REG - Knights Group Hldgs - Full Year Results
08/07/2024 07:00
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RNS Number : 4057V Knights Group Holdings PLC 08 July 2024
Knights Group Holdings plc
("Knights" or the "Group")
Full Year Results
A good performance, reflecting resilience, scale and financial discipline
Plan to double the business in medium term
Knights, the legal and professional services business, today announces its
full year results for the year ended 30 April 2024.
Financial highlights
· Revenue increased by 6% to £150m (FY23: £142.1m); organic
growth of 1.9%
· Gross margin of 48.8% (FY23: 48.5%)
· Underlying PBT(1) up 17.3% to £25.3m (FY23: £21.6m);
underlying PBT(1) margin increased to 16.9% (FY23: 15.2%)
· Reported PBT increased 28.6% to £14.8m (FY23: £11.5m)
· Underlying EPS(2) increased 8% to 21.81p (FY23: 20.20p). Basic
EPS of 11.47p (FY23: 9.28p)
· Strong improvement in lock up(3) days to 78 (FY23: 87 days),
with debtor days improving to 28 (FY23: 30 days)
· Continued excellent cash conversion(4) of 131% (FY23: 117%)
enabling investment in growth
· Net debt(5) of £35.2m (30 April 23: £29.2m), after a cash
outlay of £11.3m relating to acquisitions and a joint venture investment in
Convex Corporate Finance Limited resulting in a reduction in banking covenant
EBITDA / net debt ratio to 1.1x (30 April 2023: 1.2x)
· Final dividend of 2.79p (FY23: 2.50p), giving a 9% increase in
the total dividend to 4.40p (FY23: 4.03p)
Strategic and operational highlights
A good performance as we strengthened our platform for growth
· 40 senior fee earners joined the business (FY23: 27), as
awareness increases of our national scale, differentiated model, and strong
culture. Strong retention with 12% churn (FY23: 18%)
· Won a number of new and significant clients and extended our
relationships with a number of existing clients
· Continued focus on cost discipline and operational excellence
Increased scale and diversification through considered acquisitions and
partnerships
· Acquired Baines Wilson and St James Law in the period, both are
trading ahead of expectations and provide strong platforms for future organic
growth; seven senior recruits have joined these new offices since
acquisition
· Formed a joint venture with Convex, diversifying our range of
services further, with its entrepreneur focus bringing synergies with our
corporate and private wealth offering
Current trading and Outlook
· Encouraging start to the year with a strong recovery in
residential property
· Focused on client acquisition and deeper collaboration across
offices to bring more services to existing clients
· Sustained recruitment momentum and good retention
· Active pipeline of attractive acquisitions
· Confident of delivering a meaningful improvement in organic
growth in the current financial year
Plan to double the business in the medium term
· Execution of strategy and market tailwinds to drive revenue and
profit growth
· Expected to be delivered through strong organic growth
complemented by our value accretive acquisition strategy
· Builds on considerable growth to date, EBITDA more than
quadrupled since IPO in 2018
David Beech, CEO of Knights, commented:
"Knights has delivered a good performance against a challenging market
backdrop, reflecting the strength of our diversified service offering, and
continued execution against our strategy, and building on our strong track
record of profitable growth since IPO in 2018.
"We have diversified our service offering, won a number of new clients,
sharpened our focus on operational excellence and made considered strategic
acquisitions, bolstering our scale in the North, an important region.
"This progress, together with an encouraging start to the year, including a
strong recovery in residential property, in line with our expectations, means
we are confident in delivering our ambitions plans to double the size of the
business in the medium term."
Footnotes
(1 )Underlying PBT is before amortisation of acquired intangibles,
non-underlying operating expenses, and non-underlying finance costs.
Non-underlying operating expenses include transaction and onerous lease
expenses in relation to acquisitions, contingent acquisition payments,
disposal of acquired assets, along with one-off restructuring staff and
professional expenses, mainly incurred on acquisitions, through streamlining
support functions or strategic reorganisations.
Contingent acquisition payments are treated as a non-underlying expense as
this represents payments for acquisitions which are dependent on the continued
employment of certain individuals in the business for an agreed contractual
period after an acquisition of one to three years to preserve the acquired
goodwill and customer relationships. Accounting standards require such
arrangements to be treated as remuneration in the Statement of Comprehensive
Income. However, the individuals also receive market rate salaries, therefore,
if not separately identified, these payments would significantly distort the
reported results.
(2 )Underlying EPS is underlying PAT divided by the weighted
average number of ordinary shares in issue.
(3 )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.
(4 )Cash conversion is calculated as the total of cash from operations,
less tax paid and underlying IFRS 16 net lease payments, divided by underlying
profit after tax.
(5 )Net debt includes cash and cash equivalents, borrowings and
acquired debt but excludes lease liabilities.
(6 )Underlying EBITDA is operating profit before depreciation,
amortisation and non-underlying operating expenses as defined above(1)
(7 )Underlying PAT is underlying PBT less any tax in respect of
underlying items.
(8 )Underlying EBITDA post IFRS 16 is used as a metric as this
reflects the profits after deduction of rental costs which is most comparable
to the EBITDA reported at IPO, before the introduction of IFRS 16.
These footnotes apply throughout the RNS
Enquiries
Knights
David Beech, CEO Via MHP
Kate Lewis, CFO
Deutsche Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank 020 7260 1000
MHP (Media enquiries)
Katie Hunt, Eleni Menikou, Rob Collett-Creedy +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 23
offices located in Birmingham, Brighton, Bristol, Carlisle, Cheltenham,
Chester, Exeter, Kings Hill, Leeds, Leicester, Lincoln, Manchester, Newbury,
Newcastle, Nottingham, Oxford, Portsmouth, Sheffield, Stoke, Teesside,
Weybridge, Wilmslow and York.
Chairmans's statement
I am delighted to introduce my first full year results as Chair of Knights.
Pleasingly, my first six months as Chair have confirmed my expectations that
Knights is a quality legal and professional services business of scale, with a
very driven, strong management team and a proven scalable operating platform
for future growth.
As one of the largest legal and professional services businesses outside
London, we provide the full scope of legal services, delivered to clients
locally. This together with the truly collaborative culture I have witnessed,
sets the business apart from traditional firms, and underpins its ability to
provide premium services with on the ground expertise, without limiting the
breadth of what we are able to offer.
It is these attributes, combined with the hard work of our talented
professionals and executive management team, that have facilitated the
delivery of a good performance in a difficult operating environment, amid
ongoing macroeconomic uncertainty. Despite these challenges, and their impact
primarily in the residential property market and on corporate transactions,
the Group's financial performance was in line with the Board's and market
expectations, with a significant rise in profitability.
The Group delivered revenue of £150m for the first time, representing growth
of 6%, while underlying EBITDA(6) post IFRS 16(8) charges reached £31.6m, up
21%. This is over four times the underlying EBITDA(6) reported when the Group
floated on the London Stock Exchange's AIM market in 2018, an outstanding
achievement. Reported profit before tax (PBT) increased by 29% to £14.8m in
the year.
On behalf of the Board, I would like to thank all our dedicated employees for
their contribution to the delivery of this performance and our clients and our
shareholders for their ongoing support.
Further Strategic Progress
Our strategy has delivered exemplary growth since IPO, and the management team
pressed ahead with executing this during the year. The Group enhanced its
platform both through acquisition, and by focusing on driving cost
efficiencies and hiring the best people, positioning us well for organic
growth and operational leverage in the year ahead.
We have a strong track record of executing a proven value accretive strategy
to enhance our footprint through acquisitions. We added St James Law and
Baines Wilson to our network in the year, which both provide good platforms
for future organic growth and complement our existing presence in the North
East of England. These businesses were attracted by our model and the benefits
of being part of Knights for their next phase of growth, motivation shared
with those businesses that have joined over previous years.
We also entered into a joint venture to form Convex Corporate Finance Limited
('Convex'). This boutique corporate finance business has a compelling
proposition, supporting the founders of small and medium size enterprises
through sales processes, which provides us with a service complementary to its
M&A legal work, while providing Convex with access to our wider range of
private wealth services. We are confident in the prospects of the business as
M&A markets recover, with the businesses already benefitting from their
symbiotic relationship.
Dividend
The Group's dividend policy, of paying 20% of underlying profit after tax(7),
balances the retention of profits to fund our long-term growth strategy with
providing shareholders with a return, as our growth strategy delivers positive
results.
The Board is proposing a final dividend of 2.79p, which, together with the
interim dividend of 1.61p per share gives a total dividend for the year of
4.40p (FY23: 4.03p), an increase of 9%. The dividend will be payable on 27
September 2024 to shareholders on the register at 30 August 2024, subject to
shareholder approval at the Group's AGM.
Summary
The Board is pleased with the Group's performance. We expect the good
strategic progress we have made over the course of the year, as well as the
work undertaken to enhance our platform, to support future organic growth,
recruitment momentum, M&A opportunities and client wins in the year ahead,
as we continue to scale across the UK.
With our national capabilities and deep expertise, delivered locally by a
network of talented lawyers, we are confident of making further progress.
Chief Executive's review
Our performance for the year demonstrates that the continued successful
execution of our strategy is delivering for the business and its stakeholders,
despite challenging macroeconomic conditions, with FY24 underlying EBITDA(6)
post IFRS 16(8) charges more than four times the Group's underlying EBITDA(6)
(the equivalent metric in 2018) at the time of our IPO. We continued to make
considered strategic acquisitions, bolstering our scale in the North, an
important region, and also diversified our service offering, won a number of
new clients, and sharpened our focus on driving cost savings whilst improving
operational excellence. As a result, our position as the preeminent provider
of premium professional services outside London, with the ability to deliver a
high calibre, full-scope service, locally, became even more firmly
established.
Operationally and strategically, it was a year of two distinct halves. Early
in the year, we expanded our presence in the North of England with two
carefully chosen acquisitions which have since integrated into the Group well
and are performing ahead of expectations. In the second half, we focussed on
optimising operational gearing by making salary and administrative cost
savings as we continued to drive future organic growth, enhanced by our joint
venture with corporate financier, Convex, which further strengthens our
foundation for diversified growth.
Momentum in recruitment has been good, with our strong reputation, scale, and
differentiated model and culture continuing to attract quality talent to the
Group from leading law firms across the country; during the year, 40 senior
fee earners joined us, a 48% increase compared with 27 the previous year. As
we continued to build our teams, we also secured a number of new and
significant clients and extended our relationships with a number of existing
clients. This demonstrates that our unique combination of scale, breadth of
services, and locally delivered expertise is resonating with potential and
existing clients.
A robust performance, reflecting the Group's resilience, scale and financial
discipline
Our operating environment continued to be challenged through the year, with
uncertainties impacting business sentiment, such as high interest rates, and
the UK's mini recession, weighing on residential property markets and M&A
activity in particular. Despite this, we were able to deliver our 12th
consecutive year of profitable revenue growth, testament to the strength of
the business and its diversified service offering and client base.
