REG - Knights Group Hldgs - Half Year Results
16/01/2023 07:00
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RNS Number : 7548M Knights Group Holdings PLC 16 January 2023
Knights Group Holdings plc
("Knights" or the "Group")
Unaudited Half Year Results
A strong platform underpinned by scale, brand and a diverse service offering
Knights, a fast-growing legal and professional services business in the UK,
today announces its half year results for the six months ended 31 October
2022.
Financial highlights
· Revenue increased by 19% to £71.2m (HY 2022: £59.7m)
· Underlying PBT(1) up 19% to £9.0m (HY 2022: £7.6m); underlying
PBT margin of 12.6% (HY 2022: 12.6%)
· Basic underlying EPS increased to 8.26p (HY 2022: 6.98p). Basic
EPS 3.46p (HY 2022: loss of 2.03p)
· Lock up (2), excluding impact of Coffin Mew acquisition, was 98
days, 103 including Coffin Mew (HY 2022: 99 days)
· Cash conversion(3) of 57% (HY 2022: 105%)
· Net debt(4) of £35.6m (30 April 2022: £28.9m), in line with the
Board's expectations
· Interim dividend of 1.53p (HY 2022: 1.46p per share)
Strategic and operational highlights
Secured position as the UK's largest regional commercial law firm(5)
· Continued momentum in recruitment of top-tier talent from Top 50
law firms. Average number of full time equivalent fee earners employed during
the period was 1,075 (HY 2022: 931)
· Scale and value proposition attracting new clients both within
the UK market and internationally
· Large and more diverse client base providing resilience to
macroeconomic pressures
Enhanced footprint, strengthening Knights' presence in key regional markets
· Acquisition of Coffin Mew during the period bolsters Knights'
presence in the South of England
· Successful integration of Keebles, Archers Law and Langleys,
strengthening footprint in Yorkshire, the North East of England and the East
of England; key people, clients and revenues retained; profitability and lock
up days approaching Group levels
· Disposal of the non-core HPL part of Langleys completed in
September 2022
· Acquisition of Meade King announced post-period end, facilitating
entry into Bristol's fast-growing legal services market and strengthening our
position in the South West
Investment in operational backbone to support continued growth
· Continued expansion of the Client Services Executive (CSD), with
a further two CSD appointments during the period
· New lines of reporting from CSDs and Operational Directors
delivering benefits across the business
Current trading and Outlook
· Focussed on improving organic growth; driven by improved margins,
improving productivity and investment in more profitable fee earners
· Full year outlook underpinned by increased interest income on
client account monies driven by interest rates returning to normal levels
· Macroeconomic outlook likely to support recruitment momentum and
acquisition opportunities; highly selective approach to assessing future
acquisition targets
David Beech, CEO of Knights, commented:
"Knights has delivered profitable, cash generative growth over the period and
maintained this positive momentum into the second half.
"We are delighted that our Group is now the largest regional commercial law
firm in the UK(5). The strength of the Knights brand, and our reputation as a
trusted and quality adviser, underpins our ability to attract and retain top
industry talent, high-quality clients and acquisition targets.
"Our scale and unique proposition is resonating with a wider range of
companies than ever before, including further afield in the USA and Europe.
This positions us well as we focus on delivering quality organic growth in the
second half and beyond.
"In a relatively flat market, we have driven our revenue growth through
acquisitions. With our focus on improving productivity along with improved
gross margins, underpinned by increased interest income, we are confident of
delivering full year results in line with market expectations, and continuing
to cement our position as the leading legal and professional services business
outside London."
A presentation of the half year results will be made to analysts via a webinar
at 9am today. To register interest in attending, please contact Christian
Harte at MHP Communications on 020 3128 8013 or email knights@mhpgroup.com.
Enquiries
Knights
David Beech, CEO Via MHP
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank 020 7260 1000
MHP Group (Media enquiries)
Katie Hunt, Eleni Menikou, Robert Collett-Creedy 020 3128 8100
07736 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 22
offices located in Birmingham, Brighton, Cheltenham, Chester, Crawley, Exeter,
Leeds, Leicester, Lincoln, Maidstone, Manchester, Newbury, Nottingham, Oxford,
Portsmouth, Sheffield, Southampton, Stoke, Teesside, Weybridge, Wilmslow and
York.
(1 )Underlying PBT is before amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance costs,
restructuring costs in the reporting period, and non-underlying share based
payments. Underlying EPS excludes these items and the tax related to these
items. The Board believes that these underlying figures provide a more
meaningful measure of the Group's underlying performance.
(2 ) Lock up is calculated as the combined debtor and WIP days as at a
point in time. Debtor days are calculated on a count back basis using the
gross debtors at the period end and compared with total fees raised over prior
months. WIP days are calculated based on the gross work in progress (excluding
that relating to clinical negligence claims, insolvency, and ground rents, as
these matters operate mainly on a conditional fee arrangement and a different
profile to the rest of the business) and calculating how many days billing
this relates to, based on average fees (again excluding clinical negligence
claims, insolvency, and ground rents fees) per month for the last 3 months.
