REG - Knights Group Hldgs - Half Year Results
11/01/2022 07:05
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RNS Number : 9953X Knights Group Holdings PLC 11 January 2022
Knights Group Holdings plc
("Knights", the "Company" or the "Group")
Unaudited Half Year Results
Increased scale and national reputation driving sustainable growth
Knights, one of the fastest growing legal and professional services businesses
in the UK, today announces its half year results for the six months ended 31
October 2021.
Financial highlights
· Revenue increased by 29% to £59.7m (H1 21: £46.2m). Organic
growth of 9%.
· Gross margins increased to 48.0% (H1 21: 46.4%)
· Underlying PBT(1) rose by 26% to £7.6m (H1 21: £6.0m)
· Underlying PBT margin of 12.6% (H1 21: 13.0%)
· Reported PBT £0.8m compared to a loss of £1.1m in H1 21
· Underlying EPS(1) increased by 18% to 6.98p (H1 21: 5.93p).
· Exceptionally strong cash conversion(2) of 105% (H1 21: 103%)
· Lock up(3), was 99 days (H1 21: 94 days), underpinned by debtor
days of 33 (H1 21: 36)
· Net debt(4) of £23.3m (FY 21: £21.1m) after £7.0m of
acquisition consideration and related costs
· Dividend reinstated with an interim dividend of 1.46p (H1 21:
nil, H1 20: 1.10p)
Strategic and operational highlights
Increased scale and national reputation as premium provider driving organic
growth
· Clients actively seeking Knights' extensive high-quality legal
expertise, deep sector specialisms and bespoke advice
· Greater awareness of Knights supporting continued recruitment
momentum, with the majority of high calibre talent joining from the Top 50
· Continue to broaden our offering, becoming the first law firm to
launch a Debt Advisory practice
Extended our footprint, with acquisitions providing strong platforms for
organic growth
· Four acquisitions completed in FY21 have performed in line with
expectations, with good progress across key metrics including the reduction of
work in progress and debtor days
· Successful integration of Keebles and Mundays, strengthening
presence in Yorkshire and the South East
· Entered the North East with acquisition of Archers in Teesside,
which completed in November, with early integration encouraging
· New Revolving Credit Facility of £60m secured, providing further
flexibility to selectively execute strategically compelling acquisitions
Expanded Client Services Directors team leading our strong culture and
integration
· Expanded team of Client Services Directors, who lead the
integration of new talent and acquisitions as well as managing the Group's
offices
· Successful integrations and strength of culture demonstrated by
low work in progress and debtor days despite the impact of recent acquisitions
and new recruits
Current trading and outlook
· Our increased scale and national reputation have created a greater
awareness of Knights, supporting continued strong momentum in the recruitment
of quality senior recruits from other top 50 law firms
· Our breadth and depth of resource is attracting larger quality
clients seeking excellent professional services support in the regions
· The integration of recent acquisitions and new joiners is
progressing well
· We anticipate good trading in the second half, which will be
against a stronger comparative, and we continue to expect our typical second
half weighting
· We are confident in delivering a full year performance in line
with market expectations
· We are reviewing a growing pipeline of acquisition opportunities
David Beech, CEO of Knights, commented:
"We have delivered another strong period of profitable, cash generative
growth, with our increased scale and national reputation as a premium provider
attracting high calibre talent, quality work and acquisition targets across
the regions.
"An increasing proportion of our new recruits are joining us from Top 50 law
firms and we are actively reviewing a growing pipeline of acquisitions.
Despite our recent organic growth and acquisitions, we have maintained our
industry leading levels of debtor days, which is testament to the strength of
our integration process and strong culture of cash collection.
"Our outlook for the medium term is positive with recruitment supporting good
levels of organic growth, and with further acquisition opportunities. We
continue to build on the critical mass we achieved last year, further
cementing the strong position we have built in key markets for legal services
outside London."
A presentation of the half year results will be made to analysts via a webinar
at 9.00am today. To register interest in attending, please contact Tom Gardner
at MHP Communications on 020 3128 8223 or email knights@mhpc.com
(mailto:knights@mhpc.com) .
