REG - Gateley (Holdings) - Audited Preliminary Results 2022
13/09/2022 07:00
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RNS Number : 1880Z Gateley (Holdings) PLC 13 September 2022
13 September 2022
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Gateley (Holdings) Plc
("Gateley", the "Group" or the "Company")
AUDITED PRELIMINARY RESULTS 2022
Strong results, further growth and demonstrable resilience
Gateley (AIM: GTLY), the legal and professional services group, announces its
audited preliminary results for the year ended 30 April 2022 ("FY22" or the
"Period"), which continued the Group's pre and post IPO unbroken record of
year-on-year revenue and profit growth, and out-performed market expectations
set at the start of the year.
The Group delivered a strong financial performance in FY22, achieving
significant organic growth and strengthening the business further through
diversification and investment into new complementary service lines, while
maintaining control on costs in the face of market specific and macro-economic
headwinds. The balance sheet remains strong and the Group has significant
headroom in its banking facilities to invest in further organic and
acquisitive growth opportunities.
Financial highlights
FY22 FY21 Change
Group revenue £137.2m £121.4m +13.0%
Group underlying operating profit before tax(1) £22.5m £20.5m +9.8%
Group underlying profit before tax £21.6m £19.3m +11.9%
Group profit before tax £18.0m £16.3m +10.4%
Group profit after tax £14.3m £13.2m +8.3%
Basic earnings per share ('EPS') 12.00p 11.18p +7.3%
Adjusted fully diluted EPS(2) 14.31p 13.17p +8.7%
Net assets £72.9m £59.3m +22.9%
Net cash(3) £10.4m £19.6m -£9.2m
(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 cash excludes IFRS 16 liabilities
· Group organic revenue growth was 10.9%, comprising 8.7% in legal service lines
and 26.7% in consultancy services
· Total growth in non-legal revenues of 44.9%, as complementary consultancy
services contributed £21.3m or 15.5% of total revenues (FY21: £14.7m or
11.5%)
· Adjusted underlying operating profit margin broadly maintained at 16.4% (FY21:
16.9%)
· Net assets increased by 22.9% to £72.9m
· "Gateley Agile" initiative, which builds on flexible working introduced during
the pandemic, continues to deliver cost savings, mitigating some inflationary
pressure
· Personnel costs declined as a percentage of Group revenue to 63.0% (FY21:
63.8%)
· Proposed final dividend of 5.5p (FY21: 5.0p) taking total dividends for the
Period to 8.5p (FY21: 7.5p)
· Group dividend policy remains to distribute up to 70% of our after-tax profits
each year
Strategic Highlights
· Three earnings-enhancing acquisitions completed in the Period, expanding the
Group's Property and Business Services Platforms
· Total headcount at 30 April 2022 of 1,368 (FY21: 1,081). Total headcount of
professional staff increased by 23.6% from 767 to 948
· New Revolving Credit Facility of £30m agreed in April 2022, providing
increased funding flexibility to support the Group's growth strategy
Current Trading and Outlook
· Good pipeline of new work and current year activity levels are in-line with
the board's expectations
· Encouraging pipeline of acquisition growth opportunities
· Platform strategy progressing and delivering to plan with on-going integration
of all acquired businesses and consequent widening and enhancement of client
engagement in FY23 and beyond positively
· The board maintains its expectations for growth in FY23
Rod Waldie, CEO of Gateley, said:
"I am delighted with the Group's performance in FY22. We have delivered
another set of strong revenue and profit growth figures whilst continuing to
strengthen our balance sheet. Legal services generated solid organic revenue
growth, comparing favourably with reported UK legal industry performance. Our
consultancy service lines delivered impressive organic growth of 26.7%
resulting in overall consolidated Group organic revenue growth of 10.9%.
"I am particularly pleased that we completed three exciting consultancy
acquisitions in the Period and achieved annualised consultancy revenue of over
c.£32m as we continue to grow our complementary services, diversifying our
offering and deepening our connections with our clients.
"I thank our ever-expanding client base for their trust and support throughout
FY22 and for giving us the opportunity to work with them on high quality
mandates. We remain committed to our purpose of delivering results that
delight our clients, inspire our people and support our communities. We have
a good pipeline of work and maintain our expectations for growth in FY23,
despite the well-reported inflationary pressures. We look forward to
continuing to grow the Group, both organically and via acquisition."
Enquiries:
Gateley (Holdings) Plc
Neil Smith, Finance Director Tel: +44 (0) 121 234 0196
Nick Smith, Acquisitions Director and Head of Investor Relations Tel: +44 (0) 20 7653 1665
Cara Zachariou, Head of Corporate Communications Tel: +44 (0) 121 234 0074 Mob: +44 (0) 7703 684 946
Liberum - Nominated Adviser and Broker Tel: +44 (0) 20 3100 2000
Richard Lindley/Ben Cryer/Cara Murphy
Belvedere Communications Limited - Financial PR
Cat Valentine (cvalentine@belvederepr.com) Mob: +44 (0) 7715 769 078
Keeley Clarke (kclarke@belvederepr.com) Mob: +44 (0) 7967 816 525
Llew Angus (langus@belvederepr.com) Mob: +44 (0) 7407 023 147
gateleypr@belvederepr.com (mailto:gateleypr@belvederepr.com)
CHAIRMAN'S STATEMENT
Summary of the year
I am delighted to welcome you to Gateley's audited final results for the year
ended 30 April 2022, a successful year for Gateley in which the Group has
continued its unbroken record of year-on-year revenue and profit growth.
With revenue increasing by 13.0% to £137.2m and underlying profit before tax
increasing by 11.9% to £21.6m, Gateley has again demonstrated the resilience
of its business model and diversification strategy. These strong results led
to a 22.9% increase in Group net assets to £72.9m (FY21: £59.3m), and an
increase of 8.7% in adjusted fully diluted earnings per share to 14.31p per
share (FY21: 13.17p).
I am particularly proud that this year's strong performance has been delivered
despite disrupted circumstances. With the economic recovery from COVID-19
somewhat compromised by inflationary pressures, with uncertainty as a
consequence of the terrible events in Ukraine and with the onset of higher
than usual wage inflation within the legal and indeed other service sectors,
Gateley has navigated the year well and I could not be more pleased with the
resulting benefits for all of our stakeholders.
Delivering our strategy
During the year we have delivered on our strategic intent to further diversify
the business, placing the Group in a strong position to deliver further
profitable growth in the coming years.
In doing so, we have also expanded the breadth and depth of our offering with
Group representation in four new geographies as part of the newly-acquired
Smithers Purslow business.
Our staff have shown great adaptability to the constant changes throughout the
past few years and their dedication towards the business, their colleagues and
clients has been first class.
Within our consultancy businesses, overall headcount increased by 169.4% to
291 (FY21: 108) and fee-earner staff by 123.5% to 219 (FY21: 98). Together
with three consultancy businesses acquired during the year, annualised
revenues from this part of the Group now contribute revenues of over £32m,
further diversifying our service offering and deepening our relationships with
our clients in so doing.
As part of our present and future acquisition strategy, we committed to a
three-year revolving credit facility of up to £30.0m to assist with
acquisitions. This combined with our ever strengthening balance sheet places
us in a good position to continue with acquisitions.
As we continue to grow and strengthen our business, the board remains
committed to providing its people with the opportunity to own shares in the
Company. We believe that employee share ownership secures a strong alignment
with the Group's external shareholders, incentivises employees and is
reflective of Gateley's long-established culture. At least 75% of current
staff are existing share or option holders in the Company.
Responsible Business
The board has made the introduction of Gateley's Responsible Business
commitments a key strategic priority this year. Working together with The
Purpose Coalition, an independent ESG consultancy who helped us develop our
own set of levelling up goals, in August 2021 we published Gateley's
Responsible Business report, for which we have received significant positive
feedback.
The report outlines the plans and priorities which we are working to deliver
over the coming years. They are set out under three broad categories being:
People, Potential and Planet. I am delighted with the progress we have made
in the year and also with how this important initiative has been readily
embraced across the Group. We are committed to ensuring diversity, equality
and inclusion across all three of these categories: our goal is to foster a
positive work ethic, whilst remaining results and client focused, and
demonstrate our commitment to doing the right thing for our people, our planet
and developing potential wherever we can.
Dividends
An interim dividend of 3p per share (FY21: 2.5p) was paid on the 31 March 2022
to shareholders on the register at the close of business on 18 February 2022.
The board is pleased to propose a final dividend of 5.5p per share (FY21:
5.0p), giving a total dividend for the year of 8.5p per share (FY21: 7.5p),
subject to approval at the forthcoming Annual General Meeting, which will be
held on 20(th) October 2022. If approved, this final dividend will be paid in
October to shareholders on the register at the close of business on 23
September 2022. The shares will go ex-dividend on 22 September 2022.
The board's dividend policy remains to distribute up to 70% of profit after
tax to shareholders, typically one third following its half year results and
two thirds after the full year results are known.
Summary and outlook
This year has been another strong year for Gateley. Our people have excelled
in client delivery, they have continued to overcome every challenge presented
to them, and have delivered further strategic progress for the business,
combining to generate an excellent set of results for the benefit of all of
our stakeholders.
As we focus on service line enhancing opportunities that meet our clients'
needs and fulfil our strategy to build a broader professional services group,
our acquisition pipeline remains strong, trading in the current year is in
line with the board's expectations and we look forward to the future with
confidence.
Nigel Payne
Chairman
13 September 2022
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
I am delighted by the Group's performance in FY22; another year in which
global events created significant uncertainty, but nonetheless another year in
which the Group produced an excellent result. We closed the Period ahead of
market expectations whilst continuing our investment strategy, further
strengthening our offering to clients and also our balance sheet.
We continue to operate and invest in a differentiated, resilient and growing
business, which has been deliberately designed to perform, regardless of the
economic environment, and FY22's results continue Gateley's unbroken record of
year-on-year revenue and profit growth.
