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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gateley (holdings) Plc | LSE:GTLY | London | Ordinary Share | GB00BXB07J71 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -1.50 | -1.24% | 119.00 | 119.00 | 121.00 | 120.50 | 120.00 | 120.50 | 46,634 | 16:35:04 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Legal Services | 162.73M | 12.24M | 0.0930 | 12.90 | 157.97M |
From May 2019 to May 2024
TIDMGTLY
RNS Number : 6099F
Gateley (Holdings) PLC
16 July 2019
16 July 2019
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Gateley (Holdings) Plc
("Gateley", the "Group" or the "Company")
AUDITED PRELIMINARY RESULTS 2019
Strong results from an established, resilient and progressive business
Gateley (AIM: GTLY), the legal and professional services group, is pleased to announce its audited preliminary results for the year ended 30 April 2019.
Financial Highlights
Hot Features
Premium
-- Revenue increased 20.2% to GBP103.5m (2018: GBP86.1m)
-- Adjusted EBITDA* increased 15.7% to GBP19.1m (2018: GBP16.5m)
-- Profit before tax increased 8.9% to GBP15.9m (2018: GBP14.6m)
-- Profit after tax increased 10.6% to GBP13.0m (2018: GBP11.8m)
-- Basic EPS increased 7.3% to 11.83p (2018: 11.03p), adjusted
fully diluted EPS increased 17.8% to 13.15p (2018: 11.16p)
**
-- Proposed final dividend of 5.4p per share (2018: 4.8p), representing
a full year dividend of 8.0p per share (2018: 7.0p) an increase
of 14.3%
-- Robust balance sheet with net assets increased to GBP30.6m
(2018: GBP23.0m) and net debt of GBP3.2m (2018: GBP0.7m)
-- Strong cash generation and continued investment for future
growth
-- New financial year has started well and the Group is well
positioned to make further progress
* Adjusted EBITDA excludes share based payment charges, depreciation,
amortisation and exceptional items
** Adjusted fully diluted EPS excludes share based payment charges,
amortisation and exceptional items. It also adjusts for the
future weighted average number of expected unissued shares
from granted but unexercised share option schemes in issue
based on a share price at the end of the financial year
Operational Highlights
-- Record breaking revenue and staff numbers attained
-- Three acquisitions completed and fully integrated in the year:
- Strategic acquisition of housebuilder specialists GCL Solicitors
in May 2018
- Complementary acquisition of non-legal Human Capital consultancy
business, Kiddy & Partners, in July 2018
- Complementary acquisition of non-legal inward investment
consultancy business, International Investment Services, in
November 2018
-- Continued investment in fee earning staff with average numbers
up 19.8% to 610 (2018: 509). Average total staff numbers up
19.8% to 907 (2018: 757)
-- Increased levels of Partner recruitment, with organic growth
momentum maintained
-- Introduction of new Long Term Incentive Plan, to replace Stock
Appreciation Rights Scheme and to increase clarity on dilution.
LTIP to sit alongside existing CSOP and SAYE staff option schemes
-- New five year Orderly Market Agreement being finalised
Michael Ward, CEO of Gateley, said:
"I am delighted that our legal and professional services Group has broken the GBP100m revenues barrier for the first time, as we delivered another excellent financial performance whilst continuing to take advantage of opportunities to diversify revenue streams through complementary acquisitions.
"Our teamwork has, once again, enabled us to maintain strong momentum. We have continued to invest in our people, with staff numbers now approaching 1,000 employees, and had our most active year to date on strategic acquisitions, all of which have been successfully integrated.
"The new financial year has started very well and we continue to look to the future with confidence."
Enquiries:
Gateley (Holdings) Plc
Neil Smith, Finance Director Tel: +44 (0) 121 234
0196
Nick Smith, Acquisitions Director and Tel +44 (0) 20 7653
Head of Investor Relations 1665
Cara Zachariou, Head of Corporate Communications Tel +44 (0) 121 234
0074
Mob: +44 (0) 7703 684
946
finnCap - Nominated adviser and broker Tel +44 20 7220 0575
Matt Goode / James Thompson (Corporate
Finance)
Andrew Burdis (ECM)
N+1 Singer - Joint broker Tel +44 20 7496 3000
Richard Lindley / Peter Steel (Corporate
Finance)
Rachel Hayes (Corporate Broking)
Belvedere Communications Limited - Financial
PR
Cat Valentine (cvalentine@belvederepr.com) Mob: +44 (0) 7715 769
078
Keeley Clarke (kclarke@belvederepr.com) Mob: +44 (0) 7967 816
525
About us
Gateley is a professional and legal services group. Founded in Birmingham in 1808, we have provided commercial legal services to individuals and businesses over the last 200 years.
We have over 580 professional advisers and employ around 1,000 people across ten offices located in Belfast, Birmingham, Guildford, Leeds, Leicester, London, Manchester, Nottingham, Reading and Dubai.
In 2015, we were the first commercial UK law firm to list on the London Stock Exchange's Alternative Investment Market (AIM). Our strategy is to differentiate ourselves in a crowded market, incentivise our people to retain and attract the best talent in the industry and diversify by acquiring complementary business services. These include:
Gateley Legal - services span commercial and corporate law, dispute resolution, property, human resources, banking, litigation, restructuring, pensions, regulatory, private wealth and more;
Gateley Capitus - a leading fiscal incentives consultancy specialising in capital allowances on commercial property, land remediation relief and tax incentives;
Gateley Hamer - a specialist property consultancy providing straight talking advice relating to utilities and compensation, as well as compulsory purchase;
Entrust - a leading professional independent trustee company that helps companies run their pension scheme effectively;
International Investment Services - experts in international business, helping clients expand into new offshore markets in the most efficient way, and;
Kiddy & Partners - a global firm of experts in business psychology and trusted advisers to a range of business leaders, HR and talent directors.
For further details on Gateley Plc please visit www.gateleyplc.com or follow us on Twitter www.twitter.com/@GateleyPLC.
Chairman's Statement
We are delighted with the performance of the business in the 12 months to 30 April 2019. Revenues have increased by 20.2% to GBP103.5m and earnings per share rose by 7.3% from 11.03p to 11.83p. We are particularly proud of delivering this strong growth whilst at the same time enhancing our client offering and investing significantly in the business for the future. The scale, breadth and depth of our business continue to expand and our focus on leveraging our service offering, for the benefit of our clients, has been and will continue to be at the forefront of our strategic thinking and operational focus.
Importantly, since we became an AIM quoted company in 2015, we have seen an increase in the interest that existing and new employees have in our plc structure, our listed status and equity participation. During the year, we have increased our average employee numbers by 19.8% from 757 to 907, with 966 total employees at the year end. Employees from across the Group continue to benefit as shareholders, with the majority now having some form of equity stake in the business.
We added three strategic acquisitions to the Group during the year: GCL Solicitors ("GCL"), Kiddy & Partners ("Kiddy") and International Investment Services Limited ("IIS"). These complementary but very different businesses have excellent reputations of long-term client retention and high levels of service delivery and the Board is delighted to welcome them to the Group. Without our plc status, I do not believe that Gateley would have appealed to these businesses in the same way. I am pleased to report that these have been successfully integrated into the Group and are performing as planned. Our target pipeline remains strong for potential future acquisitions.
The opportunity that Gateley pioneered by being the first UK commercial law firm to float four years ago has ignited increased interest across our sector and several more law businesses have followed us onto the public markets. As a Board, we very much welcome the creation of a broader, larger listed company peer group for investors to consider. As an established investment choice, I continue to remain confident that Gateley has the right strategy for the sustainable and profitable growth of the Group and to deliver enhanced value for all our stakeholders. Our management team remains steadfast in its vision to succeed with its stated aims to differentiate (through our comprehensive service offering and service ethic), to diversify (through organic growth and acquisition of additional complementary non-legal businesses) and to incentivise (offering wider and earlier equity participation to staff).
The Board remains confident that the business is well placed to deliver another year of growth, whilst at the same time continuing to seek complementary service lines to enhance our customer offering further. Accordingly, the Board looks to the future with confidence and is pleased to propose an increased final dividend, subject to shareholder approval at the Annual General Meeting on 19 September 2019, of 5.4 pence per share, making a total dividend of 8.0 pence per share for the year, and representing a 14.3% increase on the prior year.
As announced on 10 July 2019, we are delighted that Rod Waldie has agreed to lead the business when Michael Ward stands down as CEO in April next year. We are also delighted that Michael's commitment to the Group will continue both as an executive director and as a significant shareholder.
Our choice of an internal appointment to succeed Michael and our early addressing of succession allow for a smooth transition to a highly successful and respected colleague, who already knows the business, understands our collaborative culture, has excellent client relationships and is committed to the Group's growth strategy.
Finally, and certainly not least, I would like to pass on my thanks to Michael, as well as to the Board, to the management team and to all of the staff at Gateley for their hard work, support and fantastic contribution this year in delivering a strong set of results and making considerable further strategic progress.
Nigel Payne
Chairman
16 July 2019
Chief Executive Officer's Review
Introduction
I am delighted that our legal and professional services group has broken the GBP100m revenue barrier for the first time and delivered another excellent financial performance, whilst continuing to take advantage of further opportunities to diversify our revenue streams. Last year was our most active year to date for acquisitions.
Our teamwork has once again delivered another year of strong momentum and investment as we approach 1,000 employees and continue to successfully integrate all our strategic acquisitions. GCL Solicitors (GCL), Kiddy and Partners (Kiddy) and International Investment Services (IIS) joined our growing Gateley Group in the year under review. Our national reach, built on our already well-balanced business, creates further exciting opportunities for future expansion.
In the four years since the Group's IPO at 95p per share, we have delivered revenue growth of 70%, adjusted EBITDA growth of 46% and, including the proposed final dividend announced today, provided shareholders with dividend income of 27.3 pence per share. The Group has continued to achieve or exceed market forecasts, which were raised for 2018/19 following our November 2018 trading update, after a positive first half of the year performance and the acquisitions made during the year.
We pride ourselves on being a forward-thinking business, which provides straight talking advice to a wide range of clients and delivers profitable growth to shareholders.
Financial Results
Our financial performance continues to demonstrate growth in revenue, profit and cash generation. Our diverse revenue streams have grown by 20.2% in the year, whilst profit after tax has grown by 10.6%. Continued strategic investment in areas such as recruitment, information technology and branding are enabling us to meet growing client demand and provide a strong foundation upon which to expand the business. This investment also ensures that we are able to deliver on our promises to the management teams of the businesses we acquire. We continue to strengthen and build our teams, network and service lines with a national and strategic focus to ensure we can meet client demand as we grow our market share.
The strength in depth of our core legal business creates appealing opportunities across many business types and sectors. Whilst transactional activity levels across Corporate, Banking and Property segments remain significant, our long-established expertise in Restructuring and Business Services, such as dispute resolution work, has produced significant returns once again. The strength of our connections nationally, across board rooms and intermediaries, and our reputation for quality teams with a genuine focus on client service, result in continuing instructions across many sectors, including the private equity and housebuilding sectors.
