REG - Knights Group Hldgs - Full Year Results
10/07/2023 07:00
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RNS Number : 4189F Knights Group Holdings PLC 10 July 2023
Knights Group Holdings plc
("Knights" or the "Group")
Full Year Results
A resilient performance against a challenging backdrop; foundations to drive
organic growth established
Knights, a fast-growing legal and professional services business in the UK,
today announces its full year results for the year ended 30 April 2023
Financial highlights
· Revenue increased by 13.1% to £142.1m (FY22: £125.6m)
· Gross margin of 48.5% (FY22: 49.3%)
· Underlying PBT ((1) )up 19.1% to £21.6m (FY22: £18.1m);
underlying PBT margin increased to 15.2% (FY22: 14.4%)
· Reported PBT increased to £11.5m (FY22: £1.1m)
· Underlying EPS increased to 20.20p (FY22: 17.23p). Basic EPS
9.28p (FY22: loss of 3.02p)
· Lock up((2)) was 87 days (FY22: 86), with debtor days at 30 (FY22:
31)
· Cash conversion ((3)) of 117% (FY22: 109%)
· Net debt((4)) of £29.2m (30 April 22: £28.9m), in line with the
Board's expectations
· Final dividend of 2.50p recommended (FY22: 2.04p), giving a 15%
increase in the total dividend to 4.03p (FY22: 3.50p)
Strategic and operational highlights
Resilient performance and bolstered position as one of the UK's largest
regional commercial law firms
· Delivered profitable, cash generative growth from a diversified
service offering and expanded client base with a noticeable increase in the
interest income earned on client monies, net of interest paid out to clients
which we expect to continue with interest rates having reverted to higher
historic norms. Should interest rates soften, we expect this to stimulate
higher levels of activity in the transactional parts of our business, such as
M&A and residential property
· Continued to scale the business, strengthening our presence in key
markets across the UK and our position as one of the largest legal and
professional services businesses outside London
· Continued to attract top-tier professionals. Average number of full
time equivalent fee earners employed during the period was 1,077 (FY22: 1,015)
Significantly expanded regional footprint, providing a strong platform for
organic growth
· Successfully integrated prior year acquisitions, Keebles, Archers Law
and Langleys, which are performing well
· Acquired two well reputed law firms, Coffin Mew and Meade King, in
the South of England, expanding our reach and adding c.100 fee earners. Both
are integrating and performing well
· Acquisitions of Baines Wilson and St James' Law post period end
provide entry into important growth markets in the North of England,
significantly strengthening our reputation in the region
Current trading and Outlook
· Solid start to the current year as we navigate continuing
macroeconomic uncertainty and rising interest rates, with growth in less
cyclical areas, new client wins and an increase in recruitment activity
· Confident of a return to organic growth in FY24 as we realise the
benefits of:
· our pricing strategy, with rate increases from 1 May 2023
· recruitment momentum, with eight partners hired already in FY24
(total for FY23: 13)
· recent client wins including EuroFinance, World Rugby, Marie Curie
and TTI Inc., demonstrating the success of our large, and international,
corporate client initiatives
· good early organic recruitment into recently acquired locations,
particularly Bristol, Newcastle and Brighton
· strong momentum in non-cyclical services such as private wealth and
clinical negligence
· A more favourable market for attracting professionals as well as
acquisition opportunities and valuations
· Confident of an unchanged outlook for the current financial year with
recent recruitment expected to drive second half weighting
David Beech, CEO of Knights, commented:
"This has been an important year for Knights, during which we placed a
particular focus on strengthening our management team and developing our
operating model to support the execution of our strategy and accelerate
growth. "
"Given the sharp rises in interest rates as we started the current financial
year, we are seeing a softening of work in some transactional and debt-reliant
activity such as Residential Property, M&A, and our volume re-mortgage
business, Integrar. However, this is being mitigated by a combination of
growth in other areas which are less cyclical, such as Private Wealth and CL
Medilaw (our specialist clinical negligence team), new client wins and our
pricing strategy."
"As we move through the year, we expect to benefit incrementally from recent
positive recruitment momentum, a heightened focus on growth and business
development and the strengthening of our operational management."
"We will continue carefully to consider acquisition opportunities which will
consolidate or expand our existing footprint and provide a strong platform for
future organic growth."
"Our outlook for the current financial year is therefore unchanged, with
recent recruitment expected to drive a second half weighting, and we remain
confident in our strategy and our ability to deliver profitable, cash
generative growth. We will continue to leverage our position as one of the
largest commercial law firms located outside London, to grow our client and
fee earner base organically and to drive operational improvements,
complemented by acquisitive growth."
Enquiries
Knights
David Beech, CEO Via MHP
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank 020 7260 1000
MHP (Media enquiries)
Katie Hunt, Eleni Menikou, Rob Collett-Creedy 020 3128 8100
+44 (0)7736 464749
knights@mhpgroup.com
Notes to Editors
Knights is a fast-growing, legal and professional services business, ranked
within the UK's top 50 largest law firms by revenue. Knights was one of the
first law firms in the UK to move from the traditional partnership model to a
corporate structure in 2012 and has since grown rapidly. Knights has
specialists in all key areas of corporate and commercial law so that it can
offer end-to-end support to businesses of all sizes and in all sectors. It is
focussed on key UK markets outside London and currently operates from 25
offices located in Birmingham, Brighton, Bristol, Carlisle, Cheltenham,
Chester, Crawley, Exeter, KingsHill, Lancaster, Leeds, Leicester, Lincoln,
Manchester, Newcastle, Newbury, Nottingham, Oxford, Portsmouth, Sheffield,
Stoke, Teesside, Weybridge, Wilmslow and York.
(1 ) Underlying PBT is before amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance costs,
restructuring costs in the reporting period, and non-underlying share based
payments. Underlying EPS excludes these items and the tax related to these
items. The Board believes that these underlying figures provide a more
meaningful measure of the Group's underlying performance
(2) Lock up is calculated as the combined debtor and WIP days as at a point in
time. Debtor days are calculated on a count back basis using the gross
debtors at the period end and compared with total fees raised over prior
months. WIP days are calculated based on the gross work in progress (excluding
that relating to clinical negligence claims, insolvency, and ground rents, as
these matters operate mainly on a conditional fee arrangement and a different
profile to the rest of the business) and calculating how many days billing
this relates to, based on average fees (again excluding clinical negligence
claims, insolvency, and ground rents fees) per month for the last 3 months
Lock up days excludes the impact of acquisitions in the last quarter of the
reporting period
(3 ) Cash conversion is calculated as the total of net cash from operations,
tax paid and payments of lease interest and lease finance liabilities under
IFRS 16, divided by the underlying profit after tax, which is calculated from
profit after tax by adding back amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance costs,
restructuring costs in the reporting period, and non-underlying share based
payments and the tax in respect of these costs
(4 ) Net debt excludes lease liabilities
(5) Largest firm by revenues outside London. Source: The Lawyer's Top 100
report, October 2022
These footnotes apply throughout the RNS
Chair's statement
I am pleased to introduce Knights' 2023 Annual Results.
Since Knights moved to a corporate structure in 2012, we have expanded the
business considerably, growing from two offices to become a business with a
national presence. During that time, our organic growth has been
complemented by over 20 acquisitions of quality independent legal and
professional services businesses, which have expanded Knights' geographical
reach and range of services and expertise, cementing our position as a leading
provider across the country.
Knights' unique model was born of recognition of the fact that regional
professionals can provide 'City' calibre services without relocating to London
to do so, bringing benefits to our clients, people and communities. We have
continued to support and develop this model by investing in technology systems
and capability, facilitating more seamless integration, collaboration and
greater efficiency.
A highly commercial approach, established early on, is now deeply embedded
across the Group, instated and maintained across our offices by our highly
effective and experienced Client Services Directors, many of whom have now
been with the business for a number of years. This team, which has expanded
during the year, focuses on delivering operational improvements and
productivity, creating the base for future organic growth the benefits of
which are expected to be realised incrementally in the current financial year.
Knights has grown to become one of the largest fully collaborative legal and
professional services businesses in the UK((5)), employing 1,464 colleagues,
including 1,165 fee earning professionals at the end of the financial year.
This journey has not been without its challenges and I am proud of what we
have achieved, which is testament to the hard work of all our people.
Knights' strategy, reputation, unique model based on a 'one-team' culture
across all our offices, together with the tireless drive and focus of an
experienced and talented management team, have underpinned this growth.
Against an unsettled backdrop in FY23, which was characterised by the residual
challenges of the pandemic, followed by the macroeconomic uncertainty and
steeply rising interest rates prompted by the mini-budget weighing on broader
business sentiment, the Group delivered a solid performance. Revenue was up
13% on the prior year to £142.1m, driven by contributions from acquisitions
completed in the financial year and the full year effect of prior year
acquisitions.
The ever-increasing calibre of our national, and now international, client
base includes names such as Marie Curie and World Rugby, both of which became
clients during the year following our strategic focus on attracting such
companies. This continued evolution of our client base reflects Knights'
strong market positioning, quality offering and reputation among large
corporate clients alongside our core regional client base.
Strategy
Knights' strategy has provided good resilience in challenging economic
conditions, due to its increasingly diverse service offering and ever-widening
range of clients. I am confident that the Group has the right approach and
vision in place to deliver results for its stakeholders. Our growth has
further enhanced our ability to attract high quality professionals, both from
leading law firms and other professions. Additionally, in the uncertainty
currently prevailing, our unique model is increasingly attractive for many
compared with higher risk equity based businesses, encouraging more
individuals to choose a career with Knights.
This year, we continued to scale the business in a considered way. While we
remain focussed on optimising and building our Group to deliver organic
growth, acquisitions remain a key component of Knights' overall growth
strategy. We added two high quality firms during the year, Coffin Mew LLP
and Meade King LLP, both of which are closely aligned culturally and
strategically with our goals, taking us into new key regional locations. We
also successfully integrated prior year acquisitions, strengthening our
presence in regions where we already operate. These acquisitions provide a
platform for future organic growth and complement the existing business, in
terms of culture, service offering and geographical coverage.
While the macroeconomic outlook is expected to remain uncertain into FY24, we
believe that, as well as supporting recruitment momentum, this will also
present further acquisition opportunities for the Group.
ESG
Over the year, we have maintained our focus on ESG priorities, and it is
pleasing to report that we not only continue to make good progress against our
commitments but have also added new objectives, including targeting net-zero
in our own operations and across our entire value chain by 2050. We go to
great lengths to ensure we remain respectful of the world around us, and that
our business has a positive impact - on the environment, and also within the
communities in which we operate.
We continue to make our offices, and the way in which they operate, more
energy efficient as part of the ongoing optimisation of our real estate
portfolio, focusing on modernisation, right-sizing and off-loading excess
space. We are pleased to be announcing a new set of targets focused on
reducing energy usage and increasing support to our local communities through
our 4 Our Community programme.
We have a good gender balance across the business. Our Board is 60% female,
and 43% of our Partners are female. Looking at the business more broadly, 66%
of our fee earning professionals are female.
Dividend
The Group's progressive dividend policy seeks to maintain a balance between
retaining profits to execute our strategy, and delivering value for
shareholders as our strategy yields positive performances.
The Board is this year proposing a final dividend of 2.50p, which, together
with the interim dividend of 1.53p per share gives a total dividend for the
year of 4.03p (FY22:3.5p), an increase of 15%. The dividend will be payable on
29 September 2023 to shareholders on the register at 1 September 2023, subject
to shareholder approval at the Group's AGM.
Summary
I am proud of what has been achieved by the business. Driven by a passionate
and experienced management team and guided by a sound strategy, the resilience
of our unique model has enabled the Group successfully to navigate recent
challenges while continuing to develop its strong platform. This year has
been no exception, with clear progress being delivered against our strategy
and positioning the Group well to deliver organic revenue growth in the
current financial year.
CEO Statement
It has been an important year of solid progress for Knights, during which we
placed a particular focus on strengthening our management team and developing
our operating model to support the execution of our strategy and accelerate
the future growth of our business.
By continuing to scale the business, establishing and bolstering our presence
in key markets across the UK, we have now become one of the largest, fully
collaborative legal and professional services groups in the country((5)).
The evolution of, and investment in, our organisational structure, reflected
in the continued expansion of our team of Client Services Directors, is
driving operational and productivity improvements across the Group, the
benefits of which are expected to be realised in the new financial year and
beyond.
Recognition of our size and ever-growing reputation as a premium provider of
professional services, together with our unique collaborative culture, has
underpinned our ability to recruit and retain high quality professionals,
including senior executives responsible for driving and implementing
operational excellence.
The execution of our strategy means that, with further acquisitions made in
the current year, Knights now spans the country. It has a broad client base
which continues to grow and now includes, not only blue-chip clients in the
UK, but also an increasing number of significant international companies, all
of which value the Group's extensive capabilities, collaborative ethos and
high-quality service.
A resilient performance against a challenging backdrop
During the year, challenges associated with the COVID-19 pandemic gave way to
those associated with macroeconomic uncertainty, rising interest rates, and
the subsequent impact on business confidence. Despite this backdrop, we
delivered profitable, cash generative growth, with total revenue up 13% to
£142.1m, as the legal services market outside London, and our diversified
services offering and client base, provided a good level of resilience
complemented by contributions from recent acquisitions. From a flat organic
growth rate in FY23, we have put in place the building blocks for organic
growth to improve incrementally as we move through the current financial year,
through a combination of pricing, productivity, net recruitment and client
wins.
In the year, an additional two Client Services Directors joined an already
strong and established team, a role which is instrumental in driving strategic
progress, embedding our 'one team' culture, and delivering performance across
the Group through highly engaged and present leadership in each of our
offices. Our Client Services Directors have now been with us for an average
tenure of more than three years, with six having been with the Group for over
five years, meaning that we have real strength in the depth of their
collective experience in the business. An example of the success of this team
in embedding Knights' commercially driven approach and focus on cash
management is in the Group's market-leading working capital performance, with
debtor days of just 30 in FY23 (FY22: 31 days), significantly fewer than the
industry average of 66 days (Source: PWC Law Firms Survey 2022). They have
also been instrumental in driving the larger new business wins we have secured
in recent months.
Andrew Pilkington, previously Group Client Services Director, has now been
appointed as COO, a natural step up which reflects his strong track record in
delivering progress. His appointment also enables us to bring our operational
and client service teams, who will all work closely with Andrew, closer
together creating greater alignment and supporting enhanced performance across
the business. Building on his experience of identifying, delivering and
integrating acquisitions to date, James Sheridan has become our Group M&A
Director, overseeing the execution of our acquisition strategy, including the
early introduction of Knights' working practices to maximise the organic
growth we can achieve from newly acquired businesses.
Knights is committed to talent acquisition and retention and we recognise
fully the value of our people as the bedrock of the Group. We had an average
of 1,077 full time equivalent fee earning professionals during the year (FY22:
1,015). As previously announced, during the year, we experienced higher churn
than expected in one of the Group's 2020 acquisitions. In addition, the
recruitment market was particularly competitive during calendar year 2022
following the re-opening of the market post-COVID, a period that became widely
known as the 'great resignation' across many sectors, including our own. We
are pleased that this higher level of churn has now moderated in the office in
question and we are now seeing good future growth opportunities both in that
office and across the business.
Furthermore, we have seen a significant uplift in the hiring of high calibre
professionals since the start of calendar year 2023, with eight partners
already hired in FY24 (compared to 13 for the whole of FY23), reflecting the
attractiveness of our secure corporate model in a macro environment where
people have become more alert to the financial risk associated with
partnership-based models. We have also been delighted to welcome back 17
people who have returned to Knights since the beginning of the last financial
year, following a period at other firms, many of whom have wanted to be part
of a team with a greater office presence.
Most of our people have now returned to working in our network of offices.
Knights' presence across the UK means that many of our people live within a
short commute of a Knights office, supporting a healthier work-life balance.
Our culture and collaborative way of working are most powerful when our people
are together, exchanging ideas and supporting each other, which in turn drives
more opportunity for our people, and better outcomes for our clients.
We remain committed to making carefully considered acquisitions which align
with our strategy and culture and which provide a platform from which to build
future organic growth. During the year, we acquired two high quality,
independent and well-established regional law firms, Coffin Mew LLP and Meade
King LLP, both of which are integrating and performing well, further expanding
our reach in the South and South West and adding c.100 fee earning
professionals to the Group. The acquisitions demonstrate the Group's
attractiveness to businesses and professionals seeking to be part of a larger
Group with national scale and a premium reputation, without the financial risk
of equity partnerships.
The Group's enhanced size, capability and reputation for delivering high
quality work has also resulted in some clear success with our new large
corporate client focus, such that we have won a number of significant new UK,
European and US clients including World Rugby, Marie Curie, EuroFinance and
TTI, a Berkshire Hathaway company, which we expect will aid the Group's
organic growth as we move through the current financial year. These wins
resulted from a number of dedicated initiatives, including raising awareness
of the quality and breadth of our service offering, combined with the cost
benefits of a regional base, through European roadshows. The range and level
of services we deliver to our existing large corporate clients also continues
to increase.
In addition, we are benefitting from the resilience afforded by the Group's
diversity of services, with momentum building in non-cyclical offerings
including private wealth and clinical negligence. Our continued focus on, and
commitment to, being the premium provider of legal and professional services
in all of our sectors and locations continues to build momentum and underpins
our confidence in pricing appropriately for the quality of service and value
we deliver.
A considered approach to acquisitions
The regional legal services market remains fragmented, and Knights has a
strong track record of unlocking value from the acquisition of high-quality
regional firms constrained by their ownership model and other barriers to
growth. As economic challenges in the UK persist, many legal professionals and
firms are looking for an alternative to the higher-risk traditional equity
partnership model and to be part of a larger, more diversified, Group.
We know it is important to integrate such businesses properly and quickly, so
remain considered in our approach to acquisitions, seeking businesses which
share a similar culture with Knights and which have clear potential to
facilitate future organic growth. We are well-placed to capitalise on our
exciting pipeline of acquisition opportunities and compelling valuations as
they arise, given the significant headroom available in our revolving credit
facility.