Since IPO in 2015 we have acquired ten complementary consultancy businesses
which have broadened and diversified our offering and, as planned, enhanced
our financial strength. We focus our Group on four strategic markets (our
"Platforms"): Business Services, Corporate, People and Property, each of which
now comprises a complementary mixture of legal and consulting businesses.
Approximately 20% of annualised Group revenues are now consulting revenues,
with significant additional diversification opportunities. Our balance sheet
was further strengthened during the Period with year-end net assets and net
cash of £72.9m (FY21: £59.3m) and £10.4m (FY21: £19.6m) respectively. As
a result, we remain well-placed to weather any further storms, but also to
continue our acquisition strategy.
The ongoing enhancement and strengthening of our business is why, in the seven
years since flotation, we have been able to deliver compound annual revenue
growth of 12.3%, compound profit before tax growth of 9.0% and, including the
proposed final dividend proposed today, income to shareholders of 43.24 pence
per share in aggregate.
Results overview
FY22 Group revenues grew by 13.0% to £137.2m (FY21: £121.4m). Agile
working, a necessity during the pandemic, is now a key element of our
operating model, enabling us to continue to deliver cost efficiencies. As
pandemic restrictions were lifted we were able to finalise the integration of
the acquisitions that completed shortly before the pandemic impacted.
Although our acquisition strategy is focused on driving additional revenue,
cost efficiencies are a welcome by-product. The results yielded an increase
of 10.4% in profit before tax to £18.0m (FY21: £16.3m). Underlying
adjusted profit before tax increased by 9.8% to £22.5m (FY21: £20.5m) and
profit after tax increased by 8.3% to £14.3m (FY21: £13.2m).
Our strong revenue performance is undoubtedly a result of the quality, depth
and breadth of our professional services offering.
Following on from the very strong second half performance in FY21, activity
levels remained strong across the Corporate Platform, which grew by 12.7%,
buoyed by the continuing strength of the UK M&A and Private Equity
markets. The Property Platform grew by 15.7%, enhanced by greater market share
and a widening range of mandates in our increasingly diverse property
consultancy businesses, which generated 21.0% of Property Platform revenue.
The People Platform saw a return to significant growth across both its legal
and consultancy service lines, in which combined revenue grew by 20.8%. The
Business Services Platform grew by 14.6% as we expanded our market share in
existing workstreams and through the addition of Adamson Jones IP Limited,
Patent and Trademark Attorneys.
People and Culture
FY22 saw a return to more familiar recruitment levels as headcount increased
by 287 during the Period. This includes 145 new colleagues who joined the
Group as a result of the three acquisitions completed in the Period, Tozer
Gallagher in July 2021, Adamson Jones in January 2022 and Smithers Purslow in
April 2022. After a pause in recruitment in the initial stages of the Covid 19
pandemic, the market has hardened with many factors now influencing peoples'
career decisions. The Gateley offering remains differentiated and attractive
with a growing range of businesses across the Group. As the Group continues to
expand, we are able to offer a broad range of career opportunities across our
Platforms, which are underpinned by a unique identity and strong team culture.
We owe the success of our business to the quality and dedication of our teams.
FY22 saw significant ongoing disruption caused by the pandemic, but our teams,
supported by our earlier investments in technology and our "one-team" culture,
met demand to deliver excellent client service and excellent results for the
Group.
The Period also saw the beginnings of wage cost inflation across the UK legal
industry, as strong client demand continued across the sector. Although this
first impacted international firms in the City and whilst the highest,
headline-grabbing salaries remain in that part of the market, gradually the
trend spread across all UK legal markets. The result has and continues to be
that legal businesses struggling to grow and/or whose financial and
remuneration models are not sufficiently strong or flexible have lost people
where they cannot meet salary expectations. We believe that economic headwinds
are likely to temper future rates of wage cost increase, and in any event
within Gateley our differentiated model and our ability to offer share
ownership to all of our people continues to stand us in good stead.
Our continuing programme of service line diversification not only drives
additional sales, but also creates skill set/talent pool diversification,
adding operational and financial resilience for the Group and diluting the
impact of trends affecting specific professional disciplines. Wage cost
inflation seen in the legal sector in FY22 was less visible within our
consultancy businesses and with approximately 23% of our professional staff
qualified in disciplines other than law that too provided a degree of
resilience and sheltering for the Group.
After external consultation, the Group has introduced a new Restricted Share
Award Plan ("RSA") and also awarded a second vintage of awards under the
existing Long Term Incentive Plan ("LTIP"). The RSA forms part of the Group's
retention and incentivisation policy for emerging senior talent. It supports
long-term share ownership for people who are promoted to Partner or
Partner-equivalent roles. It is a continuation of the board's strategy to
differentiate the position of a Partner or equivalent at Gateley from that of
a Partner in traditionally structured professional services businesses.
Responsible Business
Our Responsible Business commitment is a key strategic priority, which runs
through the core of our organisation. Our first Responsible Business report,
published in August 2021, outlined the objectives we committed to working
towards during FY22 and beyond. These objectives flowed out of our work with
The Purpose Coalition, the independent ESG consultancy who helped us develop
our own set of levelling up goals. Other members of the Purpose Coalition
include Amazon, bp, Compass Group, the BBC, Direct Line Group, Cisco and the
NHS. In FY22 our objectives fell under three categories: People, Potential
and Planet. I am delighted with the progress we made in the Period, with
just a few of the highlights including:
People
· Maintaining our Glassdoor ranking, recognised as the only UK legal
business to rank in the top 25 companies for senior leadership
· Maintaining our Investors in People standard
· Securing our Disability Confident employer status
· Launching our fifth internal diversity and inclusion network group;
Ability, which raises awareness around neurodiversity and supporting
colleagues with any disabilities
Potential
· Continued support of Birmingham City University STEAMHouse, exploring
other opportunities to add value to their start-ups
· Announcing our partnership with UA92 in Manchester, which aims to make
higher education accessible to all, through its founding principles of
accessibility, social mobility and inclusivity
· Becoming the UK's first Patron of 'Make Good Grow', a social
enterprise founded on the principles of uniting good businesses with good
causes
· Continuing our SportsAid partnership; providing financial and personal
development support to ten of our country's brightest young sporting prospects
Planet
· Maintaining reductions in travel through the continued use of virtual
meetings where appropriate
· Continued adherence to Group-wide "paper light" strategy
· Encouraging our people to submit their sustainability pledges and the
positive actions we will take to protect our planet
Operational Review
By the start of the Period our teams had already demonstrated their ability to
deliver via a more flexible, agile model. They had also, like so many other
sectors of UK and international markets, confirmed their wish to maintain that
flexibility even after the pandemic has passed. Those factors combined to
create a management focus for driving ongoing efficiency. Under the "Gateley
Agile" initiative we made a number of changes to premises, including the move
to a smaller footprint in Reading, vacating our Leicester office as part of
conflation of a number of services into one East Midlands offering located in
our existing Nottingham office, and combining Gateley Tweed, Gateley Capitus
and Gateley Legal into one Belfast office.
As pandemic restrictions were gradually lifted throughout the course of the
Period we were able to increase our efforts towards fully integrating recently
acquired businesses. Whilst we had of course done the best we could to
continue integration programmes during the pandemic, our efforts in the early
part of the Period were limited broadly to matters capable of being dealt with
virtually. That created certain limitations, not just in physical terms where
opportunities which existed to merge offices and reduce duplicated costs could
not be implemented until the latter half of the Period, but also in people and
cultural integration terms. By the end of the Period we were back on track
with our integration programme.
Throughout the Period we continued to invest across the Group in growing and
strengthening our teams. Overall headcount in the Group increased by 26.5% to
1,368 (FY21: 1,081). Legal services professional headcount growth was 9.0% to
729 employees (FY21: 669). The growth of our consultancy businesses'
contribution in the Period was matched by continued investment and
diversification into consultancy operations, with overall consultancy
headcount increasing by 169.4% to 291 (FY21: 108) and fee-earner consultancy
staff up by 123.5% to 219 (FY21: 98).
In H2 FY22 work commenced on the Phase 1 implementation of our new core IT
"practice management" system. We identified over three years ago that our core
systems needed replacing with new technology. That new technology was needed
to provide improved management information within one financial system, to
better support acquisitive growth and seamless integration in a more stable
and robust IT system which can grow with us; and to create new processes to
enable us to work as efficiently as possible for our clients. Phase 1
implementation, which resulted in over 80% of staff adopting the new system on
22 June 2022, is progressing well. We inevitably encountered some system
interruptions in the days post-launch but these were all well-within
expectations and, as such, represented no significant overall business
interruption or disruption. The balance of all staff are expected to come
onto the new system in one final phase during FY23.
Our Acquisition Strategy
After deliberately pausing acquisition activity at the start of the pandemic,
we considered that market conditions had stabilised sufficiently by the
beginning of FY22 for us to recommence it. We completed three acquisitions
during the Period, two onto our Property Platform and our first onto our
Business Services Platform. During the Period we committed to a three-year
revolving credit facility of up to £30.0m to assist with acquisitions. To
date, we have only used this for the acquisition of Gateley Smithers Purslow
and only drawn down £6.0m.
In July 2021 we acquired Tozer Gallagher, a leading practice of chartered
quantity surveyors and construction consultants based in Manchester and
London. The business specialises in built environment consultancy, fund
monitoring services and surety advisory, and dovetails with the operations of
Gateley Vinden, which was acquired in March 2020. The surety advisory
expertise within Tozer Gallagher adds further strength to Gateley Vinden's
business but also complements the specialist surety work undertaken by Gateley
Legal's surety practice team. The internationally recognised experts within
Gateley Legal's surety team have a proven track record in advising on
contentious and non-contentious issues relating to any surety. Since
acquisition and despite the pandemic to some extent frustrating immediate
integration efforts, Tozer Gallagher has traded strongly.
In January 2022 we completed the acquisition of Patent and Trademark
Attorneys, Adamson Jones; the first acquisition onto our Business Services
Platform. The business has a broad range of technical expertise including
biotechnology, engineering, pharmaceuticals and software and acts for clients
from large multinational and national organisations, to universities and SMEs.