Total revenue for the year increased by 6% to £150m (FY23: £142m),
reflecting the resilience of the Group and the tireless efforts of our
people. Contributions from acquisitions accounted for 4% of the growth in
the year. Revenues grew by 2% organically, with good growth in our
non-cyclical work, particularly private wealth, dispute resolution, CL
Medilaw, and our growing regulatory team, which more than offset softer
performances from the more cyclical residential property and corporate
activities. If the reduced revenues in the housing and corporate activities
are excluded, along with the reduction in insolvency revenue, due to the
strategic decision to reduce this work stream, organic growth for the Group is
6% for the year. We also focused on cost optimisation, driving efficiencies
through the business and fully achieving all integration synergies on
acquisitions.
Debtor days for the year improved yet again to 28 (FY23: 30), demonstrating
our strong discipline and market leading position in managing working capital.
Our Client Services Directors remain a core strength and a critical part of
the business. As well as facilitating our unrivalled focus on cash management,
as our local leaders, they maintain a focus on driving growth across the Group
through strategic recruitment, winning new business and developing and
enhancing key client relationships.
A strengthened platform for growth
Our differentiated model and strong corporate culture continue to set Knights
apart within the industry, driving strong talent acquisition. The Group's
agility, entrepreneurial spirit and speed of decision making in responding to
evolving client demands and market conditions have been sustained despite our
increasing size, and are instrumental in securing, motivating and retaining
high quality talent. Attracted by this, and our scale, 40 senior fee earning
professionals joined the business during the year. Acquisitions we completed
during this and the prior year also brought new talent into the business and
provided stronger platforms for recruitment in their respective regions,
widening the pool from which we can source high quality individuals with
strong client followings.
The deepening breadth of expertise within the Group is also driving wider
business performance, with colleagues increasingly introducing specialists
from across our network to offer a fuller service to their clients. This is
testament to the power of our commercial mindset, which is becoming
increasingly embedded across our teams, and a key example of our collaborative
one team culture in action. Together with growing recognition of Knights and
its capabilities, it is this mindset that has helped to secure significant new
client wins and led to an increase in the value of a number of our existing
client relationships. It has also prompted a shift in the type of client we
are able to attract, signalling a step change for the business as greater
awareness of our comprehensive, premium offer gathers pace.
We are proud of the technology, centralised IT systems, and automation tools
we deploy across our network. We aim to be at the forefront of implementing
new technologies that can help us refine and enhance our internal processes
and better serve our clients. In addition, we are trialling a number of
AI-enabled tools, in partnership with technology leaders, to facilitate the
delivery of services to our growing portfolio of clients. We have long been a
market leader in deploying automation tools and innovative technology to drive
workflow efficiencies, which has enabled us to operate a lean support
function, as evidenced by our low ratio of non-fee earners to fee earners.
Building on our past learnings, we recognise that a considered approach to
emerging technologies is required and we are taking care to ensure we adopt
the right tools for our business and our clients. While it is early days, we
are excited about how these developments will help us to do more for our
clients, more efficiently.
Executing our value-accretive acquisition strategy
A core part of our strategy remains the pursuit of considered acquisitions to
drive future organic growth and consolidate the fragmented regional legal
services market further. We focused more on acquisition activity in the first
half, when we bolstered our regional footprint through two high quality
acquisitions in strategic growth markets. As ever, we acquired firms that were
not only a great cultural fit, but that also have clear potential to support
the Group's future organic growth. We are delighted by how both these
businesses have integrated, demonstrating our ability to realise synergies and
realise value from the firms we acquire.
Strengthened presence in the North of England
During the year, we acquired St James Law and Baines Wilson, which both
provide access to important markets, further diversification and strong
platforms for talent acquisition in the region. They also support our growing
brand awareness in the North of England, where our presence and reputation has
been building steadily in recent years, delivering excellent results for the
Group.
The acquisition of independent full service commercial law firm, St James Law,
brought entry into Newcastle, an important strategic location and the
financial centre of the North East, complementing our existing Teesside
presence. It has already proved to be a strong platform for recruitment of
high-quality talent, with six senior recruits having joined since acquisition.
The North East is one of the UK's largest markets outside London for legal and
professional services. We entered the region in 2023, with the acquisition of
Archers Law in Teesside. Since joining, our Teesside business has gone from
strength to strength, delivering over 25% organic growth in its second full
financial year as part of the Group.
We also acquired Baines Wilson, the leading commercial law firm in Carlisle.
The firm offers corporate, real estate, dispute resolution and employment
services, and provides us with entry into Cumbria. This acquisition has
integrated well and is performing ahead of plan.
There remains a healthy pipeline of independent legal and professional
services firms across the country, predominantly in locations outside major
cities, seeking to join a group that offers the stability associated with a
larger, more diversified business, the ability to offer a broad range of
services at scale, and the benefit of a corporatised model over equity
partnerships. This underpins our longstanding strategy to scale through
acquisition, expanding our reach and enabling us to offer premium legal
services, locally, across the UK and leverage our strong operational platform.
To pursue our value accretive acquisition strategy, a new, extended revolving
credit facility was agreed during the year, providing total committed funding
of £70m until November 2026. This new facility provides the headroom and
flexibility for us to execute the right opportunities as they arise.
Convex joint venture
Towards the end of the financial year, we entered into an exciting joint
venture with the former Convex Capital management team, to form Convex
Corporate Finance Limited ("Convex").
Convex's primary activity is supporting vendors of entrepreneur-led businesses
in maximising their equity value through sales to strategic acquirers
globally. For us, entering into this partnership shows our commitment to
diversifying and developing the range of professional services available to
our clients, in this case, an expansion of our M&A services from purely
legal to corporate finance. Through this venture, which is based in
Manchester, Convex clients will benefit from our existing legal M&A and
private wealth services and national scale.
While M&A market sentiment has been depressed, we are beginning to see
signs of renewed confidence returning in the pipeline and are now even better
positioned to benefit as activity picks up.
Employees at the heart of our ESG commitments
ESG remains central to everything we do, and we retain a relentless focus on
developing a more sustainable business for all stakeholders. While our efforts
span commitments across all aspects of our operations, this is particularly
evident in our focus on culture, and our employee value proposition, which
continues to drive momentum in recruitment and retention. We recognise that
our talent is our greatest asset and strive to ensure that we are always
improving our employee offering. We have a fierce commitment to fostering an
inclusive, equitable, meritocratic environment, and we are proud that
anonymous feedback provided to external consultants during the year signalled
this was a stand-out cultural feature at Knights.
From an environmental perspective, while we remain a low carbon intensive
business, we continuously seek ways in which to further reduce our emissions
and drive energy efficiency across the group. During the year, we launched an
EV scheme whereby colleagues can acquire electric vehicles through an approved
salary sacrifice scheme, and in November 2023 also introduced a cycle to work
initiative. We also seek to ensure that all acquired property meets minimum
standards of energy efficiency, and during the year, we have focused on
optimising our existing property portfolio.
Board changes
During the year, we were delighted to welcome Dave Wilson as non-executive
Chairman of the Group. Dave brings more than 30 years' international
board-level and operational experience to our Board, including in AIM-listed,
acquisitive businesses. Since joining, Dave's insights and experience have
been invaluable, and his contribution has already made a real impact.
Bal Johal stepped down from the Board at the same time, having served as
non-executive Chair of Knights since 2012. On behalf of the Board, I reiterate
our thanks to him for his immense contribution to the business over the past
11 years, during which time the Group has seen significant growth.
Current trading and outlook and medium-term plan
Trading in the first few weeks of the year has been encouraging. Despite some
continued macroeconomic uncertainty, we are seeing a strong recovery in the
residential property market, and anticipate an improving corporate M&A
market, which we expect to support organic growth in our revenues during the
current financial year and beyond.
While the past three fiscal years have presented the Group with multiple
challenges, the business has responded well to these and is now poised to
build on the work we have done during the past year to strengthen our platform
for future growth. We entered the new financial year as a more connected,
better organised business, able to offer and deliver a far broader range of
services to our clients than ever before. This gives us great confidence that
Knights is well-positioned to take advantage of improving market trends now,
and longer term. We also have the headroom in our existing financing
facilities and the expertise to add high quality acquisitions to our scalable
platform, and we are encouraged by our active pipeline of opportunities.
We therefore expect organic growth to continue to improve in FY25, supported
by sustained recruitment momentum and more new client wins, together with a
more concerted approach to client acquisition and bringing more of our
services to more of our existing clients, complemented by high-quality,
considered acquisitions.
Looking beyond this year, we are focused on delivering an ambitious
medium-term plan to significantly grow the business, building on our success
to date, the clear momentum across the Group, and market tailwinds. Through a
combination of strong organic growth, complemented by our strong pipeline of
acquisition opportunities, we are confident in our ability to double the
business in the medium term.
CFO Review
I am pleased to report another year of profitable, cash generative growth with
revenue of £150.0m, up 6% compared to the prior year (FY23: £142.1m) and
underlying EBITDA(6) increasing by 16% to £38.7m (FY23: £33.4m). Reported
profit before tax (PBT) increased by 29% to £14.8m in the year (FY23:
£11.5m). Our disciplined approach to management of lock up(3) has generated
excellent cash conversion(4) of 131% for the year (FY23: 117%) resulting in a
strong balance sheet position at the year end.
Two complementary acquisitions during the year, an investment in a joint
venture, recruitment of partners with new specialisms and strong growth in
certain service lines has further increased the diversity of the Group's
revenue. This diversity has been key to enabling the Group to deliver these
positive results for FY24 despite the headwinds experienced in certain
business sectors such as housing and M&A, due to the increased cost of
debt.
FY24 has been a year of consolidation. Following several years of consistent
and rapid growth through acquisitions, we have focused on our core business
platform, consolidating services and facilities where appropriate and
maximising efficiencies. Management of our cost base and treasury resources
has enabled us to deliver strong growth in profits with improvements in
margins achieved.
Whilst managing our cost base, we have continued to invest in our
infrastructure ensuring we have the necessary management team, property
portfolio and systems and technology resources in place to sustain our future
growth plans.
Financial results
Year ended Year ended % change
30 April 2024 30 April 2023
£'000
£'000
Revenue 149,957 142,080 6%
Other operating income 10,439 6,718 55%
Staff costs (93,007) (88,412) 5%
Other operating charges (28,218) (26,539) 6%
Impairment of trade receivables and contract assets (489) (468) 4%
Underlying EBITDA 38,682 33,379 16%
Underlying EBITDA % 25.8% 23.5%
Depreciation charges under IFRS16 (5,607) (5,706) (2%)
Finance costs under IFRS 16 (1,471) (1,474) 0%
Underlying EBITDA post IFRS 16 charges 31,604 26,199 21%
Depreciation and amortisation charges (excluding amortisation on acquired (2,903) (2,469) 18%
intangibles)
Underlying finance charges (excluding IFRS 16) (3,402) (2,135) 59%
Underlying finance income 23 - 0%
Underlying profit before tax 25,322 21,595 17%
Underlying profit before tax margin 16.9% 15.2%
Underlying tax charge (excluding impact of non-recurring deferred tax) (6,598) (4,304) 53%
Underlying profit after tax 18,724 17,291 8%
Basic underlying EPS (pence) (2) 21.81 20.20 8%
Revenue
Reported revenue for the year is £150.0m compared to £142.1m in FY23, an
increase of 6%.
