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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Knights Group Holdings Plc | LSE:KGH | London | Ordinary Share | GB00BFYF6298 | ORD 0.2P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -3.00 | -2.40% | 122.00 | 121.00 | 123.00 | 122.00 | 121.00 | 122.00 | 30,526 | 16:35:09 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Legal Services | 143.43M | 7.94M | 0.0926 | 13.07 | 103.83M |
From Apr 2021 to Apr 2024
TIDMKGH
RNS Number : 4368F
Knights Group Holdings PLC
16 July 2021
The following amendments have been made to the 'Full Year Results' announcement released on 14 July 2021 at 7:00am under RNS No 1915F.
Owing to a correction to the acquisition accounting for Keebles LLP, a change has been made to the Consolidated Statement of Cashflows, the effect of which is to increase net cash from operating activities by GBP892k and increase the net cash used in investing and financing activities by GBP892k. The closing net debt position remains the same, but operating cashflow conversion is increased from 91% to 96%.
In addition, a change has been made to the erroneous last paragraph of the 'Acquisitive Fee Income Growth' section of the Chief Financial Officer's Review, changing the wording to:
The number of full time equivalent fee earners in the Group remained constant at 865 (FY20: 865). Underlying this was a combination of successfully bringing on new recruits and new joiners via acquisition, partially offset by restructuring undertaken as a result of the COVID-19 pandemic and normal course performance management.
All other details remain unchanged.
The full amended text is shown below.
Knights Group Holdings plc
("Knights" or the "Group")
Full Year Results
Continued momentum, building on the critical mass achieved
Knights, the UK's fastest growing legal and professional services business (1) , today announces its full year results for the year ended 30 April 2021.
Financial highlights
-- Revenue increased by 39% to GBP103.2m (2020: GBP74.3m)
o H2 organic(2) revenue growth of 10% (H2 2020: 10%), representing a significant recovery from the 15% decline in H1 2021 due to COVID-19
-- Gross margins increased to 49% (2020: 48%), despite the impact on revenue from COVID-19 in H1
-- Underlying PBT(3) rose by 35% to GBP18.4m (2020: GBP13.6m) -- Underlying PBT(3) margin of 17.8% (2020: 18.3%)
o Strong H2 2021 margin of 21.8% (H2 2020: 19.8%, H2 2019: 17.4%), represented a significant improvement from H1 2021: 13.0% (H1 2020: 16.4%) despite some COVID-19 impact, reflecting the continued leverage of overheads
-- Underlying EPS (3) increased by 27.7% to 18.30p (2020: 14.33p). Basic EPS of 4.14p (2020: 2.44p)
-- Strong cash conversion (4) of 96 % (2020: 80%), following a year of significant investment and reflecting the roll out of Knight's approach to cash management in recent acquisitions
-- Lock up was 89 days (2020: 85 days excluding acquisitions), aided by robust systems and a strong culture of day-to-day cash collection
-- Net debt of GBP21.1m (30 April 2020: GBP15.9m) was lower than anticipated due to the Group's strong cash management
-- No final dividend declared
Strategic and operational highlights
-- Strengthened our geographic coverage and practice areas as we scale throughout the UK
o Four acquisitions in line with our strategy to be the leading legal and professional services business outside London
o Keebles and OTB Eveling expanded the Group's footprint into Sheffield and the South West, Mundays strengthened Knights' presence in the South East
o Housing Law Services, which completed in April 2021, brought a niche housing team to complement Knights' existing housing services offering
o Acquisitions continue to integrate faster than plan
-- Strong recruitment and continued investment to build a platform for future growth
o Momentum in recruiting high calibre talent; the majority from other top 50 law firms
o Continued to invest in high quality office spaces in Birmingham, Leeds, Nottingham and York
o Strong culture supporting increased net promoter scores (Client NPS up 15 to +75, Employee NPS up by 3 to +39)
o Continued to invest in technology to support growth and acquisitions, drive efficiency, enable automation and enhance client relationships
o Appointed two additional Client Service Directors adding cultural leadership and integration capability
-- Significant progress with our ESG agenda
o Developed a newly strengthened framework of ESG related KPIs, in line with our commitment to building a sustainable business
o Appointed Gillian Davies as Senior Independent Non-Executive Director, bringing significant experience in high growth businesses and achieving 50% gender diversity on the Board
Current trading and outlook
-- Momentum has continued into FY 2022, with an increasing quantum of new, quality instructions, supported by a growing team of motivated and committed people across the Group
-- We continue to see a strong pipeline of senior fee earner candidates
-- We continue to have active engagement with a strong pipeline of possible acquisition opportunities
-- In a challenging year for many businesses across the UK, the Board's confidence in the Group's strategy and market leading position in the regions has been reinforced
David Beech, CEO of Knights, commented:
"We have delivered a robust performance during the year, with a rapid return to stronger levels of organic growth in the second half, complemented by high calibre acquisitions that further elevate our position as a market leader outside London.