The Adamson Jones team has 25 staff in offices in Nottingham and Leicester.
The acquisition sets a solid foundation for the development, on the Business
Services Platform, of complementary businesses with an IP and brands focus,
working alongside the existing team within Gateley Legal, and enabling the
Group to widen its scope in an area where it already has a well-established
and continually growing client base. The business has traded well since
acquisition and Adamson Jones staff have relocated into existing Gateley Group
offices in the Midlands.
In April 2022 we completed the acquisition of Smithers Purslow, our largest
acquisition to date and our seventh onto our Property Platform, currently our
largest and most mature Platform. Smithers Purslow is a rapidly growing
multi-disciplinary chartered surveying practice, comprising building and
quantity surveyors and civil and structural engineers. Specialising in
services to the property insurance claims market, it resolves high value
claims for insurers, policy holders and their advisers. The business operates
from ten regional offices across the UK and employs 130 staff. Its blue-chip
client base includes insurance and utility companies, property managers and
high net worth individuals. It complements existing expertise at Gateley
Vinden and Tozer Gallagher, further enhancing the Group's already strong and
growing Property Platform.
Our Platform Strategy
Prudent management and a strong balance sheet enable us to drive incremental
value through acquisitions. As new businesses are added and integrated onto
each Platform, we now see the model working exactly as we would expect,
driving more revenue from existing clients, creating routes into new clients
for other parts of the business to cross sell services and continually
diversifying and strengthening revenue streams.
Gateley Hamer, our property consultancy specialising in Compulsory Purchase
Orders, easements and wayleaves, infrastructure projects, land referencing and
public inquiries produced another strong performance. The business again
posted strong organic top line growth of 41.5% but also added another core
service line in the shape of telecoms infrastructure.
Pleasingly, positive momentum and a return to growth flowed through into our
People Platform consultancies, Kiddy & Partners and t-three, during the
Period. This was in part due to increased demand for services as client HR
Directors and Heads of Talent saw development budgets, frozen during the
pandemic, released once again to them. However, also of significant benefit
was the successful integration of those two businesses into one assessment,
development and cultural change-facing offering. Our integrated proposition
and service offering went live in January driving excellent client feedback
and securing significant new mandates.
Overall, our acquired consultancies performed strongly during the Period,
contributing 15.5% to total Group revenues and supporting revenue growth in
each of our four Platforms.
Current trading and outlook
The solid foundations on which our business is built have enabled the Group to
deliver strong results in a period which was impacted widely by macro events.
One of the key objectives of our IPO in 2015 was to move the business into a
structure that would enable it to build a strong balance sheet and deliver the
future investment needed to drive the business forward. We are delivering on
this objective and will continue in this vein.
The business is continuing to demonstrate its resilience in the current
financial year, with Q1 FY23 utilisation across the Group and against our
historic averages supporting the board's positive outlook, and with current
trading in-line with the board's expectations.
Our financial position is such that we will continue with our acquisitions
programme. The pipeline is strong and opportunities are under consideration on
each of our four Platforms.
We have confidence in our ability to perform well, even accepting current
indicators for the wider economic environment, and continue to view the
Group's prospects for year ahead and beyond positively.
Rod Waldie
Chief Executive Officer
13 September 2022
FINANCE DIRECTOR'S REVIEW
Financial overview
In FY22, the Group demonstrated strong growth in revenue and adjusted profit
before tax ahead of consensus market expectations set at the start of the
year, with revenue up 13.0% to £137.2m including organic revenue growth from
legal service lines of 8.7% alongside exceptional organic growth of 26.7% from
consultancy service lines.
The measures taken by the Group to embrace changes in working practices driven
by the pandemic resulted in another year of lower costs as a percentage of
revenue. We continue to explore further cost reduction initiatives, such as
our ongoing premises strategy, as part of our "Gateley Agile" initiative,
designed to help mitigate the widely reported upward increase in staff costs
in the sector, and broader inflationary pressures.
We completed three acquisitions during the Period, which are integrating well.
We have established a new revolving credit facility which was part used for
our largest acquisition since listing, Gateley Smithers Purslow, and we remain
well-placed with a strong balance sheet.
FY22 continues our long track record of delivering profitable annual results
and attractive investment returns, which once again enable strong dividend
growth through the proposed final dividend of 5.5p, taking total dividends to
8.5p in respect of the Period.
Revenue
Group total revenue grew by 13.0% (FY21: 10.5%) to £137.2m (FY21: £121.4m).
Revenue from core legal service lines grew organically by 8.7% (FY21: 5.5%).
In addition, total revenue from complementary consultancy businesses grew by
44.9% to £21.3m or 15.5% of total revenues (FY21: £14.7m or 11.5%),
highlighting the on-going success of our Platforms diversification strategy.
Platform performance
At the start of FY22 the Group presented segmental reporting on our Group
Platform structure.
As the Group has continued its headcount investment across each Platform,
margin performance has fluctuated dependent upon the stage of Platform
investment. We have increased staff numbers within our Business Services and
Property platforms during FY22 to meet expected increases in demand in FY23.
These investments have predominately driven decreases in their FY22 margins.
However, despite our strategy of continual investment and the unique wage
cost inflation seen in the legal sector, the Group has lowered its percentage
of personnel costs to revenue in FY22 to 63.0% (FY21: 63.9%) and will continue
to sensibly manage this key metric as market conditions evolve. Retention of
staff remains key to the success of the Group which we believe is well served
by our unique culture, business structure and the vast number of career
opportunities in a growing, resilient Group which continues to deliver quality
advice to a quality client base.
The table below represents this performance over the last two reported years
along with each Platform's direct contribution towards our one profit view of
the Group's performance.
Business Corporate People Property Total
Services £m £m £m £m
£m
FY22
Revenue 18.0 38.1 19.2 61.3 136.6
Segmental contribution 5.7 15.4 6.9 23.0 51.0
Contribution margin 31.7% 40.4% 35.9% 37.5% 37.3%
FY21
Revenue 15.7 33.8 15.9 53.0 118.4
Segmental contributions 6.4 11.4 4.9 24.4 47.1
Contribution margin 40.8% 33.7% 30.8% 46.0% 39.8%
Revenue movement (%) 14.6% 12.7% 20.8% 15.7% 15.4%
Contribution margin change (%) (9.1)% 6.7% 5.1% (8.5)% (2.5)%
Business Services Platform
Our Business Services Platform revenues grew by 14.6%. It offers a broad
balance of services across many clients and industries as well as continuing
to support our transactional works streams. Its mix of services in both
complex litigation and in more transactional-led commercial services are now
being widened further through the acquisition of Patent and Trade Mark
Attorneys, Adamson Jones. The addition of these IP and brands focused
services, working alongside the existing team within Gateley Legal, will
enable the Group to widen its scope in an area where it already has a
well-established and continually growing client-base. This Platform was held
back during the year on commercial and international-led litigation
assignments of a contingent nature that have not achieved the fee levels we
had hoped for due to Russia's invasion of Ukraine, where in both jurisdictions
we held litigation mandates. We have maintained these international teams but
shifted our geographical focus to new jurisdictions which have already
generated an attractive pipeline of complex international litigation
assignments.
Corporate Platform
Our Corporate Platform produced another strong performance generating revenue
growth of 12.7% and a significantly stronger contribution margin. Our
continued strength of relationships with Private Equity and M&A clients
continues to serve the Group well as activity in this area remains strong in
FY23. Our banking team within this Platform also posted another strong year
of growth alongside our growing tax team. Recruitment to service demand
across the Platform remains a challenge, however staff numbers have increased
and we take a highly-skilled team into FY23 with confidence. Whilst
corporate transactional activity within our client base currently shows no
signs of relenting, traditional restructuring and recovery activities remained
subdued during the Period, with upticks in activity post year-end as wider
economic conditions impose challenges for UK businesses.
People Platform
This Platform grew by 20.8% due to the significant return of demand for
services across our consultancy businesses, t-three and Kiddy & Partners
("Kiddy"), after the pandemic and also after the launch of their integrated
service delivery model to corporate clients. Their focus on talent
assessment and development and cultural change has proven to represent a
strong sales proposition to a client base inevitably needing to adjust and
change as a result of the pandemic. Our national private client team
performed well alongside our more traditional, but established, employment
legal and pension trustee led services. Contribution margins increased as a
result of a return to greater activity using these established existing teams
at a higher level of activity during FY22.
Property Platform
Our Property Platform reporting segment grew revenue strongly by 15.7% as we
took advantage of opportunities generated by our most mature Platform. It
operates at regional and national levels in the UK's commercial property,
development and housing markets, which rely upon long-term specialist
multi-disciplinary legal and consulting support. There was growth across
both contentious and non-contentious service lines in areas such as
construction disputes, plus we also saw strong growth in our specialist
Gateley Hamer consultancy business which increased revenue by 42% during the
year. We have recruited to meet FY23 demand in both existing and new service
lines within Gateley Hamer, which is primarily why direct contribution has
declined. Tozer Gallagher and Smithers Purslow have both enjoyed a strong
first part year within the Group. Post year-end, Tozer Gallagher has
exceeded revenue expectations which will lead to achievement of its earn-out
and a further £0.1m of consideration being payable.
Underlying operating profit before tax
The Group has recorded strong underlying operating profit before tax of
£22.5m which has increased by 9.8% from £20.5m in FY21. Our strategy to
maintain fee earner headcount in order to service increased client activity
has been supported by our recruitment activity this year. Continuing robust
demand in the UK's legal services industry has led to continued pressure in
the legal recruitment market and, as previously highlighted, our underlying
trading margins have decreased slightly to 16.4% (FY21: 16.9%).
We are not yet seeing this pressure relent as we move into FY23 and we have
undertaken another comprehensive salary review in a continually changing
professional services industry in order to remain competitive in the legal
recruitment market. We have always operated an all-staff bonus scheme which
typically amounts to c10% of our annual salary costs. We see such a scheme,
in which performance is directly linked to the Group's performance, as a key
management strategy, whereby staff are incentivised accordingly to drive Group
performance but management is also able to retain a significant element of
discretion in matching remuneration with Group "one profit" performance. We
have not changed our strategy on this incentivisation tool, which sits
alongside extremely attractive staff share plans and ensures the whole
business is culturally aligned.
