RNS Number : 7459F
Gateley (Holdings) PLC
20 July 2021
20 July 2021
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. It forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Gateley (Holdings) Plc
("Gateley", the "Group" or the "Company")
AUDITED PRELIMINARY RESULTS 2021
Strong performance and growth demonstrating resilience through diversity
Gateley (AIM: GTLY), the legal and professional services group, announces its audited preliminary results for the year ended 30 April 2021 ("FY21" or the "Year").
The results demonstrate resilient double-digit revenue and profit growth, delivered through an increasingly diverse and successful business model, yielding strong and sustained cash generation, which enabled the reinstatement of dividend payments in the Year, with a total dividend of 7.5p (FY20: nil).
The Board is pleased to report that the high levels of activity, strong trading momentum, overall sense of optimism and confidence, which defined the Group's performance in H2 FY21, have continued into the new financial year ("FY22") and the Board is confident in the outlook for FY22.
Financial Highlights
FY21
FY20
Change
Revenue
£121.4m
£109.8m
+10.5%
Underlying operating profit before tax1
£20.5m
£18.7m
+10.0%
Underlying profit before tax1
£19.3m
£18.1m
+7.1%
Profit before tax
£16.3m
£14.8m
+10.5%
Group profit after tax
£13.2m
£11.7m
+12.2%
Basic earnings per share ("EPS")
11.18p
10.34p
+8.1%
Adjusted fully diluted EPS2
13.17p
12.45p
+5.8%
Net assets
£59.3m
£44.8m
+32.2%
Net cash/(debt)3
£19.6m
£(0.9)m
+20.5m
1
Underlying operating profit before tax and underlying profit before tax excludes share based payment charges, amortisation and exceptional items
2
Adjusted fully diluted EPS excludes share based payment charges, amortisation and exceptional items. It also adjusts for the future weighted average number of expected unissued shares from granted but unexercised share option schemes in issue based on a share price at the end of the financial year
3
Net debt excludes IFRS 16 liabilities
4
Activity levels are the utilisation of professional staff hours against budgeted hours
·
Strong financial performance with revenue and profit before tax up 10.5% yielding strong cash generation and a 32.2% increase in net assets
·
Average fee earner headcount rose 9.1% to 770 in FY21 (30 April 2020: 706)
·
Non-legal revenues increased by 27.3%, as complementary consultancy businesses contributed £14m or 11.5% of total revenues (FY20: £11m or 10.0%)
·
Overall activity levels4 increased by 8% YOY
·
Cost-savings realised during the Year, as a result of successful remote working arrangements
·
Strong balance sheet and disciplined working capital management facilitated repayment of all bank debt
·
Staff bonuses and dividend payments resumed with total dividend in the Year of 7.5p (FY20: nil)
Operational Highlights
·
'One team' culture and the retention of fee-earning capacity throughout the early stages of the pandemic enabled the Group to capitalise on the return of strong client demand in H2 FY21
·
Progression of Platform strategy, to build market-facing structures on which complementary legal and consultancy services are aggregated
·
Net promoter score of +68 achieved from tri-annual client survey
·
Gateley remains the UK's most active M&A legal advisor by deal volume, according to the latest Experian MarketIQ UK M&A league table
·
Diversified and resilient business model reinforces the Board's confidence in the future performance of the Group
Current Trading and Outlook
·
Strong trading in the first two months of the new financial year with a good pipeline of new work in most units
·
Acquisition activity recommenced after temporary COVID-19 pause, pipeline remains strong
·
Platform strategy continues apace with on-going integration of all acquired businesses, to widen and enhance pipeline activity in FY22 and beyond
Rod Waldie, CEO of Gateley, said:
"I am delighted with the excellent FY21 outcome, a year in which we exceeded our own pandemic-adjusted performance expectations set in the first month of the Year. We have, once again, delivered year-on-year revenue growth. It is testament to the Group's long-established and resilient business model, which is enhanced by an increasing range of connected services offered to clients via our Platforms - market-facing structures on which we aggregate complementary legal and consultancy services. This, alongside our embedded 'one-team' culture and the outstanding collective contribution of our people, has been the driving force behind a strong financial performance especially in the context of an extremely disruptive year of uncertainty caused by the pandemic.
"I thank our fantastic people for their exceptionally hard work, commitment and can-do attitude. This includes the leadership team, whose priority has been the safety of our people throughout the Year and the smooth-running of our operational contingency plan, which resulted in the delivery of excellent service to our clients. The leadership team was calm and pragmatic throughout and demonstrated good judgment in planning for the worst whilst managing for better.
"I also thank our clients for their support throughout the Year and for giving us the opportunity to work with them on high quality mandates in both legal and consultancy services, which we are increasingly providing in tandem to our clients.
"As we continue our strategy to build a broader professional services business, focusing on both new and existing clients, the demand for these services is strong and we are carrying a robust pipeline of work into FY22. We remain excited by a wide range of opportunities and are looking forward to continuing to grow the Group, both organically and via acquisition, in line with our strategy."
Enquiries:
Gateley (Holdings) Plc
Neil Smith, Finance Director
Tel: +44 (0) 121 234 0196
Nick Smith, Acquisitions Director and Head of Investor Relations
Chairman's Statement
Summary of the year
I am pleased with all aspects of the Group's performance in the year under review, a period during which we successfully navigated the disruption and uncertainty caused by the COVID-19 pandemic. Gateley has demonstrated the resilience of its operating model and diversification strategy, delivering excellent financial results under exceptional circumstances and emerging stronger out of the pandemic. The services we offer to clients are critical to their operations, emphasising just how important our legal and complementary professional services are to our broad, multi-sectoral, client-base.
The second half of FY21 was extremely strong with high levels of activity, which more than compensated for the impact of the first National Lockdown and justified our decision to retain all fee earning staff during the early stages of the pandemic. Our business adjusted exceptionally well to working from home and servicing clients in a very different way. It was clear to the Board that the effect of the pandemic would be dramatic, so we took immediate steps to preserve the Group's liquidity by reducing costs and postponing cash outgoings, until the uncertainty lifted and we could support a return to more normal activity. The turning point arose just before the half year-end, when activity levels returned and our pipeline strengthened significantly.
Rod Waldie took the reins from Michael Ward on 1 May 2020. In his first year as CEO, Rod has had to make some tough decisions as a result of the pandemic, whilst at the same time leading the business and executing our strategy. Under his leadership, Gateley is emerging from the pandemic in an excellent position, with a strong pipeline of work, a host of growth opportunities and generally buoyed by the opportunities which we believe the exit from lockdown will present.
People and commitment to diversity
Our people and long-established 'one-team' culture are central to the Group's success. The team has risen ably to the challenges presented by the pandemic, showing immense dedication to the business, to their colleagues and to our clients.
The Group is committed to ensuring diversity, equity and inclusion. Our goal is to foster a positive work ethic, while remaining results and client focused, and demonstrate our commitment to doing the right thing. Promoting our diverse backgrounds, skill sets, and experiences, delivers better results for everyone. Our actions and ambitions in the journey to deliver this goal are set out within the Environmental, Social and Governance ("ESG") section of our Annual Report and accompanying Responsible Business statement, that we have recently adopted using a framework established to align with the Government-led initiative "Levelling Up".
Our listing on AIM allows us to share the value created by the Group and recognise the efforts of our teams. We have issued further SAYE, CSOP and our first Long Term Incentive Plan during the Year supporting further our belief that Group-wide share ownership creates strong alignment across all shareholders and colleagues connected with the business.
Dividends
Due to our strong performance in FY21 and our confidence in prospects for the business, the Board has reinstated its dividend policy during the year. An interim dividend of 2.5p per share was paid on 28 June 2021 to shareholders on the register at the close of business on 3 June 2021. Subject to approval at the forthcoming Annual General Meeting, the Board is pleased to propose a final dividend of 5.0p per share, giving a total dividend for the year of 7.5p per share (FY20: nil). The final dividend will be paid in mid-October 2021 to shareholders on the register at the close of business on 27 August 2021. The shares will go ex-dividend on 26 August 2021.
The Board's dividend policy remains to distribute up to 70% of profit after tax (PAT) to shareholders, typically one third following its half year results and two thirds after the full year results are known. The Board intends to return to more normal payment timings during FY22.
Summary and outlook
In what has been a uniquely challenging Year, our people have excelled in client delivery, have conquered every challenge presented to them, and have delivered further strategic progress for the business, all of which has combined to generate a solid set of results.
Our acquisition pipeline presents many interesting opportunities to enhance our service lines, with our clients' needs always in mind, and fulfil our strategy to build a broader professional services group.
We look forward to the future with confidence.
Nigel Payne
Chairman
20 July 2021
Chief Executive Officer's Review
Introduction
I am delighted with the Group's resilience and achievements during FY21. We exceeded our own adjusted performance expectations that we set at the start of the Year by taking timely and sensible steps to plot a steady and conservative course through the pandemic. Our key priorities were to maintain excellent service delivery to our clients, whilst ensuring the safety and wellbeing of our people; and I believe that we succeeded in achieving this.
By the beginning of H2 FY21 it was clear that demand for our services was strengthening significantly, and this remains the case with a good pipeline of work carrying into FY22.
The expanding depth and breadth of our offering through our Platforms is becoming increasingly attractive to existing and new clients due to our ability to deliver multiple legal and consultancy services on projects in a coordinated and well-managed way. Our Platforms are market-facing structures on which we aggregate complementary legal and consultancy services. I am excited about our opportunity to further expand these both organically and via acquisition in FY22 and beyond.
Owing to our excellent performance and disciplined working capital management in FY21, coupled with our confidence in the business, we are pleased to confirm the resumption of our stated dividend policy subject to approval at the forthcoming AGM.
Results overview
Our FY21 revenue increased by 10.5% to £121.4m (FY20: £109.8m) which, alongside our swiftly implemented cost-management initiatives, predominantly arising from agile working arrangements, have yielded an increase of 10.5% in profit before tax to £16.3m compared with £14.8m for the prior year.
Underlying adjusted profit before tax increased by 7.1% to £19.3m (FY20: £18.1m) and the Group has also increased profit after tax by 12.2% to £13.2m.
Our resilient revenue performance is a product of the breadth and balance of the Group's legal and consultancy service lines. After a significant reduction during H1 FY21, Corporate transactional activity returned in H2 FY21, and has since been relentless, as business owners and Private Equity reassessed the impact of the pandemic and their appetite for deal-making. In property, our legal and consulting teams, working together on our Property Platform, traded strongly throughout the Year. In addition, many of the Group's counter-cyclical service lines, including Dispute Resolution, also performed extremely well.