Enhanced presence in Yorkshire, the North East and the East of England
During the year, we successfully integrated and developed the businesses we
acquired the previous year, Keebles LLP, Archers Law LLP and Langleys LLP,
resulting in an enhanced presence in Yorkshire, the North East (one of the
largest markets for legal and professional services in the UK((5))) and the
East of England. All are performing as anticipated, with no unexpected
attrition of people or clients.
New entry into key markets in the South and South West
We strengthened our presence in the South of England, an attractive growth
market for our services, with the acquisition of Coffin Mew LLP and Meade King
LLP.
The acquisition of Coffin Mew provided entry into Portsmouth, Southampton,
Brighton and Newbury, significantly expanding Knights' presence in the South.
Meade King facilitated our entry into Bristol, the regional financial centre
of the South West, complementing Knights' existing Exeter office. Both
acquisitions are integrating well.
Continued momentum with acquisitions strengthening our presence in the
North
This momentum continued into the current financial year, with two further
acquisitions announced post year end. St James' Square brings to the Group an
independent full service commercial law firm based in Newcastle, and Baines
Wilson LLP brings one of the leading independent law firms in the North West,
offering Corporate, Real Estate, Dispute Resolution and Employment services.
The acquisitions demonstrate our ability to identify opportunities to welcome
new businesses to the Group at attractive valuations in the current
environment.
Both acquisitions align with Knights' strategy to bolster its future organic
growth through selective, considered acquisitions. They provide access to new
important regional markets and platforms for further growth through the
recruitment of local professionals and potential further bolt-on acquisitions.
Following these acquisitions, Knights now has five offices in the North West
and two offices in the North East of England which, alongside Knights' three
existing offices in Yorkshire, significantly strengthens the Group's presence
and brand reputation across the region.
ESG
Throughout the year we continued to evolve our ESG strategy focused on
building a responsible and sustainable business for all our stakeholders,
continuously reviewing and developing our commitments and targets. Highlights
include investment in our Employee Value Proposition, an important and
valuable exercise in capturing our purpose, values and culture following our
rapid growth, and the continued success of our '4 Our Community' scheme, which
sits at the heart of our various national and local community-based
initiatives. Although we are a low impact, low carbon intensive business, we
are committed to reducing emissions and ensuring efficient use of all our
resources.
Current trading and outlook
There has been a solid start to the current year as we navigate the continuing
macroeconomic uncertainty and rising interest rates, with growth in less
cyclical areas, new client wins and an increase in recruitment activity.
We are confident of a return to organic growth in FY24 as we realise the
benefits of:
· our pricing strategy, with rate increases from 1 May 2023
· recruitment momentum, with eight partners hired already in FY24
(total for FY23: 13)
· recent client wins including EuroFinance, World Rugby, Marie Curie
and TTI Inc., demonstrating the success of our large, and international,
corporate client initiatives
· good early organic recruitment into recently acquired locations,
particularly Bristol, Newcastle and Brighton
· strong momentum in non-cyclical services such as private wealth and
clinical negligence
We are also seeing a more favourable market for attracting professionals as
well as acquisition opportunities and valuations.
Given the sharp rises in interest rates as we started the current financial
year, we are seeing a softening of work in some transactional and debt-reliant
activity such as Residential Property, M&A, and our volume re-mortgage
business, Integrar. However, this is being mitigated by a combination of
growth in other areas which are less cyclical, such as Private Wealth and CL
Medilaw (our specialist clinical negligence team) new client wins and our
pricing strategy.
As we move through the year, we expect to benefit incrementally from recent
positive recruitment momentum, a heightened focus on growth and business
development and the strengthening of our operational management.
We will continue carefully to consider acquisition opportunities which will
consolidate or expand our existing footprint and provide a strong platform for
future organic growth.
Our outlook for the current financial year is therefore unchanged, with recent
recruitment expected to drive a second half weighting, and we remain confident
in our strategy and our ability to deliver profitable, cash generative growth.
We will continue to leverage our position as one of the largest commercial law
firms located outside London, to grow our client and fee earner base
organically and to drive operational improvements, complemented by acquisitive
growth.
CFO Statement
I am pleased to report a year of profitable, cash generative growth. Despite
challenges relating to current macroeconomic uncertainty, the subsequent
impact on business confidence and the impact of slightly higher fee earner
attrition than expected, we have delivered strong growth in revenues and
underlying profits.
Two complementary acquisitions during the year, and good development and
growth within certain service lines, increased the diversification of the
Group's revenue. We continued to invest in our business to provide a
sustainable base for continued revenue growth, and have managed our costs and
treasury resources to deliver increased profitability in the year.
During the year, the Group completed the disposal of Home Property Lawyers
Limited (HPL) which was acquired as part of the Langleys acquisition in FY22
but was non-core.
We continue to deliver excellent cash conversion((3)), which has resulted in a
strong Balance Sheet and significant headroom within our banking facilities to
fund organic growth and acquisitions.
With interest rates reverting to historic norms, we have seen a noticeable
increase in the interest income earned on client monies, net of interest paid
out to clients which we expect to continue. Should interest rates soften, we
expect this to stimulate higher levels of activity in the transactional parts
of our business, such as M&A and residential property.
Financial results
Total Group Total Group % change
Year ended 30 April 2023
Year ended 30 April 2022
£'000
£'000
Revenue 142,080 125,604 13.1%
Other operating income 6,718 1,270
429.0%
Staff costs (88,412) (76,863) (15.0%)
Other operating charges (26,539) (22,077) (20.2%)
Impairment of trade receivables and contract assets (468) (498) 6.0%
Underlying EBITDA 33,379 27,436 21.7%
Underlying EBITDA % 23.5% 21.8%
Depreciation and amortisation charges (excluding amortisation on acquired (8,175) (6,963) (17.4%)
intangibles)
Underlying finance charges (3,661) (2,364) (54.9%)
Underlying finance income 52 22 136.4%
Underlying profit before tax 21,595 18,131 19.1%
Underlying profit before tax margin 15.2% 14.4%
Underlying tax charge (excluding impact of non-recurring deferred tax) (4,304) (3,709) (16.0%)
Underlying profit after tax 17,291 14,422 19.9%
Basic underlying EPS (pence) 20.20p 17.23p 17.2%
15.2%
14.4%
Underlying tax charge (excluding impact of non-recurring deferred tax)
(4,304)
(3,709)
(16.0%)
Underlying profit after tax
17,291
14,422
19.9%
Basic underlying EPS (pence)
20.20p
17.23p
17.2%
Revenue
Reported revenue for the year is £142.1m compared to £125.6m in FY22, an
increase of 13.1%.
Of this increase, £8.8m was from acquisitions made during the financial year
and £8.3m represents the full year impact of acquisitions made part way
through FY22. The disposal of HPL in July 2022, which was part of the
Langleys acquisition in FY22 has resulted in a decrease in revenues of £0.4m
year on year, with the balance of this movement being due to organic revenue
decline of £0.2m (0.1%).
Organic revenues
The challenges associated with the COVID-19 pandemic during FY22 were followed
in FY23 by political and economic uncertainty, as well as higher interest
rates, which have impacted business confidence in certain areas. The
diversity and resilience of our business has meant that despite a reduction in
instructions in some transactional areas of the business such as Residential
Property and M&A, there has been growth in other areas, less impacted by
the macro-economic environment, such as Private Wealth and CL Medilaw (our
specialist clinical negligence team). In addition our volume re-mortgage
business, Integrar, also performed strongly in FY23, expanding its client base
following investment in delivery capability. Together these factors resulted
in broadly flat overall organic growth for the Group.
Our organic growth for the year was also impacted by the strategic decision to
exit the volume debt recovery business in FY22 and higher-than-expected staff
churn in an acquisition completed in FY20. The effect of these factors,
which negatively impacted organic growth by circa 4.4%, has now worked
through, and the Group is well placed to deliver good organic growth in the
future.
Revenue from acquisitions
Acquisitions completed during FY22
The acquisitions of Keebles LLP, Archers Law LLP and Langleys LLP completed
during FY22. These acquisitions are performing ahead of expectations with
combined revenues of £23.1m in FY23. We typically budget to retain 80% of
acquired revenues, whereas these acquisitions have delivered 98% of acquired
revenues in the financial year (after adjusting for the strategic sale of the
HPL business from Langleys and £2.5m of non-core Legal Aid, Personal Injury,
volume debt and conveyancing work from Keebles).
Acquisitions completed during FY23
During the year, the Group acquired Coffin Mew LLP, Globe Consultants Limited,
and Meade King LLP. These acquisitions have contributed £8.8m of revenue in
the period, as anticipated and initial integration has gone well. The New
Homes business within the Coffin Mew acquisition has been impacted by the
macro-economic environment and a slowdown in mortgage approvals meaning this
acquisition is currently delivering c 70% of acquired revenue, slightly lower
than the 80% we would typically assume. However, the business is
well-integrated, and it is anticipated that revenues will return to expected
levels as the housing market improves. The Meade King acquisition in Bristol
is performing particularly well with current run-rate revenue being marginally
above acquired revenue.
As well as driving acquisition revenues, these acquisitions are also proving
to be an excellent platform for future organic growth across the business with
several new partner hires already made into the acquired offices.
Staff costs
Total staff costs as a percentage of revenue were 62.2% for the year (FY22:
61.2%) reflecting the impact that the challenging economic environment has had
on revenue in some areas and the continual investment in management and
support staff to create a sustainable base for growth going forward.
Direct staff costs
Fee earning staff costs have increased to 51.5% of revenue (FY22 50.7%),
reflecting our continuing investment in high quality senior recruits who bring
client relationships and networks. This has been impacted by some challenges
associated with a softening in productivity due to macroeconomic conditions.
This also includes investment in 17 partner and senior associate recruits in
the second half of the financial year, which although a net cost to the
business in FY23, are expected to generate organic growth in the next
financial year due to the typical lag in achieving full run rate revenues.
Support staff costs
Support staff costs increased marginally to 10.7% of revenue in the year,
compared to 10.5% in the prior year reflecting our investment in two
additional Client Services Directors to manage the growing business.
Our return to office-based working has also required investment in our team of
Office Hosts and administrators to manage the offices. As we continue to
develop our IT infrastructure further to maximise opportunities and
efficiencies in the business, we have also invested in additional in-house IT
capability.
Other operating charges
Overall, other operating charges have increased to 18.7% of revenue (FY22:
17.6%) as more colleagues returned to work in our offices and the easing of
COVID-related restrictions has allowed increased networking and collaboration
across our 23 offices, including our first, in person, all staff annual
conference since the pandemic. As we continue to invest in the future growth
of the business, there has also been renewed focus on business development
activity, including attendance at overseas events for the first time in a
number of years. The cost base is now considered to be at a normalised
post-COVID run rate.
Depreciation and amortisation charges
Depreciation and amortisation charges (excluding amortisation on acquired
intangibles) increased marginally to 5.8% of revenue (FY22: 5.5%) reflecting
increased depreciation due to capital expenditure in FY22 and the expanded
office network as a result of acquisitions, increasing the depreciation on
right of use (ROU) assets. FY23 has been a year of consolidation. During
the year, and post year-end we have identified several opportunities to reduce
our office capacity by subletting excess space. This will allow us to
'right-size' parts of our property portfolio and leverage the portfolio as we
grow to enable the Group to benefit from some margin improvement in FY24, with
the full benefits being achieved in FY25.
Other operating income
Other operating income has increased to £6.7m from £1.3m, primarily due to
increased interest income earned on client monies held as a result of higher
interest rates, net of interest paid out to clients.
Underlying profit before tax (PBT)((1))
Underlying profit before tax excludes amortisation of acquired intangibles,
transaction and onerous lease costs in relation to acquisitions, disposals of
acquired assets, one off restructuring and professional costs incurred mainly
as a result of the streamlining of the support function in acquisitions or
strategic reorganisations.
Underlying profit before tax has been calculated as an alternative performance
measure (see note 37 of the financial statements) to provide a more meaningful
measure and year on year comparison of the profitability of the underlying
business.
FY23 FY22
£'000 £'000
Profit before tax 11,529 1,056
Amortisation (excluding computer software) 3,441 3,815
Non-underlying costs (net of gain on disposals and finance costs) 6,625 13,260
Underlying profit before tax 21,595 18,131
Total Group underlying profit before tax has increased 19.1% to £21.6 million
(FY22: £18.1m).
The underlying profit before tax((1)) margin increased to 15.2% from 14.4%
last year, benefitting from an increase in other operating income as a result
of increased interest income earned on client monies held, due to higher
interest rates. This increase in interest receivable more than offsets the
increase in interest charges on Group borrowings which has increased our
finance charges by £1.3m (54.9%) compared to the prior year.
Reported profit before tax (PBT)
Reported profit before tax for the year has increased to £11.5m (FY22:
£1.1m) reflecting increased profit in the underlying business and reduction
in non-underlying costs from £13.3m to £6.6m in the period. Of the £6.6m
of non-underlying costs, £4.4m (FY22: £6.3m) relates to the contingent
consideration element of the purchase cost of acquisitions recognised in the
Statement of Comprehensive Income in accordance with IFRS accounting
conventions, with the balance relating to one-off redundancy, transaction and
other costs offset by the gain of £0.3m from the sale of HPL.
Earnings per share (EPS)
Basic EPS in the year increased to 9.28p from a loss of 3.02p in FY22. To aid
comparison of EPS on a like for like basis, underlying EPS has also been
calculated based on underlying PAT. The underlying EPS has increased by 17.2%
to 20.20p in FY23 (FY22: 17.23p). The weighted average number of shares used
to calculate the undiluted EPS in the year to 30 April 2023 was 85,597,833
(FY22: 83,717,952).
Considering the dilutive impact of potential share options, the basic Diluted
EPS for FY23 is 9.19p (FY22: loss of 3.02p). Underlying Diluted EPS has
increased by 16.7% to 20.00p (FY22: 17.14p).
Corporation tax
The Group's tax charge for the year is £3.6m (2022: £3.6m), made up of a
current corporation tax charge of £4.1m (2022: £1.5m), partially offset by a
deferred tax credit of £0.5m (2022: deferred tax charge of £2.1m). The
increase in the current tax charge relates mainly to the increase in pre-tax
profits in the year and also the increase in the corporation tax rate to 25%
(from 19%) in April 2023.
The deferred tax credit principally arises due to: the unwinding of the
benefit of significant capital allowances claimed in FY22 due to the higher
level of capital expenditure in FY22, and the availability of the capital
allowance super-deduction and the annual investment allowance; a one-off
credit in relation to deferred tax on acquisitions; offset by the deferred tax
impact on lapsed share schemes and an IFRS16 tax adjustment.
The total effective rate of tax is 31% (FY22:340%) based on reported profit
before tax. The effective tax rate in FY22 was adversely affected by the
impact of increasing the rate used to calculate the deferred tax to 25% from
19%. The effective rate of tax on the underlying profit of the business is 20%
(FY22: 21%). As the basic corporation tax rate has increased from 19% to 25%
from April 2023, we expect Group underlying tax rates to increase by a similar
percentage in FY24.
The net deferred taxation liability increased to £8.4m (FY22: £8.3m) with
the deferred tax credits highlighted above offsetting increases in provisions
from acquisitions and IFRS 16 leases.
Dividend
The Board continues to adopt a progressive dividend policy, balanced with its
commitment to continue to reinvest the profits of the Group to fund future
strategic growth plans.
Subject to approval at the Annual General Meeting in September 2023, the Board
proposes a final dividend for the year of 2.50p per share representing a
dividend of circa 20% of post-tax profits for the year. This, together with
the interim dividend of 1.53p per share brings the total dividend in respect
of FY23 to 4.03p per share (FY22:3.50p), an increase of 15%.
Balance sheet 30 April 23 30 April 22
£'000
£'000
Goodwill and intangible assets 88,021 82,172
Right of use assets 38,200 40,663
Working capital 48,404 44,302
Other net liabilities (2,833) (3,028)
Lease liabilities (44,916) (46,528)
Assets held for resale - 635
126,876 118,216
Cash and cash equivalents 4,045 4,227
Borrowings (33,265) (33,153)
Net debt((4)) (29,220) (28,926)
Deferred consideration (4,849) (3,631)
Net assets 92,807 85,659
The Group's net assets as at 30 April 2023 increased by £7.1m (FY22: £3.0m)
to £92.8m reflecting new equity issued for acquisitions and the profit for
the year, net of dividends paid in the period. The key movements in the
Balance Sheet are discussed in more detail below.
Assets held for resale
The assets held for resale as at 30 April 2022 related to the HPL business
which was sold during the year.
Goodwill and intangible assets
Goodwill and intangible assets included £28.1m of intangible assets relating
to brand and customer relationships for current and prior year acquisitions.
Purchased computer software accounted for £0.2m with the remaining balance of
£59.7m relating to goodwill from acquisitions.
The Board carries out an impairment review of goodwill each year to ensure the
carrying value in the financial statements is supportable. The value in use of
the goodwill was calculated using a number of different scenarios, some of
which assumed a considerably more negative outcome than is anticipated by the
Directors. In all instances, the future trading of the business was more than
sufficient to justify the carrying value of goodwill. Therefore, as at 30
April 2023, the Board is satisfied that the goodwill was not impaired.
Working capital
Working capital is calculated as follows:
30 April 2023 30 April 2022
£'000 £'000
Current assets
Contract assets 38,215 31,777
Trade and other receivables` 31,087 32,309
Corporation tax receivable 152 1,815
Total current assets 69,454 65,901
Trade and other payables 20,832 21,362
Contract liabilities 218 237
Total current liabilities 21,050 21,599
Net working capital 48,404 44,302
Net working capital has increased to £48.4m at 30 April 2023 (April 22:
£44.3m), an increase of £4.1m (c.9%). Based on run-rate revenues for FY23
of £146m and £132m for FY22 (taking account of the full year impact of
acquisitions) working capital represents 33.1% of revenue in FY23 compared to
33.5% in FY22.