The Board is committed to maintaining a progressive dividend policy and is pleased to propose a further increase, ahead of market expectations, of 12.5% in the level of the final dividend to 5.40 pence per ordinary share (2018: 4.80 pence). The dividend will be paid in mid-October 2019 to shareholders on the register at the close of business on 20 September 2019. The ex-dividend date will be 19 September 2019.
Operational Review
It has been another very busy year with numerous opportunities opening up for us, as a result of our different service offerings. Our steadfast dedication towards client service continues to ensure we deliver the services clients want, time and again. The passion of our staff shines through in the work they perform and I am proud to lead them through these exciting times. As we grow, we continue to deliver on our promises to clients, employees and investors.
Four years on from our IPO, we remain focused on our vision to create an exciting professional services Group. We continue to diversify through our acquisition strategy and target non-legal revenues totalling 20% of Group revenue. A new Long Term Incentive Plan ("LTIP") has been introduced to replace our existing Stock Appreciation Rights Scheme ("SARS"), creating greater alignment to the profit performance of the Group and clarity over the impact of dilution going forward. Our initial SARS scheme vested on 8 June 2018, resulting in over one million additional new shares being awarded to staff. Our wider staff share ownership participation will continue to realise rewards, as our first SAYE and CSOP schemes vest later this year.
The Group is currently working with employee shareholders towards a new five year orderly market agreement that will commence at the end of the current five year agreement, due to end on 8 June 2020. We remain focused on investing in the right people to join the Gateley team and our plc status supports this by providing an attractive alternative to more traditional law firm models. We welcomed 16 new Partner hires during the year. Average total staff numbers grew by 19.8% from 757 to 907 in the period. We were pleased to welcome 18 trainees to the Group in the year under review and congratulate all those staff, both professional and support, who were promoted. We have also expanded our non-legal service lines, such that our legal team now works alongside 44 other professionals, including chartered surveyors, tax consultants, business psychologists and chartered accountants.
With the acquisition of GCL on 23 May 2018, which created our new Guildford office, we now have a trio of southern offices to capitalise on the significant and sector diverse opportunities in this region. Our Reading office has continued to establish wider connections and obtain greater local recognition, culminating in being named Law Firm of the Year at the Thames Valley Business Awards this year. Our existing London base provides niche services lines, creates opportunities for synergies, such as with Kiddy, and remains a gateway for our national and international connections that we are targeting through existing connections and our newly acquired International Investment Services offering.
Acquisitions
Our acquisition strategy focuses on niche businesses which can supplement our core legal services offering. Our plc status and established reputation attract first class professionals to enhance our core legal services. As our wide and diverse client base continues to benefit from the added value services provided by Gateley Capitus and Gateley Hamer, we have this year focused on adding to one of our key strengths, the house building sector, which resulted in the acquisition of GCL.
I am delighted to welcome GCL to the Group. The acquisition further strengthened our leading position in the house building sector nationally and provide us with an expanded presence in the Southern market, which we see as critical in developing a full service offering for our clients. There is an under supply of new housing in the UK and we expect this market to remain strong. The South East, in particular, will continue to be a significant engine for housing growth for the foreseeable future. The acquisition allows us to offer a wider geographical reach to our clients in the residential development market. We can now match our national office network to our residential development clients' regions, with seven residential development teams operating across the country. There are also many clear opportunities across the Group from this strategic acquisition, not least for Gateley Hamer and Gateley Capitus.
On 6 July 2018, we further expanded our suite of niche businesses with the acquisition of Kiddy, which broadens and strengthens our people services offering within our Employment, Pensions and Benefits group. As a result, there will be clear opportunities for us to collaborate and deliver integrated advice and services to a broader set of large-scale employers across a wide range of industries. Kiddy has made an excellent start and demonstrated growth of almost 37% ahead of original expectations, generating GBP3m of fees since acquisition. Kiddy represents our first acquisition in the exciting Human Capital sector, which when placed alongside Global Mobility and our Entrust pension trustee operation, moves our business further forward, offering employers a range of high class legal and consultancy services. This acquisition is in line with our stated plan and follows on from similar progress made in our Property group where high-value, niche, Chartered Surveying services now sit alongside and complement our core legal offering.
On 30 November 2018, we acquired IIS for a small initial consideration, again using an earn-out mechanism in line with the growth potential and cross selling opportunities such a business can achieve. IIS advises overseas companies on the attractiveness of the UK as a place in which to set up and do business.
All our businesses complement each other in service delivery and enhance our go to market proposition.
Succession and Board Changes
As announced on 10 July 2019, I plan to step down from the role of Chief Executive Officer ("CEO") on 30 April 2020. Rod Waldie, who is currently the Senior Office Partner of the Manchester office, as well as a key member of the Group's management board and head of the national property team, will succeed me as the Group's new CEO. I have full confidence in Rod who will lead a strong management team to deliver our growth aspirations going forward. I plan to remain on the main plc Board.
Other changes to the management team this year included Paul Hayward, who stepped down from the Strategic Board, Richard Healey, a restructuring litigation partner, and Thomas Durrant, a corporate partner and head of UK corporate group, who were both appointed to the existing Strategic Board on 1 May 2019.
Current trading and outlook
Following our fourth year, post float, of strong trading momentum and delivery to all stakeholders in accordance with our originally stated aims and objectives, the Board is confident that the Group is well positioned to make even greater progress in the current financial year. The Board strongly believes that the opportunity remains to broaden our offering for our clients and investors. We therefore continue to strive to enhance our offering further for the benefit of all stakeholders and build upon a proven reputation and track record for the delivery of a quality service, strong revenue and profit growth and high levels of cash generation.
At the same time, we aim to continue to build resilience into our business model and feel confident that the business we have built over many decades is now even better placed to capitalise on the growing market opportunities that exist from a changing law sector.
Michael Ward
CEO
16 July 2019
Finance Director's Review
Financial Highlights
The Group delivered another record performance in FY19, as total reported revenues for the year increased by 20.2% to GBP103.5m (2018: GBP86.1m). Revenue from core legal services grew organically by 9.5% and through acquisitions by 10.7%. Revenues from acquisitions made since IPO totalled GBP12.8m or 12.4% of total revenue (2018: GBP3.3m or 3.9%). Complementary non-legal businesses represented GBP7.0m or 6.7% of total revenue. The Group continues to demonstrate annual revenue and profit growth, whilst actively seeking opportunities for greater strategic expansion. Headcount once again increased to meet client demand and we continue to attract senior (revenue generating) hires. The strength of our client relationships and the consistent delivery of the highest levels of commercial professional advice serve the Group well sitting at the heart of our organic growth. EBITDA margins reduced in the short term due to continued investment in areas such as information technology and branding. I expect margins to increase in future financial years.
Group revenue was well spread across a growing number of clients from many varied sectors. Our strong performance in transactional led disciplines such as M&A and Property was complemented by exceptional growth in our previously less established service lines. With a focus on cross selling, all our business lines have again generated growth this year. Specialist litigation service lines continue to provide balance and resilience against our opportunity rich transactional service lines. Our Property group grew revenue this year by 28.9% (the GCL acquisition represented 17.5% of this growth). The UK's construction, property development and housing markets continue to need the long-term specialist legal support which Gateley offers at both a regional and national level. Our housebuilding sector expertise demonstrates how our focus on strategically key sectors and commercially focused nationally capable teams help to maintain long standing client relationships and trust. Our acquisition of the business and assets of GCL, which specialises in legal advice for residential development clients, has further enhanced our presence across Southern England from its Guildford location. The Guildford office provides a good strategic fit with our established London office and Reading offices. Our house building legal team grew revenue from GBP8.3m in 2018 to GBP15.3m in 2019.
Revenue and profits continue to grow across our complementary non-legal professional service lines that have increased via the acquisition of Kiddy, a leading firm of Human Capital Consultants and Business Psychologists, to work alongside Lawyers, Accountants and Chartered Surveyors, demonstrating the continued diversification of our skills and service offerings. Kiddy was acquired for an initial consideration of GBP0.9m rising to a maximum GBP3.0m based on performance over the next three financial years ending April 2020, 2021 and 2022. We acquired a further non-legal business, International Investment Services (IIS), in November 2018 for an initial consideration of GBP0.1m, rising to a maximum of GBP0.7m based on performance over the next two financial years. IIS advises overseas companies on the attractiveness of the UK as a place in which to set up and do business.
Operating expenses rose by 22.9% to GBP87.9m (2018: GBP71.6m). This growth in operating costs has been driven mainly by the continued expansion of staff levels organically and from acquisitions, to enable the Group to continue to meet growing client demand. Average numbers of legal and professional staff rose by 19.8% to 610 (2018: 509). Personnel costs, including increased share-based payment charges, rose as a result by 20.5% from GBP52.6m to GBP63.4m, thereby increasing this cost marginally to 61.3% of revenue from 61.1% in 2018. Excluding share base payment changes, staff costs increased to 60.7% of revenue from 60.3% in 2018.
Despite the continued expansion of new staff numbers, overall utilisation of staff performing chargeable work remained consistent at 85% (2018: 85%).
Other operating expenses increased by 25.7% to GBP22.0m (2018: GBP17.5m) and (before exceptional items) increased by 21.5% to GBP22.0m from GBP18.0m. This increase was predominately due to increased trading volumes arising from the introduction of a new office location in Guildford, the acquisition of Kiddy and greater expenditure on information technology.
Extract of UK statement of comprehensive income 2019 2018
GBP'000 GBP'000
Revenue 103,471 86,090
Operating profit 15,870 14,825
Operating profit margin (%) 15.34% 17.22%
Reconciliation to alternative performance
measure: Adjusted EBITDA
Operating profit 15,870 14,825
Depreciation 1,122 970
Non-underlying items
Share based payment charge 655 719
Amortisation 1,406 547
Exceptional items
One off acquisitions costs 61 -
Release of lease incentive _ (182)
Release of contingent consideration _ (362)
Adjusted EBITDA 19,114 16,517
======= =======
Adjusted EBITDA margin (%) 18.47% 19.19%
Adjusted EBITDA of GBP19.1m is up by 15.7% from GBP16.5m reflecting an adjusted EBITDA margin of 18.5% (2018: 19.2%). Operating profit before tax was up 7.0% to GBP15.9m (2018: GBP14.8m).
Earnings Per Share
Basic earnings per share increased by 7.3% to 11.83p (2018: 11.03p). Basic earnings per share after non-underlying items increased by 15.6% to 13.39p (2018: 11.58p). Diluted earnings per share increased by 9.2% to 11.61p (2018: 10.63p). Diluted earnings per share after non-underlying and exceptional items increased by 17.8% to 13.15p (2018: 11.16p).