Lock up days excludes the impact of acquisitions in the last quarter of the
reporting period.
(3 ) Cash conversion is calculated as the total of net cash from operations,
tax paid and payments of lease interest and lease finance liabilities under
IFRS 16, divided by the underlying profit after tax, which is calculated from
profit after tax by adding back amortisation of acquired intangibles,
non-underlying costs relating to acquisitions, non-recurring finance costs,
restructuring costs in the reporting period, and non-underlying share based
payments and the tax in respect of these costs.
(4 ) Net debt excludes lease liabilities.
5 Largest firm by revenues outside London. Source: The Lawyer's Top 100
report, October 2022
These footnotes apply throughout the RNS.
Chief Executive's Review
Introduction
Knights delivered a strong half year financial performance in line with
expectations for the full year, reflecting profitable, cash generative growth
across the business. Revenue increased by 19% (H1 FY22: 29%), underlying
EBITDA was £14.6m, a 22% increase and underlying PBT was £9.0m, a 19%
increase compared to the prior period, as we continued to execute on our
strategy.
Our regional focus and differentiated business model underpin the Group's
resilience to the macro-economic uncertainty which emerged during the period,
and reinforced our ability to attract high-calibre talent with strong client
followings, which is critical in our people-driven business.
The scale and diversity of service offering we have achieved in recent years
has positioned us as the UK's largest regional player in legal and
professional services, with demand for our full-service offer remaining robust
as clients face different challenges, and opportunities, in the face of
economic pressures. Our longstanding regional presence means that we have
significant experience of working in regions that have not experienced
economic prosperity for some time, so we are well positioned to support our
clients in times of economic uncertainty.
The acquisitions of Keebles, Archers Law and Langleys, completed in the prior
year, have now been fully integrated. In the first quarter, we also completed
the acquisition of Coffin Mew, a leading independent law firm in the South of
England, significantly expanding our footprint in the region. Acquisitions
were the main contributor to revenue growth in the period and our reach now
extends across almost the whole of England, outside the capital.
The Group's strong commercial discipline meant we continued to see good cash
collection, resulting in lock up days(2) of 103 (H1 FY22: 99 days), despite
acquisition and recruitment momentum. Our 33 debtor days (H1 FY22:33 days)
demonstrates our market leading cash generation.
As we enter the second half, we are focused on delivering organic growth and
will be highly selective about acquisitions in order to secure the best
opportunities in what we expect to be an expanding pipeline due to the
economic cycle.
We are well-positioned for growth, with significant headroom of £24.4m
against the Group's Revolving Credit Facility (RCF) of £60m, and net debt of
£35.6m, after paying c.£8m of acquisition consideration and related costs in
the first half.
Continuing to invest in our growth strategy
Knights is now the largest UK commercial law firm without offices in London
(Source: The Lawyer's Top 100 report, October 2022), with a brand that is
synonymous with high quality legal expertise, deep sector specialisms and the
agility to offer bespoke advice to a diversified client base across a
full-service offering.
This strength of reputation has facilitated the continued recruitment of
top-tier talent from leading law firms both within, and outside, London as we
leverage a reshaped post-pandemic talent map, which has seen migration of
talent around the country. Our organic growth is underpinned by our ability to
attract - and retain- such high calibre talent.
We had an average of 1,075 full time equivalent (FTE) fee earners during the
period (H1 FY22: 931), reflecting the attractiveness of our culture and
distinctive model versus that of traditional independent law firms with equity
partnership models; for which the associated financial risk is expected to
become less appealing in the current environment.
We are encouraged by the level of return to offices across our network,
recognising the benefits this brings in terms of collaboration, flow of work
between team members, training, and supporting our 'one team' culture. We have
further cemented our culture by holding our first, in person, all staff annual
conference since 2019 during the first half which has significantly supported
the integration of many new colleagues since the start of the pandemic to work
together as one team to organically grow the business.
Following investment in the diversification of our offer in recent years, we
are now genuinely a full-service operator, with a range of specialisms serving
a broad spectrum of sectors. Our ability to provide a more extensive range of
advice and work on a variety of situations will underpin our ability to drive
growth across the regions we cover through the macroeconomic cycle.
As well as being attractive within the UK national market, international
clients such as TTI Inc., a Berkshire Hathaway Company, in the US, which we
have supported in respect of its UK and international acquisitions, and
European based companies are now recognising the scale and value proposition
that Knights delivers.
Enhanced footprint
Following the successful integrations of Keebles, Archers Law and Langleys,
the Knights footprint has been materially strengthened in Yorkshire, the North
East of England (one of the largest markets for legal and professional
services in the UK) and the East of England. These acquisitions have
performed well as part of the Group, with key people, clients and revenues
retained as expected and profitability and lock up days having moved towards
typical Knights levels. As planned, the sale of the non-core Home Property
Lawyers Limited (HPL) part of Langleys, which generated circa £4.0m annual
revenue pre acquisition, exchanged contracts in July 2022 and completed in
September 2022.