Although net working capital has reduced as a percentage of revenue, the value
of contract assets in the year has increased to 26.2% of run rate revenue
(FY22: 24.1%). The reason for this increase is mainly due to the growth of
our CL Medilaw business. Due to the time taken to convert these matters
given the nature of such cases and ongoing delays in the court system, this
has resulted in an increase in total work in progress in this area to £17m
(FY22: £13m). For the remainder of the business, work in progress remains a
comparable percentage of revenue as last year.
The management of working capital is a key performance indicator for the
Group, with strong controls and systems in place to monitor the level of
receivables and work in progress across the business. The number of lock up
days((2)) (the time taken to convert a unit of time incurred into cash)
continues to be a key focus for the Board, Client Services Directors and wider
management team. As at 30 April 2023 lock up((2)) was 87 days (April 22: 86
days) broken down as 30 debtor days and 57 WIP days (April 22: 31 and 55
days).
The bad debt charge for the year has decreased slightly to 0.3% of turnover
(FY22: 0.4%) reflecting the strong controls over debt collection in place
across the Group.
Right of use assets and lease liabilities
The right of use assets capitalised in the Statement of Financial Position
represent the present value of property, equipment and vehicle leases. The
decrease in right of use assets during the year to £38.2m (FY22: £40.7m) was
the net result of an increase in assets of £4.2m relating to new leases
acquired through acquisitions, less disposals of leases with a value of £1.0m
and depreciation of £5.7m for the year.
The lease disposal predominantly relates to the sublease of part of one office
related to the sale of the HPL business.
The lease liabilities represented the present value of the total liabilities
recognised in respect of the right of use assets. The decrease in lease
liabilities during the year to £44.9m (FY22: £46.5m) reflected lease
liabilities acquired with acquisitions offset by the disposals of leases and
repayments made in the period.
The sublease mentioned above has also resulted in the Group recognising a
lease receivable of £1.0m in the Statement of Financial Position,
representing the total present value of amounts receivable under the
sub-lease.
Cash conversion((3)), net debt((4)), financing and leverage
Cash generation continues to be a key focus for management. The Group
measures cash conversion((3)) by comparing the free cash flow from operations
as a percentage of its underlying profit after tax. Due to a continued focus
on management of working capital and lock up((2)), the Group has delivered
strong cash conversion((3)) of 117% (2022:109%) demonstrating robust cash
controls. Cash generation in FY23 benefited from the corporation tax
receivable of £1.8m at the end of FY22. Excluding this, cash
conversion((3)) for the year would be 107%.
Cash Flow
FY23 FY22
£'000
£'000
Underlying profit before tax 21,595 18,131
Depreciation and amortisation 8,175 6,963
Change in working capital (4,458) (2,985)
Net finance charges 3,609 2,068
Cash outflow for IFRS 16 leases (6,728) (5,302)
Movement in provisions and other sundry items 510 883
Cash generated from underlying operations pre-tax (note 37) 22,703 19,758
Tax paid (2,424) (4,095)
Net cash generated from underlying operating activities 20,279 15,663
Underlying profit after tax 17,291 14,422
Underlying cash conversion (note 37) 117% 109%
This strong cash generation in the year has resulted in net debt((4)) of
£29.2m at the year-end (30 April 22: £28.9m) despite a cash outlay of
£11.4m relating to consideration for acquisitions in the year along with
deferred and contingent consideration paid in relation to acquisitions in
prior years. A further cash outlay of £0.4m for debt repaid from
acquisitions in prior years, results in a total cash outflow in relation to
acquisitions of £11.8m (net debt impact £11.4m).
The table below shows a reconciliation of the key cash flows impacting the
movement in net debt((4)).
£m
Net debt((4)) as at 30 April 2022 28.9
Deferred and contingent consideration paid 5.1
Consideration paid for acquisitions in the year (including acquired debt and 6.3
cash)
Receipt from disposal of subsidiary (HPL) (1.1)
Non-underlying costs paid 3.1
Interest on borrowings 2.1
Capital expenditure 1.9
Dividends paid 3.1
Other net cash (inflows) from underlying operating activities (20.2)
Net debt((4)) as at 30 April 2023 29.2
The Group has a revolving credit facility (RCF) of £60m committed until
October 2024. Interest is payable on the loan at a margin of between 1.65%
and 2.40% above SONIA dependent on the current level of leverage. For banking
purposes our leverage at the year-end was 1.18 against a covenant of up to
2.5. At this low level of leverage our interest margin is 1.85% above SONIA
and we have headroom of over £30m in our RCF facility giving significant
headroom to continue to support the growth strategy into 2024 through organic
recruitment and strategic acquisitions. Due to the net inflow of interest
earned on client monies held, any future increases in interest rates would
result in increased profits and cashflows based on current arrangements in
place.
Capital Expenditure
Capital expenditure during the year was £1.9m (FY22: £2.5m) excluding right
of use assets as the Group continued to invest in its systems and premises to
expand capacity and ensure staff continue to benefit from a high-quality
working environment. The main investment during the year was in IT equipment
and systems with c. £0.2m of this relating specifically to acquisitions
completed in the year.
Acquisitions
During the year we signed and completed three acquisitions. The table below
summarises the net impact of these acquisitions on cashflows during the year
and in future years. This shows the impact of consideration payable net of any
cash in the acquired businesses.
The table also shows the net cash impact of the two acquisitions post year end
of Baines Wilson LLP which completed on 2 June 2023, and St James' Square
which completed on 16 June 2023.
Financial year ended Acquisition of subsids (net of acquired cash) Repayment of debt acquired with subsids Contingent & deferred acq'n payments Net cash impact of acquisitions pre year end Net cash impact of acquisitions post year end
£m
£m
£m
£m
£m
2023 6.0 0.7 5.1 11.8 -
2024 - 0.2 6.2 6.4 2.9
2025 - 0.1 4.7 4.8 1.0
2026 - 0.1 1.2 1.3 0.9
2027 - - - - 0.3
The above includes estimated contingent consideration charged as remuneration
in the Consolidated Statement of Comprehensive Income.
Summary
Results for the year to 30 April 2023 reflect a year of acquisitive growth,
consolidation and building on our core business platform. Although overall
organic growth was flat, normalisation after one-off factors such as strategic
exits from non-core service lines and higher than expected churn, together
with strong organic growth in certain areas of the business and investment in
recruitment and business development, place the Group in a strong position to
leverage costs as the business continues to grow. We have maintained a
strong Balance Sheet and have significant headroom within our existing banking
facilities to fund further growth both organically and through acquisitions.
Kate Lewis
Chief Financial Officer
1. Consolidated Statement of Comprehensive Income
For the year ended 30 April 2023
Note
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Revenue 5 142,080 125,604
Other operating income 7 6,718 1,270
Staff costs 8 (88,412) (76,863)
Depreciation and amortisation charges 11 (11,616) (10,778)
Impairment of trade receivables and contract assets (468) (498)
Other operating charges 12 (26,539) (22,077)
Operating profit before non-underlying charges 21,763 16,658
Non-underlying operating costs 13 (6,791) (13,260)
Non-underlying gains on disposals 13 318 -
Operating profit 15,290 3,398
Finance costs 14 (3,661) (2,364)
Finance income 15 52 22
Non recurring finance costs 13 (152) -
Profit before tax 11,529 1,056
Taxation 17 (3,175) (1,840)
Non-underlying tax charge 17 (410) (1,747)
Profit/(loss) and total comprehensive income for the year attributable to 7,944 (2,531)
equity owners of the parent
Earnings per share Pence Pence
Basic earnings per share 18 9.28 (3.02)
Diluted earnings per share 18 9.19 (3.02)
The above results were derived from the Group's continuing operations. Options
are not dilutive in prior periods in view of the loss incurred in that period.
Consolidated Statement of Financial Position
As at 30 April 2023
Note 30 April 2023 30 April 2022
£'000 £'000
Assets
Non-current assets
Intangible assets and goodwill 20 88,021 82,172
Property, plant and equipment 22 10,004 10,240
Right-of-use assets 22 38,200 40,663
Finance lease receivables 26 1,671 1,091
137,896 134,166
Current assets
Contract assets 23 38,215 31,777
Trade and other receivables 24 31,087 32,309
Finance lease receivables 26 315 76
Corporation tax asset 152 1,815
Cash and cash equivalents 4,045 4,097
Assets held for sale 27 - 1,195
73,814 71,269
Total assets 211,710 205,435
Equity and liabilities
Equity
Share capital 25 171 169
Share premium 75,262 74,264
Merger reserve (3,506) (3,536)
Retained earnings 20,880 14,762
Equity attributable to owners of the parent 92,807 85,659
Non-current liabilities
Lease liabilities 28 38,585 41,183
Borrowings 29 33,076 32,798
Deferred consideration 30 2,482 2,421
Deferred tax 31 8,388 8,332
Provisions 33 4,090 4,331
86,621 89,065
Current liabilities
Lease liabilities 28 6,331 5,345
Borrowings 29 189 355
Trade and other payables 32 20,832 21,362
Deferred consideration 30 2,367 1,210
Contract liabilities 23 218 237
Provisions 33 2,345 1,772
Liabilities held for sale 27 - 430
32,282 30,711
Total liabilities 118,903 119,776
Total equity and liabilities 211,710 205,435
The financial statements were approved by the board and authorised for issue
on 7 July 2023 and are signed on its behalf by:
Kate Lewis
Director
Registered No. 11290101
Consolidated Statement of Changes in Equity
For the year ended 30 April 2023
Note Share capital Share premium Merger reserve Retained earnings Total
£'000
£'000
£'000
£'000
£'000
As at 1 May 2021 165 68,369 (3,536) 17,691 82,689
Loss for the period and total comprehensive income - - - (2,531) (2,531)
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments 9 - 835 835
Issue of 25 4 5,895 - 5,899
shares
Dividends 19 - - (1,233) (1,233)
Balance at 30 April 2022 169 74,264 (3,536) 14,762 85,659
Profit for the period and total comprehensive income - - - 7,944 7,944
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments 9 - - - 1,265 1,265
Issue of shares 25 2 998 - - 1,000
Transfer - - 30 (30) -
Dividends 19 - - - (3,061) (3,061)
Balance at 30 April 2023 171 75,262 (3,506) 20,880 92,807
Consolidated Statement of Cash Flows
For the year ended 30 April 2023
Note
Year ended 30 April 2023 Year ended 30 April 2022
£'000
£'000
Operating activities
Cash generated from operations 35 29,431 25,060
Non-underlying operating costs paid 13 (3,142) (3,691)
Interest received - 274
Tax paid (2,424) (4,095)
Contingent acquisition payments (3,870) (5,383)
Net cash from operating activities 19,995 12,165
Investing activities
Acquisition of subsidiaries (net of cash acquired) 21 (6,018) (6,801)
Purchase of intangible fixed assets 20 (71) (62)
Purchase of property, plant and equipment 22 (1,853) (2,526)
Proceeds from lease receivables 30 - 237 30
Disposal of subsidiaries (net of cash disposed) 1,068 -
Landlord capital contribution - 146
Associated lease costs - (23)
Payment of deferred consideration (1,210) (1,095)
Net cash used in investing activities (7,847) (10,331)
Financing activities
Proceeds of borrowings 34,425 47,350
Repayment of borrowings (33,900) (38,600)
Proceeds from exercise of share options - 798
Repayment of debt acquired with current year subsidiaries 21 (256) (2,903)
Repayment of debt acquired with prior year subsidiaries (438) -
Repayment of lease liabilities (5,439) (3,890)
Interest and other finance costs paid (3,661) (2,060)
Dividends paid (3,061) (1,233)
Net cash used in financing activities (12,330) (538)
Net (decrease)/increase in cash and cash equivalents (182) 1,296
Cash and cash equivalents at the beginning of the period 4,227 2,931
Cash - continuing operations 4,045 4,097
Cash - assets held for disposal (note 27) - 130
Total cash and cash equivalents at end of period 4,045 4,227
237
30
Disposal of subsidiaries (net of cash disposed)
1,068
-
Landlord capital contribution
-
146
Associated lease costs
-
(23)
Payment of deferred consideration
(1,210)
(1,095)
Net cash used in investing activities
(7,847)
(10,331)
Financing activities
Proceeds of borrowings
34,425
47,350
Repayment of borrowings
(33,900)
(38,600)
Proceeds from exercise of share options
-
798
Repayment of debt acquired with current year subsidiaries
21
(256)
(2,903)
Repayment of debt acquired with prior year subsidiaries
(438)
-
Repayment of lease liabilities
(5,439)
(3,890)
Interest and other finance costs paid
(3,661)
(2,060)
Dividends paid
(3,061)
(1,233)
Net cash used in financing activities
(12,330)
(538)
Net (decrease)/increase in cash and cash equivalents
(182)
1,296
Cash and cash equivalents at the beginning of the period
4,227
2,931
Cash - continuing operations
4,045
4,097
Cash - assets held for disposal (note 27)
-
130
Total cash and cash equivalents at end of period
4,045
4,227
2. Notes to the Consolidated Financial Statements
For the year ended 30 April 2023
1. General Information
Knights Group Holdings plc ("the Company") is a public company limited by
shares and is registered, domiciled and incorporated in England.
The Group consists of Knights Group Holdings plc and all of its subsidiaries.
The principal activity and nature of operations of the Group is the provision
of legal and professional services. The address of its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
2. Accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with UK-adopted
International Accounting Standards.
Applying these standards requires the directors to exercise judgement and use
certain critical accounting estimates, the judgments and estimates that the
directors deem significant in the preparation of these financial statements
are explained in note 4.
The financial statements have been prepared on the historical cost basis.
Historical cost is generally based on the fair value of the consideration
given in exchange for goods and services.
Monetary amounts are presented in sterling, being the functional currency of
the Group's subsidiaries, rounded to the nearest thousand except where
otherwise indicated.
The principal accounting policies adopted are set out below. These policies
have been consistently applied to all periods presented in the financial
statements, unless otherwise stated.
2.2 Going concern
The accounts are prepared on a going concern basis as, at the time of
approving the financial statements, the Directors have a reasonable
expectation that the Group and Company have adequate resources to continue in
operational existence for the foreseeable future. The Group has a strong
trading performance, generates strong operational cashflows and has banking
facilities of £60,000,000 available until October 2024. The Group's forecasts
show sufficient cash generation and headroom in banking facilities and
covenants by comparison to anticipated future requirements to support the
Directors' conclusion that the assumption of the going concern basis of
accounting in preparing the financial statements is appropriate.
The Group continues to trade profitably and cash generation at an operating
cashflow level has remained strong and in line with expectation. In order to
satisfy the validity of the going concern assumption, a number of different
trading scenarios including a reduction in revenues and costs and an increase
in interest rate and lockup have been modelled and reviewed. Some of these
scenarios forecast a significantly more negative trading performance than is
expected. In all of these scenarios the Group remained profitable and with
significant headroom in its cash resources for the 12 months from the date of
approval of the accounts.
2.3 Basis of consolidation
The consolidated financial statements incorporate the results of Knights Group
Holdings plc and all of its subsidiaries.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights that are currently exercisable. The
acquisition date is the date on which control is transferred to the acquirer
which is the date of exchange of the sale and purchase agreement. The
financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that
control ceases.
Transactions eliminated on consolidation
All intra-group transactions, balances and unrealised gains on transactions
between group companies are eliminated on consolidation. Unrealised losses are
also eliminated unless the transaction provides evidence of an impairment of
the asset transferred.
Where necessary, adjustments are made to the financial information of
subsidiaries to bring the accounting policies used into line with those used
by the Group.
Audit exemption of subsidiaries
The following subsidiaries are exempt from the requirements of the UK
Companies Act 2006 relating to the audit of individual accounts by virtue of
s479A of the Act.
Name Registered number
BrookStreet Des Roches LLP OC317863
Dakeyne Emms Gilmore Liberson Limited 06850969
Shulmans LLP OC348166
ASB Law LLP OC351354
ASB Aspire Limited Liability Partnership OC327667
Mundays LLP OC313856
K & S Trust Corporation Limited 02885753
Keebles LLP OC351421
Archers Law Limited Liability Partnership OC306705
Langleys Solicitors LLP OC361149
Langleys Law Firm Limited 07500419
SLS Trust Corporation Limited. 12122733
Coffin Mew LLP OC323868
Coffin Mew Trust Corporation Limited 11247326
Meade King LLP OC349796
The outstanding liabilities at 30 April 2023 of the above named subsidiaries
have been guaranteed by the Company pursuant to s479A to s479C of the Act. In
the opinion of the directors, the possibility of the guarantee being called
upon is remote since the trade, assets and majority of liabilities of these
subsidiaries were transferred to Knights Professional Services Limited before
30 April 2023.
2.4 Business combinations
The cost of a business combination is the fair value at the acquisition date
of the assets given, equity instruments issued and liabilities incurred or
assumed.
The excess of the cost of a business combination over the fair value of the
identifiable assets, liabilities and contingent liabilities acquired is
recognised as goodwill.
Costs related to the acquisition, other than those associated with the issue
of debt or equity securities, are expensed as incurred.
Where settlement of any part of cash consideration is deferred, the amounts
payable in the future are discounted to their present value as at the date of
exchange. This discount rate used is the entity's incremental borrowing
rate, being the rate at which similar borrowing could be obtained from an
independent financier under comparable terms and conditions.
Deferred consideration is classified as a financial liability, which is held
at amortised cost. The unwinding of the discount is recognised in non
underlying costs. Contingent consideration that is contingent on an employee
remaining in employment with the Group are accounted for separately from the
business combination as remuneration as described in notes 13 and 21.
2.5 Revenue
The Group earns revenue from the provision of legal and professional services.
Revenue for these services is recognised over time in the accounting period
when services are rendered as the Group has an enforceable right to payment
for work performed to date under its client terms of engagement.
Fee arrangements for legal and professional services include fixed fee
arrangements, unconditional fee-for-service arrangements ("time and
materials"), and variable or contingent fee arrangements.
For fixed fee arrangements, revenue is recognised based on the stage of
completion with reference to the actual services provided as a proportion of
the total services expected to be provided under the contract. The stage of
completion is tracked on a contract-by-contract basis using the hours spent by
professionals providing the services.