We concluded the Year with a significant pipeline of activity across most of our units, further evidencing our wider reach across our client-base via our Platforms.
Cash generation during the Year remained strong, as net cashflows from operating activities of £25.4m (FY20: £13.3m) represented 193.2% (FY20: 113.5%) of profit after tax. The Group ended the Year with net cash of £19.6m compared to net debt of £0.9m in the prior period as a result of our strategy to conserve cash at the outset of the pandemic.
People and Culture
We have great talent across our teams. Our 'one-team' culture and focus on excellence are enormous sources of comfort and strength as we successfully navigate the pandemic. We maintained excellent client service throughout the Year which is testament to the collective contribution of everyone working at Gateley. The way the team works together, supporting each other and our clients, has been inspiring. Never before has the power of the Gateley team spirit been more evident.
At Gateley we have an environment in which everyone is welcome and valued. This allows people to play to their strengths in a business which has an infrastructure for opportunity and fair career progression. We have internal networking groups that promote awareness and understanding and can drive positive change, including further advances in our diversity and inclusion efforts.
Our culture is a product of the way we integrate our people. Traditionally we are an office-based organisation and we are looking to return to our offices as soon as we sensibly can in a safe and efficient way in order to optimise induction, training and the day-to-day management of the delivery of our services. However, we will be doing this alongside further, and likely permanent, agile working in order to capture some of the positive working practices realised during the pandemic.
We are guided by our purpose - we exist to deliver results that delight our clients, inspire our people and improve our communities.
We are now committed to implementing our purpose-led ESG framework in a way that contributes to the wider levelling up agenda in the UK. Therefore, we were delighted to recently announce that we are partnering in the development of a set of fourteen Levelling Up Goals, as established earlier this year by former Education Secretary, Justine Greening. The Goals are the first major piece of work by the Purpose Coalition, which includes some of the UK's most purpose-led businesses, universities and public sector organisations. Gateley's contribution will be aimed at driving change in those areas in which we can legitimately make an impact including in diversity and inclusion and fair career progression, good health and wellbeing and other goals closely linked to our people and business model.
Operational Review
Our operational contingency plan did not include a reduction in fee earner headcount. Our strategy throughout the pandemic was to maintain our fee earner capacity so that we had sufficient resources to service projects as the market recovered. This proved to be a good strategy, in addition to which it did not constrain us from continuing with our strategic investment in people. During the Year, we made key new appointments across the Group including six senior lateral hire recruits to niche areas of our service offering. Our average fee earner headcount was 770 which is an increase from 706 at the end of FY20, mainly as a result of a full year of staff additions from acquisitions made at the end of FY20.
We have a strong balance sheet and we remain focused on investing in the right businesses and people to join our team. At Gateley, there is an opportunity to pursue a career in a dynamic professional services group whose development and growth is underpinned by the investment opportunities which our plc status affords us. Our ability to incentivise people through plc share ownership provides an attractive alternative to traditional professional services ownership models. During the year staff exercised SAYE and CSOP options to further widen our staff shareholder base.
We have spent many years building and growing our physical footprint across the UK, matching our office locations with opportunities that we see available to the Group. As a result, we currently provide our services from most of the major commercial centres in the UK. Our office network remains an important asset to us but a key decision made during the Year was to flex the use of our office space, maximising the benefits of agile working practices developed during the pandemic. This will enable us to grow and strengthen our business from existing locations, realising operational gearing opportunities.
During FY21 we continued to develop our market-facing Platforms on which we aggregate complementary legal and consultancy services. We have spent a considerable amount of time promoting the Platforms internally and externally. I am delighted with how well our legal and consulting businesses are combining to win multi-disciplinary work from existing and new clients. This gives us increased confidence to continue to invest in broadening and strengthening our Platforms as part of our strategy for profitable growth.
Our segmental performance is dealt with in our Finance Director's review. In particular, our Property teams traded well throughout the Year and our Corporate and Business Services Teams were extremely busy during H2 FY21, and remain so.
Our Dispute Resolution teams have also been busy. In particular, our International Dispute Resolution practice gained further momentum in FY21 in winning new mandates for complex, top-tier multi-disciplinary international work alongside mainstream insolvency and liquidator appointments and tax avoidance recovery work. This is highly specialist work, delivered through the expertise of a team who have long-established credentials in complex recovery cases in the UK and overseas. This is a good example of the returns we can generate through our strategy to invest in niche, highly specialised services and our ability to leverage counter-cyclical opportunities with established expertise. To assist in winning more of this type of work, we have very recently committed to a new litigation funding facility for long term complex projects.
Client and Industry Recognition
We conducted our Group-wide tri-annual client survey during the Year, scoring extremely highly (net promoter score +68). We were delighted with this result, which is in excess of the industry average.
Gateley remains the UK's most active M&A legal advisor by deal volume according to the latest Experian MarketIQ UK M&A league table. We are currently ranked first in the Midlands and the North West. In difficult times, this is a resounding testament to our referral network, staff and service delivery capabilities.
We were proud to be awarded 'Professional Services Firm of the Year' at the 2021 Birmingham Post Business Awards in June. We have also picked up a number of other awards during the Year including 'Excellence in Sales and Marketing' and 'Contribution to the Community' at the Greater Birmingham Chamber of Commerce Awards; 'Law Firm of the Year' at the Thames Valley Business Awards and in 'The Times Best Law Firms 2021' league table, where we featured across a number of categories. We await the outcome of a number of shortlists including 'Law Firm of the Year' and 'Corporate Team of the Year' at the 2021 Legal Business Awards.
Our Acquisitions and Platform strategy
A core part of our strategy remains growth and diversification via acquisitions which enhance quality and expertise in our chosen locations and expand the market-facing Platforms on which we aggregate and offer leading legal and consultancy services.
We believe that our strategy differentiates our business from "single discipline" competition, whilst at the same time offering a higher-value, more relevant service as we seamlessly deliver "Platform focused" legal and consultancy services to our clients. It also makes us more indispensable to our existing clients and more attractive to potential new clients. This is because we can help clients with a wider range of complex stand-alone or inter-related issues that need to be navigated to deliver desired outcomes. Our service lines continue to evolve based, in part, on what our clients tell us they need. Our plc status and established reputation help us to attract and retain first class professionals who are the backbone of our Platforms.
To this point we have successfully established our "Property Platform" and our "People Platform", on which we have previously reported. During FY21 we won a significant mandate to our "Corporate Platform" via our International Investment Services (IIS) business. After a competitive tender process IIS were appointed Project Manager and Inward Investment advisor for Cambridge & Peterborough Combined Authority's (CPCA) "new economic growth programme", a programme designed to identify and attract 1,000 innovative and high-growth SME's and 125 new inward investors to the CPCA region. We have also undertaken significant research across our "Business Services" Platform in preparation for its expansion in FY22.
We took a conscious decision not to make any acquisitions during FY21, having completed four earnings-enhancing acquisitions during FY20, we focused on integrating the businesses acquired during FY20. However, our strong performance during FY21 and our confidence in our strategy to build a broader professional services group means that we now intend to resume acquisition activity to further strengthen and diversify our services. I am pleased to report that the acquisition pipeline is strong and we remain committed to and excited by acquisition opportunities that may present in FY22 and beyond.
Current trading and outlook
The Group was profitable and cash positive throughout FY21 and we are seeing strong activity levels carry through into FY22 and a good pipeline of new work in most of our units. We are also seeing an increasing trend in larger and longer-term mandates in both legal and consultancy services, including new roles in longer-term programmes delivered via our People Platform to businesses that are now implementing post-pandemic operational reviews. Our recent investment in this Platform, and the related opportunities that are now available, encourage us to continue to invest in new capabilities across our Platforms in a way that complements our core legal services.
The stability resulting from decisions we took in H1 FY21, together with significantly improved trading conditions in H2 FY21, have laid the foundations for a good start to the current year. Our in-built resilience through our balanced business model, allied to our strong culture, means that we have started FY22 with confidence.
Our historic performance and our clear and meaningful strategy for the long-term development of our business demonstrate to our people, our clients and investors that their careers, instructions and investments are in safe hands, irrespective of macro-economic conditions.
Looking forward, opportunities exist to grow the business and continue to broaden our range of professional services both organically and through acquisitions that enhance our client offering and deliver strong returns. We look forward to the future with confidence.
Rod Waldie
Chief Executive Officer
20 July 2021
Finance Director's Review
Financial overview
Activity levels have recovered well from the pandemic-affected start to the Year. As client confidence quickly returned to the UK economy the Group's activity levels recovered at the half year from 2% down against the prior half year, to positively conclude the Year 8% ahead of FY20. This extremely strong second half of the Year enabled the Group to repair, in full, cuts in pay made in H1 FY21 and to award staff an annual bonus in recognition of their hard work, dedication and contribution to the overall performance of the Group.
The measures taken by the Group to embrace changes in working practices driven by the pandemic resulted in a lower cost-base to carry forward into FY22, and demonstrate how agile we can continue to be as a professional services business.
Our strategy to conserve cash throughout the Year and wait until the FY21 outcome was known before declaring internal and external stakeholder rewards, from a robust financial position, has proven to be the right decision, and enables us to plan for future growth with confidence in our established, resilient and well-balanced business model.
Our track record of delivering profitable annual results, supported by strong cash generation and attractive investment returns, is based on being a responsible business with a strong focus on social and governance objectives.
Revenue
Group total revenue grew by 10.5% (FY20: 6.1%) to £121.4m (FY20: £109.8m). Revenue from core legal service lines grew organically by 5.5% (FY20: 3.5%) and rose by a further 1.0% through increased year-on-year revenue from the acquisition of Tweed. In addition, revenue from complementary consultancy businesses grew by 27.3% to £14.0m or 11.5% of total revenues (FY20: £11.0m or 10.0%), highlighting the on-going success of our Platforms diversification strategy.
With legal and consultancy service lines working increasingly closer together we finished the Year in a stronger position than we started it, with a significantly enhanced pipeline of activity and unbilled work-in-progress.
Our Property reporting segment performed consistently well throughout the Year, while our Corporate segment navigated unprecedented H2 FY21 increases in transactional activity that did not abate when the UK's anticipated Capital Gains Tax changes did not materialise. Our legal Corporate reporting segment generated revenue growth of 10.5% (FY20 17.1%) as we remain at the top of deal-volume league tables, as a result of our expertly delivered services to our Private Equity and M&A clients. Our Property reporting segment grew strongly by 17.0% (FY20: 3.8%) as we took advantage of opportunities generated by our most mature Platform operating at regional and national levels in the UK's construction, property development and housing markets, which rely upon long-term specialist legal support.