During the period, we also acquired Coffin Mew, a leading independent law firm
in the South of England, adding four offices in Portsmouth, Southampton,
Brighton, and Newbury. Through this acquisition, we significantly expanded our
coverage of this region, an attractive growth market for legal and
professional services. Its integration is on track and it is performing well
as part of the Group.
Our strengthened Client Services Executive has overseen the integration of
these businesses, ensuring Knights' ethos and commercially driven approach is
well-embedded.
Our pipeline of acquisition opportunities remains healthy and, as the UK
enters a more challenging economic period, we expect the landscape to evolve
further with more talent and businesses moving away from the traditional
partnership model, making Knights' forward-thinking approach ever more
attractive. We are well-placed to take advantage of opportunities that
represent a good fit, given the headroom available in our RCF facility.
Progress against our sustainability targets
We comfortably surpassed the ESG targets set in 2019 to reduce our greenhouse
gas emissions, which for Knights, are primarily driven by paper consumption
and office usage. We are on track to report fully on this progress and set
renewed targets at the end of the financial year.
Our ESG governance now includes Climate Change using TCFD (Taskforce on
Climate-related Financial Disclosure) guidance and, having performed a review
to assess risks / opportunities under various climate change scenarios, we see
no material risk or opportunity for the business.
Dividend
The Group's dividend policy balances the retention of profits to fund our
long-term growth strategy with providing shareholders with a return as the
growth strategy delivers strong results. In line with that policy, the Board
is proposing an interim dividend of 1.53p per share. The dividend will be
payable on 17 March 2023 to shareholders on the register at 17 February 2023.
Current trading and outlook
Despite flat organic growth in the first half of the year, the focus on
retention and investment in more profitable fee earners, improved gross
margins and the benefits of an increase in interest earned on client monies
driven by interest rates returning to a long term normal level, gives us
confidence in continuing to deliver a full year performance in line with
market expectations.
We firmly believe that Knights is well-positioned to meet the challenges, and
also take advantage of the opportunities, presented by the macro-economic
outlook. We remain committed to strengthening our position as the leading
legal and professional services firm outside London, through the continued
execution of our growth strategy.
David Beech
Chief Executive Officer
Financial Review
I am pleased to report that for the first half of this financial year (H1
FY23) Knights has delivered a good financial performance, with growth in
revenue, profits and net debt levels which were in line with Board
expectations.
On 5 July 2022 the Group exchanged on the disposal of Home Property Lawyers
Limited (HPL) which was acquired as part of the Langleys acquisition in FY22
but identified as non-core. For the period prior to exchange, HPL contributed
revenue of £0.7m and generated an underlying EBITDA loss of £0.1m and
underlying PBT loss of £0.1m.
Total Group Total Group
6 months ended
31 October 2022 6 months ended
31 October 2021
£'000
£'000
% change
Revenue 71,200 59,730 19%
Other operating income 1,874 449
317%
Staff costs (43,935) (37,849) 16%
Other operating charges (14,232) (10,087) 41%
Impairment of trade receivables and contract assets (306) (309) -
Underlying EBITDA 14,601 11,934 22%
Underlying EBITDA % 20.5% 20.0%
Depreciation and amortisation charges (excluding amortisation on acquired (4,006) (3,326) 20%
intangibles)
Underlying finance charges (1,624) (1,059) 53%
Underlying finance income 18 3 -
Underlying profit before tax 8,989 7,552 19%
Underlying profit before tax margin 12.6% 12.6%
Underlying tax charge (excluding impact of non-recurring deferred tax) (1,938) (1,736) (12%)
Underlying profit after tax 7,051 5,816 21%
Basic underlying EPS (pence) 8.26 6.98 18%
Revenue
Total Group revenue increased by 19%. Excluding the contribution from HPL,
revenue increased by 18% (£10.8m) from £59.7m in the comparable period last
year.
Acquisitions delivered £10.6m of revenue growth, being the net impact of
acquisitions completed in FY22 and during the first half of FY23.
Performance of acquisitions completed during the year ended 30 April 2022
In June 2021 we completed the acquisition of Keebles LLP. At acquisition we
identified approximately £2.5m of revenue relating to business non-core for
Knights (Legal Aid, PI and volume debt and conveyancing work). Following a
detailed post-acquisition review, a strategic decision was made to move away
from these workstreams which has subsequently reduced the revenue contribution
of Keebles. The remainder of the Keebles business has been fully integrated
and contributed £4.3m of revenue in the period, a reduction of £1.5m from
the comparable period. This was in line with expectations following the
transfer of Legal Aid and other non-strategically aligned areas to third
parties and expected post acquisition churn.
During the second half of FY22 the acquisitions of Archers Law LLP (Archers)
and Langleys Solicitors LLP (Langleys) were completed. These acquisitions
(excluding HPL) have contributed £7.4m of revenue in the half year to 31
October 2022, are well integrated and performing as expected at acquisition.