Underlying operating profit before tax excludes amortisation of intangibles,
all share-based charges and exceptional acquisition related items.
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 2022 2021
£'000 £'000
Revenue 137,249 121,375
Operating profit 18,987 17,505
Operating profit margin (%) 13.83 14.42
Reconciliation to alternative performance measure: underlying operating profit
before tax
Operating profit 18,987 17,505
Non-underlying items
Amortisation of intangible assets 1,581 2,073
Share based payment charge - Gateley Plc 1,100 956
Share based payment charge - Gateley Smithers Purslow Limited 113 -
Release of contingent consideration - International Investment Services (135) -
Limited
Exceptional items
Acquisitions costs 373 -
One off remuneration charge - Gateley Smithers Purslow Limited 497 -
Underlying operating profit before tax 22,516 20,534
Adjusted underlying operating profit margin (%) 16.41 16.92
Personnel costs and operating expenses
Our total personnel costs increased by 11.7% (FY21: 21.9%) to £86.5m, due to
the full-year cost of staff introduced to the business through acquisitions
made during the year together with a return to recruitment in order to expand
capacity to meet client demands. In total, seven (FY21: six) new legal
Partners joined the business and we made eight (FY21: nine) internal
promotions to legal Partner.
Average numbers of legal and professional staff rose by 3.9% (FY21: 9.1%) to
800 (FY21: 770), whilst support staff numbers increase marginally to 350
(FY21: 343). Personnel costs as a percentage of fees decreased to 63.0% of
revenue from 63.8% in FY21, excluding share-based payment charges.
Operating expenses have increased in line with top line growth of the Group,
including in specific areas such as travel, marketing and premises related
spending following a partial return to office working, and due to the effects
of current UK-wide inflation impacting running costs. Whilst other operating
expenses increased by £2.6m or 12.4% to £23.6m (FY21: £21.0m), overheads
remain well-managed as a percentage of revenue, as demonstrated by their
decrease as a percentage of revenue from 17.3% in FY21 to 17.2% in FY22.
Earnings Per Share (EPS)
Basic EPS increased by 7.3% to 12.00p (FY21: 8.1% to 11.18p). Basic EPS
before non-underlying and exceptional items increased by 10.6% to 14.66p
(FY21: 4.5% to 13.26p). Diluted EPS increased by 5.50% to 11.71p (FY21: 9.5%
to 11.10p). Diluted EPS before non-underlying and exceptional items
increased by 8.7% to 14.31p (FY21: 5.8% to 13.17p).
Share option schemes
The board remains committed to providing its people with the opportunity to
own shares in the Company, as further evidenced by the introduction of the new
RSA during the year. Such share ownership promotes strong alignment with the
Group's external shareholders, incentivises employees and is reflective of
Gateley's long-established culture. At least 75% of current staff are
existing share or option holders in the Group.
The awards, which vest on receipt, are made when an individual is promoted to
Partner or an equivalent position. Awards are subject to a five-year
non-dealing restriction and are forfeited should employment cease within that
period. 1,267,560 shares were awarded on 27 April 2022 as part of one-off
awards to people who were non-equity Partners at the date of Gateley's IPO in
June 2015, with a further 100,000 shares being awarded shortly after the FY22
financial year-end to newly promoted Partner or Partner-equivalent since then.
The board also announced at the end of FY22, a second vintage of LTIP awards
to certain Executive Directors and Senior Management over up to 1,115,000
Ordinary Shares of 10 pence each in the Company ("Ordinary Shares"). Awards
under the LTIP vest at the end of a three-year period, dependent upon the
achievement of profit related performance conditions and continuous
employment.
Profits used to calculate underlying EPS each year are disclosed below:
2022 2021 2020 2019
£'000 £'000 £'000 £'000
Reported profit after tax 14,279 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 1,581 2,073 1,375 1,406
- Share-based payment adjustments 1,213 956 1,355 655
- Release of contingent consideration - International Investment Services (135) - - -
Limited
- Impairment of software development costs - - 463 -
- Acquisition-related costs 870 - 107 61
Underlying profit after tax 17,808 16,186 15,023 14,850
Weighted average number of ordinary shares for calculating diluted earnings 121,893,238 118,508,833 115,599,727 112,280,569
per share
Underlying adjusted fully diluted EPS 14.61p 13.66p 13.00p 13.23p
Taxation
The Group's tax charge for the Period was £3.8m (FY21: £3.2m) which
comprised a corporation tax charge of £4.0m (FY21: £3.7m) and a deferred tax
credit of £0.2m (FY21: credit of £0.5m).
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 20.8% (FY21: 19.3%) based
on reported profits before tax. The increase is as a result of the decrease
in the tax allowable benefit arising from the exercise of nil cost share
options from levels experienced in previous years.
The net deferred taxation liability increased to £2.5m (FY21: £0.6m) as a
result of the deferred tax charge arising from business combinations during
the year.
Dividend
The Group paid an interim dividend of 3.0p per share on 31 March 2022 and
proposes a final dividend at the Company's Annual General Meeting on 20
October 2022 of 5.5p (FY21: 5.0p) per share, which if approved, will be paid
in late-October 2022 to shareholders on the register at the close of business
on 23 September 2022. The shares will go ex-dividend on 22 September 2022.
Our dividend policy remains to distribute up to 70% of our after-tax profits
each year.
Balance sheet
The Group's net asset position has increased by £13.6m (FY21: £14.5m) to
£72.9m (FY21: £59.3m), due to the following movements:
There was a £13.4m increase in total current assets, resulting from £13.1m
additional trade and other receivables through acquired businesses and the
strong organic growth of the Group. Contract assets ("unbilled revenue")
increased by £3.3m and cash at bank decreased by £3.5m as excess cash was
redeployed into acquisitions and to support working capital required for
continued growth.
Non-current assets increased by £14.5m, resulting from a decrease of £2.4m
from a change in property use and right of use asset values and an increase of
£16.8m in intangible assets and goodwill following the three acquisitions
made during the year.
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 2022, the board
concluded that the goodwill and intangible assets do not require impairment.
Total liabilities increased by £14.3m, due mainly to the drawdown of the RCF
and creation of £5.7m of debt in connection with the acquisitions of Gateley
Smithers Purslow together with the recognition of £5.4m of deferred
consideration and £2.1m of deferred taxation on acquired intangibles, also in
connection with the same acquisition.
Working capital and cash flow
During the year the Group agreed a new revolving credit facility with Bank of
Scotland and HSBC UK. The facility provides total committed funding of £30m
until April 2025, split equally between Bank of Scotland and HSBC UK. It
replaces the Group's existing £8m overdraft facilities with Bank of Scotland
and HSBC UK, with the dual bank club providing increased flexibility to the
Group to support future growth and expansion via acquisition. Interest is
payable on the loan at a margin of 1.95% above the SONIA reference rate.
The Group also has in place a litigation funding facility for an initial £20m
of funding towards significant litigation cases, which has the ability to
increase to £50m if required. To date the Group has not yet utilised this
facility but has a number of large assignments currently being assessed for
consideration in FY23.
Cash generation was once again good with net cash inflows from operating
activities of £12.3m (FY21: £25.4m) representing 86.5% (FY21: 193.2%) of
profit after tax. The Group ended the year with net cash of £10.4m (FY21:
£19.6m), the result of continued strong trading and also management's
sustained focus on cost efficiencies and costs management.
Free cashflow during the year from operations (post cashflow from IFRS 16
leases) was £7.4m (FY21: £20.8m), which represents 51.7% (FY21: 158.2%) of
profit after taxation. After conserving excess cash in FY21 as a result of
decisions taken at the outset of the pandemic, FY22 has experienced the
adverse effects caused by the timing of increases in cash movements from trade
receivables as the business returned to growth and normal levels of trading
related outgoings.
2022 2021
£'000 £'000
Net cash generated from operations 16,846 29,457
Tax paid (4,497) (4,039)
Net interest paid (7) (240)
Cash outflow from IFRS 16 leases (rental payments excluded from operating cash (3,870) (3,847)
flows
under IFRS 16)
Purchase of property, plant and equipment (775) (503)
Purchase of other intangible assets (319) (10)
Free cash flow 7,378 20,818
Underlying profit after tax 14,279 13,157
Free cash flow (%) 51.7% 158.2%
At the year-end, unbilled revenue recognised in the Group's statutory
accounts, from time recorded on non-contingent work, totalled £17.2m or 12.5%
of revenue recognised over the year (FY21: £13.9m or 11.5%). Unbilled revenue
represented 49 days in line with last year, of Pro-forma net revenue. Group
debtor days have increased to 113 days compared to 104 days in FY21 of
Pro-forma net revenue. Pro-forma net revenue includes revenue from
acquisitions on a full year pro-forma basis. As the Group grows so has our
volume of unpaid debts. This year especially the heightened activity levels
of year billing and the growth of the Group through acquisition, alongside the
position of the easter holidays, have all combined towards the increase in
debtor days. We had a higher number of litigation and recovery assignments
in particular at the year-end that have since been settled or are close to
resolution that will generate settlement of certain outstanding debts. We
have also made a good start to collections in FY23, despite the impact of the
significant change in financial systems in June 2022.
Concert Party update
Following consultation with The Takeover Panel ("the Panel"), it has agreed
that the concert party will be amended.
At the time of the IPO it was agreed with the Panel that the Directors,
Existing Shareholders and the Company's Employee Benefit Trust (once
established), each as defined in Gateley's admission document published on 1
June 2015, were acting in concert in respect of Gateley.