Of this increase, £5.1m was generated from acquisitions made during the year
and £1.0m is from the full year impact of FY23 acquisitions, with the
disposal of HPL (acquired as part of Langleys in FY22) in July 22 reducing
revenues year on year by £0.7m.
The remaining increase in revenue of £2.5m was generated through net organic
growth.
Organic revenues
We are pleased to report a return to organic revenue growth of 2% in the year
despite the challenging macro-economic conditions, demonstrating the
resilience of our business driven by the diversity of our revenue streams and
client base. The strategic decision to significantly reduce our restructuring
and insolvency team during the second half of the year due to poor
profitability and our commitment to positioning the business in the premium
market had a negative impact on revenue growth of 1%. The economic impact of
the increased costs of debt on the housing market (a 19% reduction in revenue)
and corporate transactions (a 9% reduction in revenue) had a negative impact
on total organic growth of 3%.
Excluding the effects of these strategic decisions and the macro-economic
conditions on the housing market and corporate transactions, organic growth
was 6% for the year. Strong growth in our non-cyclical areas of the business
such as Private Wealth, Dispute Resolution along with our growing Regulatory
and Immigration teams demonstrates the opportunities available for future
organic growth when macro-economic conditions stabilise.
Our organic growth during the year results mainly from improved pricing and
the quality of work undertaken, together with the recruitment of partners with
strong client followings and networks.
Revenue from acquisitions
The acquisitions of Coffin Mew, Globe Consultants and Meade King completed
during FY23. At acquisition we typically budget to retain 80% of acquired
revenues. Other than Coffin Mew, where revenue has been impacted by the
downturn in the housing market, the acquisitions are trading well and ahead of
expectations. Current run rates for new housing matters acquired as part of
the Coffin Mew acquisition indicate increases in revenue in FY25 to around
expected levels. As well as driving the acquisition-related revenue, these
acquisitions have continued to help drive organic revenues with recruits into
these offices generating strong organic revenues in the year.
During FY24 we acquired Baines Wilson and St James Law. Both acquisitions have
integrated into the business and are performing well and have contributed
£5.1m of revenue in the year, which is higher than anticipated.
As well as contributing to acquisition revenues, both acquisitions are proving
to be an excellent platform to generate strong organic growth with several new
partner hires already being made into these offices.
Staff Costs
Total staff costs of £93.0m (FY23: £88.4m) have decreased as a percentage of
revenue for the year to 62.0% (FY23: 62.2%) reflecting the continued
discipline over cost control balanced against investing in the future growth
of the business. This investment included the recruitment of partners and
senior associates with good client following and networks as well as ensuring
the appropriate leadership structure is in place providing a sustainable base
for future growth.
Direct staff costs
Fee earning staff costs have reduced to 51.2% of revenue (FY23: 51.5%). This
reflected a reduction in fee earner numbers through churn in some less
productive and profitable areas of the Group and a continued leverage of the
staff cost base through focus on improvements in pricing and recovery of
client time. Pleasingly, we have started to leverage direct fee earner costs
and improve gross margin whilst continuing to invest in the recruitment of new
senior recruits to support our future organic growth. During FY24 we recruited
40 partners and senior associates (FY23: 27) representing investment for
future organic growth.
Support staff costs
Support staff costs increased marginally to 10.8% (FY23: 10.7%). This is
mainly due to delays in the timing of being able to leverage our past
investment in creating an optimised operational platform due to the economic
challenges affecting the housing-related and M&A service lines. FY24 has
been a year of consolidation enabling the Group to focus on and benefit from
process automation and centralisation of support services. This consolidation
of support staff costs, whilst maintaining an excellent management structure
to support future growth, puts the Group in a strong position to leverage this
cost base in FY25 and beyond.
Other operating charges
Other operating charges of £28.2m have increased to 18.8% of revenue (FY23:
18.7%), again reflecting our investment for the future. During the period we
refreshed our brand as well as investing in a review of our employee value
proposition, an important investment in identifying and capturing the values,
opportunities and culture our people can expect from us in return for their
skills, experience and commitment. Investment in property, business
development and office travel has also increased as we focus on building
organic growth through building on existing client relationships, developing
new client relationships and exploring new markets, including working with
international clients and law firms requiring support in the UK. Whilst
investing in these areas for growth we have also spent the year reviewing and
consolidating supplier contracts maximising all synergy savings from past
acquisitions. This has enabled us to manage our cost base whilst investing in
business development, systems and technology necessary to support future
growth.
Other operating income
Other operating income has increased to £10.4m from £6.7m driven by an
increase in interest earned on client monies held due to higher interest rates
in FY24 than the previous year.
Underlying EBITDA(6)
Underlying EBITDA(6) excludes non-underlying operating expenses. These
expenses include transaction and onerous lease expenses in relation to
acquisitions, contingent acquisition payments and one-off restructuring and
professional expenses mainly incurred in the streamlining of support functions
or strategic reorganisations. The Board considers this to be a key metric to
measure underlying business performance.
Contingent acquisition payments are treated as a non-underlying expense as
this represents payments for acquisitions which are dependent on the continued
employment of certain individuals in the business for an agreed contractual
period after an acquisition of one to three years to preserve the acquired
goodwill and customer relationships. Accounting standards require such
arrangements to be treated as remuneration in the Statement of Comprehensive
Income. However, the individuals also receive market rate salaries, therefore,
if not separately identified, these payments would significantly distort the
reported results.
During the year, underlying EBITDA(6) increased by £5.3m to £38.7m (FY23:
£33.4m) representing an increase in margin to 25.8% (FY23: 23.5%), mainly due
to the increase in the net interest earned on client monies in the period.
IFRS 16 Depreciation and finance charges
The IFRS 16 rental and finance expenses represents the accounting charge in
respect of all leases with a term of over one year. During the year total
expenses of £7.1m have reduced to 4.7% of revenue (FY23: 5.1%) as we continue
to focus on rightsizing our property portfolio which has grown through
acquisition. During the year the property portfolio has been managed to ensure
we are optimising our space wherever possible, including subletting excess
space in Leeds and Teesside, exiting offices in Manchester, Crawley,
Southampton and Lancaster, with colleagues transferring to other existing
offices.
Depreciation and amortisation charges
The increased charge from £2.5m (1.7% of revenue) in FY23 to £2.9m (1.9% of
revenue) in FY24 is due to continued investment in systems and investment in
property upgrades and refurbishments to support growth.
Finance charges
Finance charges increased by £1.3m in the year to £3.4m (FY23: £2.1m)
driven mainly by the higher level of UK interest rates.
Underlying profit before tax (PBT)
Underlying profit before tax excludes amortisation of acquired intangibles,
transaction, and onerous lease expenses in relation to acquisitions,
contingent acquisition payments, disposals of acquired assets, one-off
restructuring and professional costs mainly incurred in the streamlining of
support functions or strategic reorganisations.
Underlying PBT 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.
Year ended 30 April 2024 Year ended
£'000
30 April 2023
£'000
Profit before tax 14,831 11,529
Amortisation on acquired intangibles 3,580 3,441
Contingent acquisition payments treated as remuneration 2,824 4,436
Other non-underlying costs 4,087 2,189
Underlying profit before tax 25,322 21,595
Total Group underlying PBT has increased by 17.3% to £25.3m (FY23: £21.6m).
The underlying profit before tax margin increased to 16.9% from 15.2% in the
prior year benefitting from an increase in EBITDA margin, offset by an
increase in interest payable.
Reported Profit Before Tax (PBT)
Reported PBT for the year has increased 28.6% to £14.8m (FY23: £11.5m)
reflecting the increased profit in the underlying business.
Taxation
The tax charge for the year is £5.0m (FY23: £3.6m) made up of a current tax
charge of £5.2m (FY23: £4.1m) partially offset by a deferred tax credit of
£0.2m (FY23: £0.5m) giving an increased effective rate of tax for the Group
of 34% (FY23: 31%). The increase in current tax charge reflects the increase
in profits before tax and the full year impact of the increase in corporation
tax rates in April 23 to 25% from 19%. The effective rate of tax is 34%
compared to the UK corporation tax rate of 25% due to disallowable expenses,
mainly contingent acquisition payments.
The effective rate of tax on the underlying profit of the Group is 26% (FY23:
20%) again mainly reflecting the increase in corporation tax rates from April
2023.
Earnings per share (EPS)
Basic EPS in the period increased by 24% to 11.47p per share (FY23: 9.28p per
share). To aid comparison of EPS on a like for like basis, underlying EPS(2)
has also been calculated based on the underlying profit after tax, calculated
as set out below.
Year ended Year ended
30 April 2024 30 April 2023
£'000
£'000
Operating profit before non-underlying charges and amortisation on acquired 30,172 25,204
intangibles
Finance costs (4,939) (3,661)
Finance income 89 52
Underlying profit before tax(1) 25,322 21,595
Taxation - underlying (6,598) (4,304)
Underlying profit after tax 18,724 17,291
The underlying EPS(2) has increased by 8% to 21.81p for the year (FY23:
20.20p). The weighted average number of shares used to calculate the undiluted
EPS in the year was 85,840,067.
Considering the dilutive impact of potential share options, the basic diluted
EPS for FY24 is 11.11p per share (FY23: 9.19p per share). Underlying diluted
EPS has increased by 6% to 21.13p per share (FY23 20.00p per share).
Dividend
The Board continues to adopt a progressive dividend policy balanced with its
commitment to continue to invest in the future growth potential of the
business. Subject to approval at the Annual General Meeting in September 2024
the board proposes a final dividend of 2.79p per share. This together with the
interim dividend of 1.61p per share brings the total dividend in respect of
FY24 to 4.40p per share (FY23: 4.03p per share) representing an increase of
9%.
Balance Sheet
30 April 2024 30 April 2023
£'000
£'000
Goodwill and Intangible assets 86,900 88,021
Right of use assets 34,034 38,200
Investment in joint venture 50 -
Loan to joint venture 2,523 -
Property, plant and equipment 14,896 10,004
Working capital 53,125 48,404
Other provisions and deferred tax (14,590) (14,823)
Lease liabilities net of lease receivables (38,573) (42,930)
138,365 126,876
Cash and cash equivalents 5,453 4,045
Borrowings (40,617) (33,265)
Net debt(5) (35,164) (29,220)
Deferred consideration (2,941) (4,849)
Net assets 100,260 92,807
The Group's net assets as at 30 April 2024 increased by £7.5m to £100.3m
(FY23: £92.8m) primarily reflecting profit for the year net of dividends paid
in the period. The key movements in the Balance Sheet are discussed in more
detail below.
Goodwill and intangible assets
Goodwill and intangible assets includes £24.9m of intangible assets relating
to the Knights brand and customer relationships from current and prior year
acquisitions. Purchased computer software amounts to £0.2m with the remaining
balance of £61.8m 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 2024, the Board is satisfied that the goodwill was not impaired.
Investment in, and Loan to joint venture
Towards the end of the financial year, we entered into a joint venture with
Convex. We purchased 50% of the equity of Convex for £50,000 and provided
loans of £2.5m. These loans attract a minimum interest rate of 10%. There are
no set repayment terms in respect of these loans which are repayable from the
profit and cash generated by the business, therefore they are classified as
non-current assets on the balance sheet as at 30 April 2024.