Acquisitions completed during the period to 31 October 2022
During the six months ended October 2022, the Group acquired Coffin Mew LLP,
(contracts exchanged on 18 May 2022 and completed on 8 July 2022) and Globe
Consultants Limited (a chartered town planning team of four individuals
generating revenues of circa £0.25m acquired in May 2022). These
acquisitions have contributed £4.7m of revenue in the period, as
anticipated. Initial integration has gone well with both acquisitions
performing as expected.
Organic growth
Organic revenue growth was flat due to slightly higher than expected
acquisition churn in one of the acquisitions completed in April 2020, together
with the closure of the volume debt recovery business and management time
being focussed on integrating the acquisitions over the last two years. As
this integration matures in the second half we expect a small increase in
organic growth, with further improvements in FY24.
Staff costs
Total staff costs, as a percentage of revenue, have decreased from 63.4% in H1
FY22 to 61.7% in H1 FY23 demonstrating our ability to control costs, integrate
acquisitions and our continued focus on profitability. We have improved
profitability by managing our staff costs and exiting from any non-core, less
profitable work streams. Successful integration of acquisitions and cost
benefits from Group central support systems also contributed to this improved
staff cost to income ratio.
Direct staff costs
During the six month period to 31 October 2022, the direct fee earner staff
costs as a percentage of revenue have reduced to 50.9% compared to 52.0% for
HY FY22. This improvement reflects our focus on improving efficiencies,
pricing and recovery of time recorded during the period.
Revenue growth has been achieved whilst keeping a tight control on the number
of less experienced professionals and related costs in the business,
supporting a gross margin improvement for the half year to 49.1% from 48.0% in
H1 FY22.
Support staff costs
Total support staff costs have reduced to 10.8% of revenue compared to 11.4%
in the prior year driven primarily by a reduction in Board costs following the
departure of the COO during H1 FY23. Excluding this, support staff costs as
a percentage of revenue remained at the same level as the comparable period
last year.
Other operating charges
Overall, other operating charges have increased to 20% of revenue (H1 FY22:
17%) as more colleagues return to work from our offices and the easing of
COVID related restrictions allowed increased networking and collaboration
across our 22 offices, including our first, in person, all staff annual
conference since the pandemic. As we invest in the future growth of the
business, there has also been a significant focus on increasing business
development activity.
Depreciation and amortisation charges
Depreciation and amortisation charges (excluding amortisation on acquired
intangibles) remained consistent at 5.6% of revenue.
Other operating income
Other operating income has increased to £1.9m from £0.4m, primarily due to
increased interest rates received on the client monies held, net of interest
paid out to clients.
Underlying Profit Before Tax(1)
H1 FY23 H1 FY22
£'000 £'000
Profit before tax 4,116 848
Amortisation (excluding computer software) 1,740 1,900
Non-underlying costs 3,133 4,804
Underlying profit before tax 8,989 7,552
Total Group underlying profit before tax has increased to £9.0 million from
£7.6m in H1 FY22. Excluding the trading loss from HPL, underlying profit
before tax increased to £9.1 million, being a 20% increase against the
comparable period last year.
The underlying profit before tax margin is 12.6% which, excluding HPL,
improved to 12.9% for the half year (H1 FY22: 12.6%) as we have seen the
benefit of the normalisation of interest rates which has led to an increase in
other operating income due to interest earned on client monies held. This
increase in other income is expected to continue in the medium to longer term.
The increase in other operating charges resulting from acquisitions and
investment in future growth has been partially offset by the improved gross
profit margins and leveraging of support staff costs.
The Group reported profit after tax of £3.0m compared to a loss of £1.7m in
H1 FY22.
Underlying Taxation
The underlying tax charge for the half year, excluding the impact of the
change in tax rate on deferred tax, was £1.9m (H1 FY22: £1.7m), giving an
effective tax rate of 22% (H1 FY22: 23%).
Balance Sheet and Liquidity
Net assets increased from £85.7m at 30 April 2022 to £88.3m as at 31 October
2022, primarily due to profits generated in the period and new equity issued
for acquisitions in the period, less the dividend of £1.7m paid in respect of
the year ended 30 April 2022.
Working capital and cash management
The management of lock up(2) (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 2022 lock up was at 103 days (compared to 99 days as at 31
October 2021). The reported lock up days at the end of October was adversely
impacted by the inclusion of the recent acquisition of Coffin Mew, at 204 days
(an improvement from 215 days at acquisition). Excluding Coffin Mew, lock up
as at 31 October 2022 was 98 days.
Cash Flow
6 months ended 31 October 2022 6 months ended 31 October 2021
£'000
£'000
Underlying profit before tax 8,989 7,552
Depreciation and amortisation 4,006 3,326
Change in working capital (6,376) (1,978)
Net finance charges 1,606 1,017
Cash outflow for IFRS 16 leases (3,626) (2,213)
Movement in provisions and other sundry items (135) 382
Cash generated from underlying operations (pre tax) 4,464 8,086
Tax paid (415) (1,969)
Net cash generated from underlying operating activities 4,049 6,117
Underlying profit after tax 7,051 5,816
Underlying cash conversion 57% 105%
The Group generated underlying operating cashflow of £4.0m, a conversion rate
of 57% on underlying profits. The decrease from 105% at the same point last
year is a result of working capital movements driven by timings of
acquisitions. A key driver was the increase in contract assets within the
clinical negligence team during the period due to ongoing court delays. We
expect this increase to start to reverse in the second half of the year with
cash conversion levels returning to previously targeted levels of over 70%.
