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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Ince Group Plc (the) | LSE:INCE | London | Ordinary Share | GB00BZBY3Y09 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 5.15 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMINCE
RNS Number : 9268U
Ince Group PLC (The)
28 November 2019
The Ince Group plc
("Ince" or the "Group")
Interim unaudited results for the six months to 30 September 2019
-- Strong first half with revenue up 125% and adjusted profit before tax up 264% -- Nine partners hired across five offices -- Successful transformation to a global business now complete
The Ince Group PLC (AIM: INCE), the international legal and professional services company, is pleased to announce its unaudited results for the six months ended 30 September 2019.
For the six months ended 30 2019 2018 % Growth September (GBPm) ----------------------------- ------- ------- ---------- Revenue 45.3 20.1 +125% Adjusted profit before tax* 4.0 1.1 +264% Adjusted diluted earnings per share (p)** 6.3p 1.9p +232% Basic diluted earnings per shares (p) 5.1p (0.6)p N/A Dividend per share (p) 2.0p 2.0p Unchanged Net (debt)/cash (10.4) 3.1 ----------------------------- ------- ------- ----------
* Adjusted profit before tax is calculated, as shown in note 6 to the financial statements, as the profit before tax after adding back non-recurring items of GBP0.5m in 2019 (2018: GBP0.7m) and after deducting the non-controlling interests (or partners' profit shares) as shown in the financial statements below of GBP7.1m in 2019 (2018: GBP3.2m).
** Adjusted diluted earnings per share is computed from adjusted profit before tax after deducting taxation
Financial highlights
-- With the Ince transaction plus the five acquisitions in the previous year annualised profitable revenue is now c.GBP100m.
-- Revenue increased to GBP45.3m, 125% up from 2018. -- Adjusted profit before tax increased to GBP4.0m, 264% up from 2018. -- Organic growth over last year approximately 5.3%. -- Adjusted earnings per share increased to 6.3p, 232% up from 2018.
-- Former Group London office vacated and lease terms for Aldgate Tower improved, yielding an annual saving of some GBP2.4m.
-- Net debt at the period end of GBP10.4 million resulting from the working capital invested in successful lateral hires and the costs of integrating the Ince business.
-- Rationalisation of back office completed yielding further annual savings of GBP2.6m.
Operational highlights
-- Now operating from 23 offices in eight countries across Europe, the Middle East and Asia, up from 11 offices in two countries this time last year.
-- New "Ince" brand established globally.
-- Integration of consolidated businesses completed. Successful revenue creating collaboration between offices and development of overseas offices progressing well including:
o Ince's London operations successfully merged and overseas operations brought within the Group from April 2019.
o Acquisition of Ince Gibraltar (formerly Ramparts) completed in April 2019 and performing well.
o Partner and client retention strong across the business.
-- Lateral hire of three partners and over 20 staff in Hong Kong.
-- Separate London office in the Lloyds Building in Leadenhall Street opened in June 2019, strengthening the Group's contact with insurance clients.
-- Mayfair office under the Gordon Dadds brand to service family and private client business opened in September 2019.
-- New practice management system owned by the Group being introduced, which will lead to significant operational improvements.
-- Strategic senior appointments to deepen and extend management capacity and service lines including:
o Mark Tantam, formerly a vice chair of Deloitte, appointed as Global Head of Consulting.
o Julian Clark, formerly Global Head of Shipping at Hill Dickinson, appointed as Senior Partner.
o Alexander Janes, a former global managing partner of Orrick, Herrington & Sutcliffe, joining as head of Europe, Middle East and Africa.
Adrian Biles, Group Chief Executive, commented:
"These strong results are a vindication of our strategy. They are the product of the new international platform we have developed under the Ince brand. We remain on track to deliver c.GBP100m of annualised revenue in the current financial year, even with political headwinds buffeting some key markets across the globe.
"The second half of the year traditionally provides the majority of the Group's profits and the lateral appointments we have made will largely show through next year. The attractions of our model and approach are being recognised amongst senior lawyers and professionals in major financial markets around the globe as can be seen from the quality of our newest hires.
"I remain confident that the business can continue to develop from here generating increasing revenue and profits."
Enquiries:
The Ince Group plc investorrelations@incegd.com
Adrian Biles, Group Chief Executive
Christopher Yates, Chief Financial Officer
Arden Partners
Nominated Adviser and broker to the Company +44 (0) 20 7614 5900
John Llewellyn-Lloyd, Corporate Finance
Ciaran Walsh, Corporate Finance
Fraser Marshall, Equity Sales
Portland Communications +44 (0) 20 7554 1789
Steffan Williams ince@portland-communications.com
Simon Hamer
Lauren Gallagher
Analyst presentation:
A presentation for analysts and institutional investors will be held today, 28 November 2019 at 11.00am (GMT) at Ince, Aldgate Tower, 2 Leman Street, London, E1 8QN. All participants must be pre-registered with Portland Communications in order to attend the meeting.
About The Ince Group plc
The Ince Group is an international legal and professional services business with 23 offices in eight countries across Europe, the Middle East and Asia. With nearly 900 people, including over 100 partners worldwide, The Ince Group delivers legal advice, strategic guidance and business solutions to clients ranging from the world's oldest and biggest businesses operating across numerous industries to ultra-high net worth individuals. Through its entrepreneurial culture and "one firm" approach, the business offers its clients over 150 years of experience, insight and relationships. The Group is driven by a unique team of passionate people whose broad expertise and deep sector specialisms provide their clients with solutions to all their complex legal and strategic needs.
Please visit www.theincegroup.com for more information.
Operating Review
Overview
Strategy
The Group's strategy continues to be to increase revenue through organic growth and acquisition in legal and professional services and to administer such increased revenue through a single efficient back-office function in a low cost environment.
We believe that the clients who approach us are looking for solutions. Rarely do their problems require the application of "reserved" legal activities (which only solicitors can provide) and generally they require much wider commercial awareness. This is an ability which our partners have and which they continue to develop, supported by the wider skill sets we are seeking to grow. We are also examining opportunities to operate more efficiently and effectively for clients following the recent rule changes introduced by the Solicitors Regulation Authority which will allow individual solicitors to provide "non-reserved" legal activities in firms which are not subject to SRA regulation.