In contrast, whilst litigation activity lines grew within our Banking and Financial Services segment and Business Services segment, the extension of UK-wide Government stimulus and support continues to dampen the need for traditional restructuring and recovery activities. The broad balance of services the entire Group provides, however, supports our confidence that we remain well-placed in FY22 to advise clients if difficulties emerge as Government support is gradually withdrawn.
Our Employment, Pensions and Benefits segment grew by 4.6% (FY20: 22.8%) as our People Platform consultancy businesses t-three and Kiddy & Partners ("Kiddy") in particular needed time to adjust as people interactions were severely impacted by the pandemic. Both of t-three and Kiddy & Partners have now successfully introduced virtual delivery products and services, to complement their traditional delivery models. Although the immediate effects of the pandemic challenged these businesses, their focus on talent assessment and development and cultural change, represents strong future sales propositions to a client-base inevitably needing to adjust and change as a result of the pandemic. Both businesses are confident of a return to growth in FY22. Employment legal services advice at the end of FY20 was also boosted by furlough advice to clients at the end of that year which was not repeated again in FY21.
Underlying operating profit before tax
The Group has recorded strong underlying operating profit before tax of £20.5m which has increased by 10.0% from £18.7m in FY20. This resulted in the Group maintaining consistent trading margin performance of 16.9% (FY20: 17.0%). Despite disruption throughout the Year I am pleased with the Group's ability to turn improved activity levels across the business into fees, and sensibly manage costs at both personnel and operating expense levels. Our strategy to maintain fee earner headcount in order to service the now visible increase in client activity, as capacity in H2 FY21 reached 98%, and to maximise any cost savings resulting from our agile working strategy, have proven to be the correct strategies to deploy. The table below highlights the significant change we experienced in the second half of the year.
H1 20 £m
H2 20 £m
FY20 £m
H1 21 £m
H2 21 £m
FY21 £m
FY variance %
Revenue
51.8
58.0
109.8
50.5
69.6
121.4
+10.5%
Other income
0.1
0.6
0.7
1.9
0.6
2.5
257.1%
Personnel costs
(32.0)
(31.5)
(63.5)
(30.7)
(46.8)
(77.5)
+22.0%
Overheads and depreciation
(13.0)
(15.3)
(28.3)
(13.6)
(12.3)
(25.9)
-8.5%
Underlying operating profit before tax
6.9
11.8
18.7
8.1
12.4
20.5
+9.6%
Margin (%)
13.3%
20.3%
17.0%
16.0%
17.8%
16.8%
-0.2%
Utilisation (%)
81%
79%
80%
79%
98%
88%
+8.0%
Organic growth (%)
10.5%
2.8%
3.5%
(9.5)%
20.0%
4.7%
+1.2%
Underlying operating profit before tax excludes amortisation of acquired intangibles, impairment of intangibles and all share-based charges. Underlying operating profit before tax has been calculated as an alternative performance measure, in order to provide a more meaningful measure and year-on-year comparison of the profitability of the underlying business.
Extract of UK statement of comprehensive income
2021
2020
£'000
£'000
Revenue
121,375
109,838
Operating profit
17,505
15,361
Operating profit margin (%)
14.42%
13.99%
Reconciliation to alternative performance measure: underlying operating profit before tax
Operating profit
17,505
15,361
Non-underlying items
Share based payment charge - Gateley Plc
956
821
Share based payment charge - Kiddy & Partners
-
534
Amortisation of intangible assets
2,073
1,375
Exceptional items
Acquisitions costs
-
107
Impairment of software development costs
-
463
Underlying operating profit before tax
20,534
18,661
Adjusted underlying operating profit margin (%)
16.92%
16.99%
Personnel costs and operating expenses
Our total personnel costs increased by 21.9% to £77.5m (FY20: £63.5m) due to the full-year cost of staff introduced to the business through acquisitions made at the end of FY20, and the reinstatement of Group-wide bonuses to all staff following cancellation of all bonuses in FY20 caused by the uncertainty of the COVID-19 pandemic.
Prior to the pandemic our headcount was increased organically to meet client demand and as a result of making four acquisitions, and notwithstanding the pandemic we took the decision to continue to strengthen our legal and consultancy teams with key hires throughout the Year. In total six (FY20: 11) new legal partners joined the business and we made nine (FY20: six) internal promotions to legal partner.
Average numbers of legal and professional staff rose by 9.1% (FY20: 15.7%) to 770 (FY20: 706), whilst support staff numbers remained static at 343 (FY20: 341). Personnel costs as a percentage of fees increased to 63.8% of revenue from 57.8% in FY20, excluding share-based payment charges, due to the Board's decision to retain fee earning staff at the start of the pandemic, together with the reinstatement of Group-wide bonuses in FY21. COVID-19 Job Retention Scheme income totalling £1.9m (FY20: £0.4m) was received during the Year and disclosed within other income. Furlough income has been repaid to HMR&C in respect of those roles that we did not retain in the business beyond 1 November 2020.
Other operating expenses reduced by £2.7m or 11.5% (FY20: increased 8.5%) to £21.0m (FY20: £23.8m) as the cost of travel, marketing and premises reduced following a full year of remote working in line with UK Government policy. Operating expenses as a percentage of revenue decreased by 4.3% to 17.3% (FY20: 21.6%).
Earnings Per Share (EPS)
Basic EPS increased by 8.1% to 11.18p (FY20: 10.34p). Basic EPS before non-underlying and exceptional items increased by 4.5% to 13.26p (FY20: 12.69p). Diluted EPS increased by 9.5% to 11.10p (FY20: 10.14p). Diluted EPS before non-underlying and exceptional items decreased by 5.8% to 13.17p (FY20: 12.45p).
Long-Term Incentive Plan ('LTIP')
The Group introduced a new LTIP share scheme at the start of the Year that aligns share option rewards with compound annual growth in EPS over a three-year vesting period based on underlying trading profit after tax rather than share price. The LTIP scheme uses EPS growth based on underlying profit after tax, as the most appropriately aligned profit measure that staff participating within the scheme can be held accountable for and is referred to as underlying fully-diluted EPS starting with the closing performance of FY19. Profits used to calculate underlying EPS each year are disclosed below:
2021
2020
2019
£'000
£'000
£'000
Reported profit after tax
13,157
11,723
13,041
Adjustments for non-underlying and exceptional items:
- Anticipated impact of IFRS 16 if it had been adopted in earlier years
-
-
(313)
- Amortisation of acquired intangible assets
2,073
1,375
1,406
- Share-based payment adjustments - Impairment of software development costs
956 -
1,355 463
655 -
- Acquisition-related costs
-
107
61
Underlying profit after tax
16,186
15,023
14,850
Weighted average number of ordinary shares for calculating diluted earnings per share
118,508,833
115,599,727
112,280,569
Underlying adjusted fully diluted EPS
13.66p
13.00p
13.23p
Taxation
The Group's tax charge for the Year was £3.2m (FY20: £3.0m) which comprised a corporation tax charge of £3.8m (FY20: £3.4m) and a deferred tax credit of £0.6m (FY20: credit of £0.4m).
The deferred tax charge arises due to a combination of credits in respect of the share schemes that have vested in past years and the release of deferred tax on brands. The total effective rate of tax is 19.3% (FY20: 20.6%) based on reported profits before tax. The decrease is partially as a result of the decrease in marketing and entertaining costs incurred during the year that are typically not tax deductible.
The net deferred taxation liability was £0.8m (FY20: £1.2m).
Dividend
The Board reinstated dividends following the successful outcome of the Year and paid an interim dividend of 2.5p on the 28 June 2021, and proposes a full year final dividend at the Company's Annual General Meeting on 29 September 2021 of 5.0p (FY20: nil) per share, which if approved, will be paid in mid-October 2021 to shareholders on the register at the close of business on 27 August 2021. The shares will go ex-dividend on 26 August 2021.
Balance sheet
The Group's net asset position has increased by £14.5m (FY20: £14.3m) to £59.3m (FY20: £44.8m), due to the following movements:
There was a £22.1m increase in total current assets, resulting from £3.1m additional trade and other receivables available for collection, a £2.2m increase in contract assets ("unbilled revenue") and a £16.7m increase in cash at bank. The strong end of year cash position is as a result of conservation of cash at the outset of the pandemic which included the cancellation of all bonuses and dividends payable on the FY20 outturn. This cash policy enabled the Group to repay all outstanding term debt and finish the Year with net cash of £19.6m (FY20: Net debt £0.9m). Debt at the Year-end comprised unsecured term loans of £nil (FY20: £3.1m), whilst loans to former partners of acquired businesses totalled £nil (FY20: £0.7m).
Non-current assets increased by £1.0m mainly as a result of an increase of £4.1m from new right of use assets less a £2.7m decrease in intangible assets and goodwill as a result of the reassessment of earn-out payments due to Kiddy and t-three that were deemed no longer due and payable at the end of FY21 due to the effect COVID-19 has had on their ability to meet earn-out conditions previously set.
The Board has carefully considered the impact of COVID-19 on the future forecasts used in assessing the value in use of the cash generating units to which the goodwill and intangibles relate and determined that despite short term reductions such forecasts are more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2021, the Board concluded that the goodwill and intangible assets do not require impairment.
Total liabilities increased by £8.7m, as the Group reinstated bonuses, that were accrued at the year-end, but also repaid all deferred Government taxes from FY20 and term bank loans in full towards the end of the FY21 year.
Working capital and cash flow
After increasing overdraft facilities at the start of the Year to £20m as a precautionary measure at the outset of the pandemic, they reduced back down to pre-pandemic levels of £10m by the end of the Year.
The Group is confident its strong cash generation supports the day-to-day working capital needs of the Group and is seeking to provide longer-term committed facilities for acquisitions and expansion in FY22. The Group has also agreed terms for a litigation funding facility that will commence in early FY22.
At the Year-end, unbilled revenue recognised in the Group's statutory accounts, from time recorded on non-contingent work, totalled £13.9m or 11.5% of revenue recognised over the Year (FY20: £11.7m or 10.6%) unbilled revenue represented 49 days compared to 48 days of Pro-forma net revenue. Group debtor days remained consistent at 104 days compared to 103 days in FY20 of Pro-forma net revenue and are typically at their peak on the last day of the financial year due to billing activity towards the end of the financial year. Pro-forma net revenue includes revenue from acquisitions on a full year pro-forma basis.