Net Debt (4)
Cash generation continues to be a key focus for management. With net debt of
£35.6m at the period end and a total RCF facility of £60m, which gives
headroom of £24.4m, the Group is well positioned to continue to grow the
business organically and through 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 2022 28.9
Deferred and contingent consideration paid 1.4
Consideration paid, restructuring and related non underlying costs 6.6
Dividends paid 1.7
Capital expenditure 1.1
Other net cash (inflows) from operating activities (4.1)
Net debt as at 31 October 2022 35.6
EPS and dividend
The reported basic earnings per share has increased by 5.49p to earnings of
3.46p (H122: loss of 2.03p). The reported diluted earnings per share has
increased by 5.48p to earnings of 3.45p (H122: loss of 2.03p). The prior
period was affected by 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 gave an EPS of loss of 0.28p.
The underlying basic earnings per share has increased by 18% to 8.26p (HY22:
6.98p).
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
1.53p per share (HY22: 1.46p per share) This will be payable on 17 March 2023
to shareholders on the register on 17 February 2023.
Kate Lewis
Chief Financial Officer
Knights Group Holdings plc
Consolidated Statement of Comprehensive Income
For the 6 month period ended 31 October 2022
Note 6 months ended 31 October 2022 6 months ended 31 October 2021 Year ended
(Unaudited) (Unaudited) 30 April 2022 (Audited)
£'000 £'000 £'000
Revenue 71,200 59,730 125,604
Other operating income 1,874 449 1,270
Staff costs 3 (43,935) (37,849) (76,863)
Depreciation and amortisation charges 4 (5,746) (5,226) (10,778)
Impairment of trade receivables and contract assets (306) (309) (498)
Other operating charges 5 (14,232) (10,087) (22,077)
Operating profit before non-underlying charges 8,855 6,708 16,658
Non-underlying operating costs 6 (3,451) (4,804) (13,260)
Non-underlying gains on disposal 6 318 - -
Operating profit 5,722 1,904 3,398
Finance costs 7 (1,624) (1,059) (2,364)
Finance income 8 18 3 22
Profit before tax 4,116 848 1,056
Taxation (975) (1,086) (1,840)
Impact of change in tax rate on deferred tax charge 2 (185) (1,452) (1,747)
Profit/(loss) and total comprehensive income for the period attributable to 2,956 (1,690) (2,531)
equity owners of the parent
Earnings/(loss) per share Pence Pence Pence
Basic earnings/(loss) per share 9 3.46 (2.03) (3.02)
Diluted earnings/(loss) per share 9 3.45 (2.03) (3.02)
The above results were derived from the Group's continuing operations. Options
are not dilutive in prior periods in view of the losses incurred in those
periods.
Knights Group Holdings plc
Consolidated Statement of Financial Position
As at 31 October 2022
31 October 2022 31 October 2021 30 April 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Assets
Non-current assets
Intangible assets and goodwill 88,498 75,843 82,172
Property, plant and equipment 10,327 9,825 10,240
Right-of-use assets 41,822 39,458 40,663
Finance lease receivables 967 1,130 1,091
141,614 126,256 134,166
Current assets
Contract assets 38,335 30,226 31,777
Trade and other receivables 30,671 29,368 32,309
Finance lease receivables 161 - 76
Corporation tax asset 427 - 1,815
Cash and cash equivalents 4,374 5,516 4,097
Assets held for sale - - 1,195
73,968 65,110 71,269
Total assets 215,582 191,366 205,435
Equity and liabilities
Equity
Share capital 172 167 169
Share premium 75,262 72,147 74,264
Merger reserve (3,536) (3,536) (3,536)
Retained earnings 16,397 16,385 14,762
Equity attributable to owners of the parent 88,295 85,163 85,659
Non-current liabilities
Lease liabilities 41,561 39,506 41,183
Borrowings 39,720 28,857 32,798
Deferred consideration 3,669 - 2,421
Deferred tax 8,068 6,924 8,332
Provisions 4,600 3,275 4,331
97,618 78,562 89,065
Current liabilities
Lease liabilities 6,143 4,052 5,345
Borrowings 211 - 355
Trade and other payables 18,712 20,706 21,362
Deferred consideration 2,349 913 1,210
Contract liabilities 234 201 237
Corporation tax liability - 65 -
Provisions 2,020 1,704 1,772
Liabilities held for sale - - 430
29,669 27,641 30,711
Total liabilities 127,287 106,203 119,776
Total equity and liabilities 215,582 191,366 205,435
Knights Group Holdings plc
Consolidated Statement of Changes in Equity
For the 6 month period ended 31 October 2022
Attributable to equity holders of the Parent
Share capital Share premium Merger reserve Retained earnings £'000 Total
£'000
£'000
£'000
£'000
Balance at 1 May 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
Loss for the period and total comprehensive income - - - (841) (841)
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments - - - 451 451
Issue of shares 2 2,117 - - 2,119
Dividends - - - (1,233) (1,233)
Balance at 30 April 2022 (audited) 169 74,264 (3,536) 14,762 85,659
Profit for the period and total comprehensive income - - - 2,956 2,956
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments - - - 428 428
Issue of shares 3 998 - - 1,001
Dividends - - - (1,749) (1,749)
Balance at 31 October 2022 (unaudited) 172 75,262 (3,536) 16,397 88,295
Knights Group Holdings plc
Consolidated Statement of Cash Flows
For the 6 month period ended 31 October 2022
Note 6 months ended 31 October 2022 6 months ended 31 October 2021 Year ended
(Unaudited) (Unaudited) 30 April 2022 (Audited)
£'000 £'000 £'000
Operating activities
Cash generated from operations 12 8,090 10,299 25,060
Non-underlying operating costs paid 6 (1,243) (1,792) (3,691)
Interest received - 39 274
Tax paid (415) (1,969) (4,095)
Contingent acquisition payments (1,368) (395) (5,383)
Net cash from operating activities 5,064 6,182 12,165
Investing activities
Acquisition of subsidiaries (net of cash acquired) (5,135) (2,731) (6,801)
Purchase of intangible fixed assets (43) (4) (62)