Taxation
The effective rate of taxation on profit on ordinary activities was 18.2% (2018: 19.5%), below the standard rate of tax, primarily due to the inclusion of deferred tax assets arising during the year from share based payment charges on unexercised share options. This also follows cuts in the UK corporation tax rate that continue to benefit limited companies trading in the UK. The deferred taxation liability carried forward at 30 April 2019 was GBP0.4m (2018: GBP0.1m), whilst the deferred tax asset on share-based payment charges has been recognised for the first time this year and totals GBP0.4m (2018: GBPnil).
Dividend
The Board has adopted a dividend policy which reflects the strong long-term cash generation and earnings potential of the Group, distributing up to 70% of profits after tax each year to shareholders. Following the announcement of our interim dividend of 2.6p (2018: 2.2p) per share that was paid in March 2019, the Board proposes to approve a full year final dividend at the Company's Annual General Meeting on 19 September 2019 of 5.4p (2018: 4.8p) per share, which if approved, will be paid in mid-October 2019 to shareholders on the register at the close of business on 20 September 2019. The shares will go ex-dividend on 19 September 2019. This represents full year dividend growth in line with PAT growth of 14.3% (2018: 6.1%).
Balance Sheet, Cash Flows and Financing
The Group's net asset position has increased by 33% to GBP30.6m (2018: GBP23.0m), as a result of acquisitions being financed via a c. 50:50 split of cash (and accompanying debt) and shares.
Total net debt increased to GBP3.2m at the year end (FY18: GBP0.7m), as a result of the following movements:
- existing term loan facilities were restructured to accommodate
the borrowing of a further GBP3m in October 2018 to fund acquisitions
made during the period under review; GBP2.1m of repayments
to total term loans were made during the year;
- loans from former partners of GCL totalling GBP1.3m were acquired
on the acquisition of GCL Solicitors. GBP0.9m of loans were
repaid during the year;
- GBP1.9m of working capital resources were used to support
the purchase, by our Employee Benefit Trust, of shares resulting
from certain vesting SARS options; and
- cash at bank reduced from GBP4.3m to GBP2.9m, partly as a
result of funding given to the Employee Benefit Trust in order
for it to purchase shares from vesting SARS options.
Debt at the year end comprised GBP5.7m of remaining term bank debt and GBP0.5m of loans to former partners of GCL and directors of IIS.
Trade receivables totalled GBP33.9m compared to GBP28.5m at the end of FY18. The additional GBP5.4m in trade debtors was partially due to the expansion of legal services and the acquisitions of GCL and Kiddy, as debtor days remained consistent with the previous year. The collection of debts remains a continued focus of management across the Group given the current economic climate. Previously, the Group assessed debts on a case-by-case basis and impairment losses against particular debts were recognised to the extent that any risk of default was identified. The Group now measures its loss allowances against trade and other receivables at an amount equal to lifetime Expected Credit Losses ("ECL"), which has resulted in the creation of a GBP0.1m additional ECL adjustment to trade receivables and GBP0.3m additional ECL adjustment to unbilled revenue. The Group is adept at benefiting from greater operating cash generation in the second half of the year with inflows of working capital following utilisation of unbilled time built at the half year.
Cash generated during the year from operations was GBP12.1m (2018: GBP12.2m) which represents 92.7% (2018: 103.3 %) of profit after taxation. Capital expenditure increased to GBP1.3m (2018: GBP0.8m) due to acquisitions in the year, which resulted in greater office expansion and information technology outlays. The Group deliberately continues to operate with a low level of gearing and fixed term debt.
Capital Commitments
During the year, the Group signed a contract with a leading service provider in the legal technology space in order to acquire services for the deployment of a new practice management system, LexisOne. LexisOne is an Enterprise Resource Planning (ERP) system that brings together all aspects of professional business operations. LexisOne combines both legal expertise and the power and stability of the Microsoft Dynamics 365 platform into one single, comprehensive interface and business wide platform more suited to Gateley's growing information technology needs that can be accessed from anywhere in the world. A dedicated internal team is working towards full installation of this new system during the calendar year of 2020. During the 2019 financial year, we have capitalised GBP0.2m of development costs and incurred a further GBP0.1m of operational expenses. In preparation for this change, Gateley has successfully implemented a market leading customer relationship system (CRM), Interaction, which is supplied by the same suppler and will integrate with LexisOne whilst delivering immediate benefits to the Group in facilitating cross selling and the winning of new work.
Neil Smith
Finance Director
16 July 2019
Consolidated statement of profit and loss and other comprehensive income
for the year ended 30 April 2019
Note 2019 2018
GBP'000 GBP'000
Revenue 2 103,471 86,090
Other operating income 3 313 357
Personnel costs 5 (63,412) (52,621)
Depreciation and amortisation 4 (2,528) (1,517)
Other operating expenses (21,974) (17,484)
-------- --------
Operating profit 4 15,870 14,825
Adjusted EBITDA 4 19,114 16,517
Depreciation 10 (1,122) (970)
Non-underlying items
Share-based payment charges 5 (655) (719)
Amortisation 11/12 (1,406) (547)
Exceptional items
Acquisition costs 4 (61) -
Release of lease incentive 4 - 182
Release of contingent consideration 4 - 362
----------------------------------------------- ----- -------- --------
Net financing income/(expense) 6 75 (179)
-------- --------
Profit before tax 15,945 14,646
Taxation 7 (2,904) (2,853)
-------- --------
Profit for the year after tax attributable
to equity holders of the parent 13,041 11,793
======== ========
Other comprehensive income
Items that are or may be reclassified
subsequently to profit or loss
Foreign exchange translation differences
- Exchange differences on foreign
branch (25) (58)
-------- --------
Profit for the financial year and
total comprehensive income all attributable
to equity holders of the parent 13,016 11,735
======== ========
Statutory earnings per share
Basic 811.83p 11.03p
Diluted 811.61p 10.63p
The results for the periods presented above are derived from continuing operations.
Consolidated statement of financial position
at 30 April 2019
Note 2019 2018
GBP'000 GBP'000
Non-current assets
Property, plant and equipment 10 2,017 1,935
Investment property 164 164
Intangible assets & goodwill 11 10,430 3,295
Other intangible assets 12 289 39
Other investments 85 85
-------- --------
Total non-current assets 12,985 5,518
Current assets
Trade and other receivables 13 47,206 41,417
Deferred tax asset 16 428 -
Cash and cash equivalents 2,887 4,301
-------- --------
Total current assets 50,521 45,718
-------- --------
Total assets 63,506 51,236
======== ========
Non-current liabilities
Other interest-bearing loans and
borrowings 14 (3,076) (2,982)
Other payables 15 (983) (121)
Deferred tax liability 16 (388) (128)
Provisions 17 (339) (405)
-------- --------
Total non-current liabilities (4,786) (3,636)
-------- --------
Current liabilities
Other interest-bearing loans and
borrowings 14 (3,044) (1,977)
Trade and other payables 15 (23,727) (20,978)
Provisions 17 (291) (200)
Current tax liabilities (1,074) (1,457)
-------- --------
Total current liabilities (28,136) (24,612)
-------- --------
Total liabilities (32,922) (28,248)
======== ========
NET ASSETS 30,584 22,988
======== ========
EQUITY
Share capital 19 11,086 10,688
Share premium 6,755 4,576
Merger reserve (9,950) (9,950)
Other reserve 1,770 1,547
Treasury reserve (1,057) (15)
Translation reserve (2) 23
Retained earnings 21,982 16,119
-------- --------
TOTAL EQUITY 30,584 22,988
======== ========
Consolidated statement of changes in equity
Share Share Merger Other Treasury Retained Foreign Total
capital premium reserve reserve reserve earnings currency Equity
translation
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 May 2017 10,688 4,332 (9,950) 1,547 (132) 10,864 81 17,430
Comprehensive income:
Profit for the year - - - - - 11,793 - 11,793
Exchange rate difference - - - - - - (58) (58)
--------- --------- --------- --------- --------- ---------- ------------- --------
Total comprehensive
income - - - - - 11,793 (58) 11,735
Transactions with
owners
recognised directly
in equity:
Purchase of treasury
shares - - - - (38) - - (38)
EBT reserves adjustment - - - - - 29 - 29
Reclassification
of gain on own shares - 244 - - - (244) - -
Sale of treasury
shares - - - - 155 - - 155
Dividend paid - - - - - (7,042) - (7,042)
Share based payment
transactions - - - - - 719 - 719
--------- --------- --------- --------- --------- ---------- ------------- --------
Total equity at 30
April 2018 10,688 4,576 (9,950) 1,547 (15) 16,119 23 22,988
========= ========= ========= ========= ========= ========== ============= ========
At 1 May 2018, as
previously reported 10,688 4,576 (9,950) 1,547 (15) 16,119 23 22,988
Adjustment from adoption
of IFRS 9 (net of
tax) - - - - - (353) - (353)
--------- --------- --------- --------- --------- ---------- ------------- --------
Restated balance
at 1 May 2018 10,688 4,576 (9,950) 1,547 (15) 15,766 23 22,635
Comprehensive income:
Profit for the year - - - - - 13,041 - 13,041
Exchange rate differences - - - - - (25) (25)
--------- --------- --------- --------- --------- ---------- ------------- --------
Total comprehensive
income - - - - - 13,041 (25) 13,016
Transactions with
owners
recognised directly
in equity:
Issue of share capital 398 2,151 - 223 - - - 2,772
Recognition of tax
benefit on gain from
equity settled share
options - - - - - 726 - 726
Purchase of own shares
at nominal value - - - - - (242) - (242)
Reclassification
of gain on own shares - 28 - - - (28) - -
Sale of treasury
shares - - - - 791 - - 791
Purchase of treasury
shares - - - - (1,833) - - (1,833)
Dividend paid - - - - - (8,118) - (8,118)
Share based payment
transactions - - - - 655 - 655
Deferred tax on equity
settled element of
share based payment
charge - - - - - 182 - 182
--------- --------- --------- --------- --------- ---------- ------------- --------
Total equity at 30
April 2019 11,086 6,755 (9,950) 1,770 (1,057) 21,982 (2) 30,584
========= ========= ========= ========= ========= ========== ============= ========
The following describes the nature and purpose of each reserve within equity:
Share premium - Amount subscribed for share capital in excess of nominal value together with gains on the sale of own shares.
Merger reserve - Represents the difference between the nominal value of shares acquired by the Company in the share for share exchange with the former Gateley Heritage LLP members and the nominal value of shares issued to acquire them.
Other reserve - Represents the difference between the actual and nominal value of shares issued by the Company in the acquisition of subsidiaries.
Treasury reserve - Represents the repurchase of shares for future distribution by Group's Employee Benefit Trust.
Retained earnings - All other net gains and losses and transactions with owners not recognised anywhere else.
Foreign currency translation reserve - Represents the movement in exchange rates back to the Group's functional currency of profits and losses generated in foreign currencies.