Free cashflow during the Year from operations (post cashflow from IFRS 16 leases) was £20.8m (FY20: £10.6m) which represents 158.2% (FY20: 90.2%) of profit after taxation.
2021
2020
£'000
£'000
Net cash generated from operations
29,457
15,229
Tax paid
(4,039)
(2,767)
Net interest (paid)/received
(1,197)
97
Cash outflow from IFRS 16 leases (rental payments excluded from operating cash flows under IFRS 16)
(2,890)
(801)
Purchase of property, plant and equipment
(503)
(857)
Purchase of other intangible assets
(10)
(329)
Free cash flow
20,818
10,572
Underlying profit after tax
13,151
11,723
Free cash flow (%)
158.2%
90.2%
Summary
After laying sensible foundations at the start of the Year to minimise spending and conserve cash, the Group has successfully navigated through the financial effects of COVID-19 on the business. We have seamlessly adapted to agile working and as activity levels strengthened, we have returned pay cuts to staff and benefitted from the cost-savings opportunities that have arisen. We conclude another Year of growth with significant net cash, a strong pipeline of activity and renewed confidence in our strategy to diversify further and become a wider professional services group.
Neil Smith
Finance Director
20 July 2021
Consolidated statement of profit and loss and other comprehensive income
for the year ended 30 April 2021
Note
2021
2020
£'000
£'000
Revenue
3
121,375
109,838
Other operating income
4
2,451
665
Personnel costs, excluding IFRS 2 charge
7
(77,460)
(63,531)
Depreciation - Property, plant and equipment
13
(1,045)
(1,083)
Depreciation - Right-of-use asset
13
(3,751)
(3,455)
Impairment of trade receivables and contract assets
18/19
(1,834)
(631)
Other operating expenses, excluding non-underlying and exceptional items
(19,202)
(23,142)
Operating profit before non-underlying and exceptional items
6
20,534
18,661
Non-underlying operating items
6
(3,029)
(2,730)
Exceptional items
6
-
(570)
(3,029)
(3,300)
Operating profit
6
17,505
15,361
Investment income received
5
-
138
Financing income
9
176
523
Financing expense
9
(1,373)
(1,266)
Profit before tax
16,308
14,756
Taxation
10
(3,151)
(3,033)
Profit for the year after tax attributable to equity holders of the parent
13,157
11,723
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
Foreign exchange translation differences
- Exchange differences on foreign branch
(87)
29
Profit for the financial year and total comprehensive income all attributable to equity holders of the parent
13,070
11,752
Statutory Earnings per share
Basic
11
11.18p
10.34p
Diluted
11
11.10p
10.14p
The results for the periods presented above are derived from continuing operations.
Consolidated statement of financial position at 30 April 2021
Note
2021 £'000
2020 £'000
Non-current assets
Property, plant and equipment
13
1,323
1,873
Right of use asset
13
27,007
22,879
Investment property
14
164
164
Intangible assets & goodwill
15
15,765
18,438
Other intangible assets
16
282
303
Other investments
17
363
229
44,904
43,886
Total non-current assets
Current assets
Contract assets
18
13,900
11,684
Trade and other receivables
19
43,093
39,997
Deferred tax asset
22
138
19
Cash and cash equivalents
24
19,605
2,923
Total current assets
76,736
54,623
Total assets
121,640
98,509
Non-current liabilities
Other interest-bearing loans and borrowings
20
-
(2,369)
Lease liability
27
(27,702)
(22,109)
Other payables
21
(120)
(922)
Deferred tax liability
22
(772)
(1,208)
Provisions
23
(763)
(461)
Total non-current liabilities
(29,357)
(27,069)
Current liabilities
Other interest-bearing loans and borrowings
20
-
(1,437)
Trade and other payables
21
(29,032)
(20,169)
Lease liability
27
(2,743)
(3,347)
Provisions
23
(176)
(252)
Current tax liabilities
(1,066)
(1,399)
Total current liabilities
(33,017)
(26,604)
Total liabilities
(62,374)
(53,673)
NET ASSETS
59,266
44,836
EQUITY
Share capital
25
11,792
11,761
Share premium
9,421
9,153
Merger reserve
(9,950)
(9,950)
Other reserve
6,815
6,815
Treasury reserve
(312)
(417)
Translation reserve
(60)
27
Retained earnings
41,560
27,447
TOTAL EQUITY
59,266
44,836
Consolidated statement of changes in equity
Share capital
Share premium
Merger reserve
Other reserve
Treasury reserve
Retained earnings
Foreign currency translation reserve
Total Equity
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
At 1 May 2019, as previously reported
11,086
6,755
(9,950)
1,770
(1,057)
21,982
(2)
30,584
Adjustment from adoption of IFRS 16 (net of tax)
-
-
-
-
-
(725)
-
(725)
Restated balance at 1 May 2019
11,086
6,755
(9,950)
1,770
(1,057)
21,257
(2)
29,859
Comprehensive income:
Profit for the year
-
-
-
-
-
11,723
-
11,723
Exchange rate differences
-
-
-
-
-
-
29
29
Total comprehensive income
-
-
-
-
-
11,723
29
11,752
Transactions with owners recognised directly in equity:
Issue of share capital
675
2,398
-
5,045
-
-
-
8,118
Recognition of tax benefit on gain from equity settled share options
-
-
-
-
-
374
-
374
Purchase of own shares at nominal value
-
-
-
-
-
(163)
-
(163)
Sale of treasury shares
-
-
-
-
1,915
-
-
1,915
Purchase of treasury shares
-
-
-
-
(1,275)
-
-
(1,275)
Dividend paid
-
-
-
-
-
(6,007)
-
(6,007)
Share based payment transactions
-
-
-
-
-
821
-
821
Deferred tax on equity settled element of share based payment charge
-
-
-
-
-
(558)
-
(558)
Total equity at 30 April 2020
11,761
9,153
(9,950)
6,815
(417)
27,447
27
44,836
At 1 May 2020
11,761
9,153
(9,950)
6,815
(417)
27,447
27
44,836
Comprehensive income:
Profit for the year
-
-
-
-
-
13,157
-
13,157
Exchange rate differences
-
-
-
-
-
-
(87)
(87)
Total comprehensive income
-
-
-
-
-
13,157
(87)
13,070
Transactions with owners recognised directly in equity:
Issue of share capital
31
550
-
-
-
-
-
581
Sale of treasury shares
-
(282)
-
-
400
-
-
118
Purchase of treasury shares
-
-
-
-
(295)
-
-
(295)
Share based payment transactions
-
-
-
-
-
956
-
956
Total equity at 30 April 2021
11,792
9,421
(9,950)
6,815
(312)
41,560
(60)
59,266
Consolidated statement of changes in equity (continued)
The following describes the nature and purpose of each reserve within equity:
Share premium - Amount subscribed for share capital in excess of nominal value together with gains on the sale of own shares and the difference between actual and nominal value of shares issued by the Company in the acquisition of trade and assets.
Merger reserve - Represents the difference between the nominal value of shares acquired by the Company in the share for share exchange with the former Gateley Heritage LLP members and the nominal value of shares issued to acquire them.
Other reserve - Represents the difference between the actual and nominal value of shares issued by the Company in the acquisition of subsidiaries.
Treasury reserve - Represents the repurchase of shares for future distribution by Group's Employee Benefit Trust.
Retained earnings - All other net gains and losses and transactions with owners not recognised anywhere else.
Foreign currency translation reserve - Represents the movement in exchange rates back to the Group's functional currency of profits and losses generated in foreign currencies.
Consolidated cash flow statement for year ended 30 April 2021
Note
2021
2020
£'000
£'000
Cash flows from operating activities
Profit for the year after tax
13,157
11,723
Adjustments for:
Depreciation and amortisation
13/15/16
6,869
5,913
Financial income
9
(176)
(523)
Financial expense
9
416
426
Interest charge on capitalised leases
9
957
840
Impairment of Goodwill
5
-
619
Equity settled share-based payments
6
956
821
Profit on disposal of property, plant and equipment
6
(3)
-
Loss on disposal of other intangible assets
16
-
282
Profit on sale of investment
5/17
-
(138)
Tax expense
10
3,151
3,033
25,327
22,996
Increase in trade and other receivables
(5,312)
(1,730)
Increase/(decrease) in trade and other payables
9,216
(5,280)
Increase in provisions
23
226
83
Cash generated from operations
29,457
16,069
Tax paid
(4,039)
(2,767)
Net cash flows from operating activities
25,418
13,302
Investing activities
Acquisition of property, plant and equipment
13
(503)
(857)
Acquisition of other intangible assets
16
(10)
(329)
Cash received on disposal of property, plant and equipment
11
-
Cash received on sale of investments
-
208
Acquisition of other investments
17
(134)
(214)
Contingent consideration paid - acquisition of subsidiary
(363)
(625)
Consideration paid on acquisitions, net of cash acquired
-
(2,657)
Net cash used in investing activities
(999)
(4,474)
Financing activities
Interest receivable
9
176
523
Interest and other financial income paid
9
(416)
(426)
Interest charge on capitalised leases
9
(957)
(840)
Lease repayments
(2,890)
(801)
Repayment of term bank loans
20
(3,077)
(2,573)
Repayment of loans from former members of GCL Solicitors & Directors of IIS
20
(729)
(402)
Funds from former members of Gateley Tweed
20
-
30
Proceeds from sale of own shares
145
642
Acquisition of own shares
(288)
-
Cash received for shares issued on exercise of SAYE/CSOP/SARS options
299
1,062
Dividends paid
12
-
(6,007)
Net cash used in financing activities
(7737)
(8,792)
Net increase in cash and cash equivalents
16,682
36
Cash and cash equivalents at beginning of year
2,923
2,887
Cash and cash equivalents at end of year
24
19,605
2,923
Notes to the financial statements
1 Basis of preparation and significant accounting policies
The financial information set out in this financial results announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The consolidated statement of comprehensive profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of change in equity, consolidated statement of cashflows and the associated notes have been extracted from the Group's financial statements for the year ended 30 April 2021, upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2021 will be delivered to the Registrar of Companies following the Annual General Meeting.
These condensed preliminary financial statements for the year ended 30 April 2021 have been prepared on the basis of the accounting policies as set out in the 2020 financial statements.
The recognition and measurement requirements of all International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied.
1.1 Statement of Directors responsibilities
The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements have been prepared in accordance with the AIM Rules.
1.2 Cautionary statement
This document contains certain forward-looking statements with respect of the financial condition, results, operations and business of the Group. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this document should be construed as a profit forecast.