Acquisition of Ince strengthens platform
The acquisition of Ince & Co and the consolidation of its international operations has created a fit for purpose international platform from which the Group can deliver its growth strategy, building on the current GBP100 million of annualised revenues. The acquisition has given the Group a substantial international presence with established offices now in eight countries in Europe, the Middle East and Asia. In the first half, the geographic split of revenue was 67% from the UK, 20% from Asia and 13% from Europe and the Middle East, compared with the equivalent period in 2018 when all the revenue was from the UK.
Our platform is increasingly attracting attention from senior lawyers and other professionals in the market who recognise the benefits of the Group's model. This provides transparent performance-based remuneration as well as access to third party capital to enable investment into the future.
Growth to be driven by lateral hires and small acquisitions
With this platform and remuneration structure, the ability to recruit individual professionals and teams has been substantially enhanced and this is where we expect our growth to come from in the short term. It is also more likely that acquisitions will be relatively small ones to infill skill gaps or offer exposure to a complementary service line or industry sector. The objectives of both lateral hires and any acquisitions continue to be to increase the intellectual capital of the firm and to grow revenues which can then be processed efficiently through the established back-office.
Remuneration model key for growth
Our core remuneration model for partners continues to be a key factor in our ability to recruit new partners, attract acquisition targets and generate profits for shareholders. This model focuses on the partners being rewarded both for the billable work they do and for the income generated from their clients across the Group's wide-ranging activities. Our basic model for partners continues to be refined to promote the behaviours we want to see and which will drive group profitability. Increasingly, we are focusing partners on the recovery of the full value of the work undertaken and the generation of gross margin from which to cover overheads and to generate profits for shareholders.
We aim to provide an environment for partners and staff which is open and transparent and in which everyone can perform to the best of their abilities. This has led to a high retention rate for partners over the period and the Ince acquisition has been no different in this respect. The stability of partners and staff is, we believe, vital to the continuing satisfaction of clients and we are pleased that our clients are responding by increasingly using the other services of the Group where appropriate.
Review of the half year
As expected we have seen a substantial increase in revenue in the half year, more than doubling from GBP20.1 million in 2018 to GBP45.3 million principally as a result of the inclusion of the Ince UK business and overseas offices for the first time together with organic growth. It is estimated that the organic growth of the Group has been 5.3% in this first half.
Integration of Ince acquisition
The half year has seen both the completion of the integration of Ince in the UK and the main parts of the integration of the overseas Ince entities.
- Growing collaboration between offices - The Ince offices traditionally had a very tight focus on marine, aviation, trade and insurance and had exceptional reputations in those sectors. This half year has demonstrated increasing collaboration between the various offices and skill sets of the merged business. For example,
-- we advised on a corporate restructuring transaction for a Middle East client. This was for an Ince client (which legacy Ince could not have executed) and for a client which the legacy Gordon Dadds corporate team would not have had access to.
-- we received instructions on reputation management (a legacy Gordon Dadds strength) from an Ince international commercial client.
-- we also received instructions from one of our Hong Kong office's key clients in the financial services sector in relation to a UK based application. The due diligence work is being handled by the London Regulatory Solutions team.
-- at Ince Gibraltar (formerly Ramparts, the Gibraltar legal services business acquired at the end of March) we have added another partner from a leading Gibraltar firm to add marine expertise to the business lines already established. This is particularly attractive as our German business had been referring work to local competitors which can now be handled in house.
We are encouraging this inter-office collaboration strongly and promoting it as a key part of the Group's culture. This is work in progress and will deliver further positive results over the coming years, as relationships between the lawyers develop along with increasing confidence in each other's abilities.
- Leveraging the Group's administrative operation - Having merged the London office of Gordon Dadds with the London office of Ince in January 2019, the first half has also seen the successful conclusion of the process of moving the majority of the Ince back office functions out of London to our low cost operation in South Wales. This will save some GBP3 million in staff costs in a full year.
In addition, we have as planned taken an assignment of the leases of the Ince offices in London on similar terms but with tenant break options at a number of points in time, which maintains our flexibility for the future. We have also completely vacated the Group's previous head office in Covent Garden, taking advantage of the flexibility afforded by the Group's policy of negotiating tenant break clauses. This has saved over GBP2.4 million per annum.
We are also introducing our bespoke practice management system across the Group which is replacing two systems which were not suitable for our future.
- Strengthening and expanding international offices - In the short term, a key focus is our expansion of the international offices which had been weakened by resignations between 2016 and early 2018. We are seeking to both replace capacity in Ince's traditional sectors where needed and also broaden the offering of each office.
In Hong Kong we have already hired a team of three partners and over 20 staff who bring particular experience in the commercial and corporate sectors and the commercial and construction dispute resolution sector. They are already generating significant additional revenue and profits. We are also in advanced discussions to add further partners in Singapore and Dubai and are examining opportunities for all the other overseas entities.
Financial Review
The Group's consolidated results for the six months ended 30 September 2019 are well ahead of last year, principally reflecting the Ince acquisition. The results show total revenue of GBP45.3 million (2018: GBP20.1 million), operating profit of GBP11.5 million (2018: GBP4.3 million) and adjusted profit before tax of GBP4.0 million (2018: GBP1.1 million).
As is usual for our business, the turnover and profits for the first half are expected to represent under half of both revenue and adjusted profit before tax for the full year.
Alternative Performance Measures
The Group presents two Alternative Performance Measures ("APMs"). These APMs include adjustments for specific items in order to provide a balanced view of the underlying performance of the Group's operations.
Adjusted profit before tax is calculated as profit before tax after:
-- adding back non-recurring items, which in FY 2019 included the costs of the acquisition of Ince and the material costs associated with implementing the merger of the businesses; and
-- Deducting partners' profit shares and other non-controlling interests as these are a cost of motivating the relevant business generators. It is one of the largest variable costs of the business and is reported in the statutory accounts as part of the non-controlling interests. The reported profit metrics therefore do not provide a true reflection of the underlying profits generated by the operations and available to equity holders. The adjusted disclosure essentially treats all forms of remuneration as an operating cost of the business (just as employees' costs).
Adjusted earnings per share is calculated by adjusting for taxation and dividing by the weighted average number of shares in issue for the period, on a diluted basis where a materially different result is produced.