In fee-for-service contracts, revenue is recognised up to the amount of fees
that the Group is entitled to bill for services performed to date based on
contracted rates.
Under variable or contingent fee arrangements, fees may be earned only in the
event of a successful outcome of a client's claim. Fees under these
arrangements may be fixed or may be variable based on a specified percentage
of damages awarded under a claim.
For variable or contingent fee arrangements management makes a detailed
assessment of the amount of revenue expected to be received and the
probability of success of each case. Variable consideration is recognised over
the duration of the matter only to the extent that it is highly probable that
the amount recognised will not be subject to significant reversal when the
matter is concluded based on the expected amount recoverable at that point in
time. In such circumstances, a level of judgement is required to determine the
likelihood of success of a given matter, as well as the estimated amount of
fees that will be recovered in respect of the matter. Where the likelihood of
success of a contingent fee arrangement is less than highly probable, the
value recognised in contract assets is further reduced to reflect this
uncertainty.
Certain contingent fee arrangements are undertaken on a partially funded
basis. In such arrangements, the funded portion of fees is not contingent on
the successful outcome of the litigation and in these instances the revenue is
recognised up to the amount of fees that the Group is entitled to bill for
services performed to date based on contracted rates. The remaining
consideration is variable and conditional on the successful resolution of the
litigation. The variable consideration is recognised over the duration of the
matter and included in revenue based on the expected amount recoverable only
to the extent that it is highly probable that the amount recognised will not
be subject to significant reversal when the uncertainty is resolved at that
point in time.
The Group's contracts with clients each comprise of a single distinct
performance obligation, being the provision of legal and professional services
in relation to a particular matter and the transaction price is therefore
allocated to this single performance obligation.
Estimates of revenues, costs or extent of progress toward completion are
revised if circumstances change. Any resulting increases or decreases in
estimated revenues or costs are reflected in the Consolidated Statement of
Comprehensive Income in the period in which the circumstances that give rise
to the revision become known by management.
The Group has determined that no significant financing component exists in
respect of the provision of legal and professional services because the period
between when the Group transfers its services to a client and when the client
pays for that service will generally be one year or less.
Consideration for services provided under contingent or variable fee
arrangements may be paid after a longer period. In these cases, no significant
financing component exists because the consideration promised by the customer
is variable subject to the occurrence or non-occurrence of a future event that
is not substantially within the control of the client or the Group.
A receivable is 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.
Unbilled revenue is recognised as contract assets. Costs incurred in
fulfilling the future performance obligations of a contract are recognised as
contract assets if the costs are expected to be recovered.
Contract liabilities are recognised in respect of consideration billed in
advance of satisfying the performance obligation under the contract.
Revenue does not include disbursements. Recoverable expenses incurred on
client matters that are expected to be recovered and are billed during the
period are recognised in other income.
2.6 Interest received on client deposits
Interest is recognised on client deposits held, this is recognised in profit
or loss as it accrues, based on the effective interest rate during the period.
This forms part of other income as this is driven by the ongoing operations of
the business.
2.7 Taxation
The tax expense represents the sum of the current tax expense and the deferred
tax expense. Current tax assets are recognised when the tax paid exceeds the
tax payable. Current tax is based on taxable profit for the year. Current tax
assets and liabilities are measured using tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax is recognised for temporary differences, calculated at the tax
rates that are expected to apply to the period when the asset is realised or
the liability is settled based on tax rates that have been enacted or
substantively enacted by the reporting date except for;
· When the deferred tax asset or liability arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not
a business combination and that, at the time of the transaction, affects
neither the accounting nor taxable profits; or
· When the taxable temporary difference is associated with interests in
subsidiaries, associates or joint ventures, and the timing of the reversal can
be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets are recognised only to the extent that it is probable that
they will be recovered by the reversal of deferred tax liabilities or other
future taxable profits.
Deferred tax is recognised on differences between the value of assets (other
than goodwill) and liabilities recognised in a business combination and the
amounts that can be deducted or assessed for tax. The deferred tax recognised
is adjusted against goodwill.
Current tax assets and current tax liabilities and deferred tax assets and
deferred tax liabilities are offset if, and only if, there is a legally
enforceable right to set off the amounts and the entity intends either to
settle on a net basis or to realise the asset and settle the liability
simultaneously.
2.8 Intangible assets - Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the
cost of acquisition over the Group's interest in the net fair value of the
identifiable assets, liabilities and contingent liabilities of the entity
recognised at the date of acquisition. Goodwill is initially recognised as an
asset at cost and is subsequently measured at cost less accumulated impairment
losses. Goodwill is tested annually by the directors for evidence of
impairment.
2.9 Intangible assets - Other than goodwill
Intangible assets purchased, other than in a business combination, are
recognised when future economic benefits are probable and the cost or value of
the asset can be measured reliably.
Intangible assets arising on a business combination, such as customer
relationships, are initially recognised at estimated fair value, except where
the asset does not arise from legal or contractual rights, and there is no
history or evidence of exchange transactions for the same or similar assets
and estimating the assets fair value would depend on immeasurable variables.
The fair value represents the directors' best estimate of future economic
benefit to be derived from these assets discounted at an appropriate rate.
Intangible assets are initially recognised at cost (which for intangible
assets acquired in a business combination is the fair value at acquisition
date) and are subsequently measured at cost less accumulated amortisation and
accumulated impairment losses.
Intangible assets are amortised to the Consolidated Statement of Comprehensive
Income on a straight-line basis over their estimated useful lives, as follows:
Purchased computer software - 4 years
Customer relationships - 3-25 years
Brand - 100 years
Purchased computer software is amortised over a period of 4 years, being the
minimum period expected to benefit from the asset.
Customer relationships are amortised over a period of 3-25 years being the
average length of relationship with key clients for acquired entities.
Restrictive covenants are amortised over the remaining length of covenant.
Brand value is amortised over a period of 100 years based on the directors'
assessment of the future life of the brand. This is supported by a trading
history dating back to 1759. Brand value relates to the 'Knights' brand only.
Other acquired brands are not recognised as an asset as the acquired entities
are rebranded as Knights and the impact of such recognition would not be
material.
2.10 Property, plant and equipment
Property, plant and equipment are stated at cost net of depreciation and any
provision for impairment.
Depreciation is provided on property, plant and equipment at rates calculated
to write each asset down to its estimated residual value over its expected
useful life, as follows:
Expenditure on short leasehold property - 10% on cost
Office equipment - 25 % on cost
Furniture and fittings - 10% on cost
Motor vehicles - 25 % on cost
Right-of-use assets - useful life of the lease (between 1 and 25 years)
Residual value is calculated on prices prevailing at the reporting date, after
estimated costs of disposal, for the asset as if it were at the age and in the
condition expected at the end of its useful life.
2.11 Impairment of non-financial assets
An assessment is made at each reporting date of whether there are indications
that non financial assets may be impaired or that an impairment loss
previously recognised has fully or partially reversed. If such indications
exist, the Group estimates the recoverable amount of the asset or, for
goodwill, the recoverable amount of the cash-generating unit.
Shortfalls between the carrying value of non financial assets and their
recoverable amounts, being the higher of fair value less costs to sell and
value in use, are recognised as impairment losses. All impairment losses are
recognised in the Consolidated Statement of Comprehensive Income.
Recognised impairment losses are reversed (other than for goodwill) if, and
only if, the reasons for the impairment loss have ceased to apply. Reversals
of impairment losses are recognised in the Consolidated Statement of
Comprehensive Income. On reversal of an impairment loss, the depreciation or
amortisation is adjusted to allocate the asset's revised carrying amount (less
any residual value) over its remaining useful life.
2.12 Professional indemnity provisions
In common with comparable practices, the Group is involved in a number of
disputes in the ordinary course of business which may give rise to claims.
Professional indemnity insurance cover is maintained in respect of
professional negligence claims. Premiums are expensed as they fall due with
prepayments being recognised accordingly.
Provision is made in the financial statements for all claims where costs are
likely to be incurred. The provision represents management's best estimate of
the cost of defending and concluding claims and any excesses that may become
payable. No separate disclosure is made of the cost of claims covered by
insurance as to do so could seriously prejudice the position of the Group.
2.13 Leases
Group as lessee
The Group leases offices, equipment and vehicles. Rental contracts are for
periods of between 1 and 25 years. Lease terms are negotiated on a
lease-by-lease basis and contain a variety of terms and conditions.
The Group assesses whether a contract is or contains a lease at inception of
the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short term leases (defined as leases with a lease term of
12 months or less) and leases of low value assets (being those assets with a
value less than £4,000). For short term and low value leases, the Group
recognises the lease payments as an operating expense on a straight-line basis
over the term of the lease.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of the
following lease payments:
· fixed payments (including in-substance fixed payments),
less any lease incentives receivable;
· variable lease payments that are based on an index or a
rate;
· amounts expected to be payable by the Group under
residual value guarantees;
· the exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
· payments of penalties for terminating the lease, if the
lease term assumed reflects the group exercising that option.
The lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be determined, the Group's incremental borrowing
rate is used, being the rate that the Group would have to pay to borrow the
funds necessary to obtain an asset of similar value in a similar economic
environment with similar terms and conditions.
Underlying lease payments of both principal and interest are included in
financing activities in the cash flow. Onerous lease payments of both
principal and interest are included in non-underlying operating activities in
the Statement of cash flows.
The lease liability is presented as a separate line in the Consolidated
Statement of Financial Position.
Right-of-use assets are recognised at commencement of the lease and initially
measured at the amount of the lease liability, plus any incremental costs of
obtaining the lease and any lease payments made at or before the leased asset
is available for use by the Group.
After initial recognition, the lease liability is reduced for payments made
and increased to reflect interest on the lease liability (using the effective
interest method). The related right-of-use asset is depreciated over the term
of the lease or, if shorter, the useful economic life of the leased asset. The
lease term shall include the period of an extension option where it is
reasonably certain that the option will be exercised. Interest on the lease
liability is recognised in the Consolidated Statement of Comprehensive Income.
An estimate of the costs to be incurred in restoring the leased asset to the
condition required under the terms and conditions of the lease is recognised
as part of the cost of the right-of-use asset when the Group incurs the
obligation for these costs. The costs are incurred at the start of the lease
or over the lease term. The provision is measured at the present value of the
best estimate of the expenditure required to settle the obligation.
The Group remeasures the lease liability (and makes a corresponding adjustment
to the related right-of-use
asset) whenever:
· the lease term has changed or there is a significant
change in the assessment of exercise of a purchase option, in which case the
lease liability is remeasured by discounting the revised lease payments using
a revised discount rate;
· the lease payments change due to changes in an index or
rate or a change in expected payment under a guaranteed residual value, in
which cases the lease liability is remeasured by discounting the revised lease
payments using the initial discount rate (unless the lease payments change is
due to a change in a floating interest rate, in which case a revised discount
rate is used);
· a lease contract is modified and the lease modification
is not accounted for as a separate lease, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount
rate.
The Group did not make any such adjustments during the periods presented.
Group as lessor
The Group enters into lease agreements as a lessor with respect to two of its
properties.
When the Group acts as a lessor, it determines at lease inception whether each
lease is a finance lease or an operating lease.
To classify each lease, the Group makes an overall assessment of whether the
lease transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset. If this is the case, then the lease is a
finance lease; if not, then it is an operating lease. As part of this
assessment, the Group considers certain indicators such as whether the lease
is for the major part of the economic life of the asset.
When the Group is an intermediate lessor, it accounts for its interests in the
head lease and the sub-lease separately. It assesses the lease classification
of a sub-lease with reference to the right-of-use asset arising from the head
lease, not with reference to the underlying asset. If a head lease is a
short-term lease to which the Group applies the exemption described above,
then it classifies the sub-lease as an operating lease.
2.14 Retirement benefits
2.14a Defined contribution scheme
The Group operates a defined contribution scheme. The amount charged to the
Consolidated Statement of Comprehensive Income in respect of pension costs is
the contributions payable in the year. Differences between contributions
payable in the year and contributions actually paid are shown as either
accrued expenses or prepayments and other receivables.
2.14b Defined benefit pension scheme
For defined benefit schemes the amounts charged to operating profit are the
current service costs and gains and losses on settlements and curtailments.
They are included as part of staff costs. The interest cost and the expected
return on assets are shown as a net amount of other finance costs or finance
income. Actuarial gains and losses are recognised immediately in Other
Comprehensive Income.
Defined benefit schemes are funded, with the assets of the scheme held
separately from those of the Group, in separate trustee administered funds.
Pension scheme assets are measured at fair value and liabilities are measured
on an actuarial basis using the projected unit credit method and discounted at
a rate equivalent to the current rate of return on a high quality corporate
bond of equivalent currency and term to the scheme liabilities. The actuarial
valuations are obtained at least triennially and are updated at each reporting
date.
Defined benefit assets are not recognised in the Consolidated Statement of
Financial Position, on the basis that they are not deemed to be material.
For the 'With Profit Section' contributions are recognised in the Consolidated
Statement of Comprehensive Income in the period to which they relate as there
is insufficient information available to use defined benefit accounting. A
liability will be recognised based on the agreed share of the Group in the
scheme. No liability has been recognised in the current or prior period
(asset) on the basis that future economic benefits are not available to the
Group in the form of a reduction in future contributions or a cash refund.
2.15 Share Based Payments
The cost of providing share-based payments to employees is charged to the
Consolidated Statement of Comprehensive Income over the vesting period of the
awards. The cost is based on the fair value of awards at the date of grant
of the award using an appropriate valuation model. The amount recognised as
an expense will be adjusted to reflect differences between the expected and
actual vesting levels. Further details of the schemes are included in note
9.
2.16 Financial instruments
Financial instruments are recognised on the date when the Group becomes a
party to the contractual provisions of the instrument. Financial instruments
are recognised initially at fair value.
Financial assets
Contract assets and trade and other receivables
Contract assets and trade and other receivables which are receivable within
one year are initially measured at fair value. These assets are subsequently
measured at amortised cost, being the transaction price less any amounts
settled and any impairment losses.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses ('ECL') on
contract assets and trade and other receivables. The expected credit losses on
trade receivables includes specific provisions against known receivables and
an estimate using a provision matrix by reference to past experience, adjusted
for forward looking considerations, and an analysis of the debtor's current
financial position on the remaining balance. The expected credit losses on
contract assets and other receivables is assessed based on historical credit
loss experienced on these types of assets adjusted for known foreseeable
estimated losses.
Financial liabilities and equity
Financial instruments are classified as liabilities and equity instruments
according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.
Trade and other payables
Trade and other payables due within one year are initially measured at fair
value and subsequently measured at amortised cost, being the transaction price
less any amounts settled.
Deferred consideration
Deferred consideration is initially recognised at the fair value of the
amounts payable and subsequently at amortised cost of the agreed payments in
accordance with the agreement. Any interest payable on the balance is
reflected in the value of the liability and charged monthly to the Statement
of Comprehensive Income as it arises.
Borrowings
Borrowings are initially recognised at the fair value of the consideration
received net of issue costs associated with the borrowings. Borrowings are
subsequently measured at amortised cost using the effective interest
method. Interest expense is recognised on the basis of the effective
interest method and is included in Finance costs.
Derecognition of financial assets and liabilities
A financial asset is derecognised only when the contractual rights to cash
flows expire or are settled, or substantially all the risks and rewards of
ownership are transferred to another party. A financial liability (or part
thereof) is derecognised when the obligation specified in the contract is
discharged, cancelled or expires.
3. Accounting developments
New and amended IFRSs that are effective for the future
At the date of these financial statements, there were new standards and
amendments to IFRSs which were in issue but which were not yet effective and
which have not been applied. The principal ones were:
Revised IFRS Effective date
Amendments to IAS 1, Practice statement 2 and IAS 8 1 January 2023
Amendment to IAS 12 - deferred tax related to assets and liabilities arising 1 January 2023
from a single transaction
Amendments to IAS1 Presentation of Financial Statements: Classification of 1 January 2024
Liabilities as Current and Non- current and Classification of Liabilities as
Current or Non-current
The directors do not expect that the adoption of the Standards listed above
will have a material impact on the financial statements of the Group in future
periods.
4. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described in
note 2, the directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions
are based on historical experience and other factors that are considered to be
relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving
estimations (which are dealt with separately below), that the directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements.
Amounts recoverable on contracts - contingent fee arrangements
A level of judgement is required to determine the likelihood of success of a
given matter for contingent fee arrangements. This is determined on a
contract-by-contract basis after considering the relevant facts and
circumstances surrounding each matter. The valuation exercise is conducted by
experienced professionals with detailed understanding of the individual
matters. The carrying value of contingent fee arrangements at 30 April 2023
was £9,488,000 (2022: £7,804,000).
IFRS 16
In applying IFRS 16, the Group uses judgement to assess whether the interest
rate implicit in the lease is readily determinable. When the interest rate
implicit in the lease is not readily determinable, the Group estimates the
incremental borrowing rate based on its external borrowings secured against
similar assets, adjusted for the term of the lease.
Business combinations
Management make judgements regarding the date of control of an acquisition in
accordance with IFRS10. The judgement considers the individual legal
agreements on each transaction and the date at which the Group starts to
exercise control over the activities of the subsidiary, usually the date of
exchange of contracts. Financial performance of the acquisitions is included
in the consolidated group from the deemed date of control.
Alternative performance measures (APM's)
The Group presents various APMs to assist the user in understanding the
underlying performance of the Group. The selection of these APMs requires the
exercise of judgement as to the key performance indicators used.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation
uncertainty in the reporting period that may have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are discussed below.
IFRS 16
The Group makes estimates of the cost of restoring leased assets to their
original condition when required to do so under the terms and conditions of
the lease. Those estimates are based on the current condition of the leased
assets and past experience of restoration costs. As at 30 April 2023 the
Group had total provisions of £4,827,000 (2022: £4,462,000) (see note 33).
Amounts recoverable on contract assets- recoverable amounts
The valuation of amounts recoverable on contract assets ('AROC') involves the
use of estimates of the likely recovery rate which will be made on the gross
value of chargeable time recorded to each matter.
