,677 23,680 151 2,318 6,778 45,604
10 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 56 304 337 697
Effect of movements in foreign exchange (58) 34 (79) (103)
At 31 October 2022 18,168 14,276 37,749 70,193
Accumulated depreciation
At 1 May 2022 14,066 9,163 35,131 58,360
Charge for the period 423 544 658 1,625
Effect of movements in foreign exchange (24) (17) (9) (50)
At 31 October 2022 14,465 9,690 35,780 59,935
Net book value
At 31 October 2022 3,703 4,586 1,969 10,258
At 1 May 2022 4,104 4,775 2,360 11,239
11 Right-of-use assets
Leases as a lessee
Property Equipment Re-presented (note 1.5) Total
£'000 £'000 £'000
Right-of-use assets
At 1 May 2022 63,615 1,619 65,234
Additions 2,141 - 2,141
Depreciation (6,648) (235) (6,883)
Disposals (50) - (50)
Remeasurement adjustment 916 - 916
Effect of movements in foreign exchange 419 1 420
At 31 October 2022 60,393 1,385 61,778
12 Trade and other receivables
31 October 2022 *Re-presented 31 October 2021 30 April 2022
£'000 £'000 £'000
Current
Trade receivables 92,771 84,679 88,949
Amounts recoverable from clients in respect of unbilled revenue 82,389 73,566 71,958
Unbilled disbursements 10,332 9,353 7,982
Contract assets 92,721 82,919 79,940
Trade receivables and contract assets 185,492 167,598 168,889
Other receivables 1,897 3,511 2,216
Amounts due from Members of partnerships 2,238 1,902 2,238
Lease receivables 533 - 432
Reimbursement asset 4,801 852 4,040
Prepayments 9,088 9,950 12,359
204,049 183,813 190,174
Non-current
Other receivables 938 - 938
Lease receivables 249 - 526
1,187 - 1,464
The comparative period has been re-presented so as to split out the Amounts
due from Members of partnerships, in order to provide clearer information as
to the nature of the balance.
13 Cash and cash equivalents
31 October 2022 31 October 2021 30 April 2022
£'000 £'000 £'000
Cash at bank and in hand 31,820 24,180 28,310
Bank overdrafts (note 16) (682) (439) (606)
Cash and cash equivalents 31,138 23,741 27,704
14 Trade and other payables
31 October 2022 *Re-presented 31 October 2021 30 April 2022
£'000 £'000 £'000
Trade payables 29,713 24,507 27,896
Other payables 2,987 4,846 3,748
Other taxation and social security 13,236 17,795 15,284
Deferred income 2,487 1,253 2,014
Accruals 9,517 16,982 14,383
57,940 65,383 63,325
Deferred income has been re-presented for the comparative period to split it
out as a separate line from accruals. Accruals include £nil (31 October 2021:
£2,322,000; 30 April 2022: £nil) relating to acquisition-related
remuneration expense.
In 2020, the Group participated in the UK Government's VAT deferral scheme,
which was launched to assist businesses in their response to COVID-19. Within
other taxation and social security there remains £nil (31 October 2021:
£5,348,000; April 2022: £nil) of VAT payable which was deferred from March
2020.
15 Lease liabilities
31 October 2022 31 October 2021 30 April 2022
£'000 £'000 £'000
Balance at the beginning of the period 77,739 84,002 84,002
Additions 1,878 1,840 7,683
Interest expense related to lease liabilities 829 999 1,673
Net foreign currency translation loss / (gain) 428 (217) 763
Remeasurement adjustment 379 (823) (1,313)
Repayment of lease liabilities (including interest) (8,174) (7,330) (15,069)
Balance at the end of the period 73,079 78,471 77,739
Current lease liabilities 13,320 12,691 14,576
Non-current lease liabilities 59,759 65,780 63,163
73,079 78,471 77,739
16 Interest-bearing loans and borrowings
Obligations under interest-bearing loans and borrowings
31 October 2022 31 October 2021 30 April 2022
£'000 £'000 £'000
Current liabilities
Bank loans 5,505 18,612 9,093
Supplier payments facility 6,901 3,868 87
Bank overdrafts 682 439 606
13,088 22,919 9,786
Non-current liabilities
Bank loans 105,640 78,929 90,907
Capitalised loan arrangement fees (422) (492) (563)
105,218 78,437 90,344
118,306 101,356 100,130
Analysis of cash and cash equivalents and interest-bearing loans and borrowings:
1 May 2022 Cash flow Exchange movement Non-cash movement 31 October 2022
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 27,704 2,963 471 - 31,138
Bank loans (99,437) (10,988) (157) (141) (110,723)
Supplier payments facility (87) 9,002 - (15,816) (6,901)
Total net debt (excluding IFRS 16) (71,820) 977 314 (15,957) (86,486)
1 May 2021 Cash flow Exchange movement Non-cash movement 31 October 2021
£'000 £'000 £'000 £'000 £'000
Cash and cash equivalents 34,580 (10,600) (239) - 23,741
Bank loans (94,544) (2,200) 175 (480) (97,049)
Supplier payments facility (204) 1,572 - (5,236) (3,868)
Total net debt (excluding IFRS 16) (60,168) (11,228) (64) (5,716) (77,176)