Notes
Enquiries
Knights
David Beech, CEO Via MHP Communications
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank 020 7260 1000
MHP Communications (Media enquiries)
Andrew Jaques, Katie Hunt, Rachel Mann 020 3128 8100
07585 301464
knights@mhpc.com
(1 )( )Underlying PBT is before amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance costs,
restructuring costs in the reporting period, and non-underlying share based
payments. Underlying EPS excludes these items and the tax related to these
items. The Board believes that these underlying figures provide a more
meaningful measure of the Group's underlying performance
(2 )Cash conversion is calculated as the total of net cash from operations,
tax paid and payments of lease interest and lease finance liabilities under
IFRS 16, divided by the underlying profit after tax, which is calculated from
profit after tax by adding back amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance,
restructuring costs in the reporting period, and non-underlying share based
payments and the tax in respect of these costs. H121 cash conversion
excludes the impact of VAT deferrals under Government approved COVID pandemic
schemes
(3 ) Lock up excludes the impact of acquisitions in the last quarter of
the previous financial year, along with clinical negligence, highway and
ground rent WIP which operate mainly on a conditional fee arrangement
(4 ) Net debt excludes lease liabilities
.
Chief Executive's Review
Introduction
I am pleased to report another period of profitable, cash generative growth,
during which our strong culture and discipline of day-to-day cash collection
has been successfully expanded across a broadened footprint.
The period since Covid has added wind to the sails of our regional strategy.
More professionals are considering work life balance and commute time in their
career decisions, which is fuelling our recruitment drive.
The last eighteen months has been a very buoyant period for law firms in both
the City and the regions. As we look forward, our regional business is more
resilient to any slow down in the economy through inflationary pressure or
cyclical change and we are not currently seeing the same salary inflation
issues which are affecting London and major city professional service
businesses.
With the benefit of the acquisitions of Keebles and Mundays, which are now
fully integrated, the Group achieved a 29% increase in revenue and a 26%
increase in underlying profit before tax. The early stages of the integration
of Archers Law LLP are also encouraging, as we continue to see the benefit of
our differentiated business model.
Our track record of unlocking cash, by reducing debtor and work in progress
days, and increasing the profitability of traditional law firms is strong, as
evidenced by our industry leading lockup(3) of 99 days, underpinned by debtor
days of 33, despite the recent integration of acquisitions and new recruits.
We are seeing continued momentum in attracting high calibre talent and our
collegiate 'one team' culture is also providing exciting new opportunities to
sustainably grow the top line across the business whilst managing the business
to maintain high levels of cultural alignment, performance and profitability.
As we have grown, this track record has been supported by our growing team of
Client Services Directors who, alongside the responsibility for the financial
performance and organic growth of individual offices, have played an essential
role in ensuring the successful integration of new people and clients into the
Group.
Our recently agreed £60m revolving credit facility provides significant
headroom, with net debt(4) having stood at £23.3m as at 31 October 2021 (FY
21: £21.1m), to continue to scale our business across the UK organically and
through selected acquisitions, as we further strengthen our position as a
leading legal and professional services business outside London.
High quality organic growth
Our increased scale and national reputation in recent years has driven a step
change in our credibility as a premium provider, with Knights' extensive
high-quality legal expertise, deep sector specialisms and bespoke advice
increasingly sought after in the regions.
As well as resonating with clients who recognise the value of our trusted
advice and premium service, our growing presence is also contributing to
greater awareness of Knights, supporting continued strong recruitment momentum
in the period. We are pleased that we are attracting high calibre senior
recruits, the majority from Top 50 law firms, who continue to view Knights'
unique business model and performance-focussed culture as an attractive place
to strengthen and expand on existing relationships. We actively manage
churn in the business, which remains at low levels, but provides the
opportunity to continue to enhance our team.
We are also broadening our offering through additional services in a number of
specialisms, with a focus on areas where our clients value a holistic
approach, across both legal and specialist advice, from a trusted partner.
Having built a team of tax specialists in recent years, we have recently
launched our debt advisory practice, attracting accountants and corporate
bankers from respected institutions in the regions. We look forward to
bringing our differentiated business model to larger and more complex
transactions as a result and are excited about the opportunities we have ahead
to drive growth in both new and existing regions.
Strengthening our footprint with acquisitions
Our tried and tested formula for acquisitions saw the successful integration
of both Keebles and Mundays during the period. The four acquisitions
completed in FY21 have performed in line with expectations, with good progress
across key metrics including the reduction of debtor and work in progress
days.
Having identified the North East region as an exciting market in which to
expand our offering, we were pleased to announce the acquisition of Teesside
based Archers post period end, which provides a platform for further organic
growth in the North East. Early integration has shown a strong cultural fit,
with our Client Services Director particularly focussed on building on the
strong connections between our new colleagues and our business community in
this important region, which is currently undergoing significant public and
private investment.