Gateley has now agreed with the Panel that the Gateley EBT along with the
following individuals and their respective connected persons form the concert
party in relation to Gateley pursuant to The Takeover Code:
Rod Waldie Chief Executive Officer
Michael Ward Executive Director
Neil Smith Finance Director
Peter Davies Chief Operating Officer and member of the Strategic Board
Callum Nuttall Member of the Strategic Board
Paul Hayward Former member of the Strategic Board
Brendan McGeever Former member of the Strategic Board
As at the date of this announcement, the concert party members, including the
EBT, hold, in aggregate, 9.29 per cent. of the Company's voting share capital.
Summary
Results for FY22 reflect another strong year for the Group. They include
significant organic growth and a return to our acquisitions plan with the
addition of some excellent new complementary service lines that further
enhance Group revenue diversification. We have maintained control of costs
despite both market specific and macro-economic conditions, and we have
produced a strengthened balance sheet with significant facility headroom to
further expand the Group both organically and through acquisition. The Group
is actively pursuing a strong pipeline of M&A opportunities.
Post year-end, we have enhanced our financial systems platform in order to
drive greater efficiencies in the future and we continue to look at
initiatives to balance off further increased cost pressures from wage and
inflationary pressures.
Neil Smith
Finance Director
13 September 2022
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND OTHER COMPREHENSIVE INCOME
for the year ended 30 April 2022
Note 2022 2021
£'000 £'000
Revenue 3 137,249 121,375
Other operating income - 2,451
Personnel costs, excluding IFRS 2 charge 5 (86,517) (77,460)
Depreciation - Property, plant and equipment 11 (851) (1,045)
Depreciation - Right-of-use asset 11 (3,783) (3,751)
Impairment of trade receivables and contract assets 15/16 (866) (1,834)
Other operating expenses, excluding non-underlying and exceptional items (22,716) (19,202)
Operating profit before non-underlying and exceptional items 4 22,516 20,534
Non-underlying operating items 4 (2,659) (3,029)
Exceptional items 4 (870) -
(3,529) (3,029)
Operating profit 4 18,987 17,505
Financial income 7 194 176
Financial expense 7 (1,149) (1,373)
Profit before tax 18,032 16,308
Taxation 8 (3,753) (3,151)
Profit for the year after tax attributable to equity holders of the parent 14,279 13,157
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss
- Revaluation of other investments (190) -
- Exchange differences on foreign branch 58 (87)
Profit for the financial year and total comprehensive income all attributable 14,147 13,070
to equity holders of the parent
Statutory Earnings per share
Basic 9 12.00p 11.18p
Diluted 9 11.71p 11.10p
The results for the periods presented above are derived from continuing
operations.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 APRIL 2022
Note 2022 2021
£'000 £'000
Non-current assets
Property, plant and equipment 11 1,334 1,323
Right of use asset 11 24,627 27,007
Investment property 164 164
Intangible assets & goodwill 12 32,590 15,765
Other intangible assets 14 564 282
Other investments 173 363
59,452 44,904
Total non-current assets
Current assets
Contract assets 15 17,239 13,900
Trade and other receivables 16 56,168 43,093
Deferred tax asset 19 638 138
Cash and cash equivalents 21 16,105 19,605
Total current assets 90,150 76,736
Total assets 149,602 121,640
Non-current liabilities
Other interest-bearing loans and borrowings 17 (5,715) -
Lease liability 24 (25,207) (27,702)
Other payables 18 (5,360) (120)
Deferred tax liability 2193 (3,089) (772)
Provisions 20 (863) (763)
Total non-current liabilities (40,234) (29,357)
Current liabilities
Trade and other payables 18 (31,793) (29,032)
Lease liability 24 (3,719) (2,743)
Provisions 20 (101) (176)
Current tax liabilities (842) (1,066)
Total current liabilities (36,455) (33,017)
Total liabilities (76,689) (62,374)
NET ASSETS 72,913 59,266
EQUITY
Share capital 22 12,456 11,792
Share premium 11,342 9,421
Merger reserve (9,950) (9,950)
Other reserve 14,465 6,815
Treasury reserve (261) (312)
Translation reserve (2) (60)
Retained earnings 44,863 41,560
TOTAL EQUITY 72,913 59,266
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Share Merger Other Treasury reserve Retained Foreign currency translation reserve Total
capital premium reserve reserve earnings Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
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
At 1 May 2021 11,792 9,421 (9,950) 6,815 (312) 41,560 (60) 59,266
Comprehensive income:
Profit for the year - - - - - 14,279 - 14,279
Revaluation of other investments - - - - - (190) - (190)
Exchange rate differences - - - - - - 58 58
Total comprehensive income - - - - - 14,089 58 14,147
Transactions with owners
recognised directly in equity:
Issue of share capital 664 1,921 - 7,650 - - - 10,235
Purchase of own shares at nominal value - - - - - (132) - (132)
Sale of treasury shares - - - - 127 - - 127
Purchase of treasury shares - - - - (76) - - (76)
Recognition of tax benefit on gain from equity settled share options - - - - - 563 - 563
Dividend paid - - - - - (12,430) - (12,430)
Share based payment transactions - - - - - 1,213 - 1,213
Total equity at 30 April 2022 12,456 11,342 (9,950) 14,465 (261) 44,863 (2) 72,913
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 2022
Note 2022 2021
£'000 £'000
Cash flows from operating activities
Profit for the year after tax 14,279 13,157
Adjustments for:
Depreciation and amortisation 11/12/14 6,215 6,869
Financial income 7 (194) (176)
Financial expense 7 201 416
Release of contingent consideration 4 (135) -
Interest charge on capitalised leases 7 948 957
Equity settled share-based payments 5 1,213 956
Loss/(profit) on disposal of property, plant and equipment 4 16 (3)
Tax expense 8 3,753 3,151
26,296 25,327
Increase in trade and other receivables (10,233) (5,312)
Increase in trade and other payables 758 9,216
Increase in provisions 20 25 226
Cash generated from operations 16,846 29,457
Tax paid (4,497) (4,039)
Net cash flows from operating activities 12,349 25,418
Investing activities
Acquisition of property, plant and equipment 11 (775) (503)
Acquisition of other intangible assets 14 (319) (10)
Cash received on disposal of property, plant and equipment - 11
Acquisition of other investments - (134)
Contingent consideration paid - acquisition of subsidiary - (363)
Consideration paid on acquisitions, net of cash acquired (5,982) -
Interest received 7 194 176
Net cash used in investing activities (6,882) (823)
Financing activities
Interest and other financial income paid 7 (201) (416)
Lease repayments (3,870) (3,847)
Receipt of new revolving credit facility, net of refinancing costs 17 5,715 -
Repayment of term bank loans 17 - (3,077)
Repayment of loans from former members of GCL Solicitors & Directors of 17 - (729)
IIS
Proceeds from sale of own shares 90 145
Acquisition of own shares (39) (288)
Cash received for shares issued on exercise of SAYE/CSOP/SARS options 1,768 299
Dividends paid 10 (12,430) -
Net cash used in financing activities (8,967) (7,913)
Net increase in cash and cash equivalents (3,500) 16,682
Cash and cash equivalents at beginning of year 19,605 2,923
Cash and cash equivalents at end of year 21 16,105 19,605
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 2022, 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 2022 will be delivered to the Registrar of Companies following
the Annual General Meeting.
These condensed preliminary financial statements for the year ended 30 April
2022 have been prepared on the basis of the accounting policies as set out in
the 2022 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 UK 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 borrowings. Financial projections have been
prepared to October 2023 which show positive earnings and cash flow
generation. The COVID-19 situation during the previous financial 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 typically applies
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 any current financial projections based on various
downside scenarios to illustrate the potential impact from a downturn in
client activity or any increases in costs.
The Group's liquidity position has been enhanced during the year as the board
has worked closely with its supportive banks in order to switch its funding
line from an uncommitted overdraft facility to a three-year revolving credit
facility. As at 30 April 2022 the Group has net cash of £10.4m and continues
to sensibly managed cash position within permitted covenants relating to its
new facility.
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 four strategic divisions, which are its reportable
segments. These divisions offer a mixture of legal and consultancy services
to clients. With effect from 1 May 2021 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 2022 and also the new service lines:
Reportable segment Legal service lines Consultancy service lines
(Gateley Legal) (Gateley Consultancy)
Corporate Banking International Investment Services
Corporate GEG Services
Restructuring advisory
Taxation
Business services Commercial Adamson Jones
Commercial Dispute Resolution/Litigation
Tweed (reputation, media and privacy law)
People Employment Entrust
Pension Kiddy and Partners
Private client T-three
Property Real Estate Capitus
Residential Development Hamer/Persona
Construction Smithers Purslow
Planning Vinden
The revenue and operating profit are attributable to the principal activities
of the Group. A geographical analysis of revenue is given below:
2022 2021
£'000 £'000
United Kingdom 127,386 109,934
Europe 5,336 6,231
Middle East 923 937
North and South America 692 1,045
Asia 1,501 802
Other 1,411 2,426
137,249 121,375
The Group has no individual customers that represent more than 10% of revenue
in either the 2022 or 2021 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
£0.08m (2021: Net Group assets of £0.07m) are located in the Group's Dubai
subsidiary. Revenue generated by the Group's Dubai subsidiary to customers
in the UAE totalled £0.92m (2021: £0.94m) as disclosed above as due from the
customers in the Middle East.
2022
Corporate Business Services People Property Total Other expense Total
segments
and movement
in unbilled revenue
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Segment revenue from services transferred at a point in time 10,175 3,467 5,901 10,994 30,537 305 30,842
Segment revenue from services transferred over time 27,889 14,490 13,264 50,426 106,069 338 106,407
Total Segment revenue 38,064 17,957 19,165 61,420 136,606 643 137,249
Segment contribution (as reported internally) 15,373 5,733 6,919 22,956 50,981 643 51,624
Costs not allocated to segments:
Other operating income -
Personnel costs (10,487)
Depreciation and amortisation (6,215)
Other operating expenses (13,852)
Share based payment charges (1,213)
Exceptional costs (870)
Net financial expense (955)
Profit for the financial year before taxation 18,032
2021
Banking and Corporate Business Employee Property Total Other expenses Total
Financial
Services
Pensions and
segments
Services
Benefits and movement
in unbilled revenue
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Segment revenue from services 3,239 7,437 1,357 3,780 13,289 29,102 1,361 30,463
transferred at a point in time
Segment revenue from services 12,774 14,450 11,996 10,472 39,654 89,346 1,566 90,912
transferred over time
Total segmental 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 charge (956)
Exceptional costs -
Net financial expense (1,197)
Profit for the financial year before taxation 16,308
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 engagement 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. £9.2 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 Expenses and auditor's remuneration
Included in operating profit are the following:
2022 2021
£'000 £'000
Depreciation on tangible assets (see note 11) 851 1,045
Depreciation on right-of-use asset (see notes 11 and 24) 3,783 3,751
Short term and low value lease payments (see note 24) 75 40
Operating lease costs on property (see note 24) - 26
Other operating income - rent received - (2)
Foreign exchange (gains)/losses (58) 87
Loss/(profit) on sale of fixed assets 16 (3)
2022 2021
£'000 £'000
Non-underlying items
Amortisation of intangible assets (see notes 12 and 14) 1,581 2,073
Share based payment charges - Gateley Plc 1,100 956
Share based payment charges - Gateley Smithers Purslow Limited 113 -
Release of contingent consideration - International Investment Services (135) -
Limited
2,659 3,029
Exceptional items
Acquisition costs 373 -
One off remuneration charge - Gateley Smithers Purslow Limited 497 -
Total non-underlying and exceptional items 3,529 3,029
Acquisition costs in the 2022 financial year represent professional fees in
respect of the acquisition of SP 2018 Limited, Adamson Jones Holdings Limited
and the business and assets of Tozer Gallagher LLP.
Share based payment charges in Gateley Plc represent charges in accordance
with IFRS 2 in respect of unexercised SAYE, CSOP, LTIP and RSA schemes (See
note 6).
Share based payment charges in Gateley Smithers Purslow Limited represent
shares awarded to staff following the successful acquisition of SP 2018
Limited (See note 5 and 6).
Auditor's remuneration
2022 2021
£'000 £'000
Fees payable to the Company's Auditor in respect of audit services:
Audit of these financial statements 85 73
Audit of financial statements of subsidiaries of the Company 20 15
105 88
Amounts receivable by the Company's auditor and its associates in respect of:
Other assurance services 31 44
Other assurance services relate to Solicitors Accounts Rules review with
associated reporting to legal regulators. This work is entirely assurance
focused.
5 Personnel costs
The average number of persons employed by the Group during the year, analysed
by category, was as follows:
Number of employees
2022 2021
Legal and professional staff 800 770
Administrative staff 350 343
1,150 1,113
The aggregate payroll costs of these persons were as follows:
2022 2021
£'000 £'000
Wages and salaries 76,672 68,020
Social security costs 7,769 7,736
Pension costs 2,076 1,704
86,517 77,460
Non-underlying items (see note 4)
Share based payment expense - Gateley Plc 1,100 956
Share based payment expense - Gateley Smithers Purslow Limited 113 -
87,730 78,416
6 Share based payments
Group
At the year end the Group has nine 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 64,549 SAYE 17/18 options were exercised and the remaining
193,063 had lapsed by 30 April 2022. The accumulated IFRS2 charge of £155,381
was recycled through retained earnings in the prior period.
During the year 407,963 SAYE 18/19 options vested with 237,450 being exercised
by 30 April 2022 leaving 170,513 options still to be exercised. New shares
were issued to satisfy these options being 237,450 10p shares with a nominal
value of £23,745. The accumulated IFRS2 charge of £135,078 has been recycled
through retained earnings.
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 401,542 CSOPS 17/18 options were exercised and the remaining
26,603 had lapsed by 30 April 2022. New shares were issued to satisfy these
options being 410,632 10p shares with a nominal value of £41,063. The accrued
IFRS2 charge of £95,780 was recycled through retained earnings in the prior
period.
During the year 631,580 CSOPS 18/19 options vested with 447,494 being
exercised by 30 April 2022 leaving 184,086 options still to be exercised. New
shares were issued to satisfy these options being 447,494 10p shares with a
nominal value of £44,749. The accumulated IFRS2 charge of £108,421 has been
recycled through retained earnings.
Long Term Incentive Plan ('LTIP')
The Group operates 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) Amount Vesting %
over the three year period ending 30 April 2023/2025
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 granted options on 27
April 2022 based on performance conditions commencing on 1 May 2022. In total,
1,115,000 options have been granted which, subject to satisfying the above
performance conditions, will vest in the year ending 30 April 2025.
Restricted Share Award Plan ('RSA')
The Group has introduced during the year an RSA for the benefit of Senior
Management. Awards under the RSA entitle the option holder to participate in
dividends however, the shares are restricted for a period of 5 years from
issue, such that they cannot be traded.
The annual awards granted under all schemes are summarised below:
Weighted average remaining contractual life Weighted Originally granted Lapsed at 30 April 2021 At 1 May Granted Lapsed during year Exercised in the year At 30 April 2022
average 2021 during
exercise the year
price
Number Number Number Number Number Number Number
SAYE
SAYE 17/18- 15 0 years £1.33 556,296 (298,684) 257,612 - (193,063) (64,549) -
September 2017
SAYE 18/19 - 21 0 years £1.27 620,432 (168,463) 451,969 - (44,006) (237,450) 170,513
September 2018
SAYE 19/20 - 30 0.4 years £1.28 822,625 (125,652) 696,973 - (92,760) - 604,213
September 2019
SAYE 20/21 - 6 1.5 years £1.02 2,337,197 (47,113) 2,290,084 - (172,713) - 2,117,371
November 2020
SAYE 21/22 - 25 2.3 years £1.70 - - - 673,077 (14,925) - 658,152
August 2022
4,336,550 (639,912) 3,696,638 673,077 (517,467) (301,999) 3,550,249
CSOPS
CSOPS 17/18 - 3 0 years £1.65 581,162 (153,017) 428,145 - (26,603) (401,542) -
October 2017
CSOPS 18/19 - 24 0 years £1.44 812,131 (127,774) 684,357 - (52,777) (447,494) 184,086
October 2018
CSOPS 20/21 - 7 1.2 years £1.35 976,797 (57,411) 919,386 - (89,634) - 829,752
July 2020
2,370,090 (338,202) 2,031,888 - (169,014) (849,036) 1,013,838
LTIPS
LTIPS 20/21 - 22 1.2 years £0.00 1,405,766 (38,339) 1,367,427 - (130,992) - 1,236,435
July 2020
LTIPS 27 3.0 years £0.00 - - - 1,115,000 - - 1,115,000
April 2022
1,405,766 (38,339) 1,367,427 1,115,000 (130,992) - 2,351,435
RSARSA
RSA 27 April 2022 5.0 years £0.00 - - - 1,422,560 - - 1,422,560
- - - 1,422,560 - - 1,422,560
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. The inputs to this
model for awards granted during the financial year are detailed below:
SAYE LTIP RSA
Grant date 25/8/21 27/4/21 27/4/22
Share price at date of grant £2.115 £2.175 £2.175
Exercise price £1.70 n/a n/a
Volatility 29% 33% 33%
Expected life (years) 3.3 3.3 5.0
Risk free rate 0.227% 1.522% 1.575%
Dividend yield 4.53% 4.53% 0%
Fair value per share
Market based performance condition - - -
Non-market based performance £0.44 £1.87 £2.175
condition/no performance condition
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 each of the options granted.
The total charge to the income statement for all schemes now in place,
included within non-underlying items, is £1,213,000 (2021: £956,000).
7 Financial income and expense
Recognised in profit and loss
2022 2021
£'000 £'000
Financial income
Interest income 194 176
Total financial income 194 176
Financial expense
Interest expense on bank borrowings measured at amortised cost (201) (416)
Interest on lease liability (948) (957)
Total financial expense (1,149) (1,373)
Net financial expense (955) (1,197)
8 Taxation
2022 2021
£'000 £'000
Current tax expense
Current tax on profits for the year 3,949 3,749
Under/(over) provision of taxation in previous period 15 (43)
Total current tax 3,964 3,706
Deferred tax expense
Origination and reversal of temporary differences (211) (436)
Under provision on share-based payment charges - (119)
Total deferred tax expense (211) (555)
Total tax expense 3,753 3,151
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:
2022 2021
£'000 £'000
Profit for the year (subject to corporation tax) 18,032 16,308
Tax using the Company's domestic tax rate of 19% 3,426 3,099
Expenses not deductible for tax purposes 312 214
Under/(over) provision of taxation in previous period 15 (43)
Under provision on share-based payment charges - (119)
Total tax expense 3,753 3,151
The Finance Act 2021 increased the main rate of corporation tax to 25% from 1
April 2023. Closing deferred tax balances have therefore been valued at 19% or
25% (2021: 19%) depending on the date they expect to fully unwind.
9 Earnings per share
Statutory earnings per share
2022 2021
Number Number
Weighted average number of ordinary shares in issue, being weighted average 118,961,047 117,685,265
number of shares for calculating basic earnings per share
Shares deemed to be issued for no consideration in respect of share based 2,932,191 823,568
payments
Weighted average number of ordinary shares for calculating diluted earnings 121,893,238 118,508,833
per share
2022 2021
£'000 £'000
Profit for the year and basic earnings attributable to ordinary equity 14,279 13,157
shareholders
Non-underlying and exceptional items (see note 4)
Operating expenses 3,529 3,029
Tax on non-underlying and exceptional items (370) (576)
Underlying earnings before non-underlying and exceptional items 17,438 15,604
Earnings per share is calculated as follows:
2022 2021
Pence Pence
Basic earnings per ordinary share 12.00 11.18
Diluted earnings per ordinary share 11.71 11.10
Basic earnings per ordinary share before non-underlying and exceptional items 14.66 13.26
Diluted earnings per ordinary share before non-underlying and exceptional 14.31 13.17
items
10 Dividends
2022 2021
£'000 £'000
Equity shares:
Interim dividend in respect of 2021 (2.5p per share) - 28 June 2021 2,940 -
Final dividend in respect of 2021 (5p per share) - 8 October 2021 5,908 -
Interim dividend in respect of 2022 (3p per share) - 31 March 2022 3,582 -
12,430 -
The board proposes to recommend a final dividend of 5.5p (2021: 5p) per share
at the AGM. If approved, this dividend will be paid in mid October 2022 to
shareholders on the register at the close of business on 23 September 2022.
The shares will go ex-dividend on 22 September 2022. This dividend has not
been recognised as a liability in these final statements.
11 Property, plant and equipment
Leasehold Equipment Fixtures and Right-of-use assets Total
improvements Fittings
£'000 £'000 £'000 £'000 £'000
Cost
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
Balance at 1 May 2021 317 6,493 5,396 34,025 46,231
Arising on acquisition after fair value adjustments 266 63 793 1,122
Additions 23 583 169 610 1,385
Disposal - (110) - - (110)
As at 30 April 2022 340 7,232 5,628 35,428 48,628
Depreciation and impairment
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
Balance at 1 May 2021 209 5,814 4,860 7,018 17,901
Arising on acquisition after fair value adjustments - 173 53 - 226
Depreciation charge for the year 22 514 315 3,783 4,634
Eliminated on disposal - (94) - - (94)
Balance at 30 April 2022 231 6,407 5,228 10,801 22,667
Net book value
At 30 April 2021 108 679 536 27,007 28,330
At 30 April 2022 109 825 400 24,627 25,961
12 Intangible assets and goodwill
Goodwill Customer Total
lists and
brands
£'000 £'000 £'000
Deemed cost
At 1 May 2020 12,329 9,850 22,179
Adjustment (631) - (631)
At 30 April 2021 11,698 9,850 21,548
Arising through business combinations 8,440 9,929 18,369
At 30 April 2022 20,138 19,779 39,917
Amortisation
At 1 May 2020 - 3,741 3,741
Charge for the year - 2,042 2,042
At 30 April 2021 - 5,783 5,783
Charge for the year - 1,544 1,544
At 30 April 2022 - 7,327 7,327
Carrying amounts
At 30 April 2021 11,698 4,067 15,765
At 30 April 2022 20,138 12,452 32,590
Goodwill is allocated to the following cash generating units:
2022 2021
£'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 2,259
Tozer Gallagher (acquisition of trade and assets) 405 -
Gateley Smithers Purslow Limited 6,605 -
14,885 7,875
Employment , Pensions and Benefits Group
Kiddy & Partners Limited 1,600 1,600
International Investment Services Limited 338 338
T-three Consulting Limited 309 309
2,247 2,247
Business services Group
Gateley Tweed (acquisition of goodwill) 1,576 1,576
Adamson Jones IP Limited 1,430 -
3,006 1,576
20,138 11,698
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.
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% (2021: 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.
· 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 2% to 10% (2021: -25-10%) 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 2%. 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.
13 Acquisitions
During the year ended 30 April 2022 the Group completed three acquisitions,
the table below summarises the consideration paid:
Total
£'000
Total fair value of identifiable assets and liabilities acquired 12,380
Goodwill 8,440
Total consideration 20,820
Satisfied by:
Cash 7,033
Equity instruments 8,335
Contingent cash consideration payable 2,776
Contingent shares consideration payable 2,676
Total consideration 20,820
Net cash outflows arising on acquisition
Cash consideration (7,033)
Acquisition costs (373)
Net cash acquired 1,051
Net cash outflow arising on acquisition (6,355)
Details of individual acquisitions are included below:
Acquisition of Tozer Gallagher LLP
On 22 July 2021 Gateley Vinden Limited acquired the business and assets of
Tozer Gallagher LLP, a leading practice of chartered quantity surveyors and
construction consultants. Tozer Gallagher was founded over 30 years ago and is
a nationally recognised and highly respected practice of chartered quantity
surveyors and construction consultants based in Manchester and London. The
business specialises in built environment consultancy, fund monitoring
services, and surety advisory.
The amounts recognised in respect of identifiable assets acquired and
liabilities assumed are as set out in the table below:
Pre-acquisition carrying amount Policy alignment and fair value adjustments Total
£'000 £'000 £'000
Property, plant and equipment 7 36 43
Intangible asset relating to customer list and brand - 393 393
Prepayments 14 - 14
Accrued income 101 - 101
Total assets 122 429 551
Accruals and other payables (4) - (4)
Lease liability - (36) (36)
Deferred tax - (98) (98)
Total liabilities (4) (134) (138)
Total identifiable net assets at fair value 118 295 413
Goodwill arising on acquisition 405
Total consideration 818
Satisfied by:
Initial cash consideration paid 418
Issue of 142,179 new 10p ordinary shares in Gateley (Holdings) Plc 300
Contingent cash consideration payable 100
Total consideration 818
Net cash outflow arising on acquisition
Cash consideration (418)
Net cash acquired -
Net cash outflow arising on acquisition (418)
The goodwill of £405,000 arising from the acquisition represents the
assembled workforce. None of the goodwill is expected to be deductible for
income tax purposes.
A contingent consideration arrangement was entered into as part of the
acquisition. This is contingent on Tozer Gallagher achieving revenue in
excess of £850k in the 12 month period ending 21 July 2022. The sellers will
receive £1 of contingent consideration for every £1 they exceed £850k up to
a maximum consideration of £0.1m. The contingent consideration totalling
£100,000 was settled during August 2022.
From the date of acquisition Tozer Gallagher has contributed £0.7m of revenue
to the Group's Statement of Comprehensive Income. If the acquisition had been
completed on the first day of the financial year, Group revenue would have
been higher by £0.2m. The profit contributed is not separately identifiable
due to its trade and assets being incorporated into Gateley Vinden Limited
upon acquisition.
Acquisition of the Adamson Jones Holdings Limited ("Adamson Jones")
On 7 January 2022 the Company acquired the entire issued share capital of
Adamson Jones via the acquisition of the entire issued share capital of
Adamson Jones Holdings Limited that owns 100% of the entire issued share
capital of Adamson Jones IP Limited. Adamson Jones provides intellectual
property (IP) services encompassing patent, design and trademark protection
advice in the UK, Europe and around the world.
The amounts recognised in respect of identifiable assets acquired and
liabilities assumed are as set out in the table below:
Pre-acquisition carrying amount Policy alignment and fair value adjustments Total
£'000 £'000 £'000
Property, plant and equipment 38 - 38
Cash 48 - 48
Intangible asset relating to customer list and brand - 1,067 1,067
Trade receivables 564 - 564
Total assets 650 1,067 1,717
Trade payables (257) - (257)
Deferred income (11) - (11)
Accruals and other payables (30) - (30)
Other tax and social security (82) - (82)
Deferred tax - (267) (267)
Total liabilities (380) (267) (647)
Total identifiable net assets at fair value 270 800 1,070
Goodwill arising on acquisition 1,430
Total consideration 2,500
Satisfied by:
Initial cash consideration paid 1,255
Issue of 543,668 new 10p ordinary shares in Gateley (Holdings) Plc 1,245
Total consideration 2,500
Net cash outflow arising on acquisition
Cash paid (1,255)
Acquisition costs (36)
Net cash acquired 48
Net cash outflow arising on acquisition (1,243)
The goodwill of £1,430,000 arising from the acquisition represents the
assembled workforce. None of the goodwill is expected to be deductible for
income tax purposes.
From the date of acquisition Adamson Jones has contributed £1.2m of revenue
to the Group's Statement of Comprehensive Income together with after tax
profit of £0.1m. If the acquisition had been completed on the first day of
the financial year, Group revenue and profit after tax would have been higher
by £2.4m and £0.3m respectively.
Acquisition of Gateley Smithers Purslow Limited (formerly Smithers Purslow
Limited) ('Smithers Purslow')
On 19 April 2022 Gateley (Holdings) Plc acquired the entire issued share
capital of Gateley Smithers Purslow Limited (formerly Smithers Purslow
Limited) via the acquisition of the entire issued share capital of SP 2018
Limited. Smithers Purslow is a specialist business offering corporate
advisory, dispute and consultancy to the built environment in the property and
construction markets.
Pre-acquisition carrying amount Policy alignment and fair value adjustments Total
£'000 £'000 £'000
Property, plant and equipment 69 757 826
Intangible asset relating to customer list and brand - 8,469 8,469
Work in progress 2,560 - 2,560
Cash 1,003 - 1,003
Trade receivables 2,531 - 2,531
Prepayments and accrued income 411 - 411
Total assets 6,574 9,226 15,800
Trade payables (417) - (417)
Accruals and other payables (559) - (559)
Current tax (406) - (406)
Lease liability - (757) (757)
Contingent liability (50) (50)
Other tax and social security (585) - (585)
Deferred tax (12) (2,117) (2,129)
Total liabilities (1,979) (2,924) (4,903)
`
Total identifiable net liabilities at fair value 4,595 6,302 10,897
Goodwill arising on acquisition 6,605
Total consideration 17,502
Satisfied by:
Initial cash consideration paid 5,360
Issue of 3,312,322 new 10p ordinary shares in Gateley (Holdings) Plc 6,790
Contingent cash consideration payable 2,676
Contingent share consideration payable 2,676
Total consideration 17,502
Net cash outflow arising on acquisition
Cash paid (5,360)
Acquisition costs (192)
Net cash acquired 1,003
Net cash outflow arising on acquisition (4,549)
The goodwill of £6,605,000 arising from the acquisition represents the
assembled workforce. None of the goodwill is expected to be deductible for
income tax purposes. All the effects of this acquisition on the Group's assets
and liabilities are disclosed as provisional due to the proximity of the
acquisition
to the balance sheet date.
A contingent consideration arrangement was entered into as part of the
acquisition. A further £7.85 million could be payable with any payment
subject to Smithers Purslow achieving at least £4.5 million of EBITDA over
the 24 months to 30 September 2023. Such payment is to be split in shares and
cash as agreed between the Sellers and the Company, providing no Seller is
entitled to receive more than 50% of their total consideration in cash.
From the date of acquisition Smithers Purslow has contributed £0.6m of
revenue to the Group's Statement of Comprehensive Income together with after
tax profit (before exceptional items) of £0.2m. If the acquisition had been
completed on the first day of the financial year, Group revenue and profit
after tax would have been higher by £11.4m and £1.2m respectively.
14 Other intangible assets
IT development costs Computer
£'000 software Total
£'000
£'000
Cost
Balance at 1 May 2020 258 111 369
Additions - 10 10
- - -
At 30 April 2021 258 121 379
Additions - 319 319
At 30 April 2022 258 440 698
Amortisation
Balance at 1 May 2020 - 66 66
Charge for the year - 31 31
At 30 April 2021 - 97 97
Charge for the year - 37 37
At 30 April 2022 - 134 134
Net book amount at 30 April 2021 258 24 282
Net book amount at 30 April 2022 258 306 564
The Group's amortisation policy, is to amortise other intangible assets from
the date they are made available for use. As at 30 April 2022 the software
relating to the IT development costs was not available for use, therefore no
amortisation has been recognised. The software came into use following the
period end.
15 Contract assets and liabilities
Contract assets Trade Contract liabilities
receivables
£'000 £'000 £'000
As at 30 April 2022 17,239 50,201 (569)
As at 30 April 2021 13,900 36,680 (1,243)
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 £2,661,000 (2021: £nil) were acquired in
business combinations.
An impairment loss of £108,000 has been recognised in relation to contract
assets in the year (2021: gain £89,000). This is based on the expected credit
loss under IFRS 9 of these types of assets. The contract asset loss is
estimated at 0.6% (2021: gain 0.6%) of the balance.
Contract assets recognised under IFRS 15
Under IFRS 15 the Group is required to recognise contract assets.
2022 2021
£'000 £'000
Contract asset value at 1 May 2021 13,900 11,684
Contract assets arising on acquisition 2,661 -
Contract asset value added in the year 19,237 17,452
Contract asset value realised in the year (18,559) (15,236)
Contract asset value at 30 April 2022 17,239 13,900
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.
2022 2021
£'000 £'000
Contract liabilities at 1 May 2021 1,243 70
Contract liabilities gained in the year 533 1,207
Contract liabilities credited to P&L in year (1,207) (34)
Contract liabilities at 30 April 2022 569 1,243
16 Trade and other receivables
2022 2021
£'000 £'000
Trade receivables 50,201 36,680
Prepayments 5,626 5,699
Other receivables including insurance receivables 341 714
56,168 43,093
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
2022 2021
£'000 £'000
Brought forward provision (4,171) (2,967)
Recognition of provisions for businesses acquired (173) -
Provision utilised 1,161 719
Charged to statement of profit and loss (1,173) (2,391)
Provisions released 415 468
(3,941) (4,171)
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% 5.11% 18.53%
Estimated total gross carrying amount £'000 31,544 4,642 5,429 12,526 54,141
Lifetime ECL £'000 1,136 207 277 2,321 3,941
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 £1,173,000 has been recognised in relation to trade
receivables in the year (2021: £1,525,000). This is based on the expected
credit loss under IFRS 9 of these types of assets. The trade receivables loss
is estimated at 2.3% (2021: 3.7%) of the balance.
17 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.
2022 2021
Fair Carrying Fair Carrying
amount
amount
value value
£'000 £'000 £'000 £'000
Non-Current liabilities
Bank borrowings 5,715 5,715 - -
On 18 April 2022, the Company entered into a revolving credit facility which
provides total committed funding of £30m until April 2025. Interest is
payable at a margin of 1.95% above the SONIA reference rate. On 19 April 2022
£6m was drawdown against the facility in order to fund the initial cash
consideration in the acquisition of SP 2018 Limited.
As at 30 April 2022, the Group's non-derivative financial liabilities have
contractual maturities (including interest payments where applicable) as
summarised below:
30 April 2022 Current Non-current
Within 6 months 6 to 12 months 1 - 5 Later than
years 5 years
£'000 £'000 £'000 £'000
Bank borrowings - - 6,000 -
Trade and other payables 8,309 - - -
Total 8,309 - 6,000 -
This compares to the maturity of the Group's non-derivative financial
liabilities in the previous reporting period as follows:
30 April 2021 Current Non-current
Within 6 months 6 to 12 months 1 - 5 Later than
years 5 years
£'000 £'000 £'000 £'000
Trade and other payables 8,130 - 120 -
Total 8,130 - 120 -
The above amounts reflect the contractual undiscounted cash flows, which may
differ to the carrying values of the liabilities at the reporting date.
18 Trade and other payables
2022 2021
£'000 £'000
Current
Trade payables 7,935 6,086
Other taxation and social security payable 10,122 9,641
Other payables 374 582
Contingent consideration 100 135
Accruals 12,693 11,345
Deferred income 569 1,243
31,793 29,032
Non-current £'000 £'000
Other payables - 120
Contingent consideration 5,360 -
5,360 120
£100,000 of current contingent consideration represents the earn-out sums
payable to the sellers of Tozer Gallagher LLP.
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 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 4.75%.
19 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 2021 138
Credited during the year to retained earnings 563
Debited during the year in the Consolidated income statement (63)
At 30 April 2022 638
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 2020 1,208
Credited during the year in the Consolidated income statement (436)
At 30 April 2021 772
Arising through business combinations - Tozer Gallagher LLP, 2,482
Adamson Jones Holdings Limited and SP 2018 Limited
Credited during the year in the Consolidated income statement (165)
At 30 April 2022 3,089
20 Provisions
2022 2021
£'000 £'000
Current provision
Professional indemnity provision 101 176
Total current provision 101 176
Non-current provision
Professional indemnity provision 649 549
Dilapidations provision 214 214
Total non-current provision 863 763
Total provisions 964 939
Professional indemnity estimated claim cost
2022 2021
£'000 £'000
Brought forward 725 713
Provisions made during the year 35 385
Provisions reversed during the year (10) (373)
At end of year 750 725
Non-current 649 549
Current 101 176
750 725
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.
2022 2021
£'000 £'000
At 1 May 214 -
Provision made in the year - 214
At 30 April 214 214
21 Net debt
2022 2021
£'000 £'000
Cash and cash equivalents 16,105 19,605
Debt
Total loans brought forward (30,445) (29,262)
Revolving credit facility - due in more than one year (5,715) -
New lease liability in the year (2,351) (9,385)
Repayment of loans from former members - 729
Repayment of term loans - 3,077
Termination of lease - 1,359
Repayment of lease liability 3,870 3,037
Total loan carried forward (34,641) (30,445)
Brought forward from previous year (10,840) (26,339)
Movement during year (7,696) 15,499
Net debt at the year end (18,536) (10,840)
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 2021 - - 30,445 30,445
Cashflows:
Repayments - - (3,870) (3,870)
Receipt of revolving credit facility 5,715 - - 5,715
Non-cash
Fair value on acquisition - - 793 793
New lease liability in the year - - 1,558 1,558
30 April 2022 5,715 - 28,926 34,641
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
New lease liability in the year - - 8,026 8,026
30 April 2021 - - 30,445 30,445
22 Share capital
Authorised, issued and fully paid
2022 2022 2021 2021
Number £ Number £
Ordinary shares of 10p each
Brought forward 117,914,205 11,791,420 117,609,094 11,760,909
Issued on acquisition of 142,179 14,218 - -
Tozer Gallagher LLP
Issued on acquisition of 543,668 54,367 - -
Adamson Jones IP Limited
Issued on acquisition of Gateley 3,312,322 331,232 - -
Smithers Purslow Limited
Issued as part of contingent - - 197,368 19,737
consideration of Gateley Vinden Limited
Issued on vesting of RSA 1,477,560 147,756 - -
Issued on vesting of SAYE 308,819 30,882 107,743 10,774
Issued on vesting of CSOPS 858,126 85,813 - -
At 30 April 2022 124,556,879 12,455,688 117,914,205 11,791,420
The Company has one class of Ordinary shares which carry no right to fixed
income.
On 22 July 2021 the Group acquired the trade and assets of Tozer Gallagher LLP
in part for the issue of 142,179 10p ordinary shares.
On 9 January 2022 the Company acquired Adamson Jones IP Limited and dormant
group companies in part for the issue of 543,668 10p ordinary shares.
On 19 April 2022 the Company acquired Gateley Smithers Purslow Limited
(Formerly Smithers Purslow Limited) and other group companies in part for the
issue of 3,312,322 10p ordinary shares.
Between 1 May 2021 and 19 April 2022 308,819 10p ordinary shares were issued
upon vesting of the 2018 SAYE schemes to participants.
Between 3 August 2021 and 1 November 2021 858,126 10p ordinary shares were
issued upon vesting of the 2018 CSOP schemes to participants.
On 27 April 2022 1,477,560 10p ordinary shares were issued upon vesting of the
2022 RSA scheme to participants.
23 Capital commitments
In 2021 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
cost of the contractual capital commitment was £1.1million and was incurred
across calendar years 2021 and 2022. The outstanding obligation at year end is
£nil.
24 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 Net additions Depreciation Closing lease asset
£'000 £'000 £'000 £'000
Office buildings 17 5.9 years 26,986 1,397 (3,767) 24,616
IT equipment 2 2years 21 6 (16) 11
* 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:
2022 2021
£'000 £'000
Current lease liability 3,719 2,743
Non-current lease liability 25,207 27,702
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.
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 2022:
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 - 17 17
of low value assets
26 40 66
The total minimum undiscounted lease payments at 30 April 2022 under
non-cancellable operating lease rentals were:
30 April 2022 30 April 2021
£'000 £'000
Within one year 4,645 3,024
In the second to fifth year inclusive 22,435 15,921
After five years 16,606 13,822
43,686 32,767
The Annual report and financial statements will be posted to shareholders in
due course. Further copies will be available from the Company's website:
www.gateleyplc.com.
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