Purchase of property, plant and equipment (1,033) (1,285) (2,526)
Proceeds from sale of property, plant and equipment (2) - -
Proceeds from lease receivables 57 1 30
Disposal of subsidiaries (net of cash disposed) 747 - -
Landlord capital contribution - - 146
Associated lease costs - - (23)
Payment of deferred consideration - (182) (1,095)
Net cash used in investing activities (5,409) (4,201) (10,331)
Financing activities
Proceeds of new borrowings 22,500 14,750 47,350
Repayment of borrowings (15,721) (9,957) (38,600)
Proceeds from exercise of share options - - 798
Repayment of debt acquired with subsidiaries (35) (1,852) (2,903)
Repayment of lease liabilities (2,829) (2,213) (3,890)
Interest and other finance costs paid (1,674) (124) (2,060)
Dividends paid (1,749) - (1,233)
Net cash from/(used in) financing activities 492 604 (538)
Net increase in cash and cash equivalents 147 2,585 1,296
Cash and cash equivalents at the beginning of the period 4,227 2,931 2,931
Cash - continuing operations 4,374 5,516 4,097
Cash - assets held for resale - - 130
Cash and cash equivalents at end of period 4,374 5,516 4,227
Knights Group Holdings plc
Notes to the Consolidated Interim Financial Statements
For the 6 month period ended 31 October 2022
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 2022 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 2023.
The Group's statutory financial statements for the year ended 30 April 2022,
prepared under UK-adopted International Accounting Standards, 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. This interim financial information
was approved by the board on 13 January 2023.
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 banking facilities of £60,000,000 available until 29 October 2024.
The Group's forecasts show sufficient cash generation and headroom in banking
facilities and covenants by comparison to anticipated future requirements to
support the Directors' conclusions that the assumption of the going concern
basis of accounting in preparing the interim financial information is
appropriate.
The Group continues to trade profitably before non-underlying charges and cash
generation at an operating cashflow level has remained strong and in line with
expectation. In order to satisfy the validity of the going concern assumption,
a number of different trading scenarios including a reduction in revenues and
costs and an increase in interest rates and lock up 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 this interim financial information.
2.3 Accounting developments
There have been no new standards or interpretations relevant to the Group's
operations applied in the interim financial information for the first time.
2.4 Taxation
On 24 May 2021, the increase in corporation tax from 19% to 25% from 1 April
2023 was substantively enacted for tax accounting purposes. The impact has
been incurred on the deferred tax assets and liabilities where the differences
will not reverse until after 1 April 2023. The effect of changing the tax rate
from 19% to 25% on the associated assets and liabilities is outlined in the
below table:
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Tax charge at 19% (826) (1,086) (1,840)
Tax charge at 25% (1,011) (2,538) (3,587)
Impact of change in tax rate (185) (1,452) (1,747)
3. Staff costs
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Employee costs 43,517 37,354 76,028
Share-based payment charge 418 495 835
43,935 37,849 76,863
4. Depreciation and amortisation charges
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Depreciation 1,143 939 2,027
Depreciation of right-of-use assets 2,808 2,322 4,799
Amortisation 1,793 1,949 3,936
Loss on disposal of property, plant and equipment 2 16 16
5,746 5,226 10,778
5. Other operating charges
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Establishment costs 3,573 2,640 5,633
Short term and low value lease costs 132 148 187
Other overhead expenses 10,527 7,299 16,257
14,232 10,087 22,077
6. Non-underlying operating costs
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Redundancy and reorganisation costs 584 879 2,080
Transaction costs 585 465 988
Onerous short life asset leases (13) 6 472
Impairment of right-of-use assets 38 - 2,065
(Profit)/loss on disposal of intangible assets and property, plant and (12) 100 967
equipment
Effective interest on deferred consideration 28 - -
Share based payment charges 11 170 421
Contingent consideration treated as remuneration 2,230 3,184 6,267
3,451 4,804 13,260
Non-underlying gains on disposal
Profit on disposal of investments (318) - -
3,133 4,804 13,260
Non-underlying costs cash movement
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Non-underlying operating costs 3,133 4,804 13,260
Adjustments for:
Contingent consideration shown separately (2,230) (3,184) (6,267)
Non cash movements:
Share based payment charge (11) (170) (421)
Impairment of right of use assets (38) - (2,065)
Profit on disposal of investments 318 - -
Profit/(loss) on disposal of property, plant and equipment 12 (100) (967)
Effective interest on deferred consideration (28) - -
Onerous leases 13 (6) (97)
Accrual 74 448 248
1,243 1,792 3,691
Non-underlying costs relate to redundancy costs to streamline the support
function of the Group following acquisitions, transaction costs in respect of
acquisitions, onerous lease costs in respect of acquisitions, disposals of
acquired assets and share based payment charges relating to one off share
schemes offered to employees as part of the IPO and on acquisitions. On 5 July
2022 the group disposed of Home Property Lawyers Limited, a former subsidiary
of the Group, this was sold for a total consideration of £1,276,000 with a
profit on disposal of £318,000. The profit on disposal has been recognised
within non-underlying costs.