Hot Features
Premium
For the six months ended 30 September 2019 2018 %
GBPm GBPm Growth
--------------------------------------- ------ ------ ----------
Revenue 45.3 20.1 +125%
Operating profit 11.5 4.3 +167%
Non-controlling interests (7.1) (3.2)
+300%
Adjusted operating profit 4.4 1.1 =xx%
Net finance charge / other (0.4) (0.0)
Adjusted profit before tax 4.0 1.1 +264%
Adjusted net margin 8.8% 5.5%
Non-recurring costs (0.4) (0.7)
Income tax (1.6) (0.2)
)
Other non-controlling interests* - (0.4)
--------------------------------------- ------ ------ ------
Retained profit for equity holders 2.0 (0.2)
--------------------------------------- ------ ------ ------
*In 2019, all non-controlling interests have been deducted in computing Adjusted profit before tax: the same treatment in 2018 would have reduced Adjusted profit before tax by GBP0.4m and this is reflected above.
Steady progress on KPIs
In financial terms, we continue to focus on our targets of growing turnover, improving gross margin towards 50% of revenue, controlling overhead towards 30% of revenue and keeping lock-up below 100 days. Our targets remain and we believe that we are making steady progress towards each of them which will be reported at the year end.
IFRS 16 adoption
The Group has adopted IFRS 16 in the current period for the first time. Its impact is to replace rent by an amortisation charge and an interest charge, typically reducing profits before tax a little in the early years and increasing profits thereafter. It also impacts the balance sheet by increasing assets and liabilities by similar amounts. Full details are given in note 14.
Gain on bargain purchase
The results in the first half have benefitted from a bargain purchase gain (or negative goodwill) of GBP3.9 million. This arises from the first time consolidation of the Ince overseas entities in the half year and represents the difference between the fair value of the net assets acquired and the consideration payable. Commercially, this is the benefit compensating the Group for the losses anticipated for the Ince overseas entities while the teams in those offices are being re-built as referred to above.
Net debt
In the six months, our net debt has increased to GBP10.4 million, within our available borrowings of GBP12.5 million. This increase is the result of paying down more of the acquisition costs in respect of the Ince transaction and an increased working capital requirement particularly in the overseas offices and including the working capital to fund the successful lateral hires of the new partners in Hong Kong. Typically, when we make a lateral hire, we will need to fund working capital equivalent to approaching six months' revenues as the lateral settles, undertakes work, bills it and then collects the fees, before approaching mature fee generation after one to two years.
Tax
Corporation Tax for the year ended 31 March 2019 was negligible. In the current year, we expect some further tax losses to be available for use, but it is likely that the rate of tax will move to beyond the standard UK rate of Corporation Tax as the amortisation of client portfolios will not be allowable.
Dividend
As the Group is expanding further through lateral hires which will require the commitment of additional working capital, the Board has decided that the interim dividend should remain unchanged from last year. The Board has therefore declared an interim dividend of 2p per share payable on 16 April 2020 to shareholders on the register on 6 March 2020. The Board remains committed to a progressive dividend policy broadly related to earnings per share.
Outlook
In conclusion, having taken the business from GBP25 million of annual revenues at flotation in 2017 to the current GBP100 million annualised, we have established an excellent platform from which our growth and development can continue over the coming years. This, with the growing collaboration between partners and offices that we are driving, should deliver increasing revenues, profits and earnings per share for shareholders.
Unaudited Consolidated Statement of Comprehensive Income
6 months 6 months 12 months
to to to
30 September 30 September 31 March
2019 2018 2019
Note GBP'000 GBP'000 GBP'000
Continuing operations
Fees and commissions 2 45,339 20,114 52,576
----------------------------------- ----- --------------------- ------------- -------------------
Staff costs 3 (22,582) (8,116) (18,296)
Depreciation - property, plant
and equipment (697) (35) (99)
Depreciation - right-of-use (2,161) - -
asset
Amortisation (2,007) (655) (1,566)
Other operating expenses (10,288) (7,038) (17,406)
Bargain purchase gain 4 3,890 - 38
----------------------------------- ----- --------------------- ------------- -------------------
Operating profit 11,494 4,270 15,247
----------------------------------- ----- --------------------- ------------- -------------------
Finance income 147 132 218
Finance expense - right-of-use (246) - -
asset
Finance expense - other (167) (20) (251)
Acquisition and other material
costs 5 (461) (716) (14,267)
Share of profit of associates (91) (118) 19
----------------------------------- ----- --------------------- ------------- -------------------
Profit before income tax 10,676 3,548 966
----------------------------------- ----- --------------------- ------------- -------------------
Income tax expense (1,604) (159) (206)
----------------------------------- ----- --------------------- ------------- -------------------
Profit for the period 9,072 3,389 760
----------------------------------- ----- --------------------- ------------- -------------------
Attributable to:-
Equity holders of the Company 1,974 (168) (8,552)
Non-controlling interests 7,098 3,557 9,312
Profit for the period 9,072 3,389 760
----------------------------------- ----- --------------------- ------------- -------------------
Other comprehensive income
Items that may be reclassified
subsequently to profit or loss:
Translation of foreign operations 35 - -
----------------------------------- ----- --------------------- ------------- -------------------
Other comprehensive income
for the period 35 - -
----------------------------------- ----- --------------------- ------------- -------------------
Total comprehensive income
for the period 9,107 3,389 760
----------------------------------- ----- --------------------- ------------- -------------------
Attributable to:-
Equity holders of the Company 2,009 (168) (8,552)
Non-controlling interests 7,098 3,557 9,312
----------------------------------- ----- --------------------- ------------- -------------------
Total comprehensive income
for the period 9,107 3,389 760
----------------------------------- ----- --------------------- ------------- -------------------
Earnings per share
Basic earnings per share (pence) 6 5.43 (0.58) (28.66)
Adjusted basic earnings per
share (pence) 6 6.68 1.91 19.15
Diluted earnings per share
Diluted earnings per share
(pence) 6 5.10 (0.58) (28.10)
Adjusted diluted earnings per
share (pence) 6 6.27 1.91 18.77
----------------------------------- ----- --------------------- ------------- -------------------
The profit for the period relates to continuing operations only. The attached notes are an integral part of these consolidated financial statements.