We are well placed to continue to selectively execute on our acquisition
strategy, having extended our Revolving Credit Facility during the period,
providing further flexibility, and having built a proven and compelling
platform for professionals in the regions. We continue to anticipate
accelerated consolidation in the industry in the medium term and believe that
Knights has become the acquirer of choice for commercially minded and
innovative professionals that wish to move away from the partnership model.
With a healthy pipeline of opportunities, we remain highly focussed on
cultural fit and alignment with the key personnel that would be an important
part of the future of the business within Knights.
ESG
We continue to perform ahead of the three year ESG targets we set in 2019 to
reduce greenhouse gas emissions; paper consumption and office usage are our
two main drivers.
We have expanded the scope of our ESG governance to include Climate Change
using TCFD (Taskforce on Climate-related Financial Disclosure) guidance as the
basis. Having performed a strategic review to assess risks / opportunities
under various climate change scenarios, we see no material risk or opportunity
for the business.
Dividend
The Group's progressive dividend policy balances the retention of profits to
fund our long-term growth strategy with providing shareholders with a return,
as that growth strategy delivers strong results. In line with that policy, the
Board is proposing an interim dividend of 1.46p per share.
Current Trading and Outlook
Our increased scale and national reputation have created a greater awareness
of Knights, supporting continued strong momentum in the recruitment of quality
senior recruits from other top 50 law firms, and our breadth and depth of
resource is attracting larger quality clients seeking excellent professional
services support in the regions.
We have a healthy pipeline of acquisition opportunities, which we are taking
the time to meet in person whenever possible. Recent acquisitions and new
joiners are integrating well, with no impact on our industry leading debtor
days, demonstrating the strength of our onboarding programme and culture of
cash collection.
We anticipate good trading in the second half, which will be against a
stronger comparative, and we continue to expect our typical second half
weighting. We are, therefore, confident in delivering a full year performance
in line with market expectations.
Our outlook for the medium term is positive with recruitment supporting good
levels of organic growth, and with further acquisition opportunities. We
continue to build on the critical mass we achieved last year, further
cementing the strong position we have built in key markets for legal services
outside London.
David Beech
Chief Executive Officer
Financial Review
I am pleased to report a strong performance for the first half of FY 22, with
revenue, profitability and cash generation all in line with the Boards'
expectations.
Revenue
Revenue increased by 29% (£13.5m) to £59.7m compared to £46.2m in the
comparable period last year. Of this £9.1m related to revenue from
acquisitions completed in the second half of FY21, with £4.4m relating to
organic growth. This equates to an organic growth rate of 9% compared to the
same period last year.
Acquisition growth
During the second half of FY21 we completed, or exchanged on acquisitions in
Exeter, Weybridge, Sheffield and a housing business in Battle, which has now
been moved into the existing Crawley and Maidstone offices. The performance of
these four acquisitions has been ahead of expectations for the first half of
the year.
Organic growth
Organic growth excludes income growth from acquisitions in the year of
acquisition and for the first full financial year following acquisition based
on acquired fees generated by individuals joining the Group from the acquired
entity. Organic growth for the half year amounted to £4.4m, giving an
organic growth rate of approximately 9% compared to the prior period. This
organic growth has been generated by a focus on appropriate pricing following
reviews of standard charge out rates, better recovery of time recorded, the
recruitment of senior fee earners with a good quality client following, new
client wins and some cross selling of further services to existing clients.
Organic growth in H122 was held back by the restructuring of some less
profitable and culturally misaligned teams during the prior period. It was
also impacted by the higher than normal number of holidays taken during the
first half of the year due to the excess holidays accrued at the end of FY21,
as a result of the impact of the COVID pandemic. As at the end of October
2021, the accrued holidays have returned to normal levels with excess holidays
being taken during the summer as, with the relaxation of national
restrictions, employees took the opportunity to utilise their additional
accrued holidays.
Staff costs
Overall our total staff costs, as a percentage of revenue, have decreased from
64.1% in H121 to 63.4% in H122, demonstrating our investment in the
appropriate resources to maximise the overall profitability of the business.
Direct staff costs
The growth in revenue has been achieved whilst keeping tight control on the
number of less experienced lawyers and related costs in the business, helping
to increase our gross margin for the half year from 46.4% in H121 to 48.0% for
the period to 31 October 2021 by reducing fee earners' staff costs as a
percentage of revenue to 52.0% compared to 53.6% for HY21. This reflects the
focus on improving efficiencies and recovery of time recorded during the
period and the impact of more profitable recruits beginning to generate fee
income at expected levels.