"Having reached critical mass following recent acquisitions, the Group is increasingly attracting high calibre talent with strong client followings, good quality clients who recognise the value of our premium service, and legal service firms that would like to be part of a larger, diversified, forward thinking group.
"Looking forward, we expect that COVID-19 will only accentuate these opportunities for our resilient, well-invested, diversified and cash generative business in the highly fragmented and often under-invested market for legal services outside London."
These footnotes apply throughout the announcement:
(1) Ranked number one for revenue growth over the last four years in the Lawyer's Top 100 Survey (published October 2020)
(2) Organic growth excludes revenue growth from acquisitions in the year of their acquisition, and for the first full financial year following acquisition, based on the fees generated by the individuals joining the Group from the acquired entity. Recruitment of individuals into the acquired offices post acquisition is treated as part of the organic growth of the business.
(3) Underlying PBT is before amortisation of acquired intangibles, non-underlying costs relating to acquisitions, non-recurring finance costs, restructuring costs in the reporting period, and non-underlying share based payments. Underlying EPS excludes these items and the tax related to these items. The Board believes that these underlying figures provide a more meaningful measure of the Group's underlying performance.
(4) Cash conversion is calculated as the total of net cash from operations, tax paid and payments of lease interest and lease finance liabilities under IFRS 16, divided by the underlying profit after tax, which is calculated from profit after tax by adding back amortisation of acquired intangibles, non-underlying costs relating to acquisitions, non-recurring finance, restructuring costs in the reporting period, and non-underlying share based payments and the tax in respect of these costs.
A more detailed explanation of the Group's alternative performance measures used in this report is included in the glossary.
A presentation of the full year results will be made to analysts via a webinar at 9.30am today. To register interest in attending, please contact Pandora Yadgaroff at MHP Communications on 020 3128 8168 or email knights@mhpc.com .
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Notes to Editors
Knights is a fast-growing, legal and professional services business, ranked within the UK's top 100 largest law firms by revenue. Knights was one of the first law firms in the UK to move from the traditional partnership model to a corporate structure in 2012 and has since grown rapidly. Knights has specialists in all key areas of corporate and commercial law so that it can offer end-to-end support to businesses of all sizes and in all sectors. It is focussed on key UK markets outside London and currently operates from 16 offices located in Birmingham, Cheltenham, Chester, Crawley, Exeter, Leeds, Leicester, Maidstone, Manchester, Nottingham, Oxford, Sheffield, Stoke, Weybridge, Wilmslow and York.
Chairman's statement
The Group's strong performance has demonstrated the resilience of both our business model and our people, continuing our vision to build the leading legal and professional services business outside London, as we emerge from the pandemic in a stronger position than ever.
The Group has delivered 39% revenue growth to GBP103.2m (2020: GBP74.3m), including a GBP2.1m contribution from the acquisitions made during the year and GBP28.4m from the full year impact of acquisitions made in the prior year, which were in line with our ongoing commitment to broadening Knights' geographical reach and scale. Following the initial impact of the pandemic in the first half, the Group returned to strong organic growth in the second half of the year. This reflected the strength and agility of our business, which is highly diversified by client, sector and service, as well as our continued focus on recruiting high calibre senior fee earners.
Our early and prudent actions to manage costs demonstrated the benefit of the Group's corporate structure and ability to trade through an uncertain economic environment, with our underlying PBT margin improving to 21.8% in the second half, leading to underlying profit before tax of GBP18.4m (2020: GBP13.6m) and a 27.7% increase in underlying EPS to 18.30p (2020: 14.33p).