Unaudited Consolidated Statement of Financial Position
30 September 30 September 31 March
2019 2018 2019
Note GBP'000 GBP'000 GBP'000
----------------------------------------------------- ----- ------------- ------------- ---------
ASSETS
Non-current assets
Property, plant and equipment 3,768 337 1,182
Right-of-use assets 14 14,285 - -
Intangible assets 7 59,255 26,393 53,198
Investments 358 200 379
----------------------------------------------------- ----- ------------- ------------- ---------
77,666 26,930 54,759
----------------------------------------------------- ----- ------------- ------------- ---------
Current assets
Trade and other receivables 8 43,495 19,254 35,222
Cash and cash equivalents 9 2,669 4,257 4,759
----------------------------------------------------- ----- ------------- ------------- ---------
46,164 23,511 39,981
----------------------------------------------------- ----- ------------- ------------- ---------
Total assets 123,830 50,441 94,740
----------------------------------------------------- ----- ------------- ------------- ---------
EQUITY
Capital and reserves attributable to equity holders
Share capital 10 370 288 370
Share premium 11 11,192 230 11,192
Capital redemption reserve 11 - 46,448 -
Reverse acquisition reserve 11 (24,724) (24,724) (24,724)
Foreign exchange translation reserve 11 35 - -
Other reserves 145 - 48
Retained earnings 11 40,024 723 38,787
----------------------------------------------------- ----- ------------- ------------- ---------
27,042 22,965 25,673
Non-controlling interest 5,312 4,898 5,807
----------------------------------------------------- ----- ------------- ------------- ---------
Total equity 32,354 27,863 31,480
----------------------------------------------------- ----- ------------- ------------- ---------
LIABILITIES
Non-current liabilities
Trade and other payables 12 28,018 10,391 25,629
Borrowings 13 11,305 148 5,240
Provisions 1,113 - 1,213
Lease liabilities 14 12,970 - -
----------------------------------------------------- ----- ------------- ------------- ---------
53,406 10,539 32,082
----------------------------------------------------- ----- ------------- ------------- ---------
Current liabilities
Trade and other payables 12 26,747 10,458 23,040
Corporation tax 1,827 272 245
Borrowings 13 1,728 1,006 2,370
Provisions 5,528 303 5,523
Lease liabilities 14 2,240 - -
----------------------------------------------------- ----- ------------- ------------- ---------
38,070 12,039 31,178
----------------------------------------------------- ----- ------------- ------------- ---------
Total liabilities 91,476 22,578 63,260
----------------------------------------------------- ----- ------------- ------------- ---------
Total equity and liabilities 123,830 50,441 94,740
----------------------------------------------------- ----- ------------- ------------- ---------
The attached notes are an integral part of these consolidated financial statements.
Unaudited Consolidated Statement of Cash Flows
6 months 6 months 12 months
to to to
30 September 30 September 31 March
Note 2019 2018 2019
GBP'000 GBP'000 GBP'000
Cash flows from operating
activities
Profit before income tax 10,676 3,548 966
Adjustments for:
Finance income (147) (132) (218)
Finance expense 413 20 251
Acquisition related costs 461 716 14,267
Depreciation, amortisation
and impairment 4,865 690 1,665
Share of profits of associates 91 118 (19)
Bargain purchase gain (3,890) - -
Fair value adjustment to share
options 97 - -
Changes in operating assets
and liabilities (net of acquisitions):
Decrease/(Increase) in trade
and other receivables 545 (894) (15,589)
(Decrease)/Increase in trade
and other payables (6,900) (2,260) (1,388)
(Decrease)/Increase in provisions (232) 138 6,571
----------------------------------------- ----- ------------- ------------- -----------------
Cash generated by operations 5,979 1,944 6,506
Interest and other financial
costs paid (413) (20) (92)
Tax paid (33) (134) (554)
Net cash generated by operating
activities 5,533 1,790 5,860
----------------------------------------- ----- ------------- ------------- -----------------
Cash flows from investing
activities
Cash paid on acquisitions
(net of cash acquired) 2,250 - (6,388)
Payment of contingent and
deferred consideration on
acquisitions (4,304) (2,276) (4,762)
Payment of acquisition related
costs (461) (716) (7,525)
Purchase of PPE (708) (6) -
Purchase of intangible assets (503) - (795)
Purchase of interest in associates - - -
Dividends received - - -
Interest received 147 112 218
Net cash absorbed by investing
activities (3,579) (2,886) (19,252)
----------------------------------------- ----- ------------- ------------- -----------------
Cash flows from financing
activities
Movement in borrowings (including
finance leases) 4,663 144 6,969
Proceeds from issuance of
shares - - 11,504
Transactions costs relating
to issue of shares - - (460)
Dividends paid (737) (1,150) (1,150)
Transactions with non-controlling
interests (6,844) (3,072) (7,699)
Payment of lease liabilities (1,274) - -
----------------------------------------- ----- ------------- ------------- -----------------
Net cash (absorbed)/generated
from financing activities (4,192) (4,078) 9,164
----------------------------------------- ----- ------------- ------------- -----------------
Net (decrease) / increase
in cash and cash equivalents (2,238) (5,174) (4,228)
Effect of exchange rate changes
on cash (103) - -
----------------------------------------- ----- ------------- ------------- -----------------
Cash and cash equivalents
at beginning of period 4,720 8,948 8,948
----------------------------------------- ----- ------------- ------------- -----------------
Cash and cash equivalents
at end of period 9 2,379 3,774 4,720
----------------------------------------- ----- ------------- ------------- -----------------
Unaudited Consolidated Statement of Changes in Equity
Foreign Other
Reverse Exchange reserves Non-
Share Share acquisition translation Distributable controlling Total
capital premium reserve reserve reserves interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------- -------- ------------ ------------ ---------- -------------- ------------ ----------
Balance at 1
April 2018 288 230 (24,724) - - 48,489 4,512 28,795
Profit/(loss) and
total
comprehensive
income/(expense)
for the period - - - - (168) 3,557 3,389
Dividends paid - - - - - (1,150) - (1,150)
Transferred to
members - - - - - - (3,171) (3,171)
Balance at 30
September 2018 288 230 (24,724) - - 47,171 4,898 27,863
------------------ -------- -------- ------------ ------------ ---------- -------------- ------------ ----------
Balance at 1
October 2018 288 230 (24,724) - - 47,171 4,898 27,863 ================== ======== ======== ============ ============ ========== ============== ============ ========== Profit/(loss) and total comprehensive income/(expense) for the period - - - - - (8,384) 5,755 (2,629) Shares issued in period 82 11,422 - - - - - 11,504 Share issue transactions costs - (460) - - - - - (460) Share options acquired - - - - 48 - - 48 Deferred shares - cancelled - - - - - - - Share premium cancelled - - - - - - - - Transferred to members - - - - - (4,846) (4,846) ------------------ -------- -------- ------------ ------------ ---------- -------------- ------------ ---------- Balance at 31 March 2019 370 11,192 (24,724) - 48 38,787 5,807 31,480 ------------------ -------- -------- ------------ ------------ ---------- -------------- ------------ ---------- Balance at 1 April 2019 370 11,192 (24,724) - 48 38,787 5,807 31,480 ================== ======== ======== ============ ============ ========== ============== ============ ========== Profit/(loss) for the period - - - - - 1,974 7,098 9,072 Translation of foreign operations - - - 35 - - - 35 Dividends paid - - - - - (737) - (737) Share options acquired 97 - - 97 Transferred to members - - - - - - (7,593) (7,593) Balance at 30 September 2019 370 11,192 (24,724) 35 145 40,024 5,312 32,354 ------------------ -------- -------- ------------ ------------ ---------- -------------- ------------ ----------
The attached notes are an integral part of these consolidated financial statements.