Consolidated cash flow statement
for the year ended 30 April 2019
Note 2019 2018
GBP'000 GBP'000
Cash flows from operating activities
Profit for the year after tax 13,041 11,793
Adjustments for:
Depreciation and amortisation 10/11/12 2,528 1,517
Financial income 6 (523) (233)
Financial expense 6 448 412
Release of contingent consideration - (362)
Equity settled share-based payments 655 719
Profit on disposal of property,
plant and equipment 4 (3) -
Tax expense 7 2,904 2,853
---------- --------
19,050 16,699
Increase in trade and other receivables (3,946) (2,330)
Increase in trade and other payables 37 851
Increase in provisions 25 14
---------- --------
Cash generated from operations 15,166 15,234
Tax paid (3,075) (3,051)
---------- --------
Net cash flows from operating activities 12,091 12,183
---------- --------
Investing activities
Acquisition of property, plant and
equipment 10 (1,010) (745)
Acquisition of other intangible
assets 12 (276) (46)
Cash received on disposal of property, 3 -
plant and equipment
Consideration paid on acquisition
of Kiddy & Partners 21 (426) -
Consideration paid on acquisition
of GCL Solicitors, net of cash acquired 21 (2,016) -
Consideration paid on acquisition
of IIS, net of cash acquired 21 (84) -
Deferred consideration paid - acquisition
of subsidiary (236) (179)
Net cash used in investing activities (4,045) (970)
---------- --------
Financing activities
Interest receivable 6 523 233
Interest and other financial income
paid 6 (448) (412)
Receipt of new bank loan 2,970
Repayment of term bank loans 14 (2,278) (1,980)
Repayment of loans from former members
of Gateley Heritage LLP 14 - (551)
Repayment of loans from former members
of GCL Solicitors & Directors of (904) -
IIS
Funding by EBT of SARS shares (1,863) -
Proceeds from sale of own shares 767 361
Acquisition of own shares (109) (217)
Dividends paid 9 (8,118) (7,042)
Net cash used in financing activities (9,460) (9,608)
---------- --------
Net increase in cash and cash equivalents (1,414) 1,605
Cash and cash equivalents at beginning
of year 4,301 2,696
---------- --------
Cash and cash equivalents at end
of year 18 2,887 4,301
========== ========
Notes to the financial statements
1 Basis of preparation and significant accounting policies 1.1 Corporate information and legal status
Gateley (Holdings) Plc ("the Company") was incorporated in England and Wales on 13 November 2014. On 29 May 2015 the Company acquired 100 per cent of the issued share capital of Gateley Plc which had, on the same day, acquired the business assets and liabilities of Gateley Heritage LLP, formerly the partnership of Gateley LLP. Following this Group reorganisation, the financial statements have been prepared on a merger accounting basis as though this Group structure had always been in place and a full twelve month set of results (for both the current and prior year) is therefore presented. The first day of trading of the Group included in this statement was 1 May 2015.
On 8 June 2015, Gateley (Holdings) Plc was admitted to the Alternative Investment Market ("AIM") of London Stock Exchange Plc.
1.2 Basis of preparation and significant accounting policies
The financial information set out in this financial results announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The consolidated statement of comprehensive profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of change in equity, consolidated statement of cashflows and the associated notes have been extracted from the group's financial statements for the year ended 30 April 2019, upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2019 will be delivered to the Registrar of Companies following the Annual General Meeting.
These condensed preliminary financial statements for the year ended 30 April 2019 have been prepared on the basis of the accounting policies adopted by the Group upon admission to AIM. These are in accordance with the Group's accounting policies as set out in the historical financial information included in the AIM Admission Document.
The recognition and measurement requirements of all International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied
1.3 Going concern
The Group financial statements are prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group remains cash generative, with a positive ongoing trading performance. The Group is funded through two unsecured term loans for GBP3.5m each repayable quarterly at GBP0.65m until March 2020 then GBP0.15m per quarter until September 2023 together with unsecured overdraft facilities of up to GBP8m (2018: GBP8m). All the Group's overdraft facilities are 12 months in duration. The Group's forecasts and projections show that the new facility provides adequate headroom for its current and future anticipated cash requirements.
1.4 Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements have been prepared in accordance with the AIM Rules.
1.5 Cautionary statement
This document contains certain forward-looking statements with respect of the financial condition, results, operations and business of the Group. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this document should be construed as a profit forecast.
1.6 Classification of financial instruments issued by the Group
The Group has adopted IFRS 9 'Financial Instruments'. The standard specifies how an entity should classify and measure financial assets including some hybrid contracts. Financial assets are to be classified on principle-based requirements dependent on the assets contractual cash flow characteristics and the Group business model for managing those assets.
The standard also introduces an impairment model that is to be applied to debt instruments measured at amortised cost or fair value through other comprehensive income, as well as trade receivables and contract assets. Under the model, expected credit losses are to be recognised against financial assets. Expected credit losses have been calculated for the next 12 months in relation to debt securities and over the lifetime of trade and other receivables in line with the general approach provided within the standard. The Group have based the assessment of the expected credit losses on a number of factors including the credit risk of the asset upon initial recognition as well as observed actual losses against classes of financial assets and specific client and industry knowledge held by fee earners. In adopting IFRS 9, the Group has applied transitional relief and opted not to restate the prior period.
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
(a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and
(b) where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instruments (including members' capital) are classified as a financial liability. Profit distributions relating to equity instruments are debited direct to equity.
1.7 Non derivative financial instruments
Financial Assets
The Group's financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument.
i) Investments
Other investments in debt and equity securities held by the Group that were previously classified as being available-for-sale and are stated at fair value under IAS 39, have been classified as equity investments measured at fair value through other comprehensive income under IFRS 9.
ii) Trade and other receivables
Trade and other receivables (except unbilled amounts for client work) are recognised and carried at amortised cost under IFRS 9.
In line with the newly adopted IFRS 9, the Group recognises as disclosed in note 15 an expected credit loss against trade receivables in order to recognise the inherent risk that the Group may not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision recorded is based on a combination of historically observed collection rates and the difference between the asset's carrying amount and the present value of estimated future cash flows, and is recognised in the statement of profit and loss in other operating expenses.
iii) Unbilled amounts for client work (unbilled revenue)
Services provided to clients, which at the year-end date have not been billed, are recognised as unbilled revenue and included in trade and other receivables measured at amortised cost.
Unbilled revenue is valued at selling price less provision for any foreseeable under recovery when the outcome of the matter can be assessed with reasonable certainty. In respect of conditional or contingent fee engagements unbilled revenue is only recognised once the conditional or contingent event occurs.
iv) Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank overdrafts in addition to the definition above.
v) Treasury shares
The Group operates an Employee Benefit Trust ("EBT") under which ordinary shares have been issued and are held by the EBT. These are treated as treasury shares and are added to the Treasury Share Reserve.
Financial Liabilities
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.
The Group's financial liabilities comprise trade and other payables, borrowings, contingent consideration, members' capital and amounts due to members. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method with the exception of contingent consideration that is measured at fair value through profit or loss
i) Bank borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method
Financial expenses comprise interest expense on borrowings.
ii) Trade and other payables
Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.
The Group completed a number of complimentary acquisitions in the year, as a result of these the Group now holds various loans from former Partners or members of the acquired businesses. These loans are measured and held at fair value.
1.8 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases, the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses.
Depreciation is charged to the consolidated statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:
Leasehold improvements over the term of the
lease
Equipment 33.3% straight line
Fixtures and fittings 20% straight line
Depreciation methods, useful lives and residual values are reviewed at each statement of financial position date.
1.9 Business combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
Acquisitions on or after 1 January 2010
-- For acquisitions on or after 1 January 2010, the Group measures
goodwill at the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests in
the acquiree; plus
-- the fair value of the existing equity interest in the acquiree;
less
-- the net recognised amount (generally fair value) of the identifiable
assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.
On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date.
1.10 Intangible assets and goodwill
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee.
Other intangible assets
Other intangible assets, including software licences, expenditure on internally generated goodwill, brands and software, customer contracts and relationships are capitalised at cost and amortised on a straight-line basis over their estimated useful economic lives through operating expenses.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Customer lists
Customer lists that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and impairment losses (see accounting policy 'Impairment of assets'). Cost reflects management's judgement of the fair value of the individual intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset, discounted at an appropriate discount rate.
Internally generated IT software
Costs associated with maintaining computer software programs are recognised as an expense when incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets where the following criteria are met:
- it is technically feasible to complete the software product so that it will be available for use;
- management intends to complete the software product and use or sell it;
- there is an ability to sell or use the software product;
- it can be demonstrated how the software product will generate probable future economic benefits;
- adequate technical, financial and other resources to complete the development and to use or sell software product are available; and
- the expenditure attributable to the software product during its development can be reliably measured.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed five years. Computer software under development is not amortised. Amortisation starts from the date on which the software is available for use. If a decision is made to halt development then the cost is immediately expensed.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each statement of financial position date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:
Customer lists 3 years Computer software 3 years 1.11 Investment property
Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value. Any gain or loss arising from a change in fair value is recognised in profit or loss.
1.12 Impairment excluding investment properties
Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
Intangibles and property, plant and equipment
The carrying amount of the Group's assets including property, plant and equipment and intangibles other than goodwill is reviewed at each year end date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss where it relates to an amount charged to profit or loss.
Goodwill
Goodwill is capitalised as an intangible asset and is not amortised but tested for impairment annually and when there are any indications that its carrying value is not recoverable. As such, goodwill is stated at cost less any provision for impairment in value. For impairment testing purposes, goodwill is allocated to cash-generating units. If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in determining the profit or loss on sale.
1.13 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of profit and loss in the periods during which services are rendered by employees.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Share-based payment transactions
The Group operates an equity settled share based compensation plan.
The grant date fair value of share-based payment awards made to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted.
The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date, measured at the grant date fair value of the award.
At each reporting date, the group revises its estimates of the number of share incentives which are expected to vest. The impact of the revision of original estimates is recognised in the income statement with a corresponding adjustment to equity.
1.14 Own shares held by EBT trust (treasury reserve)
Transactions of the group-sponsored EBT trust are included in the Group financial statements. In particular, the trust's purchases and sales of shares in the Company are recognised directly within equity.
1.15 Professional indemnity provisions
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Where material, the impact of the time value of money is taken into account by discounting the expected future cash flow at a pre-tax rate, which reflects risks specific to the liability.
Insurance cover is maintained in respect of professional negligence claims. This cover is principally written through insurance companies with coverage of up to GBP150 million for each claim. Premiums are expensed as they fall due with prepayments or accruals being recognised accordingly.
In the event the insurance companies cannot settle the full liability, the liability will revert to the Group.
1.16 Revenue recognition
Revenue represents the fair value of the consideration receivable in respect of professional services provided during the year, inclusive of recoverable expenses incurred on client assignments, but excluding value added tax. Where the outcome of a transaction can be estimated reliably, revenue associated with the transaction is recognised in the income statement by reference to the stage of completion at the year end, provided that a right to consideration has been obtained through performance. Consideration accrues as contract activity progresses by reference to the value of work performed.