Contingent consideration is included in non-underlying costs as it represents
payments which are contingent on the continued employment of those individuals
with the Group, agreed under the terms of the sale and purchase agreements
with vendors of certain businesses acquired. The payments extend over periods
of one to three years and are designed to preserve the value of goodwill and
customer relationships acquired in the business combinations. IFRS requires
such arrangements to be treated as remuneration and charged to the Statement
of Comprehensive Income. The individuals also receive market rate salaries for
their work, in line with other similar members of staff in the Group. The
contingent earnout payments are significantly in excess of these market
salaries and would distort the Group's results if not separately identified.
7. Finance costs
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Interest on borrowings 855 378 952
Interest on leases 769 681 1,412
1,624 1,059 2,364
8. Finance income
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) £'000
£'000 £'000
Lease interest receivable 18 3 22
9. Earnings per share
Basic and diluted earnings per share have been calculated using profit/(loss)
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 2022 31 October 2021 30 April 2022 (Audited)
(Unaudited) (Unaudited) Number
Number Number
Weighted average number of ordinary shares for the purposes of basic earnings 85,382,872 83,281,074 83,717,952
per share
Effect of dilutive potential ordinary shares:
Share options 230,569 1,087,411 409,640
Weighted average number of ordinary shares for the purposes of diluted 85,613,441 84,368,485 84,127,592
earnings per share
£'000 £'000 £'000
Profit/(loss) after tax 2,956 (1,690) (2,531)
Earnings per share Pence Pence Pence
Basic earnings/(loss) per share 3.46 (2.03) (3.02)
Diluted earnings/(loss) per share 3.45 (2.03) (3.02)
Options in prior periods are not dilutive in view of the loss incurred.
Underlying earnings per share
Underlying earnings per share is calculated after adjusting for the effect of
amortisation of acquired intangibles and non-underlying items.
6 months ended 6 months ended Year ended
31 October 2022 31 October 2021 30 April 2022
(Unaudited) (Unaudited) (Audited)
£'000 £'000 £'000
Profit/(loss) after tax 2,956 (1,690) (2,531)
Amortisation (adjusted for computer software) 1,740 1,900 3,815
Non underlying operating costs 3,133 4,804 13,260
Tax on non underlying operating costs (518) (650) (1,869)
Effect of change in deferred tax rate 185 1,452 1,747
Non recurring deferred tax adjustment (445) - -
Underlying profit after tax 7,051 5,816 14,422
Underlying earnings per share Pence Pence Pence
Basic underlying earnings per share 8.26 6.98 17.23
Diluted underlying earnings per share 8.24 6.89 17.14
10. Acquisitions
Coffin Mew LLP ('Coffin Mew')
On 18 May 2022, the Group exchanged contracts to acquire Coffin Mew by
purchasing 100% of the membership interests of the entity. This acquisition
completed on 8 July 2022. Coffin Mew is a law firm which will strengthen
Knights' presence in the South of England with offices in Portsmouth,
Southampton, Brighton and Newbury.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed are as set out in the table below. These figures are
provisional as the purchase accounting is not yet finalised:
Carrying amount £'000 Fair value adjustment £'000 Total
£'000
Identifiable assets
Identifiable intangible assets - 1,377 1,377
Property, plant and equipment 225 - 225
Right-of-use assets - 4,016 4,016
Contract assets 2,110 (350) 1,760
Trade and other receivables (net of £353,000 loss allowance provision) 1,661 - 1,661
Cash and cash equivalents 2,667 - 2,667
Liabilities
Trade and other payables (2,785) 597 (2,188)
Lease liabilities - (4,016) (4,016)
Borrowings - (35) (35)
Provisions (1,063) - (1,063)
Deferred tax - (344) (344)
Total identifiable assets and liabilities 2,815 1,245 4,060
Goodwill 7,071
Total consideration 11,131
Satisfied by:
Cash 7,771
Deferred consideration 2,360
Equity instruments (1,152,078 Ordinary Shares of Knights Group Holdings plc) 1,000
Total consideration transferred 11,131
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 5,104
Repayment of debt 35
Net cash outflow arising on acquisition 5,139
The goodwill of £7,071,000 arising from the acquisition represents the
assembled workforce. None of the goodwill is expected to be deductible for
income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was
determined on the basis of the volume weighted average share price for the 5
days prior to exchange.