Support staff costs
The development of our operational infrastructure to support ongoing growth,
through the successful management of offices and integration of acquisitions,
continues to be of paramount importance to the Group and Board. As such, we
have continued to invest in technology, expanded our Client Services
Executive, with two new Client Services Directors joining during FY21, as well
as expanded the operational management team during FY21. In addition, the
return to office working in September increased the need for receptionists and
office assistants to be located in all offices. These factors increased
support staff costs to 11.4% of revenue compared to 10.5% in the prior year.
However, management expect these costs to begin to be leveraged in the second
half and beyond, subject to future investment considered necessary to support
sustainable growth in line with our strategy.
Depreciation and amortisation charges
Depreciation and amortisation charges increased by 1.4 percentage points to
8.7% as a percentage of revenue compared to 7.3% in the comparable period last
year. This is due to increases in amortisation of intangibles, as a result
of the acquisitions made during FY21, and an increase in the depreciation on
right of use assets from property leases recognised under IFRS 16. These
costs for H122 reflect the full costs of the investment made in FY21 in new
leases for Leeds, Nottingham, Birmingham, Maidstone and York offices, as well
as recognising the leases acquired as part of the acquisitions made during
FY21. We continue to see the investment in high quality offices as being
central to maintaining our collaborative, one team culture and a key factor in
helping to recruit and retain top quality individuals in the business. Going
forward the depreciation on right of use assets will begin to be leveraged as
we recruit into these offices and make full use of the additional capacity
afforded by an agile working environment, this along with increasing revenues
will reduce our property costs as a percentage of revenue.
Other operating charges
Overall other operating charges, at 16.9% of revenue, are comparable to the
level seen in H121 (17.1%). An increase in establishment costs as a
percentage of revenue, due to the investment mentioned above, has been offset
by the leveraging of other overheads. Other overhead expenses have decreased
as a percentage of revenue due to the increase in revenue leveraging
predominantly fixed costs, continued tight control of costs by management, and
the benefit of synergies from acquisitions, as a number of supply contracts
have been aligned and consolidated over the period.
Underlying Profit Before Tax
H1 FY 22 H1 FY 21
£'000 £'000
Profit / (loss) before tax 848 (1,137)
Amortisation (excluding amortisation of computer software) 1,900 1,123
Non-underlying costs 4,804 6,007
Underlying profit before tax 7,552 5,993
Underlying Profit Before Tax has increased by 26% to £7.6m compared to £6.0m
in the same period last year. Margins were broadly maintained at 12.6% for
the half year (H1 21: 13%), with savings from the leveraging of staff costs
and general overheads in the period as a result of increased revenue, being
offset by the investment in property costs. This investment in property
enables further organic and acquisitive growth; management consider that these
costs will be leveraged further in the future by attracting talent into
current offices and also potential bolt on acquisitions that may be able to
utilise the current office space.
The reported result after tax shows a loss of £1.7m in H122 compared to a
loss of £1.5m in H1 21 largely due to the one off deferred tax expense of
£1.5m as discussed below. Excluding the impact of this deferred tax expense,
the reported result after tax would be a loss of £0.2m compared to a loss of
£1.5m in H121. .
Balance Sheet and Liquidity
Net Assets have increased from £83m at 30 April 2021 to £85m as at 31
October 2021. The principal movement on the Balance Sheet from the position
reported as at the end of April is the reduction in Trade and other payables
from £32.3m as at 30 April 2021 to £20.7m as at 31 October 2021. At the
year end the trade and other payables figure included an amount of £8.3m
consideration due in relation to the acquisition of Keebles. This was
settled on the completion of the acquisition by the issue of £3.5m in shares
and a cash payment of £4.8m in respect of consideration and settlement of
debt, net of cash acquired.
The deferred tax balance has increased by £1.3m from the balance at the end
of April 2021, which is as a result of a one off increase due to planned
changes in corporation tax rates. The Finance Bill 2021 was substantively
enacted on 24 May 2021 for tax accounting purposes, increasing corporation tax
rates from 19% to 25% with effect from April 2023. Therefore, in order to
comply with Accounting Standards, the deferred tax provided for in the
accounts (which was previously based on a 19% corporation tax rate) has been
recalculated at 25%, which has resulted in an increase in the liability of
£1.5m.
Working capital and cash management
The management of our lock up(3) (the time taken to convert a unit of time
incurred into cash) continues to be a fundamental KPI for the Group and is a
key focus for the Board, Client Service Directors and wider management team.