1 May 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.
17 Financial instruments
The Group's principal financial instruments comprise trade and other
receivables, unbilled revenue, cash and cash equivalents, trade and other
payables, lease liabilities, bank borrowings and capital contributions from
members.
Fair value measurement
The fair value of each class of financial asset and liability approximates the
carrying value. The table below sets out the Group's accounting classification
of each category of financial asset and liability and their carrying values at
the end of each reporting period:
31 October 2022 31 October 2021 30 April 2022
Notes £'000 £'000 £'000
Cash and cash equivalents 13 31,138 23,741 27,704
Measured at amortised cost:
Trade and other receivables 12 196,148 171,109 179,279
Total financial assets 227,286 194,850 206,983
Measured at amortised cost:
Trade and other payables 14 55,453 65,383 61,311
Lease liabilities 73,079 78,471 77,739
Borrowings 16 118,046 101,356 100,087
Amounts due to members of partnerships in the Group 20 30,659 29,991 28,243
Total financial liabilities 277,237 275,207 267,380
18 Share capital
Number Ordinary shares Share premium Total
Treasury shares
of 1p each £'000 £'000 £'000 £'000
Issued and fully paid ordinary shares
At 31 October 2021 325,352,865 3,254 89,365 (129) 92,490
At 30 April 2022 325,352,865 3,254 89,365 (129) 92,490
Purchase of treasury shares - - - (1,043) (1,043)
At 31 October 2022 325,352,865 3,254 89,365 (1,172) 91,447
The increase in treasury shares relates to a timing difference between the
Group settling tax liabilities in cash on vested shares of participants in the
share incentive plans and the Employee Benefit Trust selling shares to cover
that related tax liability. We expect the Employee Benefit Trust to sell the
related shares during the second half of FY23.
19 Cash generated from operations
a) Cash used in operations before adjusting items
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Cash flows from operating activities
Profit before tax 12,910 11,028 22,316
Adjustments for:
Impairment (reversal) / expense - (593) 3,593
Amortisation of acquired intangible assets 1,926 2,513 4,655
Depreciation of right-of-use asset 6,883 6,394 12,737
Other depreciation and amortisation 3,803 3,687 7,211
Non-underlying items 1,548 1,052 1,224
Share-based payments expense 2,098 4,659 9,609
Interest expense on lease liabilities 829 999 1,673
Net finance expense 2,281 1,560 3,518
Operating cash flows before movements in working capital 32,278 31,299 66,536
Increase in trade and other receivables (10,863) (2,583) (8,031)
Decrease in trade and other payables (1,498) (11,887) (17,641)
(Decrease) / increase in provisions (599) 442 4,798
Increase / (decrease) in amounts due to members of partnerships in the Group 1,758 (1,001) (4,039)
Cash generated in operations before adjusting items 21,076 16,270 41,623
b) Free cash flows
Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Free cash flows
Operating cash flows before movements in working capital 32,278 31,299 66,536
Net working capital movement (12,960) (14,028) (20,874)
Amounts due to Members of partnerships in the Group 1,758 (1,001) (4,039)
Cash generated from operations before adjusting items 21,076 16,270 41,623
Net interest paid (2,844) (2,393) (4,596)
Tax paid (645) (429) (2,854)
Repayment of lease liabilities (7,345) (6,331) (13,396)
Purchase of property, plant and equipment (838) (856) (3,581)
Purchase of other intangible assets (3,007) (2,068) (4,300)
Free cash flows 6,397 4,193 12,896
c) Working capital measures
31 October 2022 31 October 2021 30 April 2022
£'000 £'000 £'000
WIP days
Amounts recoverable from clients in respect of unbilled revenue 82,389 73,566 71,958
Unbilled disbursements 10,332 9,353 7,982
Total WIP 92,721 82,919 79,940
Annualised net revenue 360,664 345,612 350,490
WIP days 94 88 83
Debtor days
Trade receivables (net of allowance for doubtful receivables) 92,771 84,679 88,949
Other receivables* 2,485 3,511 3,154
Total debtors 95,256 88,190 92,103
Annualised net revenue 360,664 345,612 350,490
Debtor days 96 93 96
Lockup days
Total WIP 92,721 82,919 79,940
Total debtors 95,256 88,190 92,103
Total lockup 187,977 171,109 172,043
Annualised net revenue 360,664 345,612 350,490
Lockup days 190 181 179
Annualised net revenue reflects the total net revenue for the previous
12-month period inclusive of pro-forma adjustments for acquisitions and
scale-backs.