Property, Plant and Equipment
During the year the Group has continued to invest in its business platform to
ensure the necessary IT and property infrastructure is in place to support our
future growth plans. We continued our programme of investment in our IT
systems and technology investing £1.4m (FY23: £1.3m) in the year. After a
period of expansion of our property portfolio through acquisitions, during
FY24 we have carried out a review of our properties, rightsizing and
subletting some offices as appropriate. As part of this review, we have also
invested in the refurbishment of certain offices to ensure we offer quality
grade A office space where possible across the business. During FY24 we
invested £6.7m in our refurbishment of office space (FY23: £0.4m). This
investment, net of disposals and depreciation has resulted in an increase in
our tangible fixed assets, excluding leasehold property, of £4.9m to £14.9m
as at 30 April 2024 (30 April 23: £10.0m).
Working capital
Working capital is calculated as follows:
30 April 2024 30 April 2023
£'000
£'000
Contract assets 40,191 38,215
Trade and other receivables 32,753 31,087
Corporation tax receivable 304 152
Total current assets 73,248 69,454
Trade and other payables (19,935) (20,832)
Contractual liabilities (188) (218)
Total current liabilities (20,123) (21,050)
Net working capital 53,125 48,404
Net working capital has increased to £53.1m as at 30 April 2024 (30 April 23:
£48.4m), an increase of £4.7m or 10% from the prior year. Whilst the
combined total for contract assets and trade receivables have reduced
marginally as a percentage of revenue to 48.6% as at 30 April 2024 (30 April
23: 48.8%), timing of supplier payments has reduced the trade payables balance
by £0.9m compared to the prior year.
The management of working capital continues to be a fundamental KPI for the
Group, with strong controls and systems in place to monitor the levels of
receivables and work in progress across the business. The number of lock up(3)
days (the time taken to convert a unit of time incurred into cash) is a key
focus for the Board, Client Services Directors, and wider management team. As
at 30 April 2024 lock up(3) was 78 days (30 April 23: 87 days). This decrease
was driven by a reduction in debtor days to 28 days (30 April 23: 30 days) and
WIP (work in progress) days of 50 days (30 April 23: 57 days). Due to the
disproportionate amount of time that it takes to conclude certain work types,
such as our CL Medilaw, Real Estate Investment and Insolvency matters, these
work types are excluded from our WIP days calculation as exceptions, so as not
to distract the majority of the business from focusing on achieving its
excellent lock up(3) days. If WIP days were calculated including all valued
WIP of the Group this would give WIP days of 85 days and hence a total lock
up(3), with no exclusions, of 113 days as at 30 April 2024 (30 April 23: 116
days).
The Group's strong controls over and focus on invoice collection continue to
deliver excellent results with the bad debt charge for the year remaining at
0.3% of revenue, consistent with the prior year.
Right of Use Assets
The right of use assets capitalised in the Consolidated Statement of Financial
Position represents the present value of property, equipment and vehicle
leases. The decrease in the value of right of use assets during the year to
£34.0m, from £38.2m as at 30 April 2023, resulted from an increase in assets
of £7.0m relating to new leases acquired through acquisitions and the
relocation of existing offices to new properties, less disposals and
impairment of £5.6m as we terminate existing leases, and sublet excess space
as part of our ongoing review of the property portfolio, less deprecation of
£5.6m for the year.
Lease liabilities net of lease receivables
Lease liabilities net of lease receivables represents the present value of the
total liabilities recognised in respect of the right of use assets, net of the
present value of all amounts receivable in respect of any subleases of these
assets.
The decrease in net lease liabilities and receivables in the year to £38.6m
(30 April 2023: £42.9m) is the net impact of receipts and payments made in
respect of existing lease agreements together with the impact of the lease
receivable from the sublease of part of the Teesside office during the year
together with the increase in lease liabilities from new leases acquired net
of disposals of leases during the period.
Cash conversion, net debt(5), financing and leverage
Cash generation continues to be a key focus for the Board and management team.
The Group measures cash conversion by comparing the free cash flow from
operations as a percentage of its underlying profit after tax(7). As a result
of the continued focus on this and specifically the management of lock up(3),
the Group generated underlying cashflows before capital expenditure of £24.6m
during year equating to a cash conversion of 131%.
Cash flow
Year ended Year ended
30 April 2024 30 April 2023
£'000
£'000
Underlying EBITDA(6) 38,682 33,379
Change in working capital (3,549) (5,196)
Cash outflow for IFRS 16 leases (6,245) (6,728)
Movement in underlying share-based payment charge 1,121 1,248
Cash generated from underlying operations (pre-tax) 30,009 22,703
Tax paid (5,432) (2,424)
Net cash generated from underlying operating activities 24,577 20,279
Underlying profit after tax 18,724 17,291
Underlying cash conversion 131% 117%
The strong cash generation in the year has resulted in net debt(5) of £35.2m
at the year-end (30 April 23: £29.2m) despite a cash outlay of £11.3m
relating to acquisitions and investments in the year along with deferred and
contingent acquisition payments paid for acquisitions in prior years. The
continued strong cash conversion has also enabled us to invest £8.2m in our
systems and property portfolio to provide high quality infrastructure to
support our future growth strategy and focus on premium service delivery.
The table below shows a reconciliation of the key cashflows impacting the
movement in net debt in the year.
Year ended
30 April 2024
£'000
Net debt 30 April 2023 29,220
Other net cash (inflows) from operating activities (24,572)
Deferred and contingent acquisition payments 6,162
Consideration paid for acquisitions in the year (including acquired debt and 2,549
cash)
Unpaid acquired debt 638
Non-underlying costs paid 4,246
Interest on borrowings 2,965
Dividends paid 3,525
Investment in joint venture 2,550
Capital expenditure (net of landlord contributions) 7,881
Net debt 30 April 2024 35,164
In November 2023 we renewed and extended our revolving credit facility (RCF)
to £70m, committed until November 2026. As at 30 April 2024 the Group has
c.£35m headroom in the RCF and is well within all covenants. For banking
purposes our leverage as at 30 April 2024 was 1.1 times EBITDA (as defined for
covenant purposes). Interest is payable on the loan at a margin of between
1.65% and 2.55% above SONIA dependent on leverage.
The Group is therefore in a strong financial position with sufficient headroom
and flexibility within our financing arrangements to enable us to continue to
execute our growth strategy.
Capital Expenditure
Capital expenditure (net of landlord contributions) during the year was £7.9m
(FY23: £1.9m). The increase in the amount spent in the year compared to the
prior year is due to the review of our property portfolio and the
refurbishment of existing and acquisition of new office spaces as we look to
consolidate our existing portfolio where appropriate, and invest in new and
existing space to provide Grade A office space ensuring colleagues benefit
from a high-quality working environment. Investment in office space and
systems will continue into FY25, with circa £11m budgeted to be spent on
completing the refurbishment of all existing offices together with the
continued investment in our IT systems together to ensure we have top quality
premises and systems in place to support our future growth strategy.
Acquisitions
During the year we completed two acquisitions and invested in a joint venture.
The table below summarises the impact of these acquisitions on the cashflows
during the year and in future years. This shows the consideration payable net
of any cash in the acquired business.
The payment to the joint venture included a £50,000 investment in the equity
of the business with the balance of £2.5m being a loan repayable from the
future profits of the business. There is no agreed timescale for repayment of
the loan therefore this has not been included in current forecast cashflows
shown below, any repayments would therefore represent upside on forecast
cashflows.
Financial year ended Acquisitions of subsids (net of acquired cash) Repayment of debt acquired with subsids Contingent & deferred acquisition payments Investment in and loan to joint venture £'m Net cash impact of acquisitions pre year end
£m
£m
£m
£m
2024 1.9 0.8 6.2 2.6 11.5
2025 - 0.5 5.2 - 5.7
2026 - 0.3 1.7 - 2.0
2027 - - 0.3 - 0.3
The above includes estimated contingent acquisition payments as remuneration
in the Consolidated Statement of Comprehensive Income.
Summary
Results for the year to 30 April 2024 reflect a steady year of consolidation
enabling us to continue to build our platform to support future growth. We
have seen both acquisitive growth and a return to modest organic growth during
the year, with our scale and diversity providing good resilience against an
uncertain macro-economic environment. The centralisation of many support
services and continued investment in recruitment and business development
places the Group in a strong position to enable it to leverage costs and
deliver higher levels of growth as external markets improve.
Our continued excellent management of cash has resulted in a strong Balance
Sheet with significant headroom in our banking facilities to fund future
investment and growth, both organically and through acquisitions
Consolidated Statement of Comprehensive Income
For the year ended 30 April 2024
Note
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Revenue 5 149,957 142,080
Other operating income 7 10,439 6,718
Staff costs* 8 (93,007) (88,412)
Depreciation and amortisation charges* 11 (8,510) (8,175)
Impairment of trade receivables and contract assets (489) (468)
Other operating charges* 12 (28,218) (26,539)
Operating profit before non-underlying charges and amortisation on acquired 30,172 25,204
intangibles
Amortisation on acquired intangibles 11 (3,580) (3,441)
Non-underlying operating costs 13 (6,630) (6,473)
Operating profit 19,962 15,290
Finance costs* 14 (4,939) (3,661)
Finance income 15 89 52
Non-underlying finance costs 13 (281) (152)
Net finance costs (5,131) (3,761)
Profit before tax 14,831 11,529
Taxation - underlying* 17 (6,598) (4,304)
Tax impact of non-underlying costs 17 1,614 1,129
Non-recurring tax charge 17 - (410)
Taxation (4,984) (3,585)
Profit and total comprehensive income for the year attributable to equity 9,847 7,944
owners of the parent
Earnings per share Pence Pence
Basic earnings per share 11.47 9.28
Diluted earnings per share 11.11 9.19
The above results were derived from the Group's continuing operations.