As at 31 October 2021 our lock up, excluding the impact of acquisitions in the
last quarter of FY21, was at 99 days (compared to 94 days as at 31 October
2020). This reported figure of 99 days included the impact of the three
acquisitions completed as at the end of FY20, which had lock up at the time of
acquisition of 130 days, which has reduced to 106 days as at 31 October 2021.
Net Debt
The Group has again delivered exceptionally strong cash conversion of 105% for
the period resulting in a conservative gearing level with net debt to
consensus EBITDA for FY22 of just 0.7x. During the period, the Group
increased its RCF facility to £60m until October 2024, introducing a third
banking partner into the Group to provide further flexibility for funding in
the future. With net debt of £23.3m at the period end, this gives headroom
of £36.7m, positioning the Group well to continue to grow the business
through its strategy of growth via organic recruitment and the completion of
carefully selected, culturally aligned acquisitions. The table below shows a
reconciliation of the key cash flows impacting the movement in net debt.
£m
Net debt 30 April 2021 (excluding lease liabilities) 21.1
Deferred and contingent consideration paid 0.6
Consideration paid, restructuring and related non underlying costs 6.4
Refurbishment of offices 0.6
Capital expenditure relating to acquisitions 0.3
Net cash inflows (5.7)
Net debt as at 31 October 2021 (excluding lease liabilities) 23.3
EPS and dividend
The reported basic and diluted earnings per share has decreased by 12.8% to a
loss of 2.03p (H121: loss of 1.80p). This is due to the one off impact from
the change in the tax rate. Adjusting the reported figure for H122 to exclude
the one off impact of the increase in the deferred tax rate, would give
a reported basic loss per share of 0.28p, compared to a loss per share of
1.80p in H121.
The underlying basic earnings per share has increased by 17.7% to 6.98p (HY21:
5.93p). This is lower than the increase in underlying profit before tax due to
a 1.4% increase in the number of shares and an increase in the effective rate
of tax on underlying profits of 4%.
In line with the Group's dividend policy, and to reflect the Group's strong
financial performance, balanced with the intention to retain profits to fund
our long term growth strategy, the Board has declared an interim dividend of
1.46p per share (HY20: 1.10p per share with no dividend having been declared
in HY 21, due to the COVID pandemic). This will be payable on 17 March 2022
to shareholders on the register on 18 February 2022.
Kate Lewis
Chief Financial Officer
Knights Group Holdings plc
Consolidated Statement of Comprehensive Income
For the 6 month period ended 31 October 2021
Note 6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Revenue 59,730 46,237 103,201
Other operating income 449 539 1,310
Staff costs 3 (37,849) (29,635) (62,707)
Depreciation and amortisation charges 4 (5,226) (3,367) (7,730)
Impairment of trade receivables and contract assets (309) (105) (223)
Other operating charges 5 (10,087) (7,909) (16,173)
Operating profit before non-underlying charges 6,708 5,760 17,678
Non-underlying operating costs 6 (4,804) (6,007) (10,288)
Operating profit/(loss) 1,904 (247) 7,390
Finance costs 7 (1,059) (890) (1,881)
Finance income 8 3 - -
Profit/(loss) before tax 848 (1,137) 5,509
Taxation (1,086) (337) (2,107)
One-off deferred tax charge 2 (1,452) - -
(Loss)/profit and total comprehensive income for the period attributable to (1,690) (1,474) 3,402
equity owners of the parent
(Loss)/earnings per share Pence Pence Pence
Basic (loss)/earnings per share 9 (2.03) (1.80) 4.14
Diluted (loss)/earnings per share 9 (2.03) (1.80) 4.09
The above results were derived from the Group's continuing operations. Options
are not dilutive in view of the loss incurred for the half year period.