2 Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Finance Directors review, together with the financial position of the Group, its cash flows, liquidity position and borrowing. Financial projections have been prepared to April 2023 which show positive earnings and cash flow generation. The COVID-19 situation at the start of the year created an unprecedented and constantly changing challenge to all businesses. Management successfully navigated the business through the impact of the pandemic on the Group's financial performance. The Group has applied sensitivities (informed by the past experiences of the Group since the onset of the pandemic, including the Group's time recording activity, fee generation and cash collections) to the current financial projections based on various downside scenarios to illustrate the potential impact from a downturn in client activity. Over the last 12 months the Group has proven that our business model can operate in an agile way to allow staff to work 100% of the time from home. Therefore Management do not consider there would be any loss of utilisation in the Group's personnel from home working, a loss of capacity from staff being unable to work due to sickness.
This process included a reverse 'stress test' used to inform downside testing which identified the break point in the Group's liquidity. Whilst the sensitivities applied do show an expected downside impact on the Group's financial performance in future periods, in all scenarios modelled the Board have identified the appropriate mitigating actions in order for the Group to maintain a robust balance sheet and liquidity position. In addition, the Board have also considered mitigating actions such as lower capital expenditure, reductions in personnel and overhead expenditure and other short-term cash management activities within the Group's control as part of their assessment of going concern.
Furthermore, as an extra safeguard to support the Group's liquidity position the Board has worked closely with its supportive banks in order to find the right balance between overdraft and other longer term funding facilities. As at 30 April 2021 the Group operates an unsecured overdraft facility of up to £10m, it has repaid all term debt during the year totalling £2.4m and is currently in discussions regarding a litigation funding facility of up to £20m to support the working capital needs of large litigation work streams and an acquisition funding facility alongside a revolving credit facility. Due to its sensibly managed cash position resulting in net cash at the 30 April 2021 of £19.6m these new facilities have not yet been finalised but the Group aims to have these in place by 31 October 2021.
The Group expects to be able to operate within the Group's existing financing facilities for the foreseeable future and currently demonstrates significant debt capacity headroom based on its strong financial performance. Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and they have adopted the going concern basis of accounting in preparing the annual Group financial statements.
3 Revenue and operating segments
The Chief Operating Decision Maker ("CODM") is the Strategic Board. The Group have the following five strategic divisions, which are its reportable segments. These divisions offer a mixture of legal and consultancy services to clients. With effect from 1 May 2020 all service lines are managed through two separately reporting lines renamed Gateley Legal and Gateley Consultancy.
The following summary describes the operations of each reportable segment as reported up to 30 April 2021 and also the new service lines:
Reportable segment
Legal service lines (Gateley Legal)
Consultancy service lines (Gateley Consultancy)
Banking and financial services
Asset finance Banking Restructuring
Vinden
Corporate
Corporate Private client/Family Taxation
International Investment Services GEG Services
Business services
Commercial Commercial Dispute Resolution/Litigation Shipping Tweed (reputation, media and privacy law)
Vinden
Employment, Pensions and Benefits
Employment Pension
Entrust Kiddy & Partners T-three
Property
Real Estate Residential Development Construction Planning
Capitus Hamer/Persona Vinden
The revenue and operating profit are attributable to the principal activities of the Group. A geographical analysis of revenue is given below:
2021
2020
£'000
£'000
United Kingdom
109,934
104,911
Europe
6,231
2,748
Middle East
937
454
North and South America
1,045
533
Asia
802
289
Other
2,426
903
121,375
109,838
The Group has no individual customers that represent more than 10% of revenue in either the 2021 or 2020 financial year. The Group's assets and costs are predominately located in the UK save for those assets and costs located in the United Arab Emirates (UAE) via its Dubai subsidiary. Net Group assets of £0.07m (FY20: Net Group assets of £0.04m) are located in the Group's Dubai subsidiary. Revenue generated by the Group's Dubai subsidiary to customers in the UAE totalled £0.96m (FY20: £0.50m) as disclosed above as due from the customers in the Middle East.
2021
Banking and Financial Services
Corporate
Business Services
Employee Pensions and Benefits
Property
Total segments
Other expense and movement in unbilled revenue
Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Segment revenue from services transferred at a point in time
3,239
7,437
1,357
3,780
13,289
29,102
1,361
30,463
Segment revenue from services transferred over time
12,774
14,450
11,996
10,472
39,654
89,346
1,566
90,912
Total Segment revenue
16,013
21,887
13,353
14,252
52,943
118,448
2,927
121,375
Segment contribution (as reported internally)
5,291
7,100
5,688
4,597
24,406
47,082
2,927
50,009
Costs not allocated to segments:
Other operating income
2,448
Personnel costs
(8,240)
Depreciation and amortisation
(6,869)
Other operating expenses
(18,887)
Share based payment charges
(956)
Net financial expense
(1,197)
Profit for the financial year before taxation
16,308
2020
Banking and Financial Services
Corporate
Business Services
Employee Pensions and Benefits
Property
Total segments
Other expense and movement in unbilled revenue
Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Segment revenue from services transferred at a point in time
6,495
6,956
3,628
1,611
15,699
34,389
579
34,968
Segment revenue from services transferred over time
10,206
12,845
8,927
12,020
29,372
73,370
1,500
74,870
Total Segment revenue
16,701
19,801
12,555
13,631
45,071
107,759
2,079
109,838
Segment contribution (as reported internally)
6,538
7,616
4,992
4,876
21,317
45,339
2,079
47,418
Costs not allocated to segments:
Other operating income
665
Investment income
138
Personnel costs
(7,523)
Depreciation and amortisation
(5,913)
Other operating expenses
(17,361)
Share based payment charges
(821)
Exceptional costs
(1,104)
Net financial expense
(743)
Profit for the financial year before taxation
14,756
Group entities may be engaged on a contingent basis; in such cases the Group consider the satisfaction of the contingent event as the sole performance obligation within the contract. Fees are only billed once the contingent event has been satisfied. The initial financing of these engagements types is met by the Group. Due to the nature and timing of the billing, such engagements influence the contract asset balance held in the balance sheet at year end. In the majority of cases the contingent event is expected to be concluded within one year of the engagement date. The Group operates standard payment terms of 30 days. £15.2 million of the current period revenue is derived from services satisfied, in part, in the previous period.
Services transferred over time
For non-contingent engagements, fee earners hourly rates are determined at the point of engagement with all hours attributed to the engagement fully and accurately recorded. The recorded hours are then translated into fees to be billed and invoiced on a monthly basis. The Group typically operates on 30 days credit terms, in line with IFRS 15 the performance obligations are fulfilled over time with revenue being recognised in line with the hours worked.
Contract assets
Under IFRS 15 the Group recognises any goods or services transferred to the customer before the customer pays consideration, or before payment is due, as a contract asset. These assets differ from accounts receivables. Accounts receivable are the amounts that have been billed to the client and the revenue recognised, whereas these contract assets are amounts of work in progress where work has been performed, yet the amounts have not yet been billed to the client. Due to the nature of the services delivered by the Group the significant component of the cost of delivery is staff costs. As a result, there is little to no judgement exercised in determining the costs incurred as they are driven by the time recorded by fee earners. Contract assets are subject to impairment under IFRS 9.
No other financial information has been disclosed as it is not provided to the CODM on a regular basis.
Contract Liabilities
Under IFRS 15 the Group is required to recognise contract liabilities based on those amounts recognised against contracts for which the satisfaction of performance obligations has not yet been met. These liabilities relate to the deferred income recognised within Kiddy & Partners, T-three Consulting Limited and GEG Services Limited as a result of their billing structure. The amounts recognised reflect the agreed cost of the services to be performed and are realised in line with the ongoing cost of delivery. Due to the nature of the services provided, the main component of this cost of delivery is staff costs, as a result there is little to no judgement exercised in determining the value of the liability held at year end.
Practical expedients under IFRS 15
Under IFRS 15 companies are required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period. However, only a small proportion of revenue contracts in issuance are for fixed amounts, rather the company has a right to consideration from the customer in an amount that corresponds directly with the value to the customer of the business' performance completed to date. Therefore, the Group considers it impractical to estimate the potential value of unsatisfied performance obligations and has elected to apply the practical expedient available under IFRS 15.
4 Other operating income
2021
2020
£'000
£'000
Rental and service charge income
2
216
COVID-19 Job retention scheme income
1,945
416
Exchange gain
-
17
Cash incentives - Bank account switching income
1
16
Profit on sale of fixed assets
3
-
Amounts received against terminated contract
500
-
2,451
665
5 Investment income
2021
2020
£'000
£'000
Income from sale of investment - Business Collaborator Limited
-
138
6 Expenses and auditor's remuneration
Included in operating profit are the following:
2021
2020
£'000
£'000
Depreciation on tangible assets (see note 13)
1,045
1,083
Depreciation on right-of-use asset (see notes 13 and 27)
3,751
3,455
Short term and low value lease payments (see note 27)
40
63
Operating lease costs on property (see note 27)
26
21
Other operating income - rent received
(2)
(216)
Foreign exchange losses
87
(29)
Profit on sale of fixed assets
(3)
-
2021
2020
£'000
£'000
Non-underlying items
Amortisation of intangible assets (see notes 15 and 16)
2,073
1,375
Share based payment charges - Gateley Plc
956
821
Share based payment charges - Kiddy & Partners
-
534
3,029
2,730
Exceptional items
Acquisition costs
-
107
Impairment of software development costs
-
463
-
570
Total non-underlying and exceptional items
3,029
3,300
Acquisition costs in the 2020 financial year represent professional fees in respect of the acquisition of T-Three Consulting Limited and The Vinden Partnership Limited.
Share based payment charges in Gateley Plc represent charges in accordance with IFRS 2 in respect of unexercised SAYE, CSOP, SARS and LTIP schemes (See note 8).
Share based payment charges in Kiddy & Partners in the 2020 financial year represent bonuses awarded to staff based on profit related performance conditions settled 50% in cash and 50% in shares are the prevailing market value at the time of issue (See note 7 and 8)
Impairment of software development costs in the comparative year relates to internally generated costs capitalised in previous years, released due to the cessation of the related IT project to install a new practice management system. (See note 16)
Auditor's remuneration
2021
2020
£'000
£'000
Fees payable to the Company's Auditor in respect of audit services: Audit of these financial statements
73
143
Audit of financial statements of subsidiaries of the Company
15
15
88
158
Amounts receivable by the Company's auditor and its associates in respect of:
Other assurance services Tax advisory services
44 -
33 7
Tax compliance services
-
45
44
85
Other assurance services in 2021 relate to Solicitors Accounts Rules review with associated reporting to legal regulators. This work is entirely assurance focused.