A contingent consideration arrangement was entered into as part of the
acquisition. This is contingent on the sellers remaining in employment by the
Group so it has been excluded from the consideration and will be recognised in
the Statement of Comprehensive Income on a straight-line basis over the 3 year
post acquisition period.
The maximum undiscounted amount of all potential future payments under the
contingent consideration arrangement is £2,500,000 which is payable in equal
instalments on the first, second and third anniversary of completion.
There are also deferred consideration payments totalling £2,500,000
outstanding. This is payable in instalments on the first, second and third
anniversaries of completion.
Coffin Mew contributed £4,589,000 of revenue to the Group's Statement of
Comprehensive Income for the period from 18 May 2022 to 31 October 2022. The
profit contributed is not separately identifiable due to the hive-up of its
trade and assets being incorporated into Knights Professional Services Limited
from 8 July 2022.
If the acquisition occurred at the beginning of the year Coffin Mew would have
contributed £5,062,000 of revenue to the Group. Profit is not separately
identifiable due to the full integration on hive up.
Globe Consultants Limited
On 9 May 2022, the group acquired the entire share capital of Globe
Consultants Limited (Globe), a planning business with 5 employees. Total
consideration transferred was £123,000.
Globe contributed £59,000 of revenue to the Group's Statement of
Comprehensive Income for the period from 11 May 2022 to 31 October 2022. The
profit contributed is not separately identifiable due to the hive-up of its
trade and assets being incorporated into Knights Professional Services Limited
from 11 May 2022.
If the acquisition occurred at the beginning of the year Globe would have
contributed £67,000 of revenue to the Group. Profit is not separately
identifiable due to the full integration on hive up.
11. Disposal of subsidiary
On 5 July 2022 the group exchanged on the disposal of Home Property Lawyers
Limited, a former subsidiary of the Group, this was sold for a total
consideration of £1,276,000 with a profit on disposal of £318,000. The
profit on disposal has been recognised within non-underlying costs.
12. Reconciliation of profit to net cash generated from operations
6 months ended 31 October 2022 6 months ended 31 October 2021 Year ended
(Unaudited) (Unaudited) 30 April 2022 (Audited)
£'000 £'000 £'000
Profit before taxation 4,116 848 1,056
Adjustments for:
Amortisation 1,793 1,949 3,936
Depreciation - property plant and equipment 1,143 939 2,027
Depreciation - right-of-use assets 2,808 2,322 4,799
Loss on disposal of equipment 2 16 16
Contingent consideration expense 2,230 3,184 6,267
Non-underlying operating costs 864 1,450 6,572
Share based payment charge 428 665 835
Effective interest on deferred consideration 28 - -
Interest income (18) (42) (296)
Interest expense 1,624 1,059 2,364
Operating cash flows before movements in working capital 15,018 12,390 27,576
(Increase)/decrease in contract assets (4,741) (1,696) 628
Decrease in trade and other receivables 3,679 2,240 570
(Decrease)/increase in provisions (552) (113) 469
(Decrease)/increase in contract liabilities (3) 15 21
Decrease in trade and other payables (5,311) (2,537) (4,204)
Cash generated from operations 8,090 10,299 25,060
13. Underlying earnings
Underlying PBT (Profit Before Tax) is calculated as follows:
6 months ended 31 October 2022 6 months ended 31 October 2021 Year ended
(Unaudited) (Unaudited) 30 April 2022 (Audited)
£'000 £'000 £'000
Profit before tax 4,116 848 1,056
Amortisation (adjusted for computer software) 1,740 1,900 3,815
Non-underlying costs 3,133 4,804 13,260
Underlying profit before tax 8,989 7,552 18,131
14. 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 operating activities after adjusting for tax paid and the impact
of IFRS 16. Cash conversion % is calculated by dividing free cash flow by
underlying PAT, which is reconciled to profit after tax (note 9).
6 months ended 31 October 2022 6 months ended 31 October 2021 Year ended
(Unaudited) (Unaudited) 30 April 2022 (Audited)
£'000 £'000 £'000
Cash generated from operations (note 12) 8,090 10,299 25,060
Tax paid (415) (1,969) (4,095)
Total cash outflow for IFRS 16 leases (3,626) (2,213) (5,302)
Free cash flow 4,049 6,117 15,663
Underlying profit after tax (note 9) 7,051 5,816 14,422
Cash conversion (%) 57% 105% 109%
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