Knights Group Holdings plc
Consolidated Statement of Financial Position
As at 31 October 2021
31 October 2021 31 October 2020 30 April 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Assets
Non-current assets
Intangible assets and goodwill 75,843 68,331 79,523
Property, plant and equipment 9,825 6,116 9,538
Right-of-use assets 39,458 30,388 40,406
Lease receivables 1,130 - -
126,256 104,835 129,467
Current assets
Contract assets 30,226 23,040 28,530
Trade and other receivables 29,368 24,321 31,521
Cash and cash equivalents 5,516 5,246 4,783
65,110 52,607 64,834
Total assets 191,366 157,442 194,301
Equity and liabilities
Equity
Share capital 167 164 165
Share premium 72,147 66,358 68,369
Merger reserve (3,536) (3,536) (3,536)
Retained earnings 16,385 12,313 17,691
Equity attributable to owners of the parent 85,163 75,299 82,689
Non-current liabilities
Lease liabilities 39,506 29,267 39,020
Borrowings 28,857 19,650 23,650
Deferred consideration - 127 -
Deferred tax 6,924 5,043 5,655
Provisions 3,275 - 2,998
78,562 54,087 71,323
Current liabilities
Lease liabilities 4,052 3,166 3,620
Borrowings - - 414
Trade and other payables 20,706 21,229 32,303
Deferred consideration 913 1,211 1,095
Contract liabilities 201 148 216
Corporation tax liability 65 141 765
Provisions 1,704 2,161 1,876
27,641 28,056 40,289
Total liabilities 106,203 82,143 111,612
Total equity and liabilities 191,366 157,442 194,301
Knights Group Holdings plc
Consolidated Statement of Changes in Equity
For the 6 month period ended 31 October 2021
Attributable to equity holders of the Parent
Share Share Merger Retained Total
£'000
capital premium reserve earnings
£'000
£'000
£'000 £'000
Balance at 1 May 2020 (audited) 164 66,252 (3,536) 13,070 75,950
Loss for the period and total comprehensive income - - - (1,474) (1,474)
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments - - - 717 717
Issue of shares - 106 - - 106
Balance at 31 October 2020 (unaudited) 164 66,358 (3,536) 12,313 75,299
Profit for the period and total comprehensive income - - - 4,876 4,876
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments - - - 502 502
Issue of shares 1 2,011 - - 2,012
Balance at 30 April 2021 (audited) 165 68,369 (3,536) 17,691 82,689
Loss for the period and total comprehensive income - - - (1,690) (1,690)
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments - - - 384 384
Issue of shares 2 3,778 - - 3,780
Balance at 31 October 2021 (unaudited) 167 72,147 (3,536) 16,385 85,163
Knights Group Holdings plc
Consolidated Statement of Cash Flows
For the 6 month period ended 31 October 2021
Note 6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Operating activities
Cash generated from operations 10 10,299 11,750 20,378
Non-underlying operating costs paid 6 (1,792) (2,954) (4,268)
Interest received 39 253 461
Tax paid (1,969) (1,255) (2,125)
Contingent acquisition payments (395) - (5,597)
Net cash from operating activities 6,182 7,794 8,849
Investing activities
Acquisition of subsidiaries (2,731) - (1,195)
Purchase of intangible fixed assets (4) (104) (196)
Purchase of property, plant and equipment (1,285) (1,281) (4,356)
Proceeds from sale of property, plant and equipment - 6 6
Landlord capital contribution - - 2,265
Payment of deferred consideration (182) (2,950) (3,171)
Net cash used in investing activities (4,202) (4,329) (6,647)
Financing activities
Proceeds from issue of share capital - 28 -
Proceeds of new borrowings 14,750 - 19,000
Repayment of borrowings (9,957) (9,000) (24,000)
Repayment of debt acquired with subsidiaries (1,852) - (2,387)
Repayment of lease liabilities (2,213) (1,212) (2,564)
Proceeds from lease receivables 1 - -
Interest and other finance costs paid (124) (776) (1,772)
Associated lease costs - - (289)
Net cash from/(used in) financing activities 605 (10,960) (12,012)
Net increase/(decrease) in cash and cash equivalents 2,585 (7,495) (9,810)
Cash and cash equivalents at the beginning of the period 2,931 12,741 12,741
Cash and cash equivalents at end of period 5,516 5,246 2,931
(net of overdraft of £1,852,000 at 30 April 2021)
Knights Group Holdings plc
Notes to the Consolidated Interim Financial Statements
For the 6 month period ended 31 October 2021
1. General Information
Knights Group Holdings plc ("the Company") is a public company limited by
shares and is registered, domiciled and incorporated in England (registration
no. 11290101).
The Group consists of Knights Group Holdings plc and all of its subsidiaries.
The principal activity and nature of operations of the Group is the provision
of legal and professional services. The address of its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
2. Accounting policies
2.1 Basis of preparation
The accounting policies used in the preparation of the interim financial
information for the six months ended 31 October 2021 are in accordance with
the recognition and measurement criteria of UK Adopted International
Accounting Standards and are consistent with those which will be adopted in
the annual statutory financial statements for the year ending 30 April 2022.
The Group's statutory financial statements for the year ended 30 April 2021,
prepared under IFRS, have been filed with the Registrar of Companies. The
auditor's report on those financial statements was unqualified and did not
contain a statement under Section 498(2) or (3) of the Companies Act 2006.