These results were achieved without the Group benefitting from the Government's COVID-19 related support schemes, such as the Job Retention Scheme, and despite the initial disruption from COVID-19 during the first half, which saw the Group's ability to transact on behalf of its clients impacted due to a slower transition to working from home amongst counterpart law firms. Importantly, Knights' position as a modernised and well-invested legal services business operating on a single technology platform meant that the team was able to transition seamlessly to working from home with strong levels of productivity. Our resilience also allowed us to execute carefully selected acquisitions and continue to make operational improvements across the business. On behalf of our Board, I would like to thank our people for their tireless commitment throughout a year in which we have worked together more closely than ever before, despite the majority of the time being spent apart.
Confidence in our strategy reinforced
Unlike many businesses which struggled at the onset of the pandemic, Knights has continued to execute on its vision to become the leading legal and professional services business outside London. Our confidence in the Group's strategy and its strong financial position enabled us to continue to build the business both organically, with the Group continuing to attract high quality senior candidates across the country, and through acquisition.
Our momentum in recruitment has demonstrated that, with its increased scale and breadth, Knights has reached the critical mass to be a highly attractive prospect to top talent in the regions, with the majority of new candidates coming from other top 50 law firms. We also believe that the pandemic has only served to make Knights more attractive as an employer, as it has prompted people to seek to work closer to home. As a result of hiring high calibre people, we have onboarded larger and higher quality client followings, which smaller regional independent law firms would not be able to adequately support due to their limited scale and range of services.
Integration of the three acquisitions completed at the end of the previous financial year was completed successfully and ahead of schedule in the first half, bringing further scale to the Group and increasing our confidence in our ability to rapidly integrate simultaneous acquisitions during a period of working remotely. The Group's four acquisitions in the second half provided entry in to the South West, an expanded presence in Yorkshire and the South East, and an extension of its housing services offering, with COVID-19 only accentuating the pipeline of quality acquisition opportunities available.
Board and ESG
Despite a full year of working remotely, our executive team has shown great commitment to ensuring the Group's highly collegiate culture remains as strong as ever and to ensuring the wellbeing of our people. There has been a heavy focus on engaging with, motivating, nurturing, and developing our existing talent, and our 'one team' approach has ensured new joiners feel welcomed and connected to the broader Knights community.
Volunteering in local communities has played a key role during the pandemic, and I am particularly proud of our colleagues that have supported local organisations in offering their assistance for four hours of work time per month through our flagship 4OurCommunity programme. We were also pleased to announce our new partnership with mental health charity Mind during the year and look forward to bringing our teams together to raise our target of GBP20,000 over the next two years.
We also look forward to welcoming colleagues back to our offices as part of the Group's return in September which, whilst allowing our people to retain the flexibility to work from home productively some of the time, will enable greater collaboration and ensure less experienced colleagues feel supported and are learning from other team members in an office environment.
Gillian Davies was appointed as Senior Independent Non-Executive Director and Chair of the Audit Committee with effect from 17 March 2021. She brings significant experience working in senior roles at high growth businesses, which will be of great value to the Group as we continue to execute on our strategy, Gillian's appointment also means the Group's Board has greater gender diversity with an equal weighting of men and women. The appointment follows Steve Dolton's decision to step down from the Board as Senior Independent Non-Executive Director, to pursue other opportunities.
In addition, we continue to operate and govern the Group in line with the key principles of the QCA Code, as set out in the governance section.
Dividend
Given the cost saving measures taken by the Group during the year, the Board has decided that no final dividend is declared for the year ended 30 April 2021. It is the Board's intention to resume paying dividends in respect of the year ending 30 April 2022 in accordance with the previous dividend policy of paying out 20% of profit after tax.
Summary and medium-term outlook
Despite a year of macroeconomic uncertainty, our resilient, well-invested, diversified and cash generative business, and highly committed management team, have allowed us to make significant progress in executing our vision to become the leading legal and professional services business outside London. While we are emerging stronger, the impact of COVID-19 has accentuated the near-term challenges for many firms across the traditional legal services industry, making Knights' unique proposition ever more relevant to talented lawyers, acquisition candidates and clients alike.