* Excluding non-underlying items and amortisation on acquired intangibles
Consolidated Statement of Financial Position
As at 30 April 2024
Note 30 April 2024 30 April 2023
£'000 £'000
Assets
Non-current assets
Intangible assets and goodwill 20 86,900 88,021
Investments 22 50 -
Property, plant and equipment 23 14,896 10,004
Right-of-use assets 23 34,034 38,200
Finance lease receivables 26 1,633 1,671
Trade and other receivables 25 2,523 -
140,036 137,896
Current assets
Contract assets 24 40,191 38,215
Trade and other receivables 25 32,753 31,087
Finance lease receivables 26 364 315
Corporation tax asset 304 152
Cash and cash equivalents 5,453 4,045
79,065 73,814
Total assets 219,101 211,710
Equity and liabilities
Equity
Share capital 27 171 171
Share premium 75,262 75,262
Merger reserve (3,506) (3,506)
Retained earnings 28,333 20,880
Equity attributable to owners of the parent 100,260 92,807
Non-current liabilities
Lease liabilities 28 35,389 38,585
Borrowings 29 40,149 33,076
Deferred consideration 30 350 2,482
Deferred tax 31 8,288 8,388
Provisions 33 3,968 4,090
88,144 86,621
Current liabilities
Lease liabilities 28 5,181 6,331
Borrowings 29 468 189
Trade and other payables 32 19,935 20,832
Deferred consideration 30 2,591 2,367
Contract liabilities 24 188 218
Provisions 33 2,334 2,345
30,697 32,282
Total liabilities 118,841 118,903
Total equity and liabilities 219,101 211,710
Consolidated Statement of Changes in Equity
For the year ended 30 April 2024
Note Share capital Share premium Merger reserve Retained earnings Total
£'000
£'000
£'000
£'000
£'000
As at 1 May 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 27 2 998 - - 1,000
Transfers - - 30 (30) -
Dividends 19 - - - (3,061) (3,061)
Balance at 30 April 2023 171 75,262 (3,506) 20,880 92,807
Profit for the period and total comprehensive income - - - 9,847 9,847
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments 9 - - - 1,131 1,131
Dividends 19 - - - (3,525) (3,525)
Balance at 30 April 2024 171 75,262 (3,506) 28,333 100,260
Consolidated Statement of Cash Flows
For the year ended 30 April 2024
Note
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Operating activities
Cash generated from operations 35 36,254 29,431
Non-underlying operating costs paid 13 (4,246) (3,142)
Tax paid (5,432) (2,424)
Contingent acquisition payments (3,745) (3,870)
Net cash from operating activities 22,831 19,995
Investing activities
Acquisition of subsidiaries (net of cash acquired) 21 (1,888) (6,018)
Other loans made 22 (2,500) -
Investment in joint ventures 22 (50) -
Purchase of intangible fixed assets 20 (40) (71)
Purchase of property, plant and equipment 23 (8,165) (1,853)
Proceeds from lease receivables 26 405 237
Disposal of subsidiaries (net of cash disposed) - 1,068
Landlord capital contribution 396 -
Associated lease costs (72) -
Payment of deferred consideration (2,417) (1,210)
Net cash used in investing activities (14,331) (7,847)
Financing activities
Proceeds of borrowings 23,200 34,425
Repayment of borrowings (16,325) (33,900)
Repayment of debt acquired with current year subsidiaries 21 (661) (256)
Repayment of debt acquired with prior year subsidiaries (166) (438)
Repayment of lease liabilities (5,113) (5,439)
Interest and other finance costs paid (4,502) (3,661)
Dividends paid (3,525) (3,061)
Net cash used in financing activities (7,092) (12,330)
Net increase/(decrease) in cash and cash equivalents 1,408 (182)
Cash and cash equivalents at the beginning of the period 4,045 4,227
Total cash and cash equivalents at end of period 5,453 4,045
Notes to the Consolidated Financial Statements
For the year ended 30 April 2024
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, all of its subsidiaries and
its share of joint ventures.
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 the Directors have a
reasonable expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. The Group has a strong
trading performance, generates strong operating cashflows and has recently
renewed and increased its banking facilities from £60,000,000 to
£70,000,000, available until 7 November 2026. 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'
conclusions 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 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, all of its subsidiaries and share of joint venture.
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
K & S Trust Corporation Limited 02885753
Coffin Mew LLP OC323868
CLM Trust Corporation Limited 11247326
Meade King LLP OC349796
Baines Wilson LLP OC330890
St James' Law Limited 10507535
The outstanding liabilities at 30 April 2024 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 2024.
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 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 acquisition payments are contingent on an
employee remaining in employment with the Group is 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 in
which the 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 client 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 the
Consolidated Statement of Comprehensive Income as it accrues, based on the
effective interest rate during the period. This forms part of other operating
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.
Other 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.
Customer relationships that are acquired by the Group as part of a business
combination are stated at cost less accumulated amortisation and impairment
losses (see accounting policy 'Impairment of non-financial assets'). Cost
reflects management's judgement of the fair value of the individual intangible
asset calculated by reference to the net present value of future benefits
accruing to the Group from the utilisation of the asset, discounted at an
appropriate discount rate
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.
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 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
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 2 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 Investment in joint ventures
Entities in which the Group has a long-term interest and share control under a
contractual arrangement are classified as joint ventures. Joint ventures are
accounted for using the equity method. Where necessary, adjustments are made
to bring the accounting policies of joint ventures into line with those used
by the Group.
2.12 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 the 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.
2.13 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 for the cost of claims covered by
insurance as to do so could seriously prejudice the position of the Group.
2.14 Leases
Group as lessee
The Group leases offices, equipment and vehicles. Rental contracts are for
periods of between 2 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 some 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.
Amounts due from lessees under finance leases are recognised as receivables at
the amount of the Group's net investment in the leases. Finance lease income
is allocated to accounting periods so as to reflect a constant periodic rate
of return on the Group's net investment outstanding in respect of the leases.
2.15 Retirement benefits
2.15a 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.
2.15b 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 in 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 on the
basis that they are not deemed to be material.
2.16 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.
2.17 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 expected 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 are two new standards and
amendments to IFRSs in issue but not yet effective and have therefore not been
applied as set out below:
New and amended IFRSs Effective date
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
IFRS18 Presentation and Disclosure in Financial Statements 1 January 2027
The full impact of IFRS 18 on the financial statements is in the process of
being reviewed, however the directors do not expect that the adoption of the
standard will have a material impact on the financial statements of the Group
in future periods. The directors do not expect that the amendments to IAS 1
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 a detailed understanding of the individual
matters. The carrying value of contingent fee arrangements at 30 April 2024
was £13,070,000 (2023: £9,488,000).
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 IFRS 10. 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 (APMs)
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 2024 the
Group had total provisions of £4,761,000 (2023: £4,827,000) (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 £40,191,000
(2023: £38,215,000), a 3% change in the estimated recovery of all matters
would impact the profit for the period by approximately £1,469,000 (2023:
£1,407,000).
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
£20,027,000 (2023: £23,158,000). 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% - -
WACC and IRR 8.4% (1) Increase by 5% 14 (16)
Length of customer relationships 3 - 4.8 years Increase of 5 years (26) 161
(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 £61,788,000 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 FY25,
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 2024,
with an element of organic growth in FY26 and FY27. The long-term growth rate
of 2% (2023: 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 clients 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 2024 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 2024 Year ended 30 April 2023
£'000 £'000
Other income 758 1,033
Bank interest on client monies 9,681 5,685
10,439 6,718
8. Staff costs
The average monthly number of employees (including executive directors) of the
Group was:
Year ended 30 April 2024 Year ended 30 April 2023
Number Number
Fee earners 1,131 1,154
Other employees 298 288
1,429 1,442
Their aggregate remuneration comprised:
Year ended Year ended 30 April 2023
30 April 2024 £'000
£'000
Wages and salaries 80,456 76,392
Social security costs 9,053 8,675
Other pension costs 2,615 2,520
Share-based payment charge 1,131 1,265
Other employment costs 1,097 936
Aggregate remuneration of employees 94,352 89,788
Redundancy costs and share-based payment charges analysed as non-underlying (1,345) (1,376)
costs
Underlying staff costs in Consolidated Statement of Comprehensive Income 93,007 88,412
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 2024 Year ended 30 April 2023
£'000 £'000
Salaries, fees, bonuses and benefits in kind 749 838
Money purchase pension contributions 7 7
756 845
The number of directors to whom benefits are accruing under money purchase
pension schemes is 1 (2023: 2).
The remuneration of the highest paid director was:
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Salaries, fees, bonuses, benefits in kind and gains on exercise of options 315 300
9. Share-based payments
The Group issues equity-settled share-based payments to its employees. The
Group recognised total expenses of £1,131,000 (2023: £1,265,000) relating to
equity-settled share-based payment transactions in the year. £1,121,000
(2023: £1,248,000) is recognised within staff costs, and £10,000 (2023:
£17,000) is classified as 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 in the
directors view these schemes were 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.
Restricted stock awards Performance share awards
Number Weighted average exercise price Number Weighted average exercise price
Pence
Pence
Outstanding at 1 May 2022 461,411 0.2 344,038 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 - -
Granted during the period 433,332 0.2 - 0.2
Dividend equivalents awarded 144,200 0.2 9,471 0.2
Forfeited during the period (105,912) 0.2 (138,397) 0.2
Exercised during the period (100,184) 0.2 - -
Outstanding at 30 April 2024 3,542,090 0.2 238,138 0.2
Exercisable at 30 April 2024 992,586 0.2 - -
The options outstanding at 30 April 2024 had a weighted average exercise price
of 0.2p and a weighted average remaining contractual life of 1.25 years. The
average share price for options exercised during the year was 109.04p.
During the year 433,332 options were granted as restricted stock awards. The
maximum term of any award is three years.
The aggregate of the estimated fair values of the options granted during the
year was £414,000. The model used is based on intrinsic values and the inputs
are as follows:
Date Granted Number of Shares Fair Value Share Price (p) Exercise Price (p) Expected Life Type of award
£
25 July 2023 333,332 292,665 88.0 0.2 3.0 years Restricted stock
29 November 2023 30,000 28,740 96.0 0.2 0.0 years Restricted stock
06 February 2024 70,000 92,260 132.0 0.2 1.9 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. The original SIP scheme was launched in
September 2019, 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.
In January 2024, the Group launched a new 'evergreen' SIP scheme which allows
eligible employees to purchase shares each month with the maximum investment
per employee per year being £1,800. Matching shares are awarded on the basis
of one free matching share for every two partnership shares purchased.
Under both schemes, matching shares are forfeited if the employee leaves
within three years of the grant date.
Partnership Shares Matching Dividend
Number
Shares
Shares
Number
Number
Outstanding at 1 May 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 -
Granted during the period 48,856 24,418 16,188
Withdrawn during the period (37,219) - -
Reallocated during the period (6,766) (12,733) 19,499
Forfeited during the period - (70,351) (4,784)
Outstanding at 30 April 2024 123,067 177,727 30,903
Unrestricted at 30 April 2024 74,285 153,346 30,903
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
were launched in February 2020 and March 2022.
SAYE options
Number Weighted average exercise price
Pence
Outstanding at 1 May 2022 1,866,427 289
Forfeited during the period (996,259) 274
Outstanding at 30 April 2023 870,168 306
Exercisable at 30 April 2023 133,334 361
Forfeited during the period (569,621) 310
Outstanding at 30 April 2024 300,547 298
Unrestricted at 30 April 2024 7,977 361
The options outstanding at 30 April 2024 had a weighted average exercise price
of 298p and a weighted average remaining contractual life of 1.00 years.
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 2024 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 £2,615,000 (2023: £2,520,000) represents
contributions payable to the scheme by the Group. As at 30 April 2024, total
contributions of £551,000 (2023: £515,000) 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 2024.
11. Depreciation and amortisation charges
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Depreciation 2,656 2,364
Depreciation on right-of-use assets 5,607 5,706
Amortisation on computer software 103 103
Loss on disposal of property, plant and equipment 144 2
Underlying depreciation and amortisation charges in Consolidated Statement of 8,510 8,175
Comprehensive Income
Amortisation on acquired intangibles 3,580 3,441
12,090 11,616
Amortisation on acquired intangibles has been separately identified within
overall depreciation and amortisation charges as it is deemed to be a
non-underlying cost, on the basis that it relates to acquisitions. As such
in the year ended 30 April 2023 it has been reclassified to enable clearer
presentation of the non-underlying items included within operating profit.