Notes to the Financial Statements
These interim consolidated financial statements have been approved for issue by the Board of Directors on 26 November 2019.
1. Summary of significant accounting policies 1.1 Basis of preparation and significant accounting policies
The financial information for the year ended 31 March 2019 set out in this half yearly report does not constitute statutory financial statements as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 March 2019 have been extracted from the Group financial statements for that year. Those financial statements have been delivered to the Registrar of Companies and included an independent auditor's report, which was unqualified and did not contain a statement under section 493 of the Companies Act 2006.
The half yearly financial information has been prepared using the same accounting policies and estimation techniques as will be adopted in the Group financial statements for the year ending 31 March 2020. The Group financial statements for the year ended 31 March 2019 were prepared under International Financial Reporting Standards as adopted by the European Union. These half yearly financial statements have been prepared on a consistent basis and format with the Group financial statements for the year ended 31 March 2019. The interim condensed consolidated financial statements for the six months ended 30 September 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2019.
A number of new or amended standards became applicable for the current reporting period, and the Group had to change its accounting policies and make retrospective adjustments as a result of adopting IFRS 16 Leases. The impact of the adoption of the leasing standard and the new accounting policies are disclosed in note 14 below. The other standards did not have any impact on the group's accounting policies and did not require retrospective adjustments.
1.2 Business combinations
The Group applies the acquisition method of accounting to account for business combinations in accordance with IFRS 3 'Business Combinations'. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. All transaction related costs are expensed in the period they are incurred. If the consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the income statement.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in the income statement.
1.3 Financial instruments
The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised on trade date when the group becomes a party to the contractual provisions of the instrument. Financial instruments are recognised initially at fair value plus, in the case of a financial instrument not at fair value through profit and loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Financial instruments are derecognised on trade date when the group is no longer a party to the contractual provisions of the instrument.
Financial assets are included on the balance sheet as trade and other receivables and cash and cash equivalents.
Financial liabilities are included on the balance sheet as trade and other payables and borrowings.
1. Summary of significant accounting policies (continued) 1.3 Financial instruments (continued) (a) Trade receivables
Trade receivables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash receipts over the short credit period is not considered to be material. Trade receivables are reduced by appropriate allowances for estimated irrecoverable amounts.
(b) Trade payables
Trade payables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material.
(c) Interest-bearing borrowings
Interest-bearing borrowings are stated at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability.
1.4 Going concern
The financial statements have been prepared on the going concern basis. In deciding this, the directors have considered the detailed budgets for the current financial year and high level budgets for the succeeding year including in both cases cash flows. They have also considered the impact of adverse changes resulting from the major risks and uncertainties they consider apply to the Group.
2. REVENUE
In the following table, revenue from contracts with customers is disaggregated by primary geographical market and major service offering:
Legal & professional Other Total
services
GBP'000 GBP'000 GBP'000
--------------------------- ---------------------- -------- --------
Period ended 30 September
2019
UK 27,158 1,750 28,908
Europe, Middle East
and Africa 5,915 - 5,915
Asia 10,516 - 10,516
Total revenue 43,589 1,750 45,339
--------------------------- ---------------------- -------- --------
Year ended 31 March
2019
UK 46,879 4,900 51,779
Europe, Middle East - - -
and Africa
Asia 797 - 797
--------------------------- ---------------------- -------- --------
Total revenue 47,676 4,900 52,576
--------------------------- ---------------------- -------- --------
Year ended 31 March
2018
UK 20,114 - 20,114
Europe, Middle East - - -
and Africa
Asia - - -
--------------------------- ---------------------- -------- --------
Total revenue 20,114 - 20,114
--------------------------- ---------------------- -------- --------
3. STAFF costs
The average number of persons employed by the Group (excluding Directors) during the period, analysed by category, was as follows:
Number of employees
---------------------------------------------------
6 months 6 months 12 months
to 30 September to 30 September to 31 March
2019 2018 2019
--------------------------- ----------------- ----------------- -------------
Fee earners 378 179 194
Direct production support 97 56 69
Administration 251 109 133
--------------------------- ----------------- ----------------- -------------
Total 726 344 396
--------------------------- ----------------- ----------------- -------------
The average number of members and partners of the group during the period was 90 (2018: 54).
The aggregate employment costs of these persons were as follows:
6 months 6 months 12 months
to to to
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------- -------------- -------------- ----------
Wages and salaries 19,198 6,986 15,473
Social security costs 1,816 690 1,740
Employee benefits costs 930 232 569
Pension costs 638 208 514
------------------------- -------------- -------------- ----------
Total staff costs 22,582 8,116 18,296
------------------------- -------------- -------------- ----------
4. bargain purchase gain
The bargain purchase gain represents the difference between the consideration payable to achieve control of the Ince overseas entities and the estimated fair value of the net assets acquired. In commercial terms this gain represents the allowance in the purchase price for the anticipated short term losses of those entities.
5. Non Recurring costs
Non recurring costs include acquisition related costs of GBP327,000 and other material items related to the acquisition which will not recur of GBP134,000. Other material items represent costs incurred specifically as a result of the integration activities associated with the Ince & Co acquisition.
Acquisition related costs represent professional fees and other costs incurred in acquisitions completed or under negotiation during the year.