Where the outcome of a transaction cannot be estimated reliably, revenue is recognised only to the extent that the costs of providing the service are recoverable. No revenue is recognised where there are significant uncertainties regarding recovery of the consideration due or where the right to receive payment is contingent on events outside the control of the group. Amounts deemed to be recoverable on the engagement (on the basis above) are recognised in unbilled revenue and form part of Trade and other receivables.
The Group has adopted IFRS 15 Revenue from contracts with customers. Under the standard, revenue is to be recognised either over time or at a point in time. The model uses a contract based five-step analysis of transactions to determine when, and how much, revenue is recognised; this includes the matching of stand-alone process for services provided to the satisfaction of performance obligations.
The Group considers that there are two contract types in issue in the performance of professional services, being non-contingent and contingent contracts. Non-contingent work is typically recognised over the duration of the contract in line with the number of hours charged to the engagement at a pre-established rate. Under IFRS 15 the hours worked on these engagements are considered to be the satisfaction of the performance obligation, therefore where collection of revenue is considered probable, it is recognised in line with the hours performed. Contingent work is typically recognised at a point in time, once the pre-agreed stages of the contract performance are reached or concluded as a result of an event linked to each work type performance. In line with IFRS 15 the Group recognises revenue on these contracts at a point in time once the uncertainty over the contingent event has been satisfied. In some cases, though the contingent event is satisfied, there may a delay or continued doubt over the collection of revenue. In these cases, revenue is billed at the point of conclusion; where there is considerable cause to doubt the recoverability of the revenue an appropriate provision is recognised.
The adoption of the standard has also resulted in both contract assets and liabilities being recognised. Under IFRS 15, unbilled revenue recognised by the Group meets the qualifying criteria for a contract asset as the amounts are derived from the existence of a contract, however have not yet been billed and therefore are not included within trade receivables. The Group have also recognised a contract liability under the standard that represents the amount of income that has been invoiced in advance of the service being performed.
IFRS 15 includes a choice of transitional adjustments on initial application. As the impact of the new standard is not considered to be significant to the Groups revenue recognition policy, Management have elected to use the 'modified retrospective adoption', which is to retrospectively apply the standard with the cumulative effect of application being made to the opening balance of retained earnings on 1 May 2018. Implementation of this standard has therefore not resulted in a restatement of comparative period results.
Recoverable expenses and disbursements represent charges from other professional service firms, sub-contractors and out of pocket expenses incurred in respect of assignments and expected to be recovered from clients.
Rental income is recognised on a straight line basis over the lease term.
1.17 Operating lease payments
Payments made under operating leases are recognised in the statement of profit and loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of profit and loss over the term of the lease as an integral part of the total lease expense.
1.18 Financial income and expenses
Financial expenses comprise interest payable and exchange losses that are recognised in the statement of profit and loss. Financial income comprises interest receivable on funds invested and exchange gains.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
1.19 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates and laws enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the statement of financial position date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
1.20 Non-underlying and exceptional items
Non-underlying items
Non-underlying items are non-trading and or non-cash items disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of non-underlying items:
-- Share based payment charges: such charges are treated as non-underlying as the gain realised on the options granted is settled in shares not cash and therefore does not impact the income statement. The IFRS 2 charge is taken to the income statement, as this is not a true cash expense it is treated as non-underlying as it may distort the true performance of the Group.
-- Amortisation and Impairment charges in respect of intangible fixed assets: these costs are treated and non-underlying as they are non-cash items.
The tax effect of the above is also included if considered significant.
Exceptional items
Exceptional items are one off transactions, unrelated to the underlying trading performance of the Group disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group.
The following are included by the Group in its assessment of exceptional items:
-- Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations.
-- Non-typical expenses associated with acquisitions. -- Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included if considered significant.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 4 to the Financial Statements.
1.21 Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company's shareholders.
1.22 Adopted IFRS not yet applied
At the date of authorisation of these financial statements, a number of new standards, amendments and interpretations to existing standards have been published by the IASB that are not yet effective and have not been applied early by the Group. The Group anticipates that the following pronouncements relevant to the Group's operations will be adopted in the Group's accounting policies for the first period beginning on or after the effective date, once adopted by the EU:
-- IFRS 16 Leases (IASB effective 1 January 2019, EU endorsed)
-- Amendments to IFRS 9 Prepayment features with negative
compensation (IASB effective 1 January 2019, EU endorsed)
Prepayment features with negative compensation (amendments
to IFRS 9)
-- Annual Improvement to IFRS 2014-2016 Cycle relating to
IFRS 12 Disclosure of interests in other entities (IASB
effective 1 January 2017, not yet EU endorsed)
-- Annual Improvements to IFRS 2015-2017 Cycle (IASB effective
1 January 2019, not yet EU endorsed)
-- Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
(IASB effective 1 January 2019, not yet EU endorsed)
-- Amendments to IFRS 3 Business Combinations (IASB effective
1 January 2019, not yet EU endorsed)
-- Amendments to IAS 28 Long term interests in associates
and joint ventures (IASB effective 1 January 2019, not
yet EU endorsed)
-- Amendments to references to the conceptual framework
in IFRS standards (IASB effective 1 January 2020, not
yet EU endorsed)
With the exception of IFRS 16, the Group does not expect the adoption of any of these standards to have a material effect on the financial statements.
New standards and interpretations not yet applied
IFRS 16 'Leases'
IFRS 16 replaces the existing leasing accounting guidance, which includes IAS 17 'Leases' and IFRIC 4 'Determining Whether an Arrangement Contains a Lease'. The standard is effective for periods beginning on or after 1 January 2019.
The standard requires lessees to account for most contracts using an on-balance sheet model, with the distinction between operating and finance leases being removed. There is no change to the revenue recognition methodology for lessor operating leases. The standard provides certain exemptions from recognising leases on the balance sheet, including where the asset is of low value or the lease term is twelve months or less. In addition, the standard makes changes to the definition of a lease to focus on, amongst other things, which party has the right to direct the use of the asset.
Under the new standard, the Group will be required to recognise right of use lease assets and lease liabilities on the balance sheet. The right of use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. Liabilities are measured based on the present value of future lease payments over the lease term. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.
The recognition of the depreciation of right of use lease assets and interest on lease liabilities over the lease term will have no overall impact on profit before tax over the life of the lease; however, the result in any individual year will be impacted and the change in presentation of costs will likely be material to the Group's key financial metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics which will therefore be affected will include operating profit and operating margin, interest and interest cover, EBITDA and operating cash flow.
Furthermore, the principal amount of cash paid and interest in the cash flow statement will be presented separately as a financing activity. Operating lease payments under IAS 17 would have been presented as operating cash flows. There will be no overall net cash flow impact.
The Group has performed work to assess the impact of the new standard. Such work has included a detailed review of all lease contracts to establish lease classification, assessment of transition options, the quantification of financial impacts, design of future processes and the related systems changes, the assessment of the related impacts on the Group's regulatory and commercial reporting requirements, and the impact on the Group's long-term incentive schemes. The Group continues to assess the impact and implementation of the new standard, ensuring the correct treatment of leases going through a process of renegotiation.
Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in the Group's annual financial statements. The leases substantially relate to property leases used to perform professional activities as an operating lease lessor.
2 Revenue and operating segments
The Chief Operating Decision Maker ("CODM") is the Strategic Board. The Group have the following five strategic divisions, which are its reportable segments. These divisions offer different products and services and are managed separately because they report different specialisms from the legal teams in those divisions.
The following summary describes the operations of each reportable segment:
Reportable segment Operations
Banking and Financial Services Provision of legal advice in respect
of asset finance, banking and restructuring
services
Corporate Provision of legal advice in respect
of corporate, family, private client
and taxation services
Business Services Provision of legal advice in respect
of commercial, commercial dispute resolution,
litigation, regulatory, shipping, transport
and insurance services
Employees, Pensions and Provision of legal advice in respect
Benefits of employment and pension services,
including Entrust Pension Limited's
trustee services and global mobility
consultancy. Also includes Kiddy &
Partners Human Capital consultancy,
providing assessment, talent management
and leadership development and International
Investment Services Limited, providing
consultancy services to potential UK
investors.
Property Provision of legal advice in respect
of construction, planning, real estate
and residential development services.
Also includes Gateley Capitus Limited's
property related tax incentive services
together with Gateley Hamer Limited's
easement and wayleave and compulsory
purchase order services.
The revenue and operating profit are attributable to the principal activities of the Group. A geographical analysis of revenue is given below:
2019 2018
GBP'000 GBP'000
United Kingdom 95,319 80,515
Europe 3,351 3,149
Middle East 547 670
North and South America 3,457 1,258
Asia 206 138
Other 591 360
------- -------
103,471 86,090
======= =======
The Group's assets and costs are predominately located in the UK save for those assets and costs located in the United Arab Emirates (UAE) via its Dubai subsidiary. Net assets of GBP0.20m (2018: GBP0.46m) together with costs of GBP0.9m (2018: GBP0.8m) are located in the Group's Dubai subsidiary. Revenue generated by the Group's Dubai subsidiary to customers in the UAE totalled GBP0.7m (2018: GBP0.9m) as disclosed above as due from the customers in the Middle East.
The Group has no individual customers that represent more than 10% of revenue in either the 2019 or 2018 financial year.
Operating segments 2019
Banking Corporate Business Employee Property Total Other Total
and Services Pensions segments expense
Financial and and
Services Benefits movement
in
unbilled
revenue
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment revenue 16,979 16,912 13,436 11,092 43,425 101,844 1,627 103,471
---------- --------- --------- --------- -------- --------- ---------- --------
Segment contribution
(as reported internally) 6,447 4,994 5,987 3,994 19,810 41,232 1,627 42,859
Costs not allocated
to segments:
Other operating income 313
Personnel costs (7,006)
Depreciation and amortisation (2,528)
Other operating expenses (17,048)
Net financial expense 75
Exceptional costs (61)
Share based payment
charge (655)
--------
Profit for the financial
year before taxation 15,949
--------
Timing of revenue recognition
Services transferred
at a point in time 32,326
Services transferred
over time 71,145
--------
103,471
========
Operating segments 2018
Banking Corporate Business Employee Property Total Other Total
and Services Pensions segments expenses
Financial and and
Services Benefits movement
in
unbilled
revenue
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment revenue 15,489 16,019 12,225 7,516 33,694 84,943 1,147 86,090
---------- --------- --------- --------- -------- --------- ---------- --------
Segment contribution
(as reported internally) 5,755 4,338 5,062 2,819 15,769 33,743 1,147 34,890
Costs not allocated
to segments:
Other operating income 719
Personnel costs (5,209)
Depreciation and amortisation (1,517)
Other operating expenses (14,058)
Net financial expense (179)
--------
Profit for the financial
year before taxation 14,646
Timing of revenue recognition
Services transferred
at a point in time 23,883
Services transferred
over time 62,207
--------
86,090
========
Group entities may be engaged on a contingent basis; in such cases the Group consider the satisfaction of the contingent event as the sole performance obligation within the contract. Fees are only billed once the contingent event has been satisfied. The initial financing of these engagements types is met by the Group. Due to the nature and timing of the billing, such engagements influence the contract asset balance held in the balance sheet at year end. In the majority of cases the contingent event is expected to be concluded within one year of the engagement date. The Group operates standard payment terms of 30 days. GBP11.7 million of the current period revenue is derived from services satisfied, in part, in the previous period.