7 Personnel costs
The average number of persons employed by the Group during the year, analysed by category, was as follows:
Number of employees
2021
2020
Legal and professional staff
770
706
Administrative staff
343
341
1,113
1,047
The aggregate payroll costs of these persons were as follows:
2021
2020
£'000
£'000
Wages and salaries
68,020
55,696
Social security costs
7,736
6,280
Pension costs
1,704
1,555
77,460
63,531
Non-underlying items (see note 7)
Share based payment expense - Gateley Plc
956
821
Share based payment expense - Kiddy & Partners
-
534
78,416
64,886
8 Share-based payments
Group
At the year end the Group has four share-based payment schemes in existence.
Save As You Earn scheme ('SAYE')
The Group operates a HMRC approved SAYE scheme for all staff. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at a discount of 20% of the market price determined at the grant date.
During the year 365,355 SAYE 17/18 options vested with 107,743 being exercised by 30 April 2021 leaving 257,612 options still to be exercised. New shares were issued to satisfy these options being 107,743 10p shares with a nominal value of £10,774. The accrued IFRS2 charge of £155,381 has been released against other reserves.
Company Share Option Plan ('CSOP')
The Group operates an HMRC approved CSOP scheme for associates, senior associates, legal directors, equivalent positions in Gateley Group subsidiary companies and Senior Management positions in our support teams. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at the price on the date of grant.
During the year 428,145 CSOPS 17/18 options vested. None of these options had been exercised at the year end. The accrued IFRS2 charge of £95,780 has been released against other reserves.
Long Term Incentive Plan ('LTIP')
The Group has introduced during the year an LTIP for the benefit of Executive Directors and Senior Management. Awards under the LTIP may be in the form of an option granted to the participant to receive ordinary shares on exercise dependent upon the achievement of profit related performance conditions.
Performance conditions
Options granted under the LTIP are only exercisable subject to the satisfaction of the following performance conditions which will determine the proportion of the option that will vest at the end of the three-year performance period. The awards will be subject to an adjusted fully diluted earnings per share performance measure as described in the table below:
Adjusted, fully diluted earnings per Share Compound Annual Growth Rate (CAGR) over the three year period ending 30 April 2023
Amount Vesting %
Below 5%
0%
5%
25%
Between 5% and 10%
Straight line vesting
Above 10%
100%
The options will generally be exercisable after approval of the financial statements during the year of exercise. The performance period for any future awards under the LTIP will be a three-year period from the date of grant. Vested and unvested LTIP awards are subject to a formal malus and clawback mechanism.
Grant of equity share options under the LTIP
Certain senior employees and Executive Directors were initially granted options on 24 February 2020 based on performance conditions commencing on 1 May 2019. These options were cancelled on 17 July 2020 as a result of the impact of COVID-19 on the achievement of those performance conditions. The fair value of the cancelled options is deemed to be nil as a result of the impact of COVID-19 on the Group. The Committee subsequently reassessed the use of this incentive scheme and granted new options on the 22 July 2020 based on performance conditions commencing a year on 1 May 2020. The number of options granted were allocated to the same employees in the same proportions as the February issue however approximately 28% more awards were issued to those employees so as to enhance the incentivisation of these awards during the difficult and challenging economic conditions encountered due to the impact of COVID-19.
Stock Appreciation Rights Scheme ('SARS')
The SARS is a discretionary executive reward plan which allows the Group to grant conditional share awards or nil cost options to selected executives at the discretion of the Remuneration Committee.
The awards vest after a three year performance period. On exercise, participants will receive an award of shares equal to the growth in value of the option between the date of grant and the date of exercise in excess of the hurdle rate calculated by reference to the number of reference options granted to each option holder. The hurdle rate is currently set at 115.765% of the market value of the underlying shares on the date of the grant.
No awards were granted under the SAR Scheme during the year ended 30 April 2021, 30 April 2020 or 30 April 2019.
During the year the final 6,750,000 SARS 17/18 options lapsed.
The annual awards granted under all schemes are summarised below:
Weighted average remaining contractual life
Weighted average exercise price
Originally granted
Lapsed at 30 April 2020
At 1 May 2020
Granted during the year
Lapsed during year
Exercised in the year
At 30 April 2021
Number
Number
Number
Number
Number
Number
Number
SAYE
SAYE 17/18- 15 September 2017
0 years
£1.33
556,296
(140,878)
415,418
-
(50,063)
(107,743)
257,612
SAYE 18/19 - 21 September 2018
0.4 years
£1.27
620,335
(73,411)
546,924
-
(94,955)
-
451,969
SAYE 19/20 - 30 September 2019
1.4 years
£1.28
770,787
-
770,787
-
(73,964)
-
696,823
SAYE 20/21 - 6 November 2020
2.5 years
£1.02
-
-
-
2,337,353
(72,700)
-
2,264,653
1,947,418
(214,289)
1,733,129
2,337,353
(291,682)
(107,743)
3,671,057
CSOPS
CSOPS 17/18 - 3 October 2017
0 years
£1.65
581,162
(125,444)
455,718
-
(27,573)
-
428,145
CSOPS 18/19 - 24 October 2018
0.5 years
£1.44
812,131
(68,748)
743,383
-
(72,915)
-
670,468
CSOPS 20/21 - 7 July 2020
2.2 years
£1.35
-
-
-
976,797
(57,411)
-
919,386
1,393,293
(194,192)
1,199,101
976,797
(157,899)
-
2,017,999
LTIPS
LTIPS 20/21 - 22 July 2020
2.7 years
£1.43
-
-
-
1,405,766
(38,339)
-
1,367,427
-
-
-
1,405,766
(38,339)
-
1,367,427
SARS
SARS 17/18 - 3 October 2017
0 years
£1.83
7,050,000
(300,000)
6,750,000
-
(6,750,000)
-
-
7,050,000
(300,000)
6,750,000
-
(6,750,000)
-
-
Fair value calculations
The award is accounted for as equity-settled under IFRS 2. The fair value of awards which are subject to non-market based performance conditions is calculated using the Black Scholes option pricing model. This model has been used as an approximation of the binomial model for valuing the SARS granted, the Directors consider the difference to be immaterial. The inputs to this model for awards granted during the financial year are detailed below:
Expected volatility was determined by using historical share price data of the Company since it listed on 8 June 2015. The expected life used in the model has been based on Management's expectation of the minimum and maximum exercise period of three and three and a half years, respectively.
The total charge to the income statement for all schemes now in place, included within non-underlying items, is £956,000 (FY20: £821,000).
9 Financial income and expense
Recognised in profit and loss
2021
2020
£'000
£'000
Financial income
Interest income
176
523
Total finance income
176
523
Financial expense
Interest expense on bank borrowings measured at amortised cost
(416)
(426)
Interest on lease liability
(957)
(840)
Total financial expense
(1,373)
(1,266)
Net financial expense
(1,197)
(743)
10 Taxation
2021
2020
£'000
£'000
Current tax expense
Current tax on profits for the year
3,749
3,121
(Over)/under provision of taxation in previous period
(43)
295
Total current tax
3,706
3,416
Deferred tax expense
Origination and reversal of temporary differences
(436)
(234)
Under provision on share-based payment charges
(119)
(149)
Total deferred tax expense
(555)
(383)
Total tax expense
3,151
3,033
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:
2021
2020
£'000
£'000
Profit for the year (subject to corporation tax)
16,308
14,756
Tax using the Company's domestic tax rate of 19%
3,099
2,804
Expenses not deductible for tax purposes
214
83
(Over)/under provision of taxation in previous period
(43)
295
Under provision on share-based payment charges
(119)
(149)
Total tax expense
3,151
3,033
On 26 October 2015 the UK corporation tax rate was reduced to 19% (effective from 1 April 2017). As a result of the March 2020 Budget the UK corporation tax rate remains at 19% for the years beginning 1 April 2020 and 1 April 2021. The deferred tax liability at 30 April 2021 has been calculated based on these rates.
11 Earnings per share
Statutory earnings per share
2021
2020
Number
Number
Weighted average number of ordinary shares in issue, being weighted average number of shares for calculating basic earnings per share
117,685,265
113,404,283
Shares deemed to be issued for no consideration in respect of share based payments
823,568
2,195,444
Weighted average number of ordinary shares for calculating diluted earnings per share
118,508,833
115,599,727
2021
2020
£'000
£'000
Profit for the year and basic earnings attributable to ordinary equity shareholders
13,157
11,723
Non-underlying and exceptional items (see note 7)
Operating expenses
3,029
3,300
Tax on non-underlying and exceptional items
(576)
(627)
Underlying earnings before non-underlying and exceptional items
15,604
14,396
Earnings per share is calculated as follows:
2021
2020
Pence
Pence
Basic earnings per ordinary share
11.18
10.34
Diluted earnings per ordinary share
11.10
10.14
Basic earnings per ordinary share before non-underlying and exceptional items
13.26
12.69
Diluted earnings per ordinary share before non-underlying and exceptional items
13.17
12.45
12 Dividends
2021
2020
£'000
£'000
Equity shares:
Final dividend in respect of FY19 (5.4p per share) - 15 October 2019
-
6,007
The Board has paid an interim dividend in respect of the FY21 financial year of 2.5p per share on 28 June 2021.
13 Property, plant and equipment
Leasehold improvements
Equipment
Fixtures and Fittings
Right-of-use assets
Total
£'000
£'000
£'000
£'000
£'000
Cost
As at 30 April 2019
231
5,275
4,984
-
10,490
IFRS 16 Right-of-use asset
-
-
-
24,360
24,360
Balance at 1 May 2019
231
5,275
4,984
24,360
34,850
Additions
-
745
112
4,831
5,688
Arising on acquisition after fair value adjustments
231
187
130
-
548
Disposal
-
-
-
(3,045)
(3,045)
As at 30 April 2020
462
6,207
5,226
26,146
38,041
Balance at 1 May 2020
462
6,207
5,226
26,146
38,041
Additions
-
302
201
9,238
9,741
Disposal
(145)
(16)
(31)
(1,359)
(1,551)
As at 30 April 2021
317
6,493
5,396
34,025
46,231
Depreciation and impairment
Balance at 1 May 2019
104
4,331
4,038
-
8,473
Depreciation charge for the year
10
687
386
3,455
4,538
Arising on acquisition after fair value adjustments
213
139
114
-
466
Eliminated on disposal
-
-
-
(188)
(188)
Balance at 30 April 2020
327
5,157
4,538
3,267
13,289
Balance at 1 May 2020
327
5,157
4,538
3,267
13,289
Depreciation charge for the year
23
670
352
3,751
4,796
Eliminated on disposal
(141)
(13)
(30)
-
(184)
Balance at 30 April 2021
209
5,814
4,860
7,018
17,901
Net book value
At 30 April 2020
135
1,050
688
22,879
24,752
At 30 April 2021
108
679
536
27,007
28,330
14 Investment property
£'000
Fair value
Balance at 1 May 2019 and 30 April 2020
164
Balance at 1 May 2020 and 30 April 2021
164
The Group's interest in its freehold property at 216 Capella House, Celestia Falcon Drive, Cardiff Bay, Cardiff, CF10 4RE was valued as at 30 April 2021 at £164,000 (FY20: £164,000) by the Directors based on current open market values for existing use. However, it was noted that a valuation by a qualified individual with relevant experience has not been performed during the year on the basis that it is not expected by the Directors to have materially changed. Rental income of £nil (FY20: £nil) was received during the year. Services charges of £3,089 (FY20: £3,000) where incurred during the year.