Non recurring costs include non-audit fees payable to the Company's auditors of GBPNil
6. EARNINGS PER SHARE
Earnings per share for the year ended 31 March 2019 and the periods ended 30 September 2019 and 30 September 2018 are based on the weighted average number of shares of the Company in issue or issued as consideration for the entities whose results are reported in the period. The number of shares and periods are as follows:
1 April 2018 28,759,711 Being the Company's issued shares at that
date
12 February 36,976,730 Being the Company's current issued shares
2019 following new shares issued as part of
an equity placing exercise
Basic earnings per share, shown on the consolidated income statement, is based on profit after tax for the period ended 30 September 2019 of GBP2,009,000 (30 September 2018: loss of GBP168,000, 31 March 2019: loss of GBP8,552,000) attributable to equity holders, divided by 36,976,730 (30 September 2018: 28,759,711, 31 March 2019: 29,840,305), being the weighted average total number of ordinary shares in issue during the period.
Adjusted basic earnings per share, shown on the consolidated income statement, is based on adjusted profit after tax for the period ended 30 September 2019 of GBP2,470,000 divided by 36,976,730 (30 September 2018: 28,759,711, 31 March 2019: 29,840,305), being the weighted average total number of ordinary shares in issue during the period.
If the 2,392,846 share options issued on 31 December 2018 were included the weighted average total number of shares for the period would be 39,369,576 (30 September 2018: 28,759,711, 31 March 2019: 30,436,878), which is applied in the calculation of diluted earnings per share, also shown on the consolidated income statement.
Adjusted profit before tax is calculated as follows:
6 months 6 months 12 months
to to to
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
-------------------------------------------------- ------------- ------------- ----------
Profit before tax from statement
of comprehensive income 10,676 3,548 966
Deduct: Partners profit shares
shown as non-controlling interests (7,098) (3,160) (9,312)
Add: Non-recurring expenses:
* Acquisition related expenditure 461 90 5,823
* Material-related costs - 626 8,444
Adjusted profit before tax 4,039 1,104 5,921
Add/Deduct:
Translation of foreign operations 35 - -
Taxation (1,604) (159) (206)
Other non-controlling interests - (397) -
-------------------------------------------------- ------------- ------------- ----------
Adjusted profit after tax 2,470 548 5,715
-------------------------------------------------- ------------- ------------- ----------
Adjusted profit before tax is regarded by the directors as an appropriate alternative performance measure to present to the Company's equity holders as it treats the non-controlling interests, representing the remuneration of the partners, as a productive cost of the business rather than as a distribution and it eliminates non-recurring costs. The gain on Bargain Purchase is not adjusted for as, commercially, it arises from a transaction which recognised that trading losses would result from the transaction which would be reflected in Other operating expenses.
In periods subsequent to the six months ended 30 September 2018, Other non-controlling interests have been included with Partners' profits shares shown as non-controlling interests. If this change were adjusted for in the period ended 30 September 2018, it would have reduced adjusted profit before tax by GBP397,000 for that period but would not have affected adjusted earnings per share.
7. Intangible assets
Internally
Client generated Intellectual
Goodwill portfolio software property Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ----------- ------------ ------------- ------------
Cost
Balance at 1 April
2019 42,075 16,719 1,248 189 60,231
Acquisition of subsidiary 99 6,494 - - 6,593 Additions - - 503 - 503 Reassessment of fair value 968 - - - 968 Balance at 30 September 2019 43,142 23,213 1,751 189 68,295 --------------------------- --------- ----------- ------------ ------------- ------------ Amortisation and impairment Balance at 1 April 2019 - 6,818 168 47 7,033 Charge for the period - 1,966 32 9 2,007 Balance at 30 September 2019 - 8,784 200 56 9,040 --------------------------- --------- ----------- ------------ ------------- ------------ Carrying value At 31 March 2019 42,075 9,901 1,080 142 53,198 --------------------------- --------- ----------- ------------ ------------- ------------ At 30 September 2019 43,142 14,429 1,551 133 59,255 --------------------------- --------- ----------- ------------ ------------- ------------
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination.
Goodwill has been reassessed in the period to take account of the revision of estimates of the fair value of liabilities assumed.
Client portfolio represents the acquisition of the business and certain assets from other professional services firms. The client portfolio intangible asset is carried at cost less accumulated amortisation.
Amortisation is provided for in line with the fees billed and cash collections generated by the client portfolio acquired.
Internally generated software includes GBP1,751,000 (2019: GBP1,248,000) of development costs relating to development of software applications. The directors have considered the carrying value of internally generated software of GBP1,551,000 (2019: GBP1,080,000) as appropriate as it is expected to create future economic benefit.
Intellectual property includes GBP133,000 (2019: GBP142,000) of intellectual property acquired on the acquisition of certain assets and liabilities of Prolegal Limited (in administration).
The Intangible assets of the Group for the prior year were as follows:-
Internally
Client generated Intellectual
Goodwill portfolio software property Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------- ----------- ------------ -------------- -----------
Cost
Balance at 1 April
2018 24,150 7,719 453 189 32,511
Acquisition of subsidiary 17,642 9,000 - - 26,642
Additions 279 - 795 - 1,074
Reassessment of
fair value 4 - - - 4
Balance at 31 March
2019 42,075 16,719 1,248 189 60,231
--------------------------- --------- ----------- ------------ -------------- -----------
Amortisation and
impairment
Balance at 1 April
2018 - 5,336 103 28 5,467
Charge for the period - 1,482 65 19 1,566
Balance at 31 March
2019 - 6,818 168 47 7,033
--------------------------- --------- ----------- ------------ -------------- -----------
Carrying value
At 31 March 2018 24,150 2,383 350 161 27,044
--------------------------- --------- ----------- ------------ -------------- -----------
At 31 March 2019 42,075 9,901 1,080 142 53,198
--------------------------- --------- ----------- ------------ -------------- -----------
7. Intangible assets (continued)
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination and is analysed below.
The CGUs relating to Personal Injury Legal Services, GDLLP Legal Services, Alen-Buckley and Ince & Co LLP are considered as a single CGU for impairment testing as the operations are now merged into one and cashflows are now indistinguishable.