Services transferred over time
For non-contingent engagements, fee earners hourly rates are determined at the point of engagement with all hours attributed to the engagement fully and accurately recorded. The recorded hours are then translated into fees to be billed and invoiced on a monthly basis. The Group typically operates on 30 days credit terms, in line with IFRS 15 the performance obligations are fulfilled over time with revenue being recognised in line with the hours worked.
Contract assets
Under IFRS 15 the Group is required to recognise contract assets based on the costs incurred in delivering the performance obligations stipulated in the contracts held with customers. These assets differ from accounts receivables. Accounts receivable are the amounts that have been billed to the client and the revenue recognised, whereas these contract assets are amounts of work in progress where work has been performed, yet the revenue has not been recognised and the amounts not yet billed to the client. Due to the nature of the services delivered by the Group the significant component of the cost of delivery is staff costs. As a result, there is little to no judgement exercised in determining the costs incurred as they are driven by the time recorded by fee earners.
No other financial information has been disclosed as it is not provided to the CODM on a regular basis.
Contract Liabilities
Under IFRS 15 the Group is required to recognise contract liabilities based on those amounts recognised against contracts for which the satisfaction of performance obligations has not yet been met. These liabilities relate to the deferred income recognised within Kiddy & Partners as a result of their billing structure. The amounts recognised by Kiddy & Partners reflect the agreed cost of the services to be performed and are realised in line with the ongoing cost of delivery. Due to the nature of the services provided by Kiddy & Partners, the main component of this cost of delivery is staff costs, as a result there is little to no judgement exercised in determining the value of the liability held at year end.
3 Other operating income
2019 2018
GBP'000 GBP'000
Rental and service charge income 313 357
4 Expenses and auditor's remuneration
Included in profit are the following:
2019 2018
GBP'000 GBP'000
Depreciation on tangible assets 1,122 970
Amortisation of intangible assets 1,406 547
Operating lease costs 116 132
Operating lease costs on property 3,313 2,981
Other operating income - rent received (258) (295)
Foreign exchange losses 25 66
Profit on sale of fixed assets (3) -
======= =======
Exceptional items
2019 2018
GBP'000 GBP'000
Release of lease incentive income - (182)
Release of contingent consideration income - (362)
Corporate finance structured expense paid
on acquisition 61 -
------- -------
61 (544)
======= =======
Exceptional items represent the acquisition cost in respect of the acquisition of GCL Solicitors LLP.
Auditor's remuneration
2019 2018
GBP'000 GBP'000
Fees payable to the Companies Auditors in respect
of audit services:
Audit of these financial statements 68 52
Audit of financial statements of subsidiaries
of the Company 22 19
------- -------
90 71
======= =======
Amounts receivable by the Company's auditor
and its associates in respect of:
Other assurance services 33 27
Tax compliance services 11 11
------- -------
44 38
======= =======
5 Employees
The average number of persons employed by the Group during the year, analysed by category, was as follows:
Number of employees
2019 2018
Legal and professional staff 610 509
Administrative staff 297 248
---------- ---------
907 757
========== =========
The aggregate payroll costs of these persons were as follows:
2019 2018
GBP'000 GBP'000
Wages and salaries 54,341 45,825
Share based payment expense 655 719
Social security costs 7,289 5,283
Pension costs 1,127 794
------- -------
63,412 52,621
======= =======
6 Financial income and expense
Recognised in profit and loss
2019 2018
GBP'000 GBP'000
Financial income
Interest income 523 233
------- -------
Total finance income 523 233
======= =======
Financial expense
Interest expense on bank borrowings measured
at amortised cost (448) (412)
------- -------
Total financial expense (448) (412)
======= =======
Net financial income/(expense) 75 (179)
======= =======
7 Taxation
2019 2018
GBP'000 GBP'000
Current tax expense
Current tax on profits for the year 3,297 2,926
Under provision of taxation in previous period 121 38
------- -------
Total current tax 3,418 2,964
======= =======
Deferred tax expense
Origination and reversal of temporary differences (268) (111)
Under provision on share-based payment charges (246) -
------- -------
Total deferred tax expense (514) (111)
======= =======
Total tax expense 2,904 2,853
======= =======
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:
2019 2018
GBP'000 GBP'000
Profit for the year (subject to corporation
tax) 15,945 14,646
------- -------
Tax using the Company's domestic tax rate
of 19% 3,030 2,783
Expenses not deductible for tax purposes (1) 32
Under provision of taxation in previous period 121 38
Deferred tax expense (246) -
------- -------
Total tax expense 2,904 2,853
======= =======
On 26 October 2015 the UK corporation tax rate was reduced to 19% (effective from 1 April 2017) and then further to 18% (effective 1 April 2020). The deferred tax liability at 30 April 2019 has been calculated based on these rates. An additional reduction to 17% (effective from 1 April 2020) was announced in the Budget on 16 March 2016. This will reduce the Company's future current tax charge accordingly.
8 Earnings per share
Statutory earnings per share
2019 2018
Number Number
Weighted average number of ordinary shares
in issue, being weighted average number of
shares for calculating basic earnings per
share 110,207,707 106,881,953
Shares deemed to be issued for no consideration
in respect of share based payments 2,072,862 4,074,859
Weighted average number of ordinary shares
for calculating diluted earnings per share 112,280,569 110,956,812
=========== ===========
2019 2018
GBP'000 GBP'000
Profit for the year and basic earnings attributable
to ordinary equity shareholders 13,041 11,793
Non-underlying and exceptional items (see
note 4)
Operating expenses 2,122 722
Tax on non-underlying and exceptional items (403) (137)
----------- -----------
Underlying earnings before non-underlying
and exceptional items 14,760 12,378
Earnings per share is calculated as follows:
2019 2018
Pence Pence
Basic earnings per ordinary share 11.83 11.03
Diluted earnings per ordinary share 11.61 10.63
Basic earnings per ordinary share after non-underlying
and exceptional items 13.39 11.58
Diluted earnings per ordinary share after
non-underlying and exceptional items 13.15 11.16
For the year ended 30 April 2019 the Group has elected to calculate earnings per share before non-underlying and exceptional items based after taxation thereof. This election has been made to provide a more reflective representation of adjusted profits. The prior year corresponding values have been presented on the same basis above (underlying earnings per the 30 April 2018 accounts were GBP11.35m).
Prior year earnings per share have been further amended to reflect the recalculation of shares deemed to be issued for no consideration.
Shares issued for no consideration
Under IAS 8, the Group has re-calculated the shares deemed to be issued for no consideration in respect of share based payments it anticipates will vest under the various SARS schemes. This has resulted in an increase in 2018 weighted average number of ordinary shares from 110,830,394 to 110,956,812.
The impact of the recalculation above has reduced diluted earnings per share from 10.64p to 10.63p in 2018.
9 Dividends
2019 2018
GBP'000 GBP'000
Equity shares:
Final dividend in respect of 2017 (4.4p per
share) - 4 October 2017 - 4,691
Interim dividend in respect of 2018 (2.2p
per share) - 16 March 2018 - 2,351
Final dividend in respect of 2018 (4.8p per
share) - 3 October 2018 5,264 -
Interim dividend in respect of 2019 (2.6p
per share) - 15 March 2019 2,854 -
------- -------
8,118 7,042
======= =======
The Board proposes to recommend a final dividend of 5.4p (2018: 4.8p) per share at the AGM. If approved, this dividend will be paid in mid-October 2018 to shareholders on the register at the close of business on 20 September 2019. The shares will go ex-dividend on 19 September 2019. This dividend has not been recognised as a liability in these final statements.
10 Property, plant and equipment
Leasehold Equipment Fixtures Total
improvements and
Fittings
GBP'000 GBP'000 GBP'000 GBP'000
Cost
Balance at 1 May 2017 226 3,798 4,186 8,210
Additions - 634 111 745
Balance at 30 April 2018 226 4,432 4,297 8,955
------------- --------- --------- -------
Balance at 1 May 2018 226 4,432 4,297 8,955
Additions 5 643 362 1,010
Arising on acquisition - 325 334 659
Fair value adjustment on
acquisition - (117) (9) (126)
Disposal - (8) - (8)
------------- --------- --------- -------
Balance at 30 April 2019 231 5,275 4,984 10,490
------------- --------- --------- -------
Depreciation and impairment
Balance at 1 May 2017 59 2,842 3,149 6,050
Depreciation charge for
the year 23 596 351 970
Balance at 30 April 2018 82 3,438 3,500 7,020
------------- --------- --------- -------
Balance at 1 May 2018 82 3,438 3,500 7,020
Depreciation charge for
the year 22 728 372 1,122
Arising on acquisition - 200 174 374
Fair value adjustment on
acquisition (27) (8) (35)
Eliminated on disposal - (8) - (8)
Balance at 30 April 2019 104 4,331 4,038 8,473
------------- --------- --------- -------
Net book value
At 30 April 2018 144 994 797 1,935
------------- --------- --------- -------
At 30 April 2019 127 944 946 2,017
------------- --------- --------- -------
11 Intangible assets and goodwill
Goodwill Customer Total
lists
GBP'000 GBP'000 GBP'000
Deemed cost
At 1 May 2017 and 30 April 2018 2,676 1,638 4,314
Acquisitions through business combinations 5,729 2,786 8,515
-------- -------- -------
At 30 April 2019 8,405 4,424 12,829
Amortisation
At 1 May 2017 - 472 472
Charge for the year - 547 547
-------- -------- -------
At 30 April 2018 - 1,019 1,019
Charge for the year - 1,380 1,380
-------- -------- -------
At 30 April 2019 - 2,399 2,399
======== ======== =======
Carrying amounts
At 30 April 2018 2,676 619 3,295
======== ======== =======
At 30 April 2019 8,405 2,025 10,430
======== ======== =======
Sensitivities
The Group attributes a monetary value to the acquired customer lists based primarily on the anticipated future cash flows generated by the customers. Whilst the Group accounts for customer attrition and direct costs the main driver of this value is the estimated revenue resulting from the customers on the list. Management have estimated a year on year growth rate which has been applied to the model. The below table shows the Group's sensitivity to growth rates on the customer list valuation:
Increase/(decrease)
in value of customer
list
GBP'000
+1 % movement in growth rates 80
-1 % movement in growth rates (80)
Impairment testing
The Group tests goodwill annually for impairment. The impairment test involves determining the recoverable amount of the cash generating unit (CGU) to which the goodwill has been allocated. The Directors believe that each operating segment represents a cash generating unit for the business and as a result, impairment is tested for each segment, and all the assets of each segment are considered. Of the goodwill balance held GBP7.13m is attributable to the property CGU and GBP3.30m is attributable to the employee benefits and pensions CGU. The recoverable amount is based on the present value of expected future cash flows (value in use) which was determined to be higher than the carrying amount of goodwill so no impairment loss was recognised. Value in use was determined by discounting the future cash flows generated from the continuing operation of the Group and was based on the following key assumptions:
-- A pre-tax discount rate of 10% was applied in determining the recoverable amount. The discount rate is based on the Group's average weighted cost of capital
-- The values assigned to the key assumptions represent management's estimate of expected future trends and are based on both external (industry experience, historic market performance) and internal sources (existing management knowledge, track record and an in-depth understanding of the work types being performed).
o Growth rates of between 10-20% are based on management's understanding of the market opportunities for services provided pertaining to the industry concerned.
o Increases in costs are based on current inflation rates and expected levels of recruitment needed to generate predicted revenue growth.
o Attrition rates are based on the expected level of fees from existing clients as a percentage of total forecast fees
o Cash flows have been assessed over a five-year period which management consider to be the correct average life of clients' relationships
-- The Group has conducted a sensitivity analysis on the impairment test of the CGU carrying value. The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of goodwill is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU. The analysis performed by management indicates that the discounted forecasts for the Property CGU would need to decrease by 47% and 41% within the Employee benefits and pension CGU in order to trigger an impairment charge.