This percentage represents management's best estimate of future value
following a line by line review of the matters by professionals. The
estimation process takes into account the progress of the case at the
reporting date, the estimated eventual fee payable by the client and the
amount of time which will be incurred in bringing the matter to a successful
conclusion. The amount recognised in AROC at the year end was £38,215,000
(2022: £31,777,000), a 3% change in the estimated recovery of all matters
would impact the profit for the period by approximately £1,407,000 (2022:
£1,245,000).
Accounting for business combinations and valuation of acquired intangibles
Business combinations are accounted for at fair value. The valuation of
goodwill and acquired intangibles is calculated separately on each individual
acquisition. In attributing value to intangible assets arising on acquisition,
management has made certain assumptions in relation to the expected growth
rates, length of key customer relationships and the appropriate weighted
average cost of capital ('WACC') and internal rate of return ('IRR').
Profitability at an EBITDA margin level is also assumed, but is considered
reasonably predictable.
The value attributable to the intangible assets acquired on acquisitions also
impacts the deferred tax provision relating to these items.
The total carrying value of acquired intangibles (excluding brands) is
£23,158,000 (2022: £25,122,000). In order to assess the impact of the key
assumptions on the values disclosed in the Financial Statements the Directors
have applied the following sensitivities to the acquisitions in the current
year:
Key assumption Rate applied in the financial statements Sensitivity tested Annual profit impact Value of intangible assets
£'000
£'000
Long term growth rate 2% 0% 3 (6)
WACC and IRR 8.3% - 10.1% (1) Increase by 5% 48 (84)
Length of customer relationships 4 - 7.6 years Increase of 5 years (12) 248
(1) Each acquisition has been reviewed and, dependent upon the structure of
the acquisition, an appropriate WACC or IRR rate has been applied. These
sensitivities have been calculated by adjusting the adopted rates as noted
above.
Growth rates are estimated based on the current conditions at the date of each
acquisition with reference to independent surveys of future growth rates in
the legal profession in real, inflation adjusted terms.
The length of customer relationships is estimated by considering the length of
time the acquiree has had its significant client relationships up to the date
of acquisition and historic customer attrition rates as appropriate.
The Directors consider the resulting valuations used give a reasonable
approximation as to the value of the intangibles acquired and that any
reasonably possible change in any one of the estimations in isolation would
not have a material impact on the financial statements.
Intangible Assets - carrying amount of goodwill - impairment review
The Directors undertake an annual impairment review of goodwill to assess
whether the carrying value of £59.7 million is still supported by using a
discounted cash flow model to derive the value in use of the cash generating
unit ('CGU'). Cash flow forecasts are derived from the most recent financial
budgets approved by management for the next three years and extrapolated using
a terminal value calculation.
The key assumptions for the value in use calculations are those regarding the
discount rates and growth rates for the Group's revenues from legal and
professional services and the EBITDA margin. Management estimates discount
rates using pre-tax rates that reflect current market assessments of the time
value of money and the risks specific to the CGU.
Revenue growth over the three years of the forecast period reflects, for FY24,
the current run rate of revenue from the Group's existing business and a full
year of revenue from acquisitions made during the year ended 30 April 2023,
with an element of organic growth in FY25 and FY26. The long-term growth rate
of 2% (2022: 2%) is based on UK economic growth forecasts for the legal
services market.
The Group has conducted a sensitivity analysis on the impairment test of the
CGU value in use. Management considers there is no reasonably plausible
scenario under which goodwill would be impaired.
5. Revenue
All revenue is derived from contracts with customers and is recognised over
time. As explained further in note 6, the Group's legal and professional
services business operates as a single business unit so there are no relevant
categories into which revenue can be disaggregated.
The transaction price allocated to unsatisfied performance obligations of
contracts at 30 April 2023 is not required to be disclosed because it is
comprised of contracts that are expected to have a duration of one year or
less.
Management information does not distinguish between contingent and
non-contingent revenue as contingent fees are not separately identifiable from
other fees.
6. Segmental reporting
The Board of Directors, as the chief operating decision-making body, reviews
financial information for and makes decisions about the Group's overall legal
and professional services business and has identified a single operating
segment, that of legal and professional services operating entirely in the UK.
The legal and professional services business operates through a number of
different service lines and in different locations; however, management effort
is consistently directed to the firm operating as a single segment. No
segmental reporting disclosure is therefore provided as all revenue is derived
from this single segment.
7. Other operating income
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Other income 1,033 996
Bank interest on client monies 5,685 274
6,718 1,270
8. Staff costs
The average monthly number of employees (including executive directors) of the
Group was:
Year ended 30 April 2023 Year ended 30 April 2022
Number Number
Fee earners 1,154 1,080
Other employees 288 268
1,442 1,348
Their aggregate remuneration comprised:
Year ended Year ended 30 April 2022
30 April 2023 £'000
£'000
Wages and salaries 76,392 67,923
Social security costs 8,675 7,123
Other pension costs 2,520 2,324
Share based payment charge 1,265 835
Other employment costs 936 1,159
Aggregate remuneration of employees 89,788 79,364
Redundancy costs and share based payment charges analysed as non-underlying (1,376) (2,501)
costs (note 13)
Underlying staff costs in Statement of Comprehensive Income 88,412 76,863
Directors' remuneration
Companies Act disclosures
The total amounts for directors' remuneration in accordance with Schedule 5 to
the Accounting Regulations were as follows:
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Salaries, fees, bonuses and benefits in kind 838 892
Gains on exercise of options - 913
Money purchase pension contributions 7 14
845 1,819
The number of directors to whom benefits are accruing under money purchase
pension schemes is 2 (2022: 2).
The remuneration of the highest paid director was: Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Salaries, fees, bonuses, benefits in kind and gains on exercise of options 300 1,133
Money purchase pension contributions - 7
300 1,140
9. Share-based payments
The Group issues equity-settled share-based payments to its employees. The
Group recognised total expenses of £1,265,000 (2022: £835,000) relating to
equity-settled share-based payment transactions in the year. £1,248,000
(2022: £414,000) is recognised within staff costs and £17,000 (2022:
£421,000) in non-underlying costs.
Any charges relating to schemes introduced as one-off schemes as part of the
listing on AIM in 2018 are included in non-underlying costs because the
directors view these schemes as a reward to employees for their past
performance prior to the IPO and on acquisitions. All charges relating to
other recurring LTIP or SAYE schemes are included as a normal operating
expense.
The following schemes were in place during the period:
Omnibus Plan
The Omnibus Plan is a discretionary share plan, which is administered, and the
grant of awards is supervised by, the Remuneration Committee.
Three forms of award are available under the Omnibus Plan, as considered
appropriate by the Remuneration Committee, as follows:
a) "Restricted Stock Awards": Awards granted in the form of nil or nominal
cost share options, subject to time-based vesting requirements and continued
employment within the Group. No performance targets will apply to Restricted
Stock Awards.
b) "Performance Share Awards": Awards granted in the form of nil or
nominal cost share options, whereby vesting is subject to satisfaction of
performance conditions and continued employment within the Group. The
performance condition is in relation to meeting target underlying EPS values.
c) "Share Options": Awards granted in the form of a share option with an
exercise price equal to the market value of an ordinary share at the time of
grant, subject to continued employment within the Group. Share Options may or
may not be subject to performance conditions.
Restricted stock awards Performance share awards
Number Weighted average exercise price Number Weighted average exercise price
Pence
Pence
Outstanding at 1 May 2021 586,323 0.2 243,810 0.2
Granted during the period 265,300 0.2 100,228 0.2
Dividend equivalents awarded 2,137 0.2 - -
Forfeited during the period (37,395) 0.2 - -
Exercised during the period (354,954) 0.2 - -
Outstanding at 30 April 2022 461,411 0.2 344,038 0.2
Exercisable at 30 April 2022 166,652 0.2 - -
Granted during the period 2,663,854 0.2 167,476 0.2
Dividend equivalents awarded 94,844 0.2 19,374 0.2
Forfeited during the period (27,883) 0.2 (163,824) 0.2
Exercised during the period (21,572) 0.2 - -
Outstanding at 30 April 2023 3,170,654 0.2 367,064 0.2
Exercisable at 30 April 2023 222,929 0.2 - -
The options outstanding at 30 April 2023 had a weighted average exercise price
of 0.2p and a weighted average remaining contractual life of 1.62 years. The
average share price for options exercised during the year was 135.98p.
During the year 2,663,854 options were granted as restricted stock awards. In
addition, 167,476 of performance share awards were granted. The maximum term
of any award is three years.
The aggregate of the estimated fair values of the options granted during the
year £2,230,000. The model used is based on intrinsic values and the inputs
are as follows:
Date Granted Number of Shares Fair Value Share Price Exercise Price Expected Life Type of award
13 July 2022 337,679 428,177 127.00 0.2p 2.9 years Restricted stock
13 July 2022 167,476 212,360 127.00 0.2p 3.0 years Performance share
29 July 2022 509 686 135.00 0.2p 0.0 years Restricted stock
12 September 2022 33,654 34,933 103.80 0.2p 2.0 years Restricted stock
20 September 2022 19,832 19,792 99.80 0.2p 1.0 years Restricted stock
20 September 2022 19,831 19,791 99.80 0.2p 2.0 years Restricted stock
20 September 2022 19,831 19,791 99.80 0.2p 3.0 years Restricted stock
21 September 2022 20,000 20,330 101.65 0.2p 1.0 years Restricted stock
4 November 2022 727,802 481,805 66.20 0.2p 1.0 years Restricted stock
4 November 2022 727,802 481,805 66.20 0.2p 2.0 years Restricted stock
4 November 2022 363,901 240,902 66.20 0.2p 3.0 years Restricted stock
4 November 2022 363,901 240,902 66.20 0.2p 4.0 years Restricted stock
6 December 2022 29,112 29,054 99.80 0.2p 3.0 years Restricted stock
Share Incentive Plan ('SIP')
The SIP is an "all employee" scheme under which every eligible employee within
the Group was invited to participate. Eligible employees could apply to invest
up to £1,800 from pre-tax income in partnership shares; matching shares were
awarded on the basis of two free matching shares for each partnership share
purchased. The matching shares are forfeited if the employee leaves within
three years of the grant date.
Partnership Shares Matching Shares
Number
Number
Outstanding at 1 May 2021 165,039 330,079
Withdrawn during the period (40,694) -
Forfeited during the period - (81,388)
Outstanding at 30 April 2022 124,345 248,691
Unrestricted at 30 April 2022 124,345 248,691
Withdrawn during the period (6,149) -
Forfeited during the period - (12,298)
Outstanding at 30 April 2023 118,196 236,393
Unrestricted at 30 April 2023 118,196 236,393
Sharesave Scheme ('SAYE')
This is an HMRC approved scheme and is open to any person that was an employee
or officer of the Group at the launch date of each scheme. Under the scheme,
members save a fixed amount each month for three years. Subject to remaining
in employment by the Group, at the end of the three-year period they are
entitled to use these savings to buy shares in the Company at 80% of the
market value at launch date.
The first scheme was launched in November 2018 and further new SAYE schemes
have been launched in February 2020 and March 2022.
SAYE options
Number Weighted average exercise price
Pence
Outstanding at 1 May 2021 1,238,954 244
Granted during the period 1,430,251 296
Forfeited during the period (311,248) 342
Exercised during the period (491,530) 161
Outstanding at 30 April 2022 1,866,427 289
Exercisable at 30 April 2022 209,829 162
Forfeited during the period (996,259) 274
Outstanding at 30 April 2023 870,168 306
Exercisable at 30 April 2023 133,334 361
The options outstanding at 30 April 2023 had a weighted average exercise price
of 306p and a weighted average remaining contractual life of 2.00 years.
November 2018 scheme
The aggregate of the estimated fair values of the options granted in November
2018 is £500,000. The inputs into the Black-Scholes model are as follows:
Exercise price 162p
Expected volatility 39.2%
Expected life 3.1 years
Risk-free rate 1.4%
Expected dividend yield 1.1%
The November 2018 scheme matured on 1 February 2022, the number of share
options exercised in respect of this scheme as at 30 April 2023 is 505,533.
There are no share options which remain exercisable.
February 2020 scheme
The aggregate of the estimated fair values of the options granted in February
2020 is £1,163,000. The inputs into the Black-Scholes model are as follows:
Exercise price 361p
Expected volatility 34.3%
Expected life 3.1 years
Risk-free rate 1.1%
Expected dividend yield 0.7%
The February 2020 scheme matured on 31 March 2023, the number of share options
exercised in respect of this scheme as at 30 April 2023 is 2,622. There are
133,334 share options which remain exercisable.
March 2022 Scheme
The aggregate of the estimated fair values of the options granted in March
2022 is £110,000. The inputs into the Black-Scholes model are as follows:
Exercise price 296p
Weighted average share price 148p
Expected volatility 53.7%
Expected life 3.1 years
Risk-free rate 5.9%
Expected dividend yield 3.0%
Volatility is based on the daily change in share price from 29 June 2018 to
the date of measurement.
10. Retirement benefit schemes
The Group operates a defined contribution pension scheme for employees. The
total cost charged to income of £2,520,000 (2022: £2,324,000) represents
contributions payable to the scheme by the Group. As at 30 April 2023, total
contributions of £515,000 (2022: £892,000) due in respect of the reporting
period had not been paid over to the schemes.
The defined benefit impact is discussed in note 39. There were no charges
against income in the year ended 30 April 2023.
11. Depreciation and amortisation charges
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Depreciation 2,364 2,027
Depreciation on right-of-use assets 5,706 4,799
Amortisation 3,544 3,936
Loss on disposal of property, plant and equipment 2 16
11,616 10,778
12. Other operating charges
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Establishment costs 6,888 5,633
Short term and low value lease costs 302 187
Other overhead expenses 19,349 16,257
26,539 22,077
13. Non-underlying operating costs
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Redundancy and reorganisation staff costs 1,359 2,080
Transaction costs 953 988
Onerous short life asset leases - 472
Impairment of right-of-use assets 38 2,065
(Profit)/loss on disposal of intangible assets and property, plant and (12) 967
equipment
Share based payment charges 17 421
Contingent consideration treated as remuneration 4,436 6,267
6,791 13,260
Non underlying gains on disposal (318) -
6,473 13,260
Non underlying finance costs 152 -
6,625 13,260
Non-underlying costs cash movement
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Non-underlying operating costs 6,625 13,260
Adjustments for:
Contingent consideration shown separately (4,436) (6,267)
Non cash movements:
Share based payment charge (17) (421)
Impairment of right of use assets (38) (2,065)
Profit/(loss) on disposal of property, plant and equipment 12 (967)
Onerous leases - (97)
Accrual 218 248
Non underlying gains on disposal 318 - 318 -
Non-underlying finance costs (152) -
Additional cash movements:
Rental payments on onerous leases 543 -
Service charge payments on onerous leases 92 -
Receipt for sale of HPL fixed assets (24) -
3,141 3,691
318
-
Non-underlying finance costs
(152)
-
Additional cash movements:
Rental payments on onerous leases
543
-
Service charge payments on onerous leases
92
-
Receipt for sale of HPL fixed assets
(24)
-
3,141
3,691
Non-underlying costs relate to redundancy costs to streamline the support
function of the Group following acquisitions, transaction costs in respect of
acquisitions, onerous lease costs in respect of acquisitions, disposals of
acquired assets and share based payment charges relating to one off share
schemes offered to employees as part of the IPO and on acquisitions. On 5 July
2022 the group disposed of Home Property Lawyers Limited, a former subsidiary
of the Group, this was sold for a total consideration of £1,276,000 with a
profit on disposal of £318,000. The profit on disposal has been recognised
within non-underlying costs.
Contingent consideration is included in non-underlying costs as it represents
payments which are contingent on the continued employment of those individuals
with the Group, agreed under the terms of the sale and purchase agreements
with vendors of certain businesses acquired. The payments extend over periods
of one to three years and are designed to preserve the value of goodwill and
customer relationships acquired in the business combinations. IFRS requires
such arrangements to be treated as remuneration and charged to the Statement
of Comprehensive Income. The individuals also receive market rate salaries for
their work, in line with other similar members of staff in the Group. The
contingent earnout payments are significantly in excess of these market
salaries and would distort the Group's results if not separately identified.
14. Finance costs
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Interest on borrowings 2,135 952
Interest on leases 1,526 1,412
3,661 2,364
15. Finance income
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Lease interest receivable 52 22
16. Auditor's remuneration
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Fees payable to the parent company's auditor and their associates for the 43 36
audit of the parent company's annual accounts
Fees payable to the auditor and their associates for other services to the
Group:
- The audit of the Company's subsidiaries 150 126
Total audit fees 193 162
- Audit-related assurance services 22 19
Total non-audit fees 22 19
17. Taxation
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Corporation tax:
Current year 4,208 1,574
Adjustments in respect of prior years - non-underlying (161) -
Adjustments in respect of prior years 39 (96)
4,086 1,478
Deferred tax:
Origination and reversal of temporary differences (1,072) 362
Effect of change in tax rates 122 1,747
Adjustment in respect of prior years 449 -
(501) 2,109
Tax expense for the year 3,585 3,587
The charge for the period can be reconciled to the Statement of Comprehensive
Income as follows:
Year ended Year ended 30 April 2022
30 April 2023 £'000
£'000
Profit before tax 11,529 1,056
Tax at the UK corporation tax rate of 19.5% (2022: 19%) 2,248 201
Expenses that are not deductible in determining taxable profit 679 1,735
Partnership tax paid on acquired subsidiaries 209 -
Effect of change in tax rates 122 1,747
Adjustment in respect of prior years - non-underlying 289 -
Adjustment in respect of prior years 38 (96)
Tax expense for the year 3,585 3,587
Consisting of:
Taxation 3,175 1,840
Non-underlying tax charge 410 1,747
The impact of non-underlying costs on the effective rate of tax is set out
below:
Year ended 30 April 2023 Year ended 30 April 2022
Total Underlying Non-Underlying £'000 Total Underlying Non-Underlying £'000
£'000
£'000 £'000 £'000
Profit before tax 11,529 21,595 (10,066) 1,056 18,131 (17,075)
Tax expense 3,175 4,304 (1,129) 1,840 3,709 (1,869)
Effective rate of tax 28% 20% 11% 174% 20% 11%
Change in tax rate 122 - 122 1,747 136 1,611
Other non-underlying tax credits 288 - 288 - - -
410 - 410 1,747 136 1,611
Total tax charge 3,585 4,304 (719) 3,587 3,845 (258)
Effective rate of tax (post effect of non-underlying) 31% 20% 7% 340% 21% 2%
On 1 April 2023, the UK corporation tax rate increased from 19% to 25%.The
effect of the new rate on the Group's tax charge has been applied to the
financial statements. The impact of changing the tax rate from 19% to 25% on
the associated assets and liabilities is outlined in the below table:
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Tax Charge at 19% 3,463 (1,840)
Tax Charge at 25% 3,585 (3,587)
Impact of change in tax rate (122) (1,747)
The impact of the change in tax rate on deferred tax has been classified as a
non-underlying cost.