The goodwill of the Group is analysed as follows:
Personal
Consulting Culver Injury GDLLP
and Financial Legal Legal Alen
Technology Services Services Services Buckley
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------------------- ---------- ---------- --------------- ----------------
Cost
At 1 April 2019 2,030 4,185 5,317 3,103 1,329
Acquisitions - - - - -
Reassessment of fair
value - - - - -
At 30 September 2019 2,030 4,185 5,317 3,103 1,329
---------------------- -------------------- ---------- ---------- --------------- ----------------
Impairment
At 1 April 2019 - - - - -
Impairment - - - - -
At 30 September 2019 - - - - -
---------------------- -------------------- ---------- ---------- --------------- ----------------
Carrying value
At 31 March 2019 2,030 4,185 5,317 3,103 1,329
---------------------- -------------------- ---------- ---------- --------------- ----------------
At 30 September 2019 2,030 4,185 5,317 3,103 1,329
---------------------- -------------------- ---------- ---------- --------------- ----------------
White
CW & Ince & Total
Energy Black Co LLP Ramparts Goodwill
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------------------- ---------- ---------- --------------- ----------------
Cost
At 1 April 2019 6,464 2,005 16,544 1,098 42,075
Acquisitions - - - 99 99
Reassessment of fair
value - - 968 - 968
---------------------- -------------------- ---------- ---------- --------------- ----------------
At 30 September 2019 6,464 2,005 17,512 1,197 43,142
---------------------- -------------------- ---------- ---------- --------------- ----------------
Impairment
At 1 April 2019 - - - - -
Impairment - - - - -
At 30 September 2019 - - - - -
---------------------- -------------------- ---------- ---------- --------------- ----------------
Carrying value
At 31 March 2019 6,464 2,005 16,544 1,098 42,075
---------------------- -------------------- ---------- ---------- --------------- ----------------
At 30 September 2019 6,464 2,005 17,512 1,197 43,142
---------------------- -------------------- ---------- ---------- --------------- ----------------
7.1 Business combinations and acquisitions
The details set out below provide the information required under IFRS 3 'Business Combinations' for the acquisitions that occurred during the period to 30 September 2019.
With effect from 1 April 2019 the Group gained control over the following Ince overseas network entities:
- Ince & Co (Hong Kong)
- Ince & Co Singapore LLP
- Ince & Co Middle East LLP
- Herring, Parry, Khan Law Office
- Ince & Co Germany LLP
Until 31 December 2018 these entities were subsidiaries of Ince & Co International LLP (now in administration and renamed). With effect from 1 April 2019, revised arrangements were agreed with these entities which gave the group control over them without any ownership interest.
As part of the new arrangements concluded with effect from 1 April 2019, the Group has agreed to make payments to the partners of those entities depending on the levels of revenue achieved in the three year period ending 31 December 2021. Based on revenue expectations, the group currently estimates that these payments will amount in aggregate to GBP10 million over the three years of which GBP6,495,000 is regarded as the purchase of a client portfolio and will be amortised in line with the fees billed and cash collections being generated by the client portfolio acquired.
In the six months ended 30 September 2019, these entities contributed GBP15,285,000 to turnover and GBP718,000 of loss before tax.
On 10(th) June 2019, the Group acquired 100% of the issued share capital of Ramparts Corporate Services Limited, a Gibraltar-based practice providing corporate and administrative support for listed funds and listing market instruments.
Initial consideration was GBP258,000 and goodwill of GBP99,000 was recognised in accounting for the acquisition.
In the six months ended 30 September 2019, these Ramparts Corporate Services Limited contributed GBP76,000 to turnover and GBP8,000 of profits before tax.
7.1.2 Identifiable assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities at the date of acquisition were as follows:
Ince & Co Ramparts
Overseas Corporate
Entities Services
Limited Total
GBP'000 GBP'000 GBP'000
----------------------------- ---------- ---------- --------
Property, plant and
equipment 2,453 8 2,461
Identifiable intangible
assets 6,495 - 6,495
Trade and other receivables 9,324 132 9,456
Cash and cash equivalents 2,487 42 2,529
Trade and other payables (7,693) (23) (7,716)
Borrowings (474) - (474)
Provisions (191) - (191)
Contingent liabilities - - -
----------------------------- ---------- ---------- --------
Net identifiable
assets and liabilities 12,401 159 12,560
Goodwill - 99 99
Negative goodwill
arising on bargain
purchase (3,890) - (3,890)
Non-controlling interest
in the recognised
amounts of identifiable
assets and liabilities 1,232 - 1,232
Total consideration 9,743 258 10,001
------------------------------ ---------- ---------- --------
Satisfied by:
Cash - 258 258
Equity instruments - - -
Contingent consideration 9,743 - 9,743
Total consideration
transferred 9,743 258 10,001
------------------------------ ---------- ---------- --------
Net cash outflow
arising on acquisition:
Cash consideration - 258 258
Less: cash and cash
equivalent balances
acquired (2,487) (42) (2,529)
------------------------------ ---------- ---------- --------
(2,487) 216 (2,271)
----------------------------- ---------- ---------- --------
7.2 Disposals
There were no disposals from the Group during the period to 30 September 2019.
8. Trade and other receivables
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------- ------------- ------------- ---------
Trade receivables 25,977 11,057 17,229
Accrued income 10,617 4,123 5,591
Other receivables 1,759 2,092 8,570
Prepayments 5,142 1,982 3,832
------------------- ------------- ------------- ---------
43,495 19,254 35,222
------------------- ------------- ------------- ---------
Trade receivables are stated including GBP3,084,000 of VAT and GBP3,824,000 of disbursements.
9. Cash and cash equivalents
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
--------------------- ------------- ------------- ---------
Cash in hand and at
banks 2,669 4,257 4,759
--------------------- ------------- ------------- ---------
Total 2,669 4,257 4,759
--------------------- ------------- ------------- ---------
Cash and cash equivalents include the following:-
Cash as above 2,669 4,257 4,759
Bank overdrafts (290) (483) (39)
----------------- ------ ------ ------
Total 2,379 3,774 4,720
----------------- ------ ------ ------
10. SHARE CAPITAL
30 September 30 September 30 September 31 March
2019 2019 2018 2019
Number GBP'000 GBP'000 GBP'000
------------------------------------ ------------- ------------- ------------- ---------
Allotted, called up and fully paid
Ordinary shares of 1p each 36,976,730 370 288 370
Ordinary shares rank equally as regards to dividends, other distributions and return on capital. Each ordinary share carries the right to one vote.
11. Reserves
Share premium represents the difference between the amount received and the par value of shares issued less transaction costs.
The capital redemption reserve represents distributable reserves arising from the cancellation of deferred shares and share premium and was consolidated into Retained Earnings from 31 March 2019.