Bal Johal
Non-Executive Chairman
14 July 2021
Chief Executive's Review
We have delivered a robust performance during the year and significantly elevated our position as a market leader outside London by continuing to deliver on our strategy.
The Group's rapid return to delivering strong levels of organic growth in the second half, following the disruption in the first half, is testament to the momentum in the business.
With the critical mass that the Group has now achieved, it is increasingly attracting high calibre talent with strong client followings, good quality clients who recognise the value of our premium service, and legal service firms that would like to be part of a larger, diversified, forward thinking group. The four acquisitions occurring in the period expanded our footprint into Sheffield and the South West, extended our housing services offering, strengthened our presence in the South East which we expect to benefit from a growing pool of talented lawyers that no longer wish to commute into London.
Our ability to react quickly to a changing external environment at the onset of the pandemic demonstrated the benefit of our corporate structure. Early and prudent actions, supported by our well invested IT infrastructure, positioned the Group to trade well through all of the lockdown periods, with our diversified, full service offering proving resilient, our staff moving seamlessly to working from home, and the successful remote integration of prior acquisitions, which were completed ahead of schedule.
The safety and wellbeing of our people remained the Group's priority, with all staff working from home continually throughout the COVID-19 pandemic since 13 March 2020, ahead of the UK government lockdown. I am particularly proud of the continued high levels of outstanding service delivered by our people as well as the efforts of the wider executive team in ensuring colleagues were kept informed and felt part of our 'one team' culture despite being away from a traditional office environment. We look forward to seeing both familiar and new faces in the coming months as part of our return to more office-based, hybrid working in September.
A year of significant progress
The increased scale and geographical presence achieved in recent years has delivered a step change in the Group's credibility as a leading legal and professional services business which, in turn, is attracting more high quality talent, clients and acquisition opportunities.
At a time when the pandemic has only served to highlight the challenges and uncertainties inherent in the traditional partnership model to some partners, Knights has earned a reputation as a well-positioned, growing business with an attractive model. As a result, we have continued our momentum in recruiting high calibre talent from other Top 50 law firms and well-reputed professional services firms, typically with strong client followings. Importantly, we have also continued to invest in the training, development and wellbeing of our existing talent, and in modern offices in prime locations from which to work, helping us to retain the high quality people that will enable the business to grow.
The quality of our people and Knights' premium full service client offering has allowed us to continue to both win new clients and build on our already strong relationships with existing clients. The level of trust and reputation ascribed to Knights' services in the regions has validated our market position and brought the confidence to our fee earners to charge clients appropriately for the premium service we provide. Alongside greater focus from our growing pool of talented lawyers on strengthening our client relationships, our expanded Client Services team and Sales Director are also developing a greater understanding of our client base with a view to identifying opportunities to expand the services Knights can offer its clients. Whilst at an early stage, this greater focus on data will aid our drive to deliver continued strong levels of organic growth, allowing us to leverage our investment in our strong operational backbone.
Our scale has enabled us to support the onboarding of larger, high-quality clients, with our 'one-team', service-driven culture encouraging greater collaboration across a growing suite of services. During the year we have achieved a number of significant organic client wins across the Group including easyJet, Papa John's, British Airways and William Hill.
In addition, we are widening our offering where we believe we can strengthen our position as key trusted advisors to our clients and expand the existing relationships across our corporate teams. For instance, we have built a significant dedicated team of specialist tax advisers, combining lawyers and accountants, which we are also replicating in debt advisory, where we believe there is a unique opportunity for Knights to offer a holistic accounting and legal service to corporates.
To support the Group's ongoing growth, we continue to invest in the business. We have agreed attractive lease arrangements in Birmingham, Leeds and Nottingham, with high quality office space remaining an important element of supporting Knights' collaborative culture, whilst hybrid working is expected to provide us with c.20% greater capacity. We continue to enhance our technology platform, launching our HR hub in the first half to complete our scalable operational platform, and remain focussed on continually developing tools to better support the business, its clients and acquisition integration. We have also appointed two additional Client Service Directors, taking the total number in the Group to eight. The Client Service Directors play an essential role in delivering operational performance across the business. Working closely with the executive Board they have overall responsibility for the financial performance of their offices and delivering organic growth in line with the Group's key