18. Earnings per share
Basic and diluted earnings per share have been calculated using profit after
tax and the weighted average number of ordinary shares in issue during the
period.
Year ended 30 April 2023 Year ended 30 April 2022
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 85,597,833 83,717,952
per share
Effect of dilutive potential ordinary shares:
Share options 878,031 409,640
Weighted average number of ordinary shares for the purposes of diluted 86,475,864 84,127,592
earnings per share
£'000 £'000
Profit/(loss) after tax 7,944 (2,531)
Earnings per share Pence Pence
Basic earnings per share 9.28 (3.02)
Diluted earnings per share 9.19 (3.02)
As the Group incurred a loss after tax for the year ended 30 April 2022, the
options were non-dilutive and basic and diluted earnings per share were the
same in the prior year.
Underlying earnings per share is calculated as an alternative performance
measure in note 37.
19. Dividends
Year ended Year ended 30 April 2022
30 April 2023 £'000
£'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 April 2022 of 2.04p per share (2021: 0p) 1,749 -
Interim dividend for the year ended 30 April 2023 of 1.53p per share (2022: 1,312 1,233
1.46p per share)
3,061 1,233
For the year ended 30 April 2023 the Board have proposed a final dividend of
2.50p per share (2022: 2.04p per share). The proposed final dividend is
subject to approval by shareholders at the Annual General Meeting and has not
been included as a liability in these financial statements. The proposed
dividend is payable to all shareholders on the register of members on 1
September 2023. The payment of this dividend will not have any tax
consequences for the Group.
20. Intangible assets and goodwill
Goodwill Brand Customer relationships Purchased computer software Total
£'000 £'000 £'000 £'000 £'000
Cost
As at 1 May 2021 47,657 5,401 31,392 577 85,027
Acquisitions of subsidiaries 5,771 - 2,386 527 8,684
Adjustments (1,666) - (47) - (1,713)
Additions - - - 62 62
Disposals - - - (449) (449)
Reclassification of assets held for sale - - - (114) (114)
As at 30 April 2022 51,762 5,401 33,731 603 91,497
Acquisitions of subsidiaries 7,764 - 1,609 - 9,373
Adjustments 213 - (29) (10) 174
Additions - - - 71 71
Disposals (78) - (177) (169) (424)
As at 30 April 2023 59,661 5,401 35,134 495 100,691
Amortisation and impairment
As at 1 May 2021 - 324 4,848 332 5,504
Amortisation charge - 54 3,761 121 3,936
Eliminated on disposal - - - (112) (112)
Reclassification of assets held for sale - - - (3) (3)
As at 30 April 2022 - 378 8,609 338 9,325
Adjustments - - (3) (10) (13)
Amortisation charge - 54 3,387 103 3,544
Eliminated on disposal - - (17) (169) (186)
As at 30 April 2023 - 432 11,976 262 12,670
Carrying amount
At 30 April 2023 59,661 4,969 23,158 233 88,021
At 30 April 2022 51,762 5,023 25,122 265 82,172
At 30 April 2021 47,657 5,077 26,544 245 79,523
During the year ended 30 April 2022, the initial accounting for the business
combination which occurred at the end of the prior year was not complete and
further information came to light about estimated provisions and debt items
which existed at the acquisition date.
On settling debt items on completion, it became apparent that some items had
been accounted as both an acquired liability and consideration payable to the
vendors. In addition, an estimated provision was subsequently identified as
being overstated once the actual costs were incurred. Both items resulted in
goodwill being overstated by £1.6m and the error was corrected. The error was
not considered to be qualitatively material, as it has no impact on reported
profits or cash flows and was c 2% of intangible assets. It was not,
therefore, considered to be a prior period adjustment.
The carrying amount of goodwill of £59,661,000 (2022: £51,762,000) has been
allocated to the single cash generating unit (CGU) present in the business,
which is the provision of legal and professional services.
The recoverable amount of the Group's goodwill has been determined by a value
in use calculation using a discounted cash flow model. The Group has prepared
cash flow forecasts derived from the most recent financial budgets approved by
management for the next three years after which cash flows are extrapolated
using a terminal value calculation based on an estimated growth rate of 2%
(2022: 2%). This rate does not exceed the expected average long-term growth
rate for the UK legal services market.
The key assumptions for the value in use calculations are those regarding the
growth rates for the Group's revenues from legal and professional services,
the EBITDA margin and the discount rate. Management estimates discount rates
using pre-tax rates that reflect current market assessments of the time value
of money and the risks specific to the CGU.
The rate used to discount the forecast cash flows is based on a pre tax
estimated weighted average cost of capital of 11.1% (2022: 12.4%).
Revenue growth over the three years of the forecast period reflects, for FY24,
the current run rate of revenue from the Group's existing business and a full
year of revenue from acquisitions made during the year ended 30 April 2023,
and an element of organic growth in FY25 and FY26 through continued
recruitment and increases in chargeable hours and recovered rates. The
long-term growth rate is based on UK economic growth forecasts for the legal
services market.
The Group has conducted a sensitivity analysis on the impairment test of the
CGU value in use. Management considers there is no reasonably plausible
scenario under which goodwill would be impaired.
21. Acquisitions
Acquisitions summary
During the year the Group has completed three acquisitions Coffin Mew LLP,
Meade King LLP and Globe Consultants Limited. The table below summarises the
consideration paid and the net cash flow arising on all acquisitions in the
period:
Total
£'000
Total identifiable assets less liabilities acquired 4,888
Goodwill 7,764
Total consideration 12,652
Satisfied by:
Cash 9,292
Equity instruments (1,152,078 ordinary shares of Knights Group Holdings plc) 1,000
Deferred consideration arrangement 2,360
Total consideration transferred 12,652
Net cash outflows arising on acquisition:
Cash consideration net of cash acquired 6,018
Net investing cash outflow arising on acquisition 6,018
Repayment of debt acquired 256
Net financing cash outflow arising on acquisition 256
The allocation of fair values is incomplete at the period end and values are
provisional. Details for the individual acquisitions are included on the
following pages.
The acquisition date in each case is the date of exchange of the sale and
purchase agreement, being the date on which control passes and the Group is
exposed to variable returns.
Coffin Mew LLP ('Coffin Mew')
On 18 May 2022, the Group exchanged contracts to acquire Coffin Mew by
purchasing 100% of the membership interests of the entity. This acquisition
completed on 8 July 2022. Coffin Mew is a law firm which will strengthen
Knights' existing offering and presence in the South of England and provides
entry into a number of new locations with offices in Portsmouth, Southampton,
Brighton and Newbury.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below. These figures are
provisional as the purchase accounting is not yet finalised:
Carrying amount £'000 Fair value adjustment £'000 Total £'000
Identifiable assets
Identifiable intangible assets relating to customer relationships - 1,377 1,377
Property, plant and equipment 225 - 225
Right-of-use assets - 4,015 4,015
Contract assets 2,110 (350) 1,760
Trade and other receivables (net of £353,000 loss allowance provision) 1,661 - 1,661
Cash and cash equivalents 2,667 - 2,667
Liabilities
Trade and other payables (2,785) 591 (2,194)
Lease liabilities - (4,015) (4,015)
Borrowings - (35) (35)
Provisions (1,063) - (1,063)
Deferred tax - (503) (503)
Total identifiable assets and liabilities 2,815 1,080 3,895
Goodwill 7,236
Total consideration 11,131
Satisfied by:
Cash 7,771
Deferred consideration 2,360
Equity instruments (1,152,078 Ordinary Shares of Knights Group Holdings plc) 1,000
Total consideration transferred 11,131
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 5,104
Repayment of debt 35
Net cash outflow arising on acquisition 5,139
Intangibles relating to customer relationships of £1,377,000 has been arrived
at using the excess earnings method. The goodwill of £7,236,000 represents
the assembled workforce, with the acquisition bringing a number of new fee
earners and expected synergies. None of the goodwill is expected to be
deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was
determined on the basis of the volume weighted average share price for the 5
days prior to exchange.
A contingent consideration arrangement was entered into as part of the
acquisition. This is contingent on the sellers remaining in employment by the
Group so it has been excluded from the consideration and will be recognised in
the Consolidated Statement of Comprehensive Income on a straight-line basis as
a remuneration expense over the 3 year post acquisition period. This is
recognised within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments under the
contingent consideration arrangement is £2,500,000 which is payable in equal
instalments on the first, second and third anniversary of completion.
There are also undiscounted deferred consideration payments totalling
£2,500,000 outstanding. This is payable in instalments on the first, second
and third anniversaries of completion.
Coffin Mew contributed £7,566,000 of revenue to the Group's Statement of
Comprehensive Income for the period from 18 May 2022 to 30 April 2023. The
profit contributed is not separately identifiable due to the hive-up of its
trade and assets being incorporated into Knights Professional Services Limited
from 8 July 2022.
If the acquisition occurred at the beginning of the year Coffin Mew would have
contributed £7,856,000 of revenue to the Group. Profit is not separately
identifiable due to the full integration on hive up.
Globe Consultants Limited
On 9 May 2022, the group acquired the entire share capital of Globe
Consultants Limited (Globe), a planning business with 5 employees. Total
consideration transferred was £122,000.
Globe contributed £224,000 of revenue to the Group's Statement of
Comprehensive Income for the period from 11 May 2022 to 30 April 2023. The
profit contributed is not separately identifiable due to the hive-up of its
trade and assets being incorporated into Knights Professional Services Limited
from 11 May 2022.
If the acquisition occurred at the beginning of the year Globe would have
contributed £229,000 of revenue to the Group. Profit is not separately
identifiable due to the full integration on hive up.
Meade King LLP
On 13 January 2023, the Group exchanged contracts to acquire Meade King LLP,
through the agreement to purchase the interests of the equity partners. This
acquisition completed on 17 February 2023. Meade King is a law firm based in
Bristol, which will strengthen Knights existing offering and presence in the
South West region by adding a second office.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below.
Carrying amount £'000 Fair value adjustment £'000 Total £'000
Identifiable assets
Identifiable intangible assets relating to customer relationships - 155 155
Property, plant and equipment 79 - 79
Right-of-use assets - 197 197
Contract assets 747 (50) 697
Trade and other receivables (net of £48,000 loss allowance provision) 234 - 234
Cash and cash equivalents 515 - 515
Liabilities
Trade and other payables (380) (53) (433)
Lease liabilities - (197) (197)
Borrowings (221) - (221)
Provisions - (115) (115)
Deferred tax - (39) (39)
Total identifiable assets and liabilities 974 (102) 872
Goodwill 527
Total consideration 1,399
Satisfied by:
Cash 1,399
Total consideration transferred 1,399
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 884
Repayment of debt 221
Net cash outflow arising on acquisition 1,105
Intangibles relating to customer relationships of £155,000 has been arrived
at using the excess earnings method. Goodwill of £527,000 represents the
assembled workforce, with the acquisition bringing a number of new fee earners
and expected synergies. 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 the sellers remaining in employment by the
Group so it has been excluded from the consideration and will be recognised in
the Consolidated Statement of Comprehensive Income on a straight-line basis as
a remuneration expense over the 3 year post acquisition period. This is
recognised within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments under the
contingent consideration arrangement is £624,000 and is payable in equal
instalments on the first, second and third anniversary of completion.
Meade King contributed £974,000 of revenue to the Group's Consolidated
Statement of Comprehensive Income for the period from 13 January 2023 to 30
April 2023. The profit contributed is not separately identifiable due to the
hive-up of its trade and assets being incorporated into Knights Professional
Services Limited from 17 February 2023.
If the acquisition occurred at the beginning of the year Meade King would have
contributed £3,073,000 of revenue to the Group. Profit is not separately
identifiable due to the full integration on hive up.
22. Property, plant and equipment
Expenditure on short leasehold property Office equipment Furniture and fittings Total
£'000 £'000 £'000 £'000
Motor Vehicles Right-of-use assets
£'000
£'000
Cost
As at 1 May 2021 7,875 4,456 1,041 - 45,851 59,223
Acquisitions of subsidiaries 543 224 82 - 5,224 6,073
Additions 1,292 1,176 58 - 3,144 5,670
Disposals (1,358) (216) (113) - (1,482) (3,169)
Alignment 5 53 4 - - 62
As at 30 April 2022 8,357 5,693 1,072 - 52,737 67,859
Acquisitions of subsidiaries 117 151 41 - 4,212 4,521
Additions 229 1,328 206 90 47 1,900
Disposals (3) (716) (1) - (1,509) (2,229)
Alignment (10) (4) (1) - - (15)
As at 30 April 2023 8,690 6,452 1,317 90 55,487 72,036
Depreciation and impairment
As at 1 May 2021 1,693 1,782 359 - 5,445 9,279
Depreciation charge 787 1,132 108 - 4,799 6,826
Impairment - - - - 2,065 2,065
Eliminated on disposal (860) (155) (24) - (235) (1,274)
Alignment (1) 60 1 - - 60
As at 30 April 2022 1,619 2,819 444 - 12,074 16,956
Depreciation charge 857 1,369 127 11 5,706 8,070
Eliminated on disposal (3) (684) 1 - (531) (1,217)
Impairment 38 38
Alignment (8) (3) (4) - - (15)
As at 30 April 2023 2,465 3,501 568 11 17,287 23,832
Carrying amount
At 30 April 2023 6,225 2,951 749 79 38,200 48,204
At 30 April 2022 6,738 2,874 628 - 40,663 50,903
At 30 April 2021 6,182 2,674 682 - 40,406 49,944
Net impairment of £38,125 (2022: £2,065,000) due to leases being classified
as onerous is included in non-underlying operating costs.
See note 28 for further details of right of use assets.
23. Contract assets and liabilities
Contract assets Trade receivables Contract liabilities
£'000 £'000 £'000
As at 30 April 2023 38,215 23,610 (218)
As at 30 April 2022 31,777 26,643 (237)
As at 1 May 2021 28,530 25,951 (216)
The movement during the year is not separately identifiable.
Contract assets
Contract assets consist of unbilled revenue in respect of legal and
professional services performed to date.
Contract assets in respect of fee-for-service and fixed fee arrangements are
billed at appropriate intervals, normally on a monthly basis in arrears, in
line with the performance of the services. Where such matters remain unbilled
at the period end the asset is valued on a contract-by-contract basis at its
expected recoverable amount.
The Group undertakes some matters based on contingent fee arrangements.
These matters are billed when the claim is successfully settled. For matters
ongoing at the period end, each matter is valued based on its specific
circumstances. If the matter has agreed funding arrangements in place,
then it is valued based on the estimated amount recoverable from the funding
depending on the stage of completion of the matter.
If the liability of a matter has been admitted and 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. The amount of contingent fee work in progress
at 30 April 2023 was £9,488,000 (2022: £7,804,000).
If the performance obligations for contingent matters have not been satisfied
at the reporting date, these assets are valued on a contract-by-contract basis
taking into account the expected recoverable amount and the likelihood of
success. Where the likelihood of success of a contingent fee arrangement is
less than highly probable, the amount recognised in contract assets is further
reduced to reflect this uncertainty.
During the year, contract assets of £2,457,000 (2022: £3,731,000) were
acquired in business combinations.
An impairment loss of £41,000 has been recognised in relation to contract
assets in the year (2022: £41,000). This is based on the expected credit loss
under IFRS 9 of these types of assets. The contract asset loss is estimated at
0.2% (2022: 0.2%) of the balance.
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 of date of issue unless otherwise agreed
with the client.
Contract liabilities
When matters are billed in advance or on the basis of a monthly retainer, this
is recognised in contract liabilities and released over time as the services
are performed.
24. Trade and other receivables
30 April 2023 30 April 2022
£'000 £'000
Trade receivables 24,524 27,908
Impairment provision - trade receivables (914) (1,265)
Prepayments and other receivables 7,477 5,666
31,087 32,309
Trade receivables
The average credit period taken on sales is 30 days as at 30 April 2023 (2022:
31 days). No interest is charged on trade receivables. The Group uses
appropriate methods to recover all balances once overdue. Once the expectation
of recovery is deemed remote a debt may be written off.
The Group measures the loss allowance for trade receivables at an amount equal
to 12 months expected credit losses ('ECL'). The Group applies the simplified
approach to providing for expected credit losses prescribed by IFRS 9, which
permits the use of a provision matrix when measuring the expected loss
provision for all trade receivables. As the Group's historical credit loss
experience does not show significantly different loss patterns for different
client segments, the provision for loss allowance is based on past due status.
The following table details the risk profile of trade receivables (excluding
disbursements) based on the Group's provision matrix:
30 April 2023 2023 2022
Gross carrying amount Expected credit losses Expected credit loss rate Gross carrying amount Expected credit losses Expected credit loss rate
£'000 £'000 % £'000 £'000 %
Not past due 13,108 40 0.31 14,553 52 0.36
31-60 days past due 2,961 16 0.55 3,077 14 0.45
61-90 days past due 1,099 10 0.85 1,231 4 0.34
91-120 days past due 187 4 2.01 496 11 2.29
>120 days past due 2,548 738 28.96 2,861 854 29.88
12 month ECL £'000 19,903 808 4.06 22,218 935 4.21
In addition to the above on trade receivables a further £106,000 (2022:
£330,000) impairment loss has been recognised against disbursement
balances. This is based on 100% impairment against all disbursements with no
activity on the matter for over 12 months and 0.2% against the remainder of
the balance based upon the expected credit loss of this type of asset.