The reverse acquisition reserve has arisen under IFRS3 'Business Combinations' following the acquisition of the Gordon Dadds Group.
Other reserves represents the impact of the valuation of share options issued.
Retained earnings represents the cumulative profits or losses net of dividends paid and other adjustments.
12. Trade and other payables
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------ ------------- ------------- ----------
Current:
Trade payables 9,944 2,632 7,666
Other taxes and social
security 1,280 987 2,436
Other payables 1,954 731 1,344
Deferred consideration 8,522 4,617 7,436
Accruals 5,047 1,491 4,158
------------------------ ------------- ------------- ----------
26,747 10,458 23,040
------------------------ ------------- ------------- ----------
Non-current:
Other payables 1,112 - -
Deferred consideration 25,959 10,391 21,607
Accruals 947 - 4,022
------------------------ ------------- ------------- ----------
28,018 10,391 25,629
------------------------ ------------- ------------- ----------
Total 54,765 20,849 48,669
------------------------ ------------- ------------- ----------
Substantially all of the deferred consideration above is dependent on the future performance of the acquired businesses to which it relates.
13. Borrowings
30 September 30 September 31 March
2019 2018 2019
GBP'000 GBP'000 GBP'000
------------------------ ------------- ------------- ---------
Bank overdrafts 290 483 39
Bank loans 12,401 - 6,000
Other loans 321 636 1,542
Obligations under hire
purchase and lease
contracts 21 35 29
------------------------ ------------- ------------- ---------
Total borrowings 13,033 1,154 7,610
------------------------ ------------- ------------- ---------
Current 1,728 1,006 2,370
Non-current 11,305 148 5,240
------------------------ ------------- ------------- ---------
Total 13,033 1,154 7,610
------------------------ ------------- ------------- ---------
The Group has a secured bank loan with Barclays Bank Plc with a carrying value of GBP5,700,000 at 30 September 2019 (March 2019: GBP6,000,000, September 2018: GBPnil). The loan was entered into on 31 December 2018, has a term of three years (to be repaid in quarterly instalments commencing in September 2019) and carries interest at LIBOR + 2.75% per annum. A GBP6.5m revolving credit facility was also entered into with Barclays Bank plc at 31 December 2018 and was drawn in June 2019. The loan and the revolving credit facility are both secured against certain entities within the Group and are subject to covenants which are assessed each quarter (no current or forecast breaches have been identified).
Other loans of GBP321,000 (March 2019: GBP1,542,000, September 2018: GBP636,000) are unsecured and carry interest at between 3.0 per cent and 10 per cent per annum. Other loans are repayable within 12 months, except non-current other loans of GBP126,000 which has a maturity of 1-3 years.
14. Changes in accounting policies 14.1 Adjustments recognised on adoption of IFRS 16
The Group has adopted IFRS 16 retrospectively from 1 April 2019, but has not restated comparatives for previous reporting periods, as permitted under the specific transitional provisions in the standard. The reclassifications and adjustments arising from the new leasing rules are therefore recognised in the opening balance sheet on 1 April 2019.
The Group has lease contracts for various offices and IT equipment. Before the adoption of IFRS 16, leases were classified as either finance or operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to profit or loss on a straight-line bases over the period of the lease.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 Leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 April 2019 of 3.16%.
For leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and lease liability at the date of initial application. The measurement principles of IFRS 16 are only applied after that date.
2019
GBP'000
--------------------------------------------- --------
Operating lease commitments disclosed
at 31 March 2019 7,402
Discounting using the lessee's incremental
borrowing date at the date of initial
application (742)
Add: finance lease liabilities recognised
as at 31 March 2019 29
(Less): short-term leases recognised
on a straight-line basis as expense (389)
(Less): low-value leases recognised on
a straight-line basis as expense (47)
Add: adjustments as a result of a different
treatment of extension and termination
options 1,939
Lease liability recognised as at 1 April
2019 8,192
--------------------------------------------- --------
Of which are:
Current lease liabilities 1,351
Non-current lease liabilities 6,841
--------------------------------------------- --------
8,192
--------------------------------------------- --------
The associated right-of-use assets were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 March 2019.
The change in accounting policy affected the following items in the balance sheet on 1 April 2019:
GBP'000
--------------------- --------
Right-of-use assets 8,192
Sundry debtors (101)
Lease liabilities (8,163)
Accruals 72
Retained Earnings -
--------------------- --------
In applying IFRS 16 for the first time the Group has used the following practical expedients permitted by the standard:
-- The use of a single discount rate to a portfolio of leases with reasonably similar characteristics
-- Reliance on previous assessments on whether leases are onerous
-- The accounting for operating leases with a remaining lease term of less than 12 months as at 1 April 2019 as short-term
-- The exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
-- The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts entered into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease.
14. Changes in accounting policies (continued)
Set out below are the carrying amounts of the Group's right-of-use assets and the movements during the period:
Other
Property equipment Total
GBP'000 GBP'000 GBP'000
----------------------------- --------- ----------- --------
At 1 April 2019 7,909 283 8,192
Acquisition of subsidiaries 7,290 - 7,290
Additions 964 - 964
Depreciation charge
for the year (2,142) (19) (2,161)
----------------------------- --------- ----------- --------
At 30 September 2019 14,021 264 14,285
----------------------------- --------- ----------- --------
As the Group has applied IFRS 16 using the modified retrospective approach, comparative information has not been restated and continues to be reported under IAS 17. The table below summarises the impact of IFRS 16 on the Group's Income Statement for the period to 30 September 2019:
IAS 17 IFRS 16
--------------- ------------------------
Rental Expense Depreciation Interest
GBP'000 GBP'000 GBP'000
--------------- ------------- ---------
Property 2,113 2 2,142 242
Other equipment 23 19 4
--------------- ------------- ---------
Total 2,136 2,161 246
--------------- ------------- ---------
14.2 Summary of new accounting policies
From 1 April 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the lease asset is available for use by the group.
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re-measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated over the shorter of the asset's useful life and the lease term on a straight line basis.
Lease liabilities are initially measured at the net present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset
Extension and termination options are included in a number of the property leases across the group. The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any period covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain to exercise an option to renew or terminate a lease. Management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise, or not to exercise, the option to renew or terminate the contract.
Payments associated with short-term leases and leases of low-value assets (with a value of less than GBP10,000) are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014
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
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