This has not resulted in any change to reported operating profit.
12. Other operating charges
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Establishment costs 7,775 6,888
Short term and low value lease costs 247 302
Other overhead expenses 20,196 19,349
28,218 26,539
13. Non-underlying costs
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Redundancy and reorganisation staff costs 1,335 1,359
Share-based payment charges 10 17
Contingent acquisition payments treated as remuneration 2,824 4,436
Impairment of right-of-use assets 153 38
(Profit) on disposal of right-of-use assets (125) -
Loss/(profit) on disposal of property, plant and equipment 930 (12)
Non-underlying gains on disposal - (318)
Transaction costs 1,503 953
Non-underlying operating costs 6,630 6,473
Non-underlying finance costs 281 152
6,911 6,625
Non-underlying costs cash movement
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Non-underlying costs 6,911 6,625
Adjustments for:
Contingent acquisition payments shown separately (2,824) (4,436)
Non-cash movements:
Share-based payment charge (10) (17)
Impairment of right-of-use assets (153) (38)
Profit on disposal of right-of-use assets 449 -
(Loss)/profit on disposal of property, plant and equipment (930) 12
Non-underlying gains on disposal - 318
Transaction costs (443) 218
Non-underlying finance costs (281) (152)
Additional cash movements:
Rental payments on onerous leases 605 543
Service charge payments on onerous leases 104 92
Dilapidation payments 818 -
Receipt for sale of HPL fixed assets - (24)
4,246 3,141
Non-underlying costs relate to redundancy costs to streamline the support
function of the Group following acquisitions or strategic reorganisations,
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.
Contingent acquisition payments are 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 Consolidated 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 2024 Year ended 30 April 2023
£'000 £'000
Interest on borrowings 3,402 2,135
Interest on leases 1,537 1,526
4,939 3,661
15. Finance income
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Loan interest receivable 23 -
Lease interest receivable 66 52
89 52
16. Auditor's remuneration
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Fees payable to the parent company's auditor and their associates for the 50 43
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 170 150
Total audit fees 220 193
- Audit-related assurance services 25 22
Total non-audit fees 25 22
17. Taxation
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Corporation tax:
Current year 4,991 4,208
Adjustments in respect of prior years - non-recurring - (161)
Adjustments in respect of prior years 218 39
5,209 4,086
Deferred tax:
Origination and reversal of temporary differences (225) (1,072)
Effect of change in tax rates - 122
Adjustment in respect of prior years - 449
(225) (501)
Tax expense for the year 4,984 3,585
The charge for the period can be reconciled to the Consolidated Statement of
Comprehensive Income as follows:
Year ended 30 Year ended 30
April 2024
April 2023
£'000
£'000
Profit before tax 14,831 11,529
Tax at the UK corporation tax rate of 25% (2023: 19.5%) 3,708 2,248
Expenses that are not deductible in determining taxable profit 1,058 679
Partnership tax paid on acquired subsidiaries - 209
Effect of change in tax rates - 122
Adjustment in respect of prior years - non-recurring - 289
Adjustment in respect of prior years 218 38
Tax expense for the year 4,984 3,585
Consisting of:
Taxation - underlying 6,598 4,304
Tax impact of non-underlying costs (1,614) (1,129)
Non-recurring tax charge - 410
The impact of non-underlying costs on the effective rate of tax is set out
below:
Year ended 30 April 2024 Year ended 30 April 2023
Total Underlying Non-Underlying £'000 Total Underlying Non-Underlying £'000
£'000
£'000 £'000 £'000
Profit before tax 14,831 25,322 (10,491) 11,529 21,595 (10,066)
Tax expense 4,984 6,598 (1,614) 3,175 4,304 (1,129)
Effective rate of tax 34% 26% 15% 28% 20% 11%
Change in tax rate - - - 122 - 122
Other non-recurring tax credits - - - 288 - 288
Non-recurring tax charge 410 - 410
Total tax charge 4,984 6,598 (1,614) 3,585 4,304 (719)
Effective rate of tax (post effect of non-underlying) 34% 26% 15% 31% 20% 7%
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 2024 Year ended 30 April 2023
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 85,840,067 85,597,833
per share
Effect of dilutive potential ordinary shares:
Share options 2,778,654 878,031
Weighted average number of ordinary shares for the purposes of diluted 88,618,721 86,475,864
earnings per share
£'000 £'000
Profit after tax 9,847 7,944
Earnings per share Pence Pence
Basic earnings per share 11.47 9.28
Diluted earnings per share 11.11 9.19
Underlying earnings per share is calculated as an alternative performance
measure in note 37.
19. Dividends
Year ended Year ended 30 April 2023
30 April 2024 £'000
£'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 April 2023 of 2.50p per share (2022: 2,145 1,749
2.04p)
Interim dividend for the year ended 30 April 2024 of 1.61p per share (2023: 1,380 1,312
1.53p per share)
3,525 3,061
For the year ended 30 April 2024 the Board have proposed a final dividend of
2.79p per share (2023: 2.50p 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 30
August 2024. 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 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
Acquisitions of subsidiaries 2,049 - 395 - 2,444
Adjustments 78 - - - 78
Additions - - - 40 40
Disposals - - (1,097) - (1,097)
As at 30 April 2024 61,788 5,401 34,432 535 102,156
Amortisation and impairment
As at 1 May 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
Amortisation charge - 54 3,526 103 3,683
Eliminated on disposal - - (1,097) - (1,097)
As at 30 April 2024 - 486 14,405 365 15,256
Carrying amount
At 30 April 2024 61,788 4,915 20,027 170 86,900
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
As noted in the prior year accounts, the initial accounting for the business
combination which occurred at the end of the prior year was not complete.
During the year further information has come to light about estimated
provisions which existed at the acquisition date but were subsequently
identified as being understated. This has resulted in adjustments of £78,000
being made to goodwill during the year.
The carrying amount of goodwill of £61,788,000 (2023: £59,661,000) 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%
(2023: 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 13.4% (2023: 11.1%).
Revenue growth over the three years of the forecast period reflects, for FY25,
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 2024,
and an element of organic growth in FY26 and FY27 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 two acquisitions St James' Law Limited
and Baines Wilson LLP. 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 647
Goodwill 2,049
Total consideration 2,696
Satisfied by:
Cash 2,462
Deferred consideration arrangement 234
Total consideration transferred 2,696
Net cash outflows arising on acquisition:
Cash consideration net of cash acquired 1,888
Net investing cash outflow arising on acquisition 1,888
Repayment of debt acquired 661
Net financing cash outflow arising on acquisition 661
Repayment of debt in future years 638
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.
Baines Wilson Limited Liability Partnership ('BW')
On 1 May 2023 the Group exchanged contracts to acquire BW by purchasing the
controlling membership interests of the entity. This acquisition completed on
2 June 2023. BW is a law firm which will strengthen Knights' presence in the
North of England and provides entry into a new location with an office in
Carlisle.
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 - 383 383
Property, plant and equipment 409 27 436
Contract assets 94 - 94
Trade and other receivables 685 - 685
Cash and cash equivalents 302 - 302
Liabilities
Trade and other payables (295) - (295)
Borrowings (130) - (130)
Provisions (30) - (30)
Deferred tax (16) (96) (112)
Total identifiable assets and liabilities 1,019 314 1,333
Goodwill 1,062
Total consideration 2,395
Satisfied by:
Cash 2,395
Total consideration transferred 2,395
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 2,093
Repayment of debt 130
Net cash outflow arising on acquisition 2,223
Intangibles relating to customer relationships of £383,000 has been arrived
at using the excess earnings method. The goodwill of £1,062,000 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 acquisition payments arrangement was entered into as part of the
acquisition. This is contingent on the sellers remaining in employment by the
Group and it has therefore 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 years
post-acquisition period. This is recognised within non-underlying operating
costs.
The maximum undiscounted amount of all potential future payments under the
contingent acquisition payments arrangement is £1,020,000 and is payable in
equal instalments on the first, second and third anniversary of completion.
BW contributed £3,376,000 of revenue to the Group's Consolidated Statement of
Comprehensive Income for the period from 1 May 2023 to 30 April 2024. 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 2 June 2023.
St James' Law Firm Limited ('SJS')
On 1 May 2023 the Group exchanged contracts to acquire SJS by purchasing the
controlling membership interests of the entity. This acquisition completed on
16 June 2023. SJS is a law firm which will strengthen Knights' presence in the
North East of England and provides entry into a new location with an office in
Newcastle.
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 - 12 12
Property, plant and equipment 30 (7) 23
Contract assets 250 - 250
Trade and other receivables 363 - 363
Cash and cash equivalents 272 - 272
Liabilities
Trade and other payables (406) - (406)
Borrowings to be repaid within the year (531) - (531)
Borrowings to be repaid over 1 year (638) - (638)
Provisions (18) - (18)
Deferred tax (10) (3) (13)
Total identifiable assets and liabilities (688) 2 (686)
Goodwill 987
Total consideration 301
Satisfied by:
Cash 67
Deferred consideration 234
Total consideration transferred 301
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) (205)
Repayment of debt within the year 531
Net cash outflow arising on acquisition 326
Repayment of debt in future years 638
Intangibles relating to customer relationships of £12,000 has been arrived at
using the excess earnings method. The goodwill of £987,000 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 acquisition payments 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 2 years post acquisition period. This is
recognised within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments under the
contingent acquisition payments arrangement is £100,000 and is payable in
equal instalments on the first and second anniversary of completion.
There are also undiscounted deferred consideration payments totalling
£252,000 outstanding. These are payable in instalments on the first and
second anniversaries of completion.
SJS contributed £1,676,000 of revenue to the Group's Consolidated Statement
of Comprehensive Income for the period from 1 May 2023 to 30 April 2024. 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 16 June 2023.
22. Investments
On 28 March 2024, the Group acquired 50% of the share capital of Convex
Corporate Finance Limited as part of a joint venture with key management
personnel of Convex Corporate Finance Limited. The initial investment was
£50,000 and each joint venturer has equal voting rights. No share of net
assets has been recognised in the Group during the year as the first
£1,000,000 of profits in each financial year are allocated to the key
management personnel of Convex Corporate Finance.
During the year a £2,500,000 loan was made to Convex Corporate Finance
Limited in order for them to carry out their operating activities. The loan
attracts interest at 10% per annum. The loan and its associated interest is
recognised in trade and other receivables greater than one year.
23. Property, plant and equipment
Expenditure on short leasehold property Long leasehold property Office equipment Furniture and fittings Total
£'000 £'000 £'000 £'000 £'000
Motor Vehicles Right-of-use assets
£'000
£'000
Cost
As at 1 May 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
Acquisitions of subsidiaries 7 380 35 37 - - 459
Additions 5,297 - 1,424 1,444 - 7,076 15,241
Disposals (1,178) - (1,410) (262) - (11,346) (14,196)
Impairment - - - - - (882) (882)
As at 30 April 2024 12,816 380 6,501 2,536 90 50,335 72,658
Depreciation and impairment
As at 1 May 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
Depreciation charge 979 4 1,474 176 23 5,607 8,263
Eliminated on disposal (422) - (1,257) (95) - (5,864) (7,638)
Impairment - - - - - (729) (729)
As at 30 April 2024 3,022 4 3,718 649 34 16,301 23,728
Carrying amount
At 30 April 2024 9,794 376 2,783 1,887 56 34,034 48,930
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
Net impairment charges of £153,000 (2023: £38,125) due to leases being
classified as onerous are included in non-underlying operating costs (see note
13).