15 Intangible assets and goodwill
Goodwill
Customer lists and brands
Total
£'000
£'000
£'000
Deemed cost
At 1 May 2019
8,405
4,424
12,829
Arising through business combinations
4,543
5,426
9,969
Adjustment - Kiddy & Partners
(619)
-
(619)
At 30 April 2020
12,329
9,850
22,179
Adjustment
(631)
-
(631)
At 30 April 2021
11,698
9,850
21,548
Amortisation
At 1 May2019
-
2,399
2,399
Charge for the year
-
1,342
1,342
At 30 April 2020
-
3,741
3,741
Charge for the year
-
2,042
2,042
At 30 April 2021
-
5,783
5,783
Carrying amounts
At 30 April 2020
12,329
6,109
18,438
At 30 April 2021
11,698
4,067
15,765
Goodwill is allocated to the following cash generating units:
2021
2020
£'000
£'000
Property Group
Gateley Capitus Limited
1,515
1,515
Gateley Hamer Limited
1,161
1,161
GCL Solicitors (acquisition of trade and assets)
2,900
2,900
Persona Associates Limited
40
40
Gateley Vinden Limited
2,259
1,972
7,875
7,588
Employment , Pensions and Benefits Group
Kiddy & Partners Limited
1,600
1,872
International Investment Services Limited
338
338
T-three Consulting Limited
309
955
2,247
3,165
Business services Group
Gateley Tweed (acquisition of goodwill)
1,576
1,576
11,698
12,329
Impairment testing
The Group tests goodwill annually for impairment. The impairment test involves determining the recoverable amount of the cash generating unit (CGU) to which the goodwill has been allocated. The Directors believe that each operating segment represents a cash generating unit for the business and as a result, impairment is tested for each segment, and all the assets of each segment are considered.
The recoverable amount is based on the present value of expected future cash flows (value in use) which was determined to be higher than the carrying amount of goodwill so no impairment loss was recognised. Management have considered the likely impact of the COVID 19 pandemic on future cashflows in their assessment of impairment.
Value in use was determined by discounting the future cash flows generated from the continuing operation of the Group and was based on the following key assumptions:
· A pre-tax discount rate of between 12 and 21% (FY20: 12-21%) was applied in determining the recoverable amount. The discount rate is based on the Group's average weighted cost of capital of 10.18% and adjusted according to the risks attributable to each CGU. Weighted average cost of capital has been applied at the 2020 financial year rate as no dividend was paid in the 2021 financial year artificially increasing the rate.
· The values assigned to the key assumptions represent Management's estimate of expected future trends and are based on both external (industry experience, historic market performance and current estimates of risks associated with trading conditions) and internal sources (existing Management knowledge, track record and an in-depth understanding of the work types being performed).
o Growth rates of between -25% to 10% (FY20: 5-18%) are based on Management's understanding of the market opportunities for services provided pertaining to the industry in which each CGU is aligned.
o Increases in costs are based on current inflation rates and expected levels of recruitment needed to generate predicted revenue growth.
o Attrition rates are based on the historic experience and trends of client activity over a two to three year period and applied to future fee forecasts.
o Cash flows have been typically assessed over a five-year period which Management extrapolates cash using a terminal value calculation based on an estimated growth rate of nil%. The expected current UK economic growth forecasts for the legal services market is 2%.
· The Group has conducted a sensitivity analysis on the impairment test of the CGU carrying value. The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of goodwill is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.
Sensitivities
The Group attributes a monetary value to the acquired goodwill based primarily on the anticipated future cash flows generated by the customers. Whilst the Group accounts for customer attrition and direct costs the main driver of this value is the estimated revenue resulting from the customers on the list. Management have estimated a year on year growth rate which has been applied to the model. The below table shows the Group's sensitivity to growth rates on the customer list valuation:
Increase/(decrease) in value of goodwill
£'000
+1 % increase in growth rates
657
-1 % decrease in growth rates
(643)
16 Other intangible assets
IT development costs £'000
Computer software £'000
Total £'000
Cost
Balance at 1 May 2019
237
85
322
Additions
303
26
329
Disposals and write-offs
(282)
-
(282)
At 30 April 2020
258
111
369
Additions
-
10
10
At 30 April 2021
258
121
379
Amortisation
Balance at 1 May 2019
-
33
33
Charge for the year
-
33
33
At 30 April 2020
-
66
66
Charge for the year
-
31
31
At 30 April 2021
-
97
97
Net book amount at 30 April 2020
258
45
303
Net book amount at 30 April 2021
258
24
282
The Group's amortisation policy is to amortise other intangible assets from the date they are made available for use. As at 30 April 2021 the software relating to the IT development costs was not available for use, therefore no amortisation has been recognised. The software is expected to be available for use in the 2022 financial year.
17 Other investments
The Group holds other investment interests in the following third party investments:
£'000
Fair value
Balance at 1 May 2019
85
Additions
214
Disposals
(70)
Balance at 30 April 2020
229
Additions
134
Balance at 30 April 2021
363
£15,000 - Gateley Investments Limited holds a 1.9% investment in the ordinary shares of Manchester Biotech Limited (formerly PeptiGelDesign Ltd).
£347,734 - Gateley Plc holds a 3.0% investment in the ordinary shares in Incanthera Plc, acquired on 26 February 2020 (£213,733) and 29 July 2020 (£133,999).
18 Contract assets and liabilities
Contract assets
Trade receivables
Contract liabilities
£'000
£'000
£'000
As at 30 April 2021
13,900
36,680
(1,243)
As at 30 April 2020
11,684
36,848
(70)
Contract assets
Contract assets consist of unbilled revenue in respect of professional services performed to date.
Contract assets in relation to non-contingent work are recognised at appropriate intervals, normally on a monthly basis in arrears, in line with the performance of the services and engagement obligations. Where such matters remain unbilled at the period end the asset is valued on a contract-by-contract basis at its expected recoverable amount.
Contract assets in relation to contingent work are recognised at a point in time once the uncertainty over the contingent event has been satisfied and all performance obligations satisfied, such that it is no longer contingent, these matters are valued based on the expected recoverable amount. Due to the complex nature of these matters, they can take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter not billed until a later financial period. Until the performance obligations have been performed the Group does not recognise any contract asset value at the year end.
During the year, contract assets of £nil (FY20: £212,000) were acquired in business combinations.
An impairment gain of £89,000 has been recognised in relation to contract assets in the year (FY20: £69,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The contract asset gain is estimated at 0.6% (FY20: 0.6%) of the balance.
Contract assets recognised under IFRS 15
Under IFRS 15 the Group is required to recognise contract assets, as detailed in note 1.16.
2021
2020
£'000
£'000
Contract asset value at 1 May 2020
11,684
10,671
Contract assets arising on acquisition
-
212
Contract asset value added in the year
17,452
13,528
Contract asset value realised in the year
(15,236)
(12,727)
Contract asset value at 30 April 2021
13,900
11,684
The Group have applied ECLs to unbilled revenue in order to account for the potential default on amounts not yet billed to the client. The ECLs have been calculated on the same basis as those applied to trade receivables.
Contract liabilities
When matters are billed in advance or on a basis of a monthly retainer, this is recognised in contract liabilities and released over time when the services are performed.
Contract liabilities recognised under IFRS 15
Under IFRS 15 the Group is required to recognise contract liabilities.
2021
2020
£'000
£'000
Contract liabilities at 1 May 2020
70
147
Contract liabilities gained in the year
1,207
447
Contract liabilities credited to P&L in year
(34)
(524)
Contract liabilities at 30 April 2021
1,243)
70
19 Trade and other receivables
2021
2020
£'000
£'000
Trade receivables
36,680
36,874
Prepayments
5,699
2,941
Other receivables including insurance receivables
714
182
43,093
39,997
Trade receivables
Trade receivables are recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Trade receivables also includes disbursements.
Bills are payable within thirty days unless otherwise agreed with the client.
All trade receivables are repayable within one year.
Movement in loss allowance
2021
2020
£'000
£'000
Brought forward provision
(2,967)
(2,785)
Brought forward on acquisition
-
(94)
Provision utilised
719
474
Charged to statement of profit and loss
(2,391)
(961)
Provisions released
468
399
(4,171)
(2,967)
The Group applies the simplified approach to providing for the expected credit losses under IFRS 9. Management have also elected to apply an uplift to the IFRS 9 provision in the current year to account for the specific risks in the subsidiary entities where the application of IFRS 9 alone is not considered appropriate. The provision uplift is based on Management's assessment of specific clients and related debts, this is presented separately to the ECL provision detailed below:
Not passed due
Past due 0-30 days
Past due 31-120 days
Past due greater than 120 days
Total
Expected credit loss rate
3.60%
4.45%
4.24%
25.11%
Estimated total gross carrying amount £'000
24,922
3,442
4,223
8,264
40,851
Lifetime ECL £'000
898
153
179
2,075
3,305
Specific provision uplift
866
Total provision
4,171
The carrying amount of financial assets (including contract assets but not including equity investments) recorded in the financial statements, which is net of any impairment losses, represents the Group's maximum expected exposure to credit risk. Financial assets include client and other receivables and cash. The Group does not hold collateral over these balances.
All the Group's trade and other receivables have been reviewed for indicators of impairment. The specifically impaired trade receivables are mostly due to customers experiencing financial difficulties.
An impairment loss of £1,525,000 has been recognised in relation to trade receivables in the year (FY20: £562,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The trade receivables loss is estimated at 3.7% (FY20: 1.2%) of the balance.
20 Other interest-bearing loans and borrowings
The contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost, with the exception of loans to members that are held at fair value, are described below.