12 Other intangible assets
IT Development costs Computer Computer
GBP'000 software software
GBP'000 GBP'000
Cost
Balance at 1 May 2017 - - -
Additions - 46 46
-------------------- --------- ---------
At 30 April 2018 - 46 46
Additions 237 39 276
-------------------- --------- ---------
At 30 April 2019 237 85 322
==================== ========= =========
Amortisation
Balance at 1 May 2017 - - -
Charge for the year - 7 7
-------------------- --------- ---------
At 30 April 2018 - 7 7
Charge for the year - 26 26
-------------------- --------- ---------
At 30 April 2019 - 33 33
Net book amount at 30 April 2018 - 39 39
-------------------- --------- ---------
Net book amount at 30 April 2019 237 52 289
==================== ========= =========
13 Trade and other receivables
Impact of IFRS 9 Transition
IFRS 9 specifies the classification and measurement of financial assets and liabilities. the adoption of the standard has principally impacted how the Group measures the following financial assets: trade receivables and unbilled revenue.
Under IAS 39 the Group held debts at selling price less any specific provision. Such provision was assessed on a debt-by-debt basis, representing the extent of any risk of default identified. Under IFRS 9, the Group now measures debts at selling price less any lifetime expected credit losses (ECL's). The Group have applied these calculated ECL's to all debts held.
The Group have applied ECL's to unbilled revenue in order to account for the potential default on amounts not yet billed to the client. The ECL's have been calculated on the same basis as those applied to trade receivables.
On adoption of IFRS 9 the Group has applied transitional relief and opted not to restate prior periods and has calculated an opening adjustment to reserves at 1 May 2018.
The adoption of the standard has not impacted the recoverability of the Group's debts.
GBP'000
Recognition of lifetime expected credit losses on trade
receivables 58
Recognition of lifetime expected credit losses on unbilled
revenue 295
--------
Impact of IFRS 9 Transition 353
========
The impact of the transition to IFRS 9 has been recognised within the opening reserves.
2019 2018
GBP'000 GBP'000
Trade receivables 33,909 28,512
Unbilled revenue 10,671 10,672
Prepayments 2,584 2,233
Other receivables 42 -
-------
47,206 41,417
======= =======
All trade receivables are repayable within one year.
Movement in the allowance for doubtful receivables
2019 2018
GBP'000 GBP'000
Brought forward provision (2,212) (2,011)
Brought forward on acquisition (14) -
Provision utilised 450 264
Charged to income (1,147) (1,296)
Provisions released 196 831
IFRS 9 Provision (58) -
------- -------
(2,785) (2,212)
======= =======
Receivables not impaired, past due
2019 2018
GBP'000 GBP'000
Not past due 21,250 18,220
Past due 0-30 days 4,120 3,246
Past due 31-120 days 4,030 4,363
Past due greater than 120 days 7,294 4,895
------- -------
36,694 30,724
======= =======
The carrying amount of financial assets recorded in the financial statements, which is net of any impairment losses, represents the Group's maximum exposure to credit risk. Financial assets include client and other receivables and cash. The Group does not hold collateral over these balances.
All the Group's trade and other receivables have been reviewed for indicators of impairment. The impaired trade receivables are mostly due from customers experiencing financial difficulties.
Contract assets recognised under IFRS 15
Under IFRS 15 the Group is required to recognise contract assets, as detailed in note 2.
2019
GBP'000
Contract asset value at 1 May 2018 10,672
Contract assets arising on acquisition 152
Contract asset value added in the year 32,185
Contract asset value realised in the year (32,338)
---------
Contract asset value at 30 April 2019 10,671
=========
14 Other interest-bearing loans and borrowings
The contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost, are described below. For more information about the Group's exposure to interest rate and foreign currency risk, see note 22.
2019 2018
Fair Carrying Fair Carrying
value amount value amount
GBP'000 GBP'000 GBP'000 GBP'000
Non-Current liabilities
Unsecured bank loan 3,076 3,076 2,982 2,982
======= ======== ======= ========
Current liabilities
Unsecured bank loan 2,574 2,574 1,977 1,977
Loans from former members of GCL
Solicitors LLP 425 425 - -
Loans from director of IIS 45 45 - -
3,044 3,044 1,977 1,977
======= ======== ======= ========
The unsecured overdraft facilities totalling GBP8m (2018: GBP8m) are repayable on demand.
On 8 June 2015, Gateley Plc entered into two new loan agreements of GBP5m each, GBP10m in total. On 28 October 2018 these existing loans were re-negotiated and an additional GBP3 million of new loans were entered into. The new total term loans are repayable quarterly at GBP0.65m per quarter until March 2020 followed by quarterly repayments of GBP0.15m until September 2023. Interest is chargeable at 2.25% over LIBOR. On the acquisition of GCL Solicitors LLP GBP1.28m of amounts relating to individual members capital classified as a liability together with amounts due to members were converted into Loans from former members. Loans were repayable quarterly over a period of not less than two years subject to adequate working capital facilities, in the opinion of the board of directors, within the Group being available to accommodate such payments. Repayment of these liabilities are forecast to be made in full by December 2019. On the acquisition of IIS GBP0.09m of amounts relating to an individual IIS directors' loan was repayable in monthly instalments commencing December 2018 and concluding in April 2020.
15 Trade and other payables
2019 2018
GBP'000 GBP'000
Current
Trade payables 4,769 5,204
Other taxation and social security payable 6,437 6,355
Other payables 167 188
Contingent consideration 1,428 470
Accruals 10,779 8,761
Deferred income 147 -
23,727 20,978
======= =======
Contingent consideration relates to estimated earn out payments due to the vendors of Kiddy and Partners LLP (2018: Gateley Hamer Limited) that will be settled 50:50 in cash and shares.
Non-current GBP'000 GBP'000
Other payables 128 121
Contingent consideration 855 -
------- -------
983 121
======= =======
During the year GBP0.239m was paid to Gateley Hamer Limited in accordance with the term of the acquisition. Contingent consideration of GBP0.72m relates to estimated earn out payments due to the vendors of Kiddy and Partners LLP that will be settled 50:50 in cash and shares together with GBP0.14m relating to estimated earn out payments due to the vendor of IIS that will be settled 15% in cash and 85% in shares.
Contract liabilities recognised under IFRS 15
Under IFRS 15 the Group is required to recognise contract assets, as detailed in note 2.
2019
GBP'000
Contract liabilities at 1 May 2018 -
Contract liabilities arising on acquisition 294
Contract liabilities gained in the year 2,757
Contract liabilities credited to P&L in year (2,904)
--------
Contract liabilities at 30 April 2019 147
========
16 Deferred tax
Deferred tax assets and liabilities are summarised below:
Deferred tax asset
The deferred tax asset recognised in the Consolidated accounts represents the future tax impact of issued share based payments schemes that are yet to vest.
Share-based
payments
GBP'000
At 1 May 2017 and 1 May 2018 -
Credited during the year to retained earnings 182
Credited during the year in the Consolidated
income statement 246
------------
At 30 April 2019 428
============
Deferred tax liability
The deferred tax liability recognised in the Consolidation represents the future tax impact of the Group's benefit from customer lists obtained through acquisitions.
Customer lists
GBP'000
At 1 May 2017 239
Credited during the year in the Consolidated income statement (111)
--------------
At 30 April 2018 128
Arising through business combinations - Kiddy & Partners and GCL Solicitors 529
Credited during the year in the Consolidated income statement (269)
At 30 April 2019 388
==============
17 Provisions
Professional indemnity
2019 2018
GBP'000 GBP'000
Brought forward 605 591
Provisions made during the year 100 210
Provisions released during the year (75) 4
Provisions reversed during the year - (200)
------- -------
At end of year 630 605
======= =======
Non-current 339 405
Current 291 200
------- -------
630 605
======= =======
The professional indemnity provision represents amounts equal to the insurance excesses payable on outstanding claims against the Group which are covered by the Company's professional indemnity insurance policy. The amount or timing of amounts payable in these cases is uncertain as the resolution of the cases are unknown at the year end.
18 Net debt
2019 2018
GBP'000 GBP'000
Cash and cash equivalents 2,887 4,301
Debt
Total loans brought forward (4,959) (7,489)
Loans from former members (469) -
Extension to term loans in the year (2,970) -
Repayment of loans from former members 171 -
Repayment of term loans 2,107 2,530
------- -------
Total loan carried forward (6,120) (4,959)
Net debt (3,233) (658)
======= =======
As at 1 On acquisition New loans taken out during Cash flows As at 30
May 2018 year April
2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Term loans (4,959) - (2,970) 2,279 (5,650)
Loans from former members of
GCL - (1,280) - 855 (425)
Loans from former director of
IIS - (94) - 49 (45)
---------- --------------- ------------------------------- ----------- ---------
(4,959) (1,374) (2,970) 3,183 (6,120)
========== =============== =============================== =========== =========
19 Share capital
Authorised, issued and fully paid
2019 2019 2018 2018
Number GBP Number GBP
Ordinary shares of 10p each
Brought forward 106,881,953 10,688,195 106,881,953 10,688,195
Issued on acquisition of GCL
solicitors 1,164,276 116,428 - -
Issued on acquisition of Kiddy
& Partners 251,207 25,121 - -
Issued on vesting of SARS 2,425,024 242,502 - -
Issued as part of deferred
consideration of Gateley Hamer
Limited 138,330 13,833 - -
----------- ---------- ----------- ----------
At 30 April 2019 110,860,790 11,086,079 106,881,953 10,688,195
=========== ========== =========== ==========
On 22 May 2018 Gateley Plc acquired the business and assets of GCL Solicitors LLP in part for the issue of 1,164,276 10p ordinary shares.