20 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 - 22,509 22,509
Unrealised foreign exchange translation differences 29 (35) (6)
Capital introduced by members 1,333 - 1,333
Repayments of capital (657) - (657)
Drawings - (20,763) (20,763)
At 31 October 2022 15,075 15,584 30,659
Members' capital Other amounts due to members Total amounts due to members of partnerships in the Group
£'000 £'000 £'000
At 1 May 2021 13,348 18,144 31,492
Members' remuneration charged as an expense - 20,793 20,793
Unrealised foreign exchange translation differences 31 159 190
Capital introduced by members 1,202 - 1,202
Repayments of capital (489) - (489)
Drawings - (23,197) (23,197)
At 31 October 2021 14,092 15,899 29,991
Members' capital Other amounts due to members Total amounts due to members of partnerships in the Group
£'000 £'000 £'000
At 1 May 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 period was as follows:
31 October 2022 31 October 2021 30 April 2022
Average number of members of partnerships held by the Group during the period 371 362 366
21 Seasonality
Historically, the Group generates one to two percentage points more revenue in
the second half of the year when compared to the first. This is due to the
number of working days, the timing of annual leave, the timing of resource
investments and new client wins.
22 Events after the reporting period
The following event occurred after 31 October but before the approval of the
half year results.
Business combination: Whitelaw Twining
On 5 December 2022, DWF Group plc established a partnership in British
Columbia to provide Legal Advisory and Connected Services through the
operations of Whitelaw Twining, and DWF's existing loss adjusting practice in
Ontario. A relationship agreement has been entered into between DWF and
Whitelaw Twining's Alberta practice. The financial effects of this business
combination have not been recognised as at 31 October 2022. The operating
results, assets and liabilities of the acquired companies will be consolidated
from the 5 December 2022.
Initial cash of £5.9m, and share consideration of £11.5m was paid to the
shareholders of Whitelaw Twining on completion. The share consideration is
subject to a five-year lock-up agreement. Deferred cash consideration of
£2.9m is payable in February 2023. Contingent share consideration, up to a
value of £2.0m may be payable subject to certain 2022 calendar year financial
targets and criteria being met.
At the time when the financial statements were authorised for issue, the group
had not yet completed the accounting for the transaction with Whitelaw
Twining, as the valuations have not yet been finalised. This includes the
valuation of consideration transferred under IFRS, as well as the fair values
of assets and liabilities.
Principal risks and uncertainties
Risk management is key to assisting us in protecting our business for the
benefit of all of our stakeholders and helps us to deliver long-term
Shareholder value. The Group's strategy takes into account risks, as well as
opportunities, which need to be actively managed. Risk management activities
include identifying risks and principal risks, undertaking risk assessments
and determining mitigating actions. These activities are regularly reviewed
against the Group's risk appetite throughout the year by those parties
responsible, including the Executive Risk Committee, Internal Audit, the Risk
Committee, our Group Chief Operating Officer and ultimately our Board.
The principal risks and uncertainties faced by the Group remain in line with
those set out in our Annual Report and Accounts 2022: business, commercial,
strategy; conduct and ethics; recruiting and retaining our people;
operational; financial and reporting; and financial crime. There have been no
significant changes to the principal risks expected for the remaining six
months of the year.
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 significantly vary
month-to-month such that they may distort the link between Revenue and the
performance of the Group. Net revenue is widely reported in the legal sector
as the key measure reflecting underlying trading, and allows greater
comparability with other legal businesses.