The movement in the allowance for impairment in respect of trade receivables
and contract assets during the year was as follows:
2023 2022
£'000 £'000
Balance at 1 May 1,265 1,002
Increase in loss allowance recognised in profit of loss during the year 468 498
Acquired provisions 401 212
Receivables written off during the year as uncollectable (1,220) (447)
Balance at 30 April 914 1,265
25. Share capital
Ordinary shares
Number £'000
As at 1 May 2021 82,606,792 165
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 844,347 2
Ordinary shares of 0.2p each issued in respect of exercised share options 2,137 -
equivalent to dividend entitlement
Ordinary shares of 0.2p each issued as consideration in the purchase of 1,187,050 2
subsidiaries
At 30 April 2022 (allotted, called up and fully paid) 84,640,326 169
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 21,488 -
Ordinary shares of 0.2p each issued in respect of exercised share options 84 -
equivalent to dividend entitlement
Ordinary shares of 0.2p each issued as consideration in the purchase of 1,152,078 2
subsidiaries
At 30 April 2023 (allotted, called up and fully paid) 85,813,976 171
Included in the consideration for the purchase of subsidiaries is 1,152,078
shares in respect of the purchase of Coffin Mew LLP (see note 21).
26. Finance lease receivable
The Group sub-leases floors in two office buildings on head leases that were
acquired in previous periods. The Group has classified the sub-leases as
finance leases because the sub-leases are for the whole of the remaining term
of the head leases.
The following table sets out a maturity analysis of lease receivables, showing
the undiscounted lease payments to be received after the reporting date.
30 April 2023 30 April 2022
£'000 £'000
Less than one year 375 222
One to two years 375 222
Two to three years 375 222
Three to four years 375 222
Four to five years 375 222
More than five years 435 388
2,310 1,498
Less: unearned finance income (324) (331)
1,986 1,167
Finance lease receivable 30 April 2023 30 April 2022
£'000 £'000
> 1 year 1,671 1,091
< 1 year 315 76
1,986 1,167
Total lease payments received for the year ended 30 April 2023 was £237,000
(2022: £30,000)
During the year, the Group sublet a floor in the Lincoln office. The present
value of this investment was £1,003,000 and the right-of-use asset
derecognised had a carrying value of £938,000. The profit of £65,000 has
been recognised in non-underlying operating costs.
The Group's finance lease arrangements do not include variable payments.
The directors of the Group estimate the loss allowance on finance lease
receivables at the end of the reporting period at an amount equal to lifetime
ECL. None of the finance lease receivables at the end of the reporting period
is past due, and considering the historical default experience and the future
prospects of the sectors in which the lessees operate, the directors of the
Group consider that no finance lease receivable is impaired.
27. Disposal of subsidiary
On 25 March 2022 the Group completed the acquisition of Home Property Lawyers
Limited (HPL), an entity that provides volume conveyancing services. At the
time of acquisition, it was noted that the strategic options for this
subsidiary were under review.
Following a period of internal review, in April 2022, management committed to
a plan to sell HPL. Accordingly, all assets and liabilities were presented
as a disposal of subsidiary held for sale as at 30 April 2022.
On 5 July 2022 the Group exchanged contracts to dispose of HPL. This was sold
for a total consideration of £1,276,000 with a profit on disposal of
£318,000. The profit on disposal has been recognised within non-underlying
costs in the Consolidated Statement of Comprehensive Income.
At 30 April 2022, HPL was stated at fair value less cost to sell and comprised
the following assets and liabilities.
30 April 2022
£'000
Intangible assets 111
Contract assets 526
Trade and other receivables 428
Cash and cash equivalents 130
Assets held for sale 1,195
Trade and other payables 430
Liabilities held for sale 430
Assets held for sale did not include £69,765 due from other Group entities
which were eliminated on consolidation.
28. Lease liabilities
Incremental borrowing rates applied to individual leases ranged between 1.68%
and 6.51%.
The table below sets out the Consolidated Statement of Financial Position as
at 30 April 2023 and 30 April 2022:
30 April 2023 30 April 2022
£'000 £'000
Right-of-use assets
Property 37,693 39,691
Equipment 507 972
38,200 40,663
Lease liability
> 1 year 38,585 41,183
< 1 year 6,331 5,345
44,916 46,528
Right of use assets include additions and acquired assets of £4,212,000
(2022: £7,452,000) for property and £47,000 (2022: £916,000) for equipment.
There is also depreciation of £5,234,000 (2022: £4,397,000) for property and
£472,000 (2022: £402,000) for equipment.
The table below shows lease liabilities maturity analysis - contractual
undiscounted cash flows at 30 April 2023:
30 April 2023 30 April 2022
Property Equipment Total Property Equipment Total
£'000 £'000 £'000 £'000 £'000 £'000
Less than one year 7,312 426 7,738 6,213 496 6,709
One to five years 23,473 86 23,559 21,313 506 21,819
More than five years 22,491 - 22,491 22,701 1 22,702
53,276 512 53,788 50,227 1,003 51,230
Less unaccrued future interest (8,849) (23) (8,872) (4,663) (39) (4,702)
44,427 489 44,916 45,564 964 46,528
The table below shows amounts recognised in the Consolidated Statement of
Comprehensive Income for short term and low value leases as at 30 April
2023:
30 April 2023 30 April 2022
Property Equipment Total Property Equipment Total
£'000
£'000
£'000
£'000
£'000
£'000
Expenses relating to short - term and low value leases
271 31 302 146 41 187
For right-of-use asset depreciation and lease interest charges on leases see
note 11 and 14. Total lease payments, including for short term and low value
leases, for the year ended 30 April 2023 were £7,810,000 (2022: £5,488,000).
29. Borrowings
30 April 2023 30 April 2022
£'000 £'000
Secured borrowings at amortised cost:
Bank loans 32,925 32,400
Other loans 340 753
Total borrowings 33,265 33,153
Amount due for settlement within 12 months 189 355
Amount due for settlement after 12 months 33,076 32,798
The above excludes lease liabilities.
All of the Group's borrowings are denominated in sterling.
The Group has a credit facility of £60,000,000 in total (2022: £60,000,000).
The facility remains available until 29 October 2024.
The facility is a revolving credit facility and has the ability to roll on a
monthly, quarterly, half yearly basis or any other period at the Groups option
and is due for final repayment in October 2024. The facility is secured by a
fixed and floating charge over the Group's assets. The facility carries an
interest margin above SONIA of between 1.65% and 2.40% depending on the
leverage level. A commitment fee of one third of the applicable margin is
payable on the undrawn amounts.
30. Deferred consideration
30 April 2023 30 April 2022
£'000 £'000
Non-current liabilities
Deferred consideration 2,482 2,421
Current liabilities
Deferred consideration 2,367 1,210
Deferred consideration as at 30 April 2023 relates to the acquisition of
Langleys Solicitors LLP and Coffin Mew LLP and is not contingent.
In addition, the Group has accrued contingent consideration relating to
acquisitions included within trade and other payables. This is contingent
based upon the continued employment of certain individuals and is being
accrued on a monthly basis in the Consolidated Statement of Comprehensive
Income in accordance with the terms of the agreements. It is expected that
employment will continue for the terms of the agreements and, therefore, the
contingent consideration will be payable in full.
31. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised
by the Group and movements thereon during the current and prior reporting
period.
Accelerated capital allowances Intangible assets Share-based payments Total
£'000 £'000 £'000
£'000
IFRS 16
£'000
As at 1 May 2021 544 5,840 (449) (280) 5,655
Acquisitions of subsidiaries - 454 - - 454
Adjustments 125 (11) - - 114
Effect for change in tax rate 244 1,611 (37) (71) 1,747
Charge/(credit) for the year 479 (112) (33) 28 362
As at 30 April 2022 1,392 7,782 (519) (323) 8,332
Acquisitions of subsidiaries - 403 - 159 562
Adjustments - (5) - - (5)
Effect of change in tax rate 87 77 (73) 31 122
Non-underlying charge/(credit) for the year - (445) 296 598 449
Credit for the year (103) (780) (163) (26) (1,072)
As at 30 April 2023 1,376 7,032 (459) 439 8,388
Deferred tax assets and liabilities are offset where the Group has a legally
enforceable right to do so. The following is the analysis of the deferred tax
balances after offset for financial reporting purposes:
30 April 2023 30 April 2022
£'000 £'000
Deferred tax assets (459) (842)
Deferred tax liabilities 8,847 9,174
8,388 8,332
32. Trade and other payables
30 April 2023 30 April 2022
£'000 £'000
Trade payables 5,531 4,664
Other taxation and social security 7,350 7,370
Other payables 2,410 1,978
Accruals 5,541 7,350
20,832 21,362
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. The average credit period taken for trade
purchases is 25 days (2022: 26 days). No interest is payable on the trade
payables.
The directors consider that the carrying amount of trade payables approximates
to their fair value.
33. Provisions
Dilapidation provision Onerous contract provision Professional indemnity provision
£'000
£'000 £'000 Total
£'000
As at 1 May 2021 3,999 6 869 4,874
Acquisitions of subsidiaries 507 - 171 678
Additional provision in the year 289 448 550 1,287
Utilisation of provision (333) (28) (375) (736)
As at 30 April 2022 4,462 426 1,215 6,103
Acquisitions of subsidiaries 777 - 425 1,202
Additional provision in the year 44 8 500 552
Utilisation of provision (456) (152) (814) (1,422)
As at 30 April 2023 4,827 282 1,326 6,435
Consisting of:
Non-current liabilities 3,888 202 - 4,090
Current liabilities 939 80 1,326 2,345
The dilapidations provision relates to the potential rectification of
leasehold sites upon expiration of the leases. This has been based on internal
estimates of the schedule of works included in the lease.
The onerous contract provision relates to services and other charges on vacant
offices where the Group is the lessee. The Group is actively marketing these
leases for reassignment. The provision represents the Directors' estimate of
the future lease payments and other associated property costs to be paid by
the Group prior to reassignment of the leases. The onerous contracts provision
also includes contracts acquired via acquisition that are no longer utilised
but are non-cancellable. The provision represents the remaining payments and
other associated property costs under the terms of the lease. Future lease
payments are offset against the provision.
The professional indemnity provision relates to a number of disputes in the
ordinary course of business for all claims where costs are likely to be
incurred and represents the cost of defending and concluding claims and any
excess that may become payable. The Group carries professional indemnity
insurance and no separate disclosure is made of the cost of claims covered by
insurance as to do so could seriously prejudice the position of the Group.
34. Financial instruments
Categories of financial instruments
30 April 2023 30 April 2022
£'000 £'000
Financial assets
Amortised cost
Contract assets 38,215 31,777
Trade and other receivables (excluding prepayments) 24,715 26,919
Lease receivable 1,986 1,167
Cash and cash equivalents 4,045 4,097
Financial liabilities
Amortised cost
Borrowings 33,265 33,153
Deferred consideration 4,849 3,631
Trade and other payables 11,077 13,992
Leases 44,916 46,528
Financial risk management objectives
The Group's Executive board and finance function monitors and manages the
financial risks relating to the operations of the Group. These risks include
market risk (interest rate risk), credit risk, liquidity risk and cash flow
interest rate risk.
Market risk
The Group's activities expose it primarily to the financial risks of changes
in interest rates (see below). Market risk exposures are measured using
sensitivity analysis.
There has been no change to the Group's exposure to market risks or the manner
in which these risks are managed and measured.
Interest rate risk management
The Group is exposed to interest rate risk because the Group borrows funds at
floating interest rates. The risk is managed by the Group by keeping the level
of borrowings at a manageable level.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to
interest rates for financial instruments at the end of the reporting period.
For floating rate liabilities, the analysis is prepared assuming the amount of
the liability outstanding at the end of the reporting period was outstanding
for the whole year.
If interest rates had been 0.5% higher/lower and all other variables were held
constant, the Group's profit for the year ended 30 April 2023 would
decrease/increase by £166,000 (2022: decrease/increase by £166,000). This is
attributable to the Group's exposure to interest rates on its variable rate
borrowings.
The Group's sensitivity to interest rates has increased slightly during the
current year due to the increase in interest rates.
Credit risk management
Note 24 details the Group's maximum exposure to credit risk and the
measurement bases used to determine expected credit losses.
The risk of bad debts is mitigated by the Group having a policy of performing
credit checks or receiving payments on account for new clients when practical
and ensuring that the Group's exposure to any individual client is tightly
controlled, through credit control policies and procedures.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
financial charges on its debt instruments and repayments of principal. There
is a risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due or not meet its required covenants. The Group
manages this risk and its cash flow requirements through detailed annual,
monthly and daily cash flow forecasts. These forecasts are reviewed
regularly to ensure that the Group has sufficient working capital to enable it
to meet all of its short-term and long-term cash flow needs.
Measurement of fair values
Financial assets and liabilities are measured in accordance with the fair
value hierarchy and assessed as Level 1, 2 or 3 based on the following
criteria:
· Level 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or a liability fall
into different levels of the fair value hierarchy, then the fair value
measurement is categorised in its entirety in the same level of the fair value
hierarchy as the lowest level input that is significant to the entire
measurement.
Contingent consideration, held at fair value through profit or loss, is a
Level 3 financial liability. The remaining financial instruments are measured
at amortised cost. The carrying values of the Group's financial assets and
liabilities approximate their fair values.
The tables below analyse the Group's financial liabilities into relevant
maturity groupings based on their contractual maturities. The amounts
disclosed in the table are the contractual undiscounted cash flows.
Contractual maturities of financial liabilities
30 April 2023 < 1 year 1-2 years £'000 2-5 years Total
£'000
£'000
£'000
Borrowings 189 33,028 48 33,265
Deferred consideration 2,367 2,328 154 4,849
Trade and other payables 13,482 - - 13,482
30 April 2022 < 1 year 1-2 years £'000 2-5 years Total
£'000
£'000
£'000
Borrowings 355 - 32,798 33,153
Deferred consideration 1,210 1,210 1,211 3,631
Trade and other payables 13,992 - - 13,992
Trade and other payables above exclude other taxation and social security
costs.
The Group has met its covenant tests during the year.
For lease maturity see note 28.
Capital management
The capital structure of the Group consists of borrowings (as disclosed in
note 29) and equity of the Group (comprising issued capital, reserves, and
retained earnings as disclosed in the Statement of Changes in Equity).
In managing its capital, the Group's primary objective is to provide a return
for its equity shareholders through capital growth and future dividend
income. The Group seeks to maintain a gearing ratio that balances risk and
returns at an acceptable level and also to maintain a sufficient funding base
to enable the Group to meet its working capital and strategic investment needs
and objectives.
Gearing ratio
The gearing ratio at the year end is as follows:
30 April 2023 30 April 2022
£'000 £'000
Borrowings (note 29) 33,265 33,153
Cash and cash equivalents (4,045) (4,097)
Asset held for sale (note 28) - (130)
Net debt 29,220 28,926
Equity 92,807 85,659
% %
Net debt to equity ratio 31 34
Significant accounting policies
Details of the significant accounting policies and methods adopted (including
the criteria for recognition, the basis of measurement and the bases for
recognition of income and expenses) for each class of financial asset,
financial liability and equity instrument are disclosed in note 2.
35. Reconciliation of profit before taxation to net cash generated
from operations
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Profit before taxation 11,529 1,056
Adjustments for:
Amortisation 3,544 3,936
Depreciation - property, plant and equipment 2,364 2,027
Depreciation - right-of-use assets 5,706 4,799
Loss on disposal (net of £12,000 profit) (2022: £967,000) included in 2 16
non-underlying costs)
Contingent consideration expense 4,436 6,267
Non-underlying operating costs 2,338 6,572
Non-underlying finance costs 152 -
Non-underlying gain on disposal (318) -
Non-underlying share based payments 17 161
Share based payments 1,248 674
Interest income (52) (296)
Interest expense 3,661 2,364
Operating cash flows before movements in working capital 34,627 27,576
(Increase)/decrease in contract assets (3,924) 628
Decrease in trade and other receivables 3,346 570
(Decrease)/increase in provisions (738) 469
(Decrease)/Increase in contract liabilities (19) 21
Decrease in trade and other payables (3,861) (4,204)
Cash generated from operations 29,431 25,060
36. Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's Consolidated Statement of
Cash Flows as cash flows from financing activities.
Borrowings Leases
£'000
£'000
As at 1 May 2021 24,064 42,640
New borrowings and leases 47,350 3,083
Acquired borrowings and leases 3,239 4,695
Interest charged (net of £25,000 included in non-underlying) 952 1,412
Interest paid (648) (1,412)
Non-cash movement (301) -
Repayments (net of £296,000 included in non-underlying) (41,503) (3,890)
As at 1 May 2022 33,153 46,528
New borrowings and leases 34,425 -
Acquired borrowings and leases 256 4,212
Interest charged 2,135 1,526
Interest paid (2,135) (1,526)
Non-cash movement 12 3
Repayment of debt acquired with prior year subsidiaries (438) -
Repayments (34,156) (5,439)
Amounts included in operating activities 13 (388)
As at 30 April 2023 33,265 44,916
(5,439)
Amounts included in operating activities
13
(388)
As at 30 April 2023
33,265
44,916
37. Alternative performance measures
This Annual Report contains both statutory measures and alternative
performance measures. In management's view the underlying performance of the
business provides a more meaningful measure and year on year comparison of how
the Group's business is managed and measured on a day-to-day basis.
The Group's alternative performance measures and key performance indicators
are aligned to the Group's strategy and together are used to measure the
performance of the business.
Alternative performance measures are non-GAAP (Generally Accepted Accounting
Practice) measures and provide supplementary information to assist with the
understanding of the Group's financial results and with the evaluation of
operating performance for all the periods presented. Alternative performance
measures, however, are not a measure of financial performance under UK-adopted
International Financial Reporting Standards ('IFRS') and should not be
considered as a substitute for measures determined in accordance with IFRS. As
the Group's alternative performance measures are not defined terms under IFRS
they may therefore not be comparable with similarly titled measures reported
by other companies.