On 22 June 2018 138,329 10p ordinary shares were issued as deferred consideration to Gateley Hamer Limited.
On 9 July 2018 the Group acquired the business and assets of Kiddy & Partners LLP in part for the issue of 251,207 10p ordinary shares.
On 18 July 2018 2,425,024 10p ordinary shares were issues upon vesting of the 2015 SARS scheme to participants.
20 Share based payments
Group
At the year end the Group has three share based payment scheme in operation.
Stock Appreciation Rights Scheme ('SARS')
This SARS is a discretionary executive reward plan which allows the Group to grant conditional share awards or nil cost options to selected executives at the discretion of the Remuneration Committee.
The awards vest after a three year performance period. On exercise, participants will receive an award of shares equal to the growth in value of the option between the date of grant and the date of exercise in excess of the hurdle rate calculated by reference to the number of reference options granted to each option holder. The hurdle rate is currently set at 115.765% of the market value of the underlying shares on the date of the grant.
During the year the first issue of SARS vested. Of the 7.2 million reference shares issued in 2015, 6.7 million were held at the exercise date, the resultant number of shares granted is detailed below:
Reference
shares in Number
issue at Price at of shares
exercise Price at exercise Growth at exercise
date grant date date Growth value price
Number GBP GBP GBP GBP'000 Number
SARS 15/16 6,650,000 1.10 1.72 0.62 4,123 2,397,093
The below table shows the estimated number of shares to be issued under the further two SARS scheme in issue based on the Company's share price at the balance sheet date of GBP1.60:
Reference
shares Number
in issue Share price Price at Estimated of shares
at 30 April at 30 April 30 April Estimated growth at exercise
2019 2019 2019 growth value price
Number GBP GBP GBP GBP'000 Number
SARS 16/17 10,275,000 GBP1.39 GBP1.60 GBP0.21 2,158 1,348,594
SARS 17/18 6,750,000 GBP1.83 GBP1.60 (GBP0.23) - -
Weighted Weighted Originally Lapsed at 30 At 1 May Granted Lapsed At 30 April
average average granted April 2018 20187 during during year 2019
remaining exercise the year
contractual price
life
Number Number Number Number Number
SARS
SARS 16/17 -
7 October
2016 0.4 years GBP1.39 10,850,000 (425,000) 10,425,000 - (150,000) 10,275,000
SARS 17/18 -
3 October
2017 1.4 years GBP1.83 7,050,000 (175,000) 6,875,000 - (125000) 6,750,000
------------ ------------ ---------- --------- ------------ ------------
17,900,000 (600,000) 17,300,000 - (275,000) 17,025,000
------------ ------------ ---------- --------- ------------ ------------
Save As You Earn scheme ('SAYE')
The Group operates a HMRC approved SAYE scheme for all staff. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at a discount of 20% of the market price determined at the grant date.
Company Share Option Plan ('CSOP')
The Group operates an HMRC approved CSOP scheme for associates, senior associates, legal directors, equivalent positions in Gateley Group subsidiary companies and senior management positions in our support teams. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at the price on the date of grant.
The annual awards granted under SAYE and CSOP schemes are summarised below:
SAYE
SAYE 16/17- 1 September 2016 0.3 years GBP0.95 1,166,779 (216,947) 949,832 - (39,865) 909,967
SAYE 17/18- 15 September 2017 1.4 years GBP1.33 556,296 (24,361) 531,935 - (36,271) 495,664
SAYE 18/19 - 21 September 2018 2.4 years GBP1.35 - - - 620,335 (19,874) 600,461
--------- --------- --------- ------- --------- ---------
1,723,075 (241308) 1,481,767 620,335 (96,010) 2,006,092
--------- --------- --------- ------- --------- ---------
CSOPS
CSOPS 16/17 - 20 December 2016 0.6 years GBP1.31 940,685 (151,737) 788,948 - (68,205) 720,743
CSOPS 17/18 - 3 October 2017 1.4 years GBP1.65 581,162 (39,390) 541,772 - (52,724) 489,048
CSOPS 18/19 - 24 October 2018 2.5 years GBP1.44 - - - 812,131 (22,916) 789,215
--------- --------- --------- ------- --------- ---------
1,521,847 (191,127) 1,330,720 812,131 (143,845) 1,999,006
--------- --------- --------- ------- --------- ---------
Fair value calculations
The award is accounted for as equity-settled under IFRS 2. The fair value of awards which are subject to non-market based performance conditions is calculated using the Black Scholes option pricing model. This model has been used as an approximation of the binomial model for valuing the SARS granted, the Directors consider the difference to be immaterial. The inputs to this model for awards granted during the financial year are detailed below:
CSOP CSOP SAYE SAYE SARS SARS SARS
Grant date 15/9/17 20/12/16 3/10/17 1/10/16 3/10/17 7/10/16 8/6/15
Share price at date of grant GBP1.65p GBP1.305p GBP1.66p GBP1.18p GBP1.58p GBP1.20p GBP0.95p
Exercise price GBP1.65p GBP1.305p GBP1.33p GBP0.95p GBP1.83p GBP1.39p GBP1.10p
Volatility 24% 24% 24% 24% 24% 24% 24%
Expected life (years) 3.3 3.3 3.3 3.3 3.3 3.3 3.3
Risk free rate 1% 1% 1% 1% 1% 1% 1%
Dividend yield 4% 4% 4% 4% 4% 4% 6%
Fair value per share
Market based performance condition GBP0.19p GBP0.15p GBP0.33p GBP0.25p GBP0.12p GBP0.06p GBP0.05p
Non-market based performance - - - - - - -
condition/no performance condition
-------- --------- -------- -------- -------- -------- --------
As the Group had only limited share price history at the date of grant, expected volatility was based on a proxy volatility determined from the median volatility of a group of appropriate comparator companies. For the same reason, a similar approach was followed to derive the dividend yield. Expected life has been taken to be between the minimum and maximum exercise period of three and three and a half years, respectively.
The total charge to the income statement for all schemes now in place, included within personnel costs, is GBP655,000 (2018: GBP719,000).
21 Business combinations
Acquisition of GCL Solicitors LLP
On 23 May 2018 Gateley Plc acquired the business and assets of GCL Solicitors LLP, a specialist in legal advice on residential developments. GCL works with some of the UK's top housebuilders as well as promotors and landowners. GCL is also one of the leading law firms who act for overseas private investors buying new build residential properties in the UK, primarily in and around London:
Pre-acquisition Policy alignment
carrying and fair
amount value adjustments Total
GBP'000 GBP'000 GBP'000
Property, plant and equipment 278 (91) 187
Work in progress 522 (370) 152
Intangible asset relating to customer
list and brand - 2,120 2,120
Cash and short term deposits 266 - 266
Trade receivables 981 - 981
Prepayments and accrued income 284 - 284
---------------- ------------------- ---------
Total assets 2,331 1,659 3,990
---------------- ------------------- ---------
Loans from former Partners - Partners
current and tax liabilities (1,280) - (1,280)
Trade payables (534) - (534)
Accruals and other payables (517) (17) (534)
Deferred tax - (403) (403)
---------------- ------------------- ---------
Total liabilities (2,331) (420) (2,751)
---------------- ------------------- ---------
Total identifiable net assets at fair
value - 1,239 1,239
Goodwill arising on acquisition 2,900
---------
Total acquisition cost 4,139
---------
Analysed as follows:
Initial cash consideration paid 2,282
Issue of new 10p ordinary shares in Gateley
(Holdings) Plc 1,857
---------
4,139
---------
Cash outflow on acquisition
Cash paid (2,282)
Acquisition costs -
Net cash acquired with subsidiary (included
in cash flows from investing activities) 266
---------
Net cash outflow (2,016)
---------
From the date of acquisition GCL has contributed GBP5.9 million to revenue and GBP0.8m million to Group profit for the period after taxation.
Acquisition of Kiddy & Partners Limited ('Kiddy')
On 9 July 2018 the Company acquired the business and assets of Kiddy, a leader in its field delivering a comprehensive set of Human Capital consultancy services to businesses looking to improve the performance of their leaders and senior managers:
Pre-acquisition Policy alignment
carrying and fair
amount value adjustments Total
GBP'000 GBP'000 GBP'000
Property, plant and equipment 7 - 7
Intangible asset relating to customer
list and brand - 666 666
Trade receivables 340 - 340
Prepayments and accrued income 78 - 78
---------------- ------------------- ---------
Total assets 425 666 1091
---------------- ------------------- ---------
Trade payables (66) - (66)
Other taxation & social security payable (22) - (22)
Accruals and other payables (368) - (368)
Deferred tax - (126) (126)
---------------- ------------------- ---------
Total liabilities (456) (126) (582)
---------------- ------------------- ---------
Total identifiable net liabilities at
fair value (31) 540 509
Goodwill arising on acquisition 2,491
---------
Total acquisition cost 3,000
---------
Analysed as follows:
Initial cash consideration paid 426
Issue of new 10p ordinary shares in Gateley
(Holdings) Plc 424
Deferred cash consideration payable 1,428
Deferred share consideration payable 722
---------
3,000
---------
Cash outflow on acquisition
Cash paid (426)
Acquisition costs -
Net cash acquired with subsidiary (included
in cash flows from investing activities) -
---------
Net cash outflow (426)
---------
From the date of acquisition, Kiddy has contributed GBP3.1 million to revenue and GBP0.8 million to Group profit for the period after taxation.
Acquisition of International Investment Services Limited ('IIS)
On 30 November 2018 Gateley (Holdings) Plc acquired all issued share capital in International Investments Services Limited (formerly Sirius London Limited) a specialist in supporting businesses expanding internationally, advising companies investing in the UK on all aspects of the UK finance landscape and developing a competitive business environment.
Pre-acquisition Policy alignment
carrying and fair
amount value adjustments Total
GBP'000 GBP'000 GBP'000
Cash and short term deposits 2 - 2
Tax receivable 6 - 6
---------------- ------------------- ---------
Total assets 8 - 8
================ =================== =========
Other taxation & social security payable (2) - (2)
Directors loan (94) - (94)
---------------- ------------------- ---------
(96) - (96)
================ =================== =========
`
Total identifiable net liabilities at
fair value (88) - (88)
Goodwill arising on acquisition 338
---------
Total acquisition costs 250
=========
Analysed as follows
Initial cash consideration paid 86
Shares issued as consideration 30
Deferred consideration payable 134
---------
250
=========
Cash outflow on acquisition
Cash paid (86)
Acquisition costs -
Net cash acquired on subsidiary 2
(Included in cash flows from investing
activities) -
---------
Net cash outflow (84)
=========
From the date of acquisition, IIS has contributed GBP0.1 million to revenue and GBPnil to Group profit for the period.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR CKPDNBBKBAOD
(END) Dow Jones Newswires
July 16, 2019 02:00 ET (06:00 GMT)
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