Reconciliation Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Revenue 212,098 203,490 416,052
Recoverable expenses (32,968) (30,182) (65,810)
Net revenue 179,130 173,308 350,242
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 a further measure 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, we 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 effect of depreciation and
amortisation, and adjusting items as described above, as well as items
relating to capital structure (finance costs and income) and items outside the
control of management.
Reconciliation Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Operating profit 16,020 13,587 27,653
Depreciation of right-of-use assets 6,883 6,394 12,737
Other depreciation and amortisation 3,803 3,687 7,211
Total of adjusting items 5,572 7,631 19,081
Adjusted EBITDA 32,278 31,299 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 Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Profit before tax 12,910 11,028 22,316
Total of adjusting items (note 2) 5,572 7,631 19,081
Adjusted profit before tax 18,482 18,659 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 Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Net revenue 179,130 173,308 350,242
Adjusted administrative expenses and impairment (note 2) 67,726 67,768 134,322
Cost to income ratio 37.8% 39.1% 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 banking agreement.
Reconciliation
See note 16
APM
Lockup days
Closest equivalent statutory measure
Not applicable
Definition and purpose
Lockup days comprises of work-in-progress ("WIP") days, representing the
amount of time between performing work and invoicing clients; and debtor days,
representing the length of time between invoicing and cash collection. WIP
days is calculated as unbilled revenue divided by annualised net revenue
multiplied by 365 days. Debtor days is calculated as trade 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 19
APM
Adjusted diluted earnings per share ("adjusted DEPS")
Closest equivalent statutory measure
Diluted earnings per share ("DEPS")
Definition and purpose
Adjusted earnings divided by the total number of ordinary shares in issue,
where:
Adjusted earnings is defined as (loss) / earnings from continuing operations
adjusted for:
- non-underlying items;
- share-based payments expense;
- gain on investment;
- amortisation of acquired intangible assets;
- impairment; and
- the tax effect of the above items;
Whilst this metric is not prepared in accordance with IAS 33 'Earnings per
Share', it is an important APM to provide the Group's stakeholders with a
fully diluted EPS metric using the Group's adjusted earnings for the period
that is consistent year on year.
Reconciliation
See note 7
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 7
APM
Like for like ('L4L')
Closest equivalent statutory measure
N/A
Definition and purpose
Like for like metrics, are applied to net revenue, direct costs, gross profit
and gross margin to exclude the results of DWF Australia and Germany following
the scale-back of operations in March 2021 and April 2022 respectively, along
with the results for current year acquisitions, Zing and BCA.
This metric allows the Group's stakeholders to compare the performance of the
business on a consistent basis with the prior period, given that the
scale-back of the Australian and German business was a significant change to
the Group.
Reconciliation
Not applicable
APM
Revenue per partner
Closest equivalent statutory measure
Revenue
Definition and purpose
Revenue per partner is defined as net revenue divided by average number of
partners (on a full time equivalent basis) for the period.
This metric allows the Group's stakeholders to view the performance of the
business based on average revenue per partner, split by division (this
includes both member and employee partners).
Reconciliation Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Legal Advisory 461 445 896
Connected Services 698 692 1,382
Mindcrest 782 6,569 12,216
Group Total 492 488 975
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 lockup, WIP and debtor day
calculations which allow greater comparability within the legal sector
consistent with prior and full year metrics.
Reconciliation
Not applicable
APM
Free cash flows
Closest equivalent statutory measure
Not applicable
Definition and purpose
Free cash flow is the amount by which the operating cash flow exceeds working
capital, amounts payable to members, tax, interest and capital expenditure.
This metric provides the Group's stakeholders detail around the efficiency of
cash generation and utilisation.
Reconciliation
See note 19
APM
Leverage
Closest equivalent statutory measure
Not applicable
Definition and purpose
Leverage is calculated as net debt, divided by an annualised adjusted EBITDA
(both defined above). Annualised adjusted EBITDA reflects the previous
12-month period inclusive of pro-forma adjustments for acquisitions.
This metric provides the Group's stakeholders detail around the Group's
ability to repay debt and meet payment obligations. Leverage should be
compared with a benchmark, or industry average and is widely used by analysts
and credit rating agencies.
Reconciliation Six months ended 31 October 2022 Six months ended 31 October 2021 Year ended 30 April 2022
£'000 £'000 £'000
Adjusted EBITDA (Last 12 months) 68,097 64,771 66,682
Net debt 86,486 77,200 71,820
Leverage 1.27 1.19 1.08
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