The financial statements contained in this interim report do not constitute
statutory accounts as defined in section 434 of the Companies Act 2006.
The interim report has not been audited or reviewed in accordance with the
International Standard on Review Engagements 2410 issued by the Auditing
Practices Board.
Monetary amounts are presented in sterling, being the functional currency of
the Group, rounded to the nearest thousand except where otherwise indicated.
2.2 Going concern
The interim financial information has been 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 extended its banking facilities to £60,000,000 available
until 29 October 2024. The Group's forecasts show sufficient cash generation
and headroom in banking facilities and covenants in relation to anticipated
future requirements to support the Directors' conclusions that the assumption
of the going concern basis of accounting in preparing the interim financial
information is appropriate.
In the period since the pandemic arose and the UK entered lockdown at the end
of March 2020, the Group has continued to trade profitably and cash generation
at an operating cashflow level has remained strong in line with expectation.
In order to satisfy the validity of the going concern assumption, a number of
different trading scenarios 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 interim financial information.
2.3 Accounting developments
On 24 May 2021, the increase in corporation tax from 19% to 25% from 1 April
2023 was substantively enacted for tax accounting purposes. In this set of
interim accounts, the effect of the new rate on the Group's tax charge has
been applied, this impact has been incurred on the deferred tax assets and
liabilities where the differences will not reverse until after 1 April 2023.
The impact of changing the tax rate from 19% to 25% on the associated assets
and liabilities is outlined in the below table:
6 months ended 31 October 2021 (unaudited)
£'000
Tax Charge at 19% (1,086)
Tax Charge at 25% (2,538)
Impact of change in tax rate (1,452)
There have been no other new standards or interpretations relevant to the
Group's operations applied in the interim financial information for the first
time.
3. Staff costs
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Employee costs 37,354 29,187 62,088
Share-based payment charge 495 448 619
37,849 29,635 62,707
4. Depreciation and amortisation charges
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Depreciation 939 590 1,309
Depreciation of right of use assets 2,322 1,595 3,684
Amortisation 1,949 1,159 2,704
Loss on disposal of property, plant and equipment 16 23 33
5,226 3,367 7,730
5. Other operating charges
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Establishment costs 2,640 1,730 4,140
Short term and low value lease costs 148 158 291
Other overhead expenses 7,299 6,021 11,742
10,087 7,909 16,173
6. Non-underlying operating costs
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Redundancy and reorganisation costs 879 1,097 1,459
Transaction costs 465 699 1,245
Onerous short life asset leases 6 152 132
Impairment of right-of-use assets and interest - 600 635
Loss on disposal 100 107 284
Share-based payment charges 170 348 600
Contingent consideration treated as remuneration 3,184 3,004 5,933
4,804 6,007 10,288
Non-underlying costs cash movement
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Non-underlying operating costs 4,804 6,007 10,288
Contingent consideration shown separately (3,184) (3,004) (5,933)
Non cash movements:
Share based payment charge (170) (348) (600)
Loss on disposal (100) (107) (284)
Onerous leases (6) (285) (302)
Accrual 448 691 1,099
1,792 2,954 4,268
Non-underlying costs relate to redundancy costs to streamline the support
function of the Group following acquisitions, and in FY21 as a result of
reorganisation actions taken in response to the impact of COVID-19,
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. None of the above costs relate to the underlying costs of
the business.
Contingent consideration is included in non-underlying costs as it represents
payments agreed under the terms of the sale and purchase agreements with
vendors of certain businesses acquired which are contingent on the continued
employment of those individuals with the Group. The payments extend over
periods of one to three years and are designed to preserve the value of
goodwill and customer relationships acquired in the business combinations.
IFRS requires such arrangements to be treated as remuneration and charged to
the Statement of Comprehensive Income. The individuals also receive market
rate salaries for their work, in line with other similar members of staff in
the Group. The contingent earnout payments are significantly in excess of
these market salaries and would distort the Group's results if not separately
identified.
7. Finance costs
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Interest on borrowings 378 390 704
Interest on leases 681 500 1,177
1,059 890 1,881
8. Finance income
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Interest on leases 3 - -
3 - -
9. 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.