2021
2020
Fair value
Carrying amount
Fair value
Carrying amount
£'000
£'000
£'000
£'000
Non-Current liabilities
Unsecured bank loan
-
-
2,369
2,369
Current liabilities
Unsecured bank loan
-
-
708
708
Loans from former members of GCL Solicitors LLP
-
-
68
68
Loans from director of IIS
-
-
-
-
Loans due to former partners of Gateley Tweed LLP (formerly Paul Tweed LLP)
-
-
661
661
-
-
1,437
1,437
On 8 June 2015, Gateley Plc entered into two new loan agreements of £5m each, £10m in total. On 28 October 2018 these existing loans were re-negotiated and additional loans totalling £3 million were entered into. The balance of these loans was repaid in full by Gateley Plc in April 2021.
As at 30 April 2021, the Group's non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below:
30 April 2021
Current
Non-current
Within 6 months
6 to 12 months
1 - 5 years
Later than 5 years
£'000
£'000
£'000
£'000
Trade and other payables
8,130
-
120
-
Total
8,130
-
120
-
This compares to the maturity of the Group's non-derivative financial liabilities in the previous reporting period as follows:
30 April 2020
Current
Non-current
Within 6 months
6 to 12 months
1 - 5 years
Later than 5 years
£'000
£'000
£'000
£'000
Unsecured bank loans
234
474
2,369
-
Loans from former owners of acquired businesses
699
-
-
-
Trade and other payables
5,583
-
-
133
Total
6,516
474
2,369
133
The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date.
21 Trade and other payables
2021
2020
£'000
£'000
Current
Trade payables
6,086
5,490
Other taxation and social security payable
9,641
12,352
Other payables
582
93
Contingent consideration
135
360
Accruals
11,345
1,804
Deferred income
1,243
70
29,032
20,169
Non-current
£'000
£'000
Other payables
120
133
Contingent consideration
-
789
120
922
£135,000 of current contingent consideration represents the earn-out sums payable to the sellers of International Investment Services Limited.
All contingent consideration is Level Three in the fair value hierarchy as there are no observable inputs. Amounts have been calculated based on the Group's expectation of what it will pay in relation to the earn-out clause of the relevant sale and purchase agreement discounted to present value. The earn-out targets are based on the annual results, or in the case of Persona a relocation of staff, of the acquired business. The fair value of the earn-out consideration is calculated based on the forecasted results, using EBIT growth rate ranges from 2-10%, to give an estimate of the final obligation capped at the maximum earn-out amount stated in the purchase agreement. Where contingent consideration is due over a period of more than one year the value of the consideration is discounted and recorded at the present value. The discount rate applied in determining the present value of contingent consideration is 17.3%.
22 Deferred tax
Deferred tax assets and liabilities are summarised below:
Deferred tax asset
The deferred tax asset recognised in the consolidated statement of financial position represents the future tax impact of issued share-based payments schemes that are yet to vest.
Share-based payments
£'000
At 1 May 2020
19
Debited during the year to retained earnings
-
Credited during the year in the Consolidated income statement
119
At 30 April 2021
138
Deferred tax liability
The deferred tax liability recognised in the Consolidated Statement of Financial Position represents the future tax impact of the Group's benefit from customer lists obtained through acquisitions.
Customer lists
£'000
At 1 May 2019
388
Arising through business combinations - T-Three Consultancy Limited and Gateley Vinden Limited
1,031
Credited during the year in the Consolidated income statement
(211)
At 30 April 2020
1,208
Credited during the year in the Consolidated income statement
(436)
At 30 April 2021
772
23 Provisions
2021
2020
£'000
£'000
Current provision
Professional indemnity provision
176
252
Total current provision
176
252
Non-current provision
Professional indemnity provision
549
461
Dilapidations provision
214
-
Total non-current provision
763
461
Total provisions
939
713
Professional indemnity estimated claim cost
2021
2020
£'000
£'000
Brought forward
713
630
Provisions made during the year
385
542
Provisions reversed during the year
(373)
(459)
At end of year
725
713
Non-current
549
461
Current
176
252
725
713
The Group from time to time receives claims in respect of alleged professional negligence which it defends where appropriate but makes provision for the best estimate of probable amounts considered likely to be payable as set out above. Inevitably, these estimates depend on the outcome and timing of future events and may need to be revised as circumstances change. A different assessment of the likely outcome in each case or of the probable cost involved may result in a different level of provision recognised. Professional indemnity Insurance cover is maintained in respect of professional negligence claims.
Dilapidations provision
The Group has leases for a number of offices, some of which include dilapidation clauses. The Group maintains the office buildings throughout each lease term with regular maintenance, however a cost is likely to arise at the end of the lease term in order to return the space to its original condition. Management have therefore elected to introduce a dilapidations provision to account for the future cost. The provision is based on Management's estimate of the total costs across all applicable lease to be recognised on a straight line basis over the total lease terms.
Dilapidations provision £'000
Brought forward provision
-
Provision made in the year
214
At 30 April 2021
214
24 Net debt
2021
2020
£'000
£'000
Cash and cash equivalents
19,605
2,923
Debt
Total loans brought forward
(29,262)
(6,120)
Loans from former members
-
(661)
New lease liability in the year
(9,385)
(25,456)
Repayment of loans from former members
729
402
Repayment of term loans
3,077
2,573
Termination of lease
1,359
-
Repayment of lease liability
3,037
-
Total loan carried forward
(30,445)
(29,262)
Brought forward from previous year
(26,339)
(3,233)
Movement during year
15,499
(23,173)
Net debt at the year end
(10,840)
(26,339)
The changes in the Group's liabilities arising from financing activities can be classified as follows:
Long term borrowings
Short term borrowings
Lease liabilities
Total
£'000
£'000
£'000
£'000
1 May 2020
3,077
729
25,456
29,262
Cashflows:
Repayments
(3,077)
(729)
(3,037)
(6,843)
Non-cash
Fair value on acquisition
-
-
-
-
Termination of lease
-
-
-
-
New lease liability in the year
-
-
8,026
8,026
30 April 2021
-
-
30,445
30,445
Long term borrowings
Short term borrowings
Lease liabilities
Total
£'000
£'000
£'000
£'000
1 May 2019
5,650
470
326
6,446
Adoption of IFRS 16
-
-
27,210
27,210
Revised 1 May 2019
5,650
470
27,536
33,656
Cashflows:
Repayments
(2,573)
(402)
(3,615)
(6,591)
Non-cash
Fair value on acquisition
-
661
662
Termination of lease
-
-
(3,046)
(3,046)
New lease liability in the year
-
-
4,581
4,581
30 April 2020
3,077
729
25,456
29,262
25 Share capital
Authorised, issued and fully paid
2021
2021
2020
2020
Number
£
Number
£
Ordinary shares of 10p each
Brought forward
117,609,094
11,760,909
110,860,789
11,086,079
Issued on acquisition of Persona Associates Limited
-
-
94,312
9,431
Issues on acquisition of T-Three Consulting Limited
-
-
944,855
94,486
Issued as part of contingent consideration of Kiddy & Partners Limited
-
-
389,608
38,961
Issued on acquisition of Gateley Tweed LLP
-
-
529,520
52,952
Issued on acquisition of Gateley Vinden Limited
-
-
1,602,564
160,256
Issues as part of contingent consideration of Gateley Vinden Limited
197,368
19,737
-
-
Issued on vesting of SARS
-
-
1,631,588
163,159
Issued on vesting of SAYE
107,743
10,774
844,695
84,470
Issued on vesting of CSOPS
711,163
71,116
At 30 April 2021
117,914,205
11,791,420
117,609,094
11,760,909
On 4 February 2021 the Company issued 197,368 10p ordinary shares as contingent consideration in the acquisition of Gateley Vinden Limited (formerly The Vinden Partnership Limited).
Between 14 December 2020 and 19 April 2021 107,743 10p ordinary shares were issued upon vesting of the 2017 SAYE schemes to participants.
26 Capital commitments
In 2020 the Group entered a contract with a provider of legal technology for the development of a new practice management system, with Thomson Reuters for the installation of their market leading practice management system. The estimated cost of the contractual capital commitment is £1.1million and is expected to be incurred across the calendar years 2021 and 2022.
27 Leases liabilities - IFRS 16
The Group has leases for offices, vehicles and some IT equipment, with the exception of short-term leases and leases of low-value assets each lease is held on the balance sheet as a right-of-use asset and corresponding lease liability. Property leases have a remaining term of one to ten years. Leases of vehicles and IT equipment have a term of three to five years. Lease payments on all those recognised on the balance sheet are fixed. Unless there is a contractual right for the Group to sublet the asset to a third party, the right of use asset can only be used by the Group.
The table below provides additional information on the right-of-use assets by class of assets:
Number of leased assets*
Average length of lease remaining
Opening lease asset £'000
Net additions £'000
Depreciation £'000
Closing lease asset £'000
Office buildings
11
5.3 years
22,828
7,879
(3,736)
26,971
IT equipment
1
1.5 years
51
-
(15)
36
* Where properties within the same building are leased on a floor by floor basis on the same contractual terms, the Group has elected to treat these as a portfolio and are counted as a single leased asset within the table
Lease liabilities are presented in the statement of financial position as follows:
2021 £'000
2020 £'000
Current lease liability
2,743
3,347
Non-current lease liability
27,702
22,109
A number of property leases held by the Group include break or termination options. The lease liability has been calculated based on the likelihood of such option being exercised. An option would only be exercised when in line with the Groups wider strategy.
As at 30 April 2021 the Group had committed to leases which had not yet commenced. Total future expected cash flows are £8.37 million over a 10 year period. Committed leases includes a reversionary lease on the London property which included a £200k capital contribution.
In line with IFRS 16 Leases the Group has elected not to recognise a lease liability for leases with a term of 12 months or less, or for leases of low value assets. The payments made under such leases are expensed to the profit and loss on a straight-line basis. Any variable lease payments incurred are expensed as incurred.
The table below shows amounts recognised in the Statement of Comprehensive Income for short term and low value leases as at 30 April 2021:
Property
Equipment
Total
£'000
£'000
£'000
Expenses relating to short-term leases
26
23
49
Expenses relating to leases of low-value assets, excluding short-term leases of low value assets
-
17
17
26
40
66
The total minimum undiscounted lease payments at 30 April 2021 under non-cancellable operating lease rentals were:
30 April 2021 £'000
30 April 2020 £'000
Within one year
3,024
3,409
In the second to fifth year inclusive
15,921
10,799
After five years
13,822
9,433
32,767
28,775
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