See note 28 for further details of right of use assets.
24. Contract assets and liabilities
Contract assets Trade receivables Contract liabilities
£'000
£'000
£'000
At 30 April 2024 40,191 25,931 (188)
At 30 April 2023 38,215 23,610 (218)
At 30 April 2022 31,777 26,643 (237)
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 2024 was £13,070,000 (2023: £9,488,000).
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 £344,000 (2023: £2,457,000) were
acquired in business combinations.
An impairment loss of £36,000 has been recognised in relation to contract
assets in the year (2023: £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% (2023: 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.
25. Trade and other receivables
30 April 2024 30 April 2023
£'000 £'000
Trade receivables 26,694 24,524
Impairment provision - trade receivables (763) (914)
Prepayments and other receivables 6,822 7,477
Amount owed from joint venture 2,523 -
35,276 31,087
Trade and other receivables 30 April 2024 30 April 2023
£'000 £'000
> 1 year 2,523 -
< 1 year 32,753 31,087
35,276 31,087
Trade receivables
The average credit period taken on sales is 28 days as at 30 April 2024 (2023:
30 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 expected 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 2024 30 April 2023
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 14,893 42 0.28 13,108 40 0.31
31-60 days past due 3,667 14 0.38 2,961 16 0.55
61-90 days past due 1,378 5 0.36 1,099 10 0.85
91-120 days past due 209 1 0.48 187 4 2.01
>120 days past due 2,176 605 27.80 2,548 738 28.96
12 month ECL £'000 22,323 667 2.99 19,903 808 4.06
In addition to the above on trade receivables a further £96,000 (2023:
£106,000) impairment loss has been recognised against disbursement balances
(excluding CL Medilaw). This is based on 100% impairment against all
disbursements with no activity on the matter for over 12 months and 0.3%
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:
2024 2023
£'000 £'000
Balance at 1 May 914 1,265
Increase in loss allowance recognised in profit and loss during the year 489 468
Acquired provisions 129 401
Receivables written off during the year as uncollectable (769) (1,220)
Balance at 30 April 763 914
26. Finance lease receivable
The Group sub-leases floors in three 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 2024 30 April 2023
£'000 £'000
Less than one year 424 375
One to two years 424 375
Two to three years 424 375
Three to four years 424 375
Four to five years 406 375
More than five years 225 435
2,327 2,310
Less: unearned finance income (330) (324)
1,997 1,986
Finance lease receivable 30 April 2024 30 April 2023
£'000 £'000
> 1 year 1,633 1,671
< 1 year 364 315
1,997 1,986
Total lease payments received for the year ended 30 April 2024 was £405,000
(2023: £237,000).
During the year, the Group sublet a floor in the Teesside office. The present
value of this receivable was £350,000 and the right-of-use asset derecognised
had a carrying value of £280,000. The profit of £70,000 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
are 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. Share capital
Ordinary shares
Number £'000
As at 1 May 2022 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
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 100,184 -
At 30 April 2024 (allotted, called up and fully paid) 85,914,160 171
28. Lease liabilities
Incremental borrowing rates applied to individual leases ranged between 1.7%
and 8.3%.
The table below sets out the Consolidated Statement of Financial Position as
at 30 April 2024 and 30 April 2023:
30 April 2024 30 April 2023
£'000 £'000
Right-of-use assets
Property 33,496 37,693
Equipment 538 507
34,034 38,200
Lease liability
> 1 year 35,389 38,585
< 1 year 5,181 6,331
40,570 44,916
Right of use assets include additions and acquired assets of £6,565,000
(2023: £4,212,000) for property and £511,000 (2023: £47,000) for equipment.
The related depreciation charge for the year is £5,127,000 (2023:
£5,234,000) for property and £480,000 (2023: £472,000) for equipment.
The table below shows lease liabilities maturity analysis - contractual
undiscounted cash flows at 30 April 2024:
30 April 2024 30 April 2023
Property Equipment Total Property Equipment Total
£'000 £'000 £'000 £'000 £'000 £'000
Less than one year 6,810 188 6,998 7,312 426 7,738
One to five years 23,485 509 23,994 23,473 86 23,559
More than five years 20,342 - 20,342 22,491 - 22,491
50,637 697 51,334 53,276 512 53,788
Less unaccrued future interest (10,658) (106) (10,764) (8,849) (23) (8,872)
39,979 591 40,570 44,427 489 44,916
The table below shows amounts recognised in the Consolidated Statement of
Comprehensive Income for short term and low value leases as at 30 April
2024:
30 April 2024 30 April 2023
Property Equipment Total Property Equipment Total
£'000
£'000
£'000
£'000
£'000
£'000
Expenses relating to short - term and low value leases 215 32 247
271 31 302
For right-of-use asset depreciation and lease interest charges on leases see
note 11 and 14.
Total lease payments, including payments for short term and low value leases,
for the year ended 30 April 2024 were £7,502,000 (2023: £7,810,000).
29. Borrowings
30 April 2024 30 April 2023
£'000 £'000
Secured borrowings at amortised cost:
Bank loans 39,800 32,925
Other loans 817 340
Total borrowings 40,617 33,265
Amount due for settlement within 12 months 468 189
Amount due for settlement after 12 months 40,149 33,076
The above excludes lease liabilities.
All of the Group's borrowings are denominated in sterling.
The Group has a credit facility of £70,000,000 in total (2023: £60,000,000).
The facility remains available until 7 November 2026.
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 November 2026. 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 2.55% 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 2024 30 April 2023
£'000 £'000
Non-current liabilities
Deferred consideration 350 2,482
Current liabilities
Deferred consideration 2,591 2,367
Deferred consideration as at 30 April 2024 relates to the acquisition of
Langleys Solicitors LLP, Coffin Mew LLP and St James' Law Limited and is not
contingent.
In addition, the Group has accrued contingent acquisition payments 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 acquisition payments 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 Unpaid employer contributions £'000 IFRS 16 Total
£'000 £'000 £'000 £'000 £'000
As at 1 May 2022 1,392 7,782 (519) - (323) 8,332
Acquisitions of subsidiaries - 403 - - 159 562
Adjustments - (5) - - - (5)
Effect for 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
Acquisitions of subsidiaries 26 99 - - - 125
Charge/(credit) for the year 947 (895) (221) (1) (55) (225)
As at 30 April 2024 2,349 6,236 (680) (1) 384 8,288
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 2024 30 April 2023
£'000 £'000
Deferred tax assets (681) (459)
Deferred tax liabilities 8,969 8,847
8,288 8,388
32. Trade and other payables
30 April 2024 30 April 2023
£'000 £'000
Trade payables 5,574 5,531
Other taxation and social security 7,435 7,350
Other payables 1,281 2,410
Accruals 5,645 5,541
19,935 20,832
Trade payables and accruals principally comprise amounts outstanding for trade
purchases and ongoing costs. The average credit period taken for trade
purchases is 22 days (2023: 25 days). No interest is payable on the trade
payables.
The directors consider that the carrying amount of trade payables approximates
to their fair value.
Included within other payables is a contingent acquisition payments liability,
this arises on acquisition and the liability is contingent on employees
completing a specified length of service. As at 30 April 2024 £1,277,000 of
contingent acquisition payments are included within other payables (2023:
£2,404,000). The total potential value of the contingent liability is
£2,960,000 (2023: £4,795,000).
33. Provisions
Dilapidation provision Onerous contract provision Professional indemnity provision
£'000
£'000 £'000 Total
£'000
As at 1 May 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
Acquisitions of subsidiaries 38 - 10 48
Additional provision in the year 853 66 1,125 2,044
Utilisation of provision (957) (104) (1,164) (2,225)
As at 30 April 2024 4,761 244 1,297 6,302
Consisting of:
Non-current liabilities 3,824 144 - 3,968
Current liabilities 937 100 1,297 2,334
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 amounts 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 2024 30 April 2023
£'000 £'000
Financial assets
Amortised cost
Contract assets 40,191 38,215
Trade and other receivables (excluding prepayments) 29,134 24,715
Lease receivable 1,997 1,986
Cash and cash equivalents 5,453 4,045
Financial liabilities
Amortised cost
Borrowings 40,617 33,265
Deferred consideration 2,941 4,849
Trade and other payables 11,223 11,077
Leases 40,570 44,916
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. There is no significant interest rate
risk in respect of temporary surplus funds invested in deposits and other
interest-bearing accounts with financial institutions as the operations of the
Group are not dependent on the finance income received.
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 2024 would
decrease/increase by £203,000 (2023: 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 25 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.
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 2024 < 1 year 1-2 years 2-5 years Total
£'000
£'000
£'000
£'000
Borrowings 468 55 40,094 40,617
Deferred consideration 2,591 350 - 2,941
Trade and other payables 12,501 - - 12,501
30 April 2023 < 1 year 1-2 years 2-5 years Total
£'000
£'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
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 Consolidated 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 2024 30 April 2023
£'000 £'000
Borrowings (note 29) 40,617 33,265
Cash and cash equivalents (5,453) (4,045)
Net debt 35,164 29,220
Equity 100,260 92,807
% %
Net debt to equity ratio 35 31
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 2024 Year ended 30 April 2023
£'000 £'000
Profit before taxation 14,831 11,529
Adjustments for:
Amortisation on computer software 103 103
Amortisation on acquired intangibles 3,580 3,441
Depreciation - property, plant and equipment 2,656 2,364
Depreciation - right-of-use assets 5,607 5,706
Loss on disposal (net of £930,000 (2023: £12,000 profit) included in 144 2
non-underlying costs)
Contingent acquisition payments 2,824 4,436
Other non-underlying operating costs 3,806 2,037
Non-underlying finance costs 281 152
Share-based payments 1,121 1,248
Finance income (89) (52)
Finance costs 4,939 3,661
Operating cash flows before movements in working capital 39,803 34,627
(Increase) in contract assets (1,632) (3,924)
(Increase)/Decrease in trade and other receivables (767) 3,346
Increase/(Decrease) in provisions 29 (738)
(Decrease) in contract liabilities (29) (19)
(Decrease) in trade and other payables (1,150) (3,861)
Cash generated from operations 36,254 29,431
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 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
New borrowings and leases 23,200 6,690
Acquired borrowings and leases 638 -
Finance costs 3,402 1,537
Interest and other finance costs paid (2,965) (1,537)
Unpaid interest not applied to principal (437) -
Non-cash movement 5 (5,378)
Repayment of debt acquired with prior year subsidiaries (166) -
Repayments (16,325) (5,113)
Amounts included in operating activities - (545)
As at 30 April 2024 40,617 40,570
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 Accounting Standards ('IAS') 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 2024 Year ended 30 April 2023
£'000 £'000
Operating profit 19,962 15,290
Depreciation and amortisation charges (note 11) 12,090 11,616
Non-underlying operating costs (note 13) 6,630 6,473
Underlying EBITDA 38,682 33,379
Depreciation of right of use assets (note 11) (5,607) (5,706)
Interest on leases (note 14) (1,537) (1,526)
Lease interest receivable (note 15) 66 52
Underlying EBITDA post IFRS16 31,604 26,199
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 2024 Year ended 30 April 2023
£'000 £'000
Profit before tax 14,831 11,529
Amortisation on acquired intangibles (note 11) 3,580 3,441
Non-underlying operating costs (note 13) 6,630 6,473
Non-underlying finance costs (note 13) 281 152
Underlying profit before tax 25,322 21,595
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 2024 Year ended 30 April 2023
£'000 £'000
Profit after tax 9,847 7,944
Amortisation on acquired intangibles (note 11) 3,580 3,441
Non-underlying costs (note 13) 6,911 6,625
Tax impact of non-underlying costs (note 17) (1,614) (1,129)
Non-recurring tax charge (note 17) - 410
Underlying profit after tax 18,724 17,291
Underlying earnings per share Pence Pence
Basic underlying earnings per share 21.81 20.20
Diluted underlying earnings per share 21.13 20.00
Tax has been calculated at the corporation tax rate of 25% (2023:19.5%) and
deferred tax rate of 25% (2023: 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 flows. Cash conversion % is calculated by dividing free cash flow by
underlying PAT, which is reconciled to profit after tax above.
Year ended 30 April 2024 Year ended 30 April 2023
£'000 £'000
Cash generated from operations (note 35) 36,254 29,431
Tax paid (5,432) (2,424)
Net underlying cash outflow for IFRS16 leases (6,245) (6,728)
Free cashflow 24,577 20,279
Underlying profit after tax 18,724 17,291
Cash conversion (%) 131% 117%
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 2024 30 April 2023
£'000 £'000
Borrowings (note 29) 40,617 33,265
Cash and cash equivalents (5,453) (4,045)
Net debt 35,164 29,220
38. Capital commitments
As at 30 April 2024 there is a capital commitment of £6,342,000 (2023:
£nil).
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 2024. The scheme is closed
and provides benefits for 38 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 2024 allowing for cashflows in and out of the Scheme and changes to
assumptions over the period.
From March 2023 it was agreed that Employer contributions towards
administration expenses would be deferred until January 2026. 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 2024 30 April 2023
% %
Discount rate 5.06 4.66
Retail Prices Index ("RPI") Inflation 3.57 3.28
Consumer Price Index ("CPI") Inflation 2.67 2.38
Pension increase (LPI 5%) 3.40 3.16
Pension increase (LPI 2.5%)
2.17
2.25
Post retirement mortality 106%/99% (m/f) S2PA CMI_2022 projections using a long-term improvement rate of 90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of
1.5% pa and initial addition of 0.3% 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 65 22.0 22.6
Life expectancy at age 65 of female aged 65 23.8 24.2
Life expectancy at age 65 of male aged 45 23.0 23.6
Life expectancy at age 65 of female aged 45 24.9 25.4
The weighted average duration of the Scheme's obligations is 12 years.
The current asset split is as follows
Asset allocation at 30 April 2024 Asset allocation at 30 April 2023
Equities and growth assets 51% 50%
Bonds, LDI and cash 49% 50%
Value as at 30 April Value as at 30 April
2024
2023
£'000
£'000
Fair value of assets 2,132 2,314
Present value of funded obligations (1,605) (1,736)
Surplus in scheme 527 578
Deferred tax - -
Net defined benefit surplus after deferred tax 527 578
The fair value of the assets can be analysed as follows:
Value as at 30 April Value as at 30 April
2024
2023
£'000
£'000
Low risk investment funds 1,050 1,156
Credit Investment funds 647 696
Cash 435 462
Fair value of assets 2,132 2,314
30 April 2024 30 April 2023
£'000
£'000
Administration costs 36 39
Net interest on liabilities (27) (21)
Total charge to the Statement of Comprehensive Income 9 18
Remeasurements over the period since acquisition
30 April 2024 30 April 2023
£'000
£'000
Loss on assets in excess of interest (115) (694)
Gain on scheme obligation from assumptions and experience 31 675
Loss on scheme obligations due to scheme experience 8 (77)
Gain on scheme obligations from demographic assumptions 34 -
Total remeasurements (42) (96)
The change in value of assets
30 April 2024 30 April 2023
£'000
£'000
Fair value of assets brought forward 2,314 3,047
Interest on assets 105 91
Benefits paid (136) (91)
Administration costs (36) (39)
Loss on assets in excess of interest (115) (694)
Fair value of assets carried forward 2,132 2,314
Actual return on assets (10) (603)
Change in value of liabilities
30 April 2024 30 April 2023
£'000
£'000
Value of liabilities brought forward 1,736 2,355
Interest cost 78 70
Benefits paid (136) (91)
Actuarial gain (73) (598)
Value of liabilities carried forward 1,605 1,736
Sensitivity of the value placed on the liabilities
Approximate effect on liability
30 April 2024 30 April 2023
£'000
£'000
Discount rate
Minus 0.50% 93 110
Inflation
Plus 0.50% 70 89
Life Expectancy
Plus 1.0 years 49 52
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 2024 30 April 2023
£'000 £'000
Total assets 58,300 64,200
Total liabilities excluding expenses (63,000) (68,500)
Deficit (4,700) (4,300)
Funding level 93% 94%
Allocation to the Group
The estimated share of the Scheme liabilities is 0.790%.
Over the year to 30 April 2024, the Section's funding position is a small
deficit.
30 April 2024 30 April 2023
£'000 £'000
Estimated cost of providing benefits (498) (541)
Value of assets 461 507
Resulting deficit (37) (34)
Funding level 93% 94%
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 D.A. 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 (2023: £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 £145,000 (2023: £nil) and a management
fee of £40,000 (2023: £20,000)
At 30 April 2024, there was an amount of £24,000 owed by KPV Propco Ltd to
the Group (2023: £16,000 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 £10,000 (2023: £32,000). At 30
April 2024, there was an amount of £nil (2023: £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 2024 Year ended 30 April 2023
£'000 £'000
Short-term employee benefits and social security costs 1,338 1,422
Pension costs 20 20
Share-based payments (23) 50
1,335 1,492
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 £789,000 (2023: £664,000) were paid in the year in
respect of ordinary shares held by the Company's directors.
41. Basis of preparation
Whilst the financial information included in this results announcement has
been prepared on the basis of UK-adopted International Accounting Standards,
it does not contain sufficient information to comply with UK-adopted
International Accounting Standards.. The financial information contained
within this results announcement for the year ended 30 April 2024 and the year
ended 30 April 2023 is derived from but does not comprise statutory financial
statements within the meaning of section 434 of the Companies Act 2006.
Statutory accounts for the year ended 30 April 2023 have been filed with the
Registrar of Companies. The auditors' report on the statutory accounts for the
year ended 30 April 2024 and the year ended 30 April 2023 is unqualified, does
not draw attention to any matters by way of emphasis, and does not contain any
statement under section 498 of the Companies Act 2006.
Glossary of Terms
Alternative Performance Measures
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.
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 Year ended
30 April 2024 30 April 2023
£'000 £'000
Operating profit 19,962 15,290
Depreciation and amortisation charges (note 11) 12,090 11,616
Non-underlying operating costs (note 13) 6,630 6,473
Underlying EBITDA 38,682 33,379
Depreciation of right of use assets (5,607) (5,706)
Interest on leases (1,537) (1,526)
Lease interest receivable 66 52
Underlying EBITDA post IFRS 16 31,604 26,199
Underlying EBITDA post IFRS 16 is used as a metric as this reflects the
profits after deduction of rental costs which is most comparable to the EBITDA
reported at IPO, before the introduction of IFRS 16).
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
acquired intangible assets, and non-underlying items.
Year ended Year ended
30 April 2024 30 April 2023
£'000 £'000
Profit before tax 14,831 11,529
Amortisation on acquired intangibles 3,580 3,441
Non-underlying operating costs (note 13) 6,630 6,473
Non-underlying finance costs (note 13) 281 152
Underlying profit before tax 25,322 21,595
Underlying operating profit to underlying profit after tax (PAT)
Year ended Year ended
30 April 2024 30 April 2023
£'000 £'000
Operating profit before non-underlying charges 30,172 25,204
Finance costs (4,939) (3,661)
Finance income 89 52
Underlying profit before tax 25,322 21,595
Taxation (6,598) (4,304)
Underlying profit after tax 18,724 17,291
Underlying Profit After Tax (PAT) and Underlying Earnings per Share (EPS)
Underlying PAT and underlying EPS are presented as alternative performance
measures to show the underlying performance of the Group excluding the effects
of amortisation of acquired intangible assets and non-underlying items.
Year ended Year ended
30 April 2024 30 April 2023
£'000 £'000
Profit after tax 9,847 7,944
Amortisation on acquired intangibles (note 11) 3,580 3,441
Non-underlying costs (note 13) 6,911 6,625
Tax impact of non-underlying costs (note 17) (1,614) (1,129)
Non-recurring tax charge (note 17) - 410
Underlying profit after tax 18,724 17,291
Underlying earnings per share Pence Pence
Basic underlying earnings per share 21.81 20.20
Diluted underlying earnings per share 21.13 20.00
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 flows. Cash conversion % is calculated by dividing free cash flow by
underlying profit after tax, which is reconciled to profit after tax above.
Year ended Year ended
30 April 2024 30 April 2023
£'000 £'000
Cash generated from operations (note 37) 36,254 29,431
Tax paid (5,432) (2,424)
Total cash outflow for IFRS16 leases (6,245) (6,728)
Free cashflow 24,577 20,279
Underlying profit after tax 18,724 17,291
Cash conversion (%) 131% 117%
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 2024 30 April 2023
£'000 £'000
Borrowings (note 29) 40,617 33,265
Cash and cash equivalents (5,453) (4,045)
Net debt 35,164 29,220
Working Capital
Working capital is calculated as:
30 April 2024 30 April 2023
£'000 £'000
Current assets
Contract assets 40,191 38,215
Trade and other receivables 32,753 31,087
Corporation tax receivable 304 152
Total current assets 73,248 69,454
Current liabilities
Trade and other payables (19,935) (20,832)
Contract liabilities (188) (218)
Total current liabilities (20,123) 21,050
Net working capital 53,125 48,404
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.
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.
Recurring Revenue
This is calculated based on the amount of revenue in a year that reoccurs in
the following year from the same clients.
Lock Up
This 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 the total fees raised over prior months. WIP
(work in progress) days are calculated based on the gross work in progress
(excluding that relating to clinical negligence claims, insolvency, highways
and ground rents as these matters operate on a mainly 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 highways 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
financial year.
Organic growth
Organic growth excludes revenue growth from acquisitions in the year of their
acquisition, and for the first full financial year following acquisition,
based on the fees generated by the individuals joining the Group from the
acquired entity. Recruitment of individuals into the acquired offices post
acquisition is treated as part of the organic growth of the business.
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