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021 (Audited)
(Unaudited) (Unaudited) Number
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 83,281,074 82,098,956 82,189,113
per share
Effect of dilutive potential ordinary shares:
Share options 1,087,411 935,139 1,021,132
Weighted average number of ordinary shares for the purposes of diluted 84,368,485 83,034,095 83,210,245
earnings per share
£'000 £'000 £'000
(Loss)/profit after tax (1,690) (1,474) 3,402
Earnings per share Pence Pence Pence
Basic (loss)/earnings per share (2.03) (1.80) 4.14
Diluted (loss)/earnings per share (2.03) (1.80) 4.09
Options are not dilutive in view of the loss incurred for the interim period
Underlying earnings per share
Underlying earnings per share is calculated after adjusting for the effect of
amortisation of intangible assets, share-based payments and non-underlying
items.
6 months ended 6 months ended Year ended
31 October 2021 31 October 2020 30 April 2021
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
(Loss)/profit after tax (1,690) (1,474) 3,402
Amortisation (adjusted for amortisation of computer software) 1,900 1,123 2,622
Non-underlying operating costs 4,634 5,659 9,688
Share-based payment charge 170 348 600
Tax in respect of the above (650) (784) (1,272)
Change in deferred tax rate 1,452 - -
Underlying profit after tax 5,816 4,872 15,040
Underlying earnings per share Pence Pence Pence
Basic underlying earnings per share 6.98 5.93 18.30
Diluted underlying earnings per share 6.89 5.87 18.07
10. Reconciliation of profit to net cash generated from operations
6 months ended 31 October 2021 6 months ended 31 October 2020 Year ended
(Unaudited) (Unaudited) 30 April 2021 (Audited)
£'000 £'000 £'000
Profit/(loss) before taxation 848 (1,137) 5,509
Adjustments for:
Amortisation 1,949 1,159 2,704
Depreciation 3,261 2,185 4,993
Loss on disposal of equipment 16 23 33
Contingent consideration expense 3,184 3,004 5,933
Non-underlying operating costs 1,450 2,655 3,755
Share-based payment charge 665 796 1,387
Interest income (42) (142) (398)
Interest expense 1,059 890 1,881
Operating cash flows before movements in working capital 12,390 9,433 25,797
Increase in contract assets (1,696) (1,532) (2,827)
Decrease/(increase) in trade and other receivables 2,240 2,153 (135)
(Decrease)/increase in provisions (113) 15 (263)
Increase/(decrease) in contract liabilities 15 (29) 39
(Decrease)/increase in trade and other payables (2,537) 1,710 (2,233)
Cash generated from operations 10,299 11,750 20,378
11. Underlying earnings
Underlying PBT (Profit Before Tax) is calculated as follows:
6 months ended 31 October 2021 6 months ended 31 October 2020 Year ended
(Unaudited) (Unaudited) 30 April 2021 (Audited)
£'000 £'000 £'000
Profit/(loss) before tax 848 (1,137) 5,509
Amortisation (adjusted for amortisation of computer software) 1,900 1,123 2,622
Non-underlying costs 4,804 6,007 10,288
Underlying profit before tax 7,552 5,993 18,419
12. 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 (Profit
After Tax) into free cash flows. Free cash flow is calculated as the total of
net cash from operations, tax paid and payments of lease interest and lease
liabilities under IFRS 16. Cash conversion % is calculated by dividing free
cash flow by underlying profit after tax, which is reconciled to profit after
tax (note 9).
6 months ended 31 October 2021 6 months ended 31 October 2020 Year ended
(Unaudited) (Unaudited) 30 April 2021 (Audited)
£'000 £'000 £'000
Cash generated from operations (note 10) 10,299 11,750 20,378
Tax paid (1,969) (1,255) (2,125)
Total cash outflow for IFRS 16 leases (2,213) (1,712) (3,741)
Free cash flow 6,117 8,783 14,512
Underlying profit after tax (note 9) 5,816 4,872 15,040
Cash conversion (%) 105% 180% 96%
13. Post balance sheet events
On 1 November 2021, the Group exchanged contracts to acquire Archers Law LLP ,
by purchasing the controlling membership interests of the entity. The
acquisition completed on 26 November 2021. Archers LLP is a law firm based in
Stockton-on-Tees and was acquired to provide a broader platform for future
organic growth in the North East region.
Consideration was made up of £2.1m cash and £1.6m ordinary shares, the fair
value accounting is not yet complete. A contingent consideration arrangement
was entered into as part of the acquisition. This is contingent on the sellers
remaining in employment by the Group so it has been excluded from the
consideration and will be recognised in the Statement of Comprehensive Income
on a straight-line basis. The maximum undiscounted amount of all potential
future payments under the contingent consideration arrangement is £1.5m.
This is payable in 3 equal instalments on the first, second and third
anniversary of completion.
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