Reconciliations of alternative performance measures to the most directly
comparable measures reported in accordance with IFRS are provided below.
a) Underlying EBITDA
Underlying EBITDA is presented as an alternative performance measure to show
the underlying operating performance of the Group excluding the effects of
depreciation, amortisation and non-underlying items.
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Operating profit 15,290 3,398
Depreciation and amortisation charges (note 11) 11,616 10,778
Non-underlying costs (note 13) 6,791 13,260
Non-underlying gains on disposal (note 13) (318) -
Underlying EBITDA 33,379 27,436
b) Underlying profit before tax (PBT)
Underlying PBT is presented as an alternative performance measure to show the
underlying performance of the Group excluding the effects of amortisation of
intangible assets and non-underlying items.
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Profit before tax 11,529 1,056
Amortisation (adjusted for amortisation on computer software) 3,441 3,815
Non-underlying costs (note 13) 6,791 13,260
Non-underlying gains on disposal (note 13) (318) -
Non-underlying finance costs (note 13) 152 -
Underlying profit before tax 21,595 18,131
c) Underlying profit after tax (PAT) and adjusted earnings per share (EPS)
Underlying PAT and EPS are presented as alternative performance measures to
show the underlying performance of the Group excluding the effects of
amortisation of intangible assets, share-based payments and non-underlying
items.
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Profit/(Loss) after tax 7,944 (2,531)
Non-underlying tax charge (note 17) 410 1,747
Amortisation (adjusted for amortisation on computer software) 3,441 3,815
Non-underlying operating costs (note 13) 6,625 13,260
Tax in respect of the above (note 17) (1,129) (1,869)
Underlying profit after tax 17,291 14,422
Underlying earnings per share Pence Pence
Basic underlying earnings per share 20.20 17.23
Diluted underlying earnings per share 20.00 17.14
Tax has been calculated at the corporation tax rate of 19.5% (2022:19%) and
deferred tax rate of 25% (2022:25%)
d) Free cash flow and cash conversion %
Free cash flow measures the Group's underlying cash generation. Cash
conversion % measures the Group's conversion of its underlying PAT into free
cash flows. Free cash flow is calculated as the total of net cash from
operating activities after adjusting for tax paid and the impact of IFRS 16.
Cash conversion % is calculated by dividing free cash flow by underlying PAT,
which is reconciled to profit after tax above.
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Cash generated from operations (note 35) 29,431 25,060
Tax paid (2,424) (4,095)
Net cash outflow for IFRS16 leases (6,728) (5,302)
Free cashflow 20,279 15,663
Underlying profit after tax 17,291 14,422
Cash conversion (%) 117% 109%
(e) Net debt
Net debt is presented as an alternative performance measure to show the net
position of the Group after taking account of bank borrowings and cash at bank
and in hand.
30 April 2023 30 April 2022
£'000 £'000
Borrowings (note 29) 33,265 33,153
Cash and cash equivalents (4,045) (4,097)
Asset held for sale (note 27) - (130)
Net debt 29,220 28,926
38. Capital commitments
As at 30 April 2023 there is a capital commitment of £nil (2022: £72,000).
39. Defined benefit pension schemes
The Stonehams Pension Scheme
The Group operates a legacy defined benefit pension arrangement, the Stonehams
Pension Scheme (the "Scheme"). The Scheme provides benefits based on salary
and length of service on retirement, leaving service, or death. The following
disclosures exclude any allowance for any other pension schemes operated by
the Group.
The Scheme was acquired as part of the acquisition of ASB Law where contracts
were exchanged on 5 March 2020. Therefore, the disclosures below represent the
period of ownership from 5 March 2020 to 30 April 2023. The scheme is closed
and provides benefits for 40 legacy employees (now pensioners and deferred
members).
The Scheme is subject to the Statutory Funding Objective under the Pensions
Act 2004. A valuation of the Scheme is carried out at least once every three
years to determine whether the Statutory Funding Objective is met. As part of
the process the Group must agree with the Trustees of the Scheme the
contributions to be paid to address any shortfall against the Statutory
Funding Objective.
The most recent comprehensive actuarial valuation of the Scheme was carried
out as at 31 December 2021. The results of that valuation were updated to 30
April 2023 allowing for cashflows in and out of the Scheme and changes to
assumptions over the period.
From January 2022 it was agreed that Employer contributions towards
administration expenses would be deferred until January 2025. Administration
expenses are to be met directly from the assets of the Scheme. The Group will
separately meet the cost of the PPF levy.
The Scheme typically exposes the Group to actuarial risks such as: investment
risk, interest rate risk and longevity risk.
Investment risk The present value of the defined benefit plan liability is calculated using a
discount rate determined by reference to high quality corporate bond yields;
if the return on plan assets is below this rate, it will create a plan
deficit.
Currently assets are invested in a variety of funds, which will reduce
volatility. The investment approach is reviewed every three years as part of
the valuation process.
Interest risk There is some hedging in the asset portfolio, but at a low level.
A decrease in the bond interest rate will increase the plan liability but this
will be partially offset by an increase in the return on the plan's debt
investments.
Longevity risk The present value of the defined benefit plan liability is calculated by
reference to the best estimate of the mortality of plan participants both
during and after their employment. An increase in the life expectancy of the
plan participants will increase the plan's liability.
The average duration of the Scheme's obligations is 12 years.
Actuarial assumptions
Principal actuarial assumptions
30 April 2023 30 April 2022
% %
Discount rate 4.66 3.05
Retail Prices Index ("RPI") Inflation 3.28 4.00
Consumer Price Index ("CPI") Inflation 2.38 3.30
Pension increase (LPI 5%) 3.16 3.72
Pension increase (LPI 2.5%)
2.17
2.34
Post retirement mortality 90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of
7.5) using a long-term improvement rate of 1.0% pa
90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of
7.5) using a long-term improvement rate of 1.0% pa
Commutation 80% of members are assumed to take the maximum tax free cash possible using 80% of members are assumed to take the maximum tax free cash possible using
current commutation factors current commutation factors
Life expectancy at age 65 of male aged 45 22.6 22.6
Life expectancy at age 65 of male aged 65 24.2 24.2
Life expectancy at age 65 of female aged 45 23.6 23.6
Life expectancy at age 65 of female aged 65 25.4 25.3
The weighted average duration of the Scheme's obligations is 12 years.
The current asset split is as follows
Asset allocation at 30 April 2023 Asset allocation at 30 April 2022
Equities and growth assets 50% 70%
Bonds, LDI and cash 50% 30%
Value as at 30 April Value as at 30 April 2022
2023
£'000
£'000
Fair value of assets 2,314 3,047
Present value of funded obligations (1,736) (2,355)
Surplus in scheme 578 692
Deferred tax - -
Net defined benefit surplus after deferred tax 578 692
The fair value of the assets can be analysed as follows:
Value as at 30 April Value as at 30 April 2022
2023
£'000
£'000
Low risk investment funds 1,156 625
Credit Investment funds 696 1,513
Cash 462 909
Fair value of assets 2,314 3,047
30 April 2023 30 April 2022
£'000
£'000
Administration costs 39 28
Net interest on liabilities (21) (8)
Total charge to the Statement of Comprehensive Income 18 20
Remeasurements over the period since acquisition
30 April 2023 30 April 2022
£'000
£'000
Loss on assets in excess of interest (694) (115)
Gain on scheme obligation from assumptions and experience 675 361
Loss on scheme obligations due to scheme experience (77) -
Gain on scheme obligations from demographic assumptions - 2
Total remeasurements (96) 248
The change in value of assets
30 April 2023 30 April 2022
£'000
£'000
Fair value of assets brought forward 3,047 3,255
Interest on assets 91 58
Benefits paid (91) (123)
Administration costs (39) (28)
Loss on assets in excess of interest (694) (115)
Fair value of assets carried forward 2,314 3,047
Actual return on assets (603) (57)
Change in value of liabilities
30 April 2023 30 April 2022
£'000
£'000
Value of liabilities brought forward 2,355 2,791
Interest cost 70 50
Benefits paid (91) (123)
Actuarial gain (598) (363)
Value of liabilities carried forward 1,736 2,355
Sensitivity of the value placed on the liabilities
Approximate effect on liability
30 April 2023 30 April 2022
£'000
£'000
Discount rate
Minus 0.50% 110 191
Inflation
Plus 0.50% 89 139
Life Expectancy
Plus 1.0 years 52 102
Significant actuarial assumptions for the determination of the defined benefit
obligation are discount rate, inflation rate and mortality. The sensitivity
analysis above has been determined based on reasonably possible changes of the
respective assumptions occurring at the end of the reporting period, while
holding all other assumptions constant.
The sensitivity analysis presented above may not be representative of the
actual change in the defined benefit obligation as it is unlikely that the
changes in assumptions would occur in isolation of one another as some of the
assumptions may be correlated.
The With Profits Section of the Cheviot pension
Allocation of liabilities between employers
The With Profits Section was acquired as part of the acquisition of ASB Law
where the transaction completed on 17 April 2020.
The Trustee has discretion under the contribution rule on how the cost of
providing the benefits of the With Profits Section is allocated between
employers. The contribution rule applies until the earlier of the discharge of
the employer by the Trustee and the termination of the With Profits Section.
The Trustee's current policy is not to discharge employers. Employers
therefore remain liable under the contribution rule even if their last member
dies or transfers out.
The Trustee has been considering how best to ensure all employers bear an
appropriate share of the With Profits Section's obligations whilst ensuring
fairness between employers and a practical and transparent methodology for the
future.
As discussed at the Employers' Meeting on 5 July 2017, the Trustee has decided
to fix the allocation between employers on the basis of the promised benefits
just before the Section was re-classified in 2014 (the valuation as at 31
December 2013). The allocation to each employer will be expressed as a
percentage of the total Scheme liabilities. The intention is to apply this
percentage to any funding, buyout or IFRS deficit in the future to calculate
any contribution that may be due or any accounting liability.
The estimated percentage in relation to Knights Professional Services Limited
is 0.790%.
This approach enables each employer to calculate the extent of their
obligation to the Section on the basis of the funding level at any time.
Cheviot will publish funding updates on the website: quarterly, on the scheme
funding basis, which includes an allowance for future investment returns; and
annually, on an estimated buyout basis, which looks at the position should all
benefits be secured with an external provider.
Estimated funding position as at 30 April:
Scheme funding basis
30 April 2023 30 April 2022
£'000 £'000
Total assets 64,200 80,100
Total liabilities excluding expenses (68,500) (78,500)
(Deficit)/Surplus (4,300) 1,600
Funding level 94% 102%
Information provided for 30 April 2023 is as at 31 March 2023, the latest
information available. This is not expected to be materially different from
the 30 April 2023 position.
Allocation to the Group
The estimated share of the Scheme liabilities is 0.790%.
Over the year to 30 April 2023, the Section's funding position is a small
deficit.
30 April 2023 30 April 2022
£'000 £'000
Estimated cost of providing benefits (541) (620)
Value of assets 507 633
Resulting (deficit)/surplus (34) 13
Funding level 94% 102%
The deficit has not been recognised as management consider this to be
temporary and not material.
The Trustee continues to monitor the funding position.
The Trustee reserves the right to withdraw, replace or amend the policy for
the allocation between employers in the future.
40. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not disclosed
in this note. Transactions between the Group and its other related parties are
disclosed below.
KPV Propco Ltd is a company controlled by Mr DA Beech, a person with
significant influence over the Group and a member of key management personnel.
The Group leases a property from KPV Propco Ltd. During the year rents of
£376,000 (2022: £376,000) were charged by KPV Propco Ltd to the Group. A
lease of The Brampton, Newcastle-under-Lyme was granted for a term of 25 years
from and including 24 July 2017 to 24 July 2039 at a current rent of £376,000
per annum (excluding VAT).
During the year Knights Professional Services Limited charged KPV Propco Ltd
for professional services totalling £nil (2022: £1,000) and a management fee
of £20,000 (2022: £20,000)
At 30 April 2023, there was an amount of £16,000 owed by KPV Propco Ltd to
the Group (2022: £55,000 owed by the Group to KPV Propco Ltd).
During the year Knights Professional Services Limited provided legal services
to the Directors in an individual capacity of £32,000 (2022: £77,000). At 30
April 2023, there was an amount of £nil (2022: £nil) owed to the Group from
the Directors.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group is set out below
in aggregate for each of the categories specified in IAS 24 Related Party
Disclosures.
Year ended 30 April 2023 Year ended 30 April 2022
£'000 £'000
Short-term employee benefits and social security costs 1,422 1,424
Gains on exercise of options - 913
Pension costs 20 25
Share-based payments 50 (132)
1,492 2,230
Key management personnel includes Board members and directors of the Group and
the main trading company Knights Professional Services Limited.
Transactions with directors
Dividends totalling £664,000 (2022: £250,000) were paid in the year in
respect of ordinary shares held by the Company's directors.
41. Contingent liability
Included within other creditors is a contingent consideration liability, this
arises on acquisition and the liability is contingent on employees completing
a specified length of service. The value of the contingent liability is
£4,795,000 (2022: £6,204,000).
42. Post balance sheet events
On 1 May 2023 the Group exchanged contracts to acquire 100% of the voting
rights of Baines Wilson LLP, a leading commercial law firm in the North West
of England with offices in Carlisle and Lancaster.
Total consideration payable is £3.37 million. This comprises an initial
cash consideration of £2.35m, with deferred cash consideration of £1.02m to
be paid as £0.34m on the first, second and third anniversaries following
completion in each case subject to the satisfaction of certain conditions.
Completion took place on 2 June 2023.
In its unaudited accounts for the year ended 31 March 2023, Baines Wilson
reported revenue of £3.2m and a corporatised PBT margin of circa 20%.
Accounting for a typical 20% revenue churn post-acquisition, the Board expects
the acquisition to be immediately earnings enhancing, with Baines Wilson
expected to contribute an adjusted PBT margin of circa 25% post synergy
savings.
On 1 May 2023 the Group exchanged contracts to acquire 100% of the share
capital of St James' Law Limited (trading as St James' Square), an independent
full service commercial law firm located in Newcastle, the financial centre of
the North East of England.
Under the terms of the acquisition, Knights will acquire St James' Square from
its four existing owner-managers, two employees and an investor on a debt
free, cash free basis, for a total consideration of £1.75m. This comprises an
initial cash consideration of £0.5m, with deferred payments of £1.25m to be
paid as £0.7m on the first and £0.55m on the second anniversary following
completion in each case subject to the satisfaction of certain conditions.
Completion took place on 16 June 2023.
In its unaudited accounts for the year ended 31 December 2022, St James'
Square reported revenue of £2.4m and a corporatised PBT margin, excluding the
debt recovery business, of circa 5%. Accounting for a typical 20% revenue
churn post-acquisition, the Board expects the acquisition to be immediately
earnings enhancing, with St James' Square expected to contribute an adjusted
PBT margin of circa 15% post synergy savings.
Initial accounting for the business combination is not yet complete and the
fair value of net assets acquired has not yet been determined; accordingly
details of the assets acquired and liabilities assumed, and goodwill arising
on the acquisitions, cannot be given.
Glossary of Terms
Financial Performance Measure
This document contains certain financial measures that are not defined or
separately recognised under IFRS. These measures are used by the Board and
other users of the accounts to evaluate the Group's underlying trading
performance excluding the impact of any non-recurring items and items that do
not reflect the underlying day-to-day trading of the Group. These measures are
not audited and are not standard measures of financial performance under IFRS.
There are no generally accepted principles governing the calculation of these
measures and the criteria upon which these measures are based can vary from
company to company. Accordingly, these measures should be viewed as
supplemental to, not as a substitute for, the financial measures calculated
under IFRS.
Working Capital
Working capital is calculated as:
30 April 2023 30 April 2022
£'000 £'000
Current assets
Contract assets 38,215 31,777
Trade and other receivables 31,087 32,309
Corporation tax receivable 152 1,815
Total current assets 69,454 65,901
Current liabilities
Trade and other payables 20,832 21,362
Contract liabilities 218 237
Total current liabilities 21,050 21,599
Net working capital 48,404 44,302
Other Definitions
Colleague/Talent Retention/Employee Turnover
Churn is calculated based on the number of qualified fee earners who had been
employed by the Group for more than one year. Churn is calculated taking the
number of leavers in the above group over the financial year as a percentage
of the average number of colleagues for the year. Retention is 100% less the
churn rate. Churn excludes expected churn from acquisitions and restructuring
redundancies.
Client Concentration
On an individual basis this is calculated as the percentage of total turnover
for the financial year that arises from fees of the largest client. For the
top 10 client concentration calculation this takes the fee income from the 10
largest clients for the year as a percentage of the total turnover for the
year.
Top 50 clients
Based on fee income from the 50 largest clients for the year, excluding CL
Medilaw and one off transactions.
Client Satisfaction
Net Promoter Score (NPS) measures the loyalty of a client to a company and can
be used to gauge client satisfaction. NPS scores are measured with a single
question survey and reported with a number from -100 to +100, the higher the
score, the higher the client loyalty/satisfaction.
Colleague Satisfaction
Employee Net Promoter Score (ENPS) measures the loyalty of employees to a
company and how likely they are to recommend their employer as a place to
work, which can also be used to gauge employee satisfaction. ENPS scores are
measured with a single question survey and reported with a number from -100 to
+100, the higher the score the higher the employee loyalty.
Fee Earners
When referring to the number of fee earners in the Group we include all
individuals working in the Group on a mainly fee earning basis. This includes
professionals (legal and non-legal) of all levels including paralegals,
trainees and legal assistants. When referring to the number of fee earners in
the business this will refer to the absolute number of individuals working in
the Group. When using the number of fee earners to calculate the average fees
or profit per fee earner or the ratio of fee earners to support staff these
calculations are based on the number of full-time equivalent (FTE) individuals
to reflect that a number of individuals choose to work on a part-time basis.
Non-Fee Earners/Support Staff
This includes all employees that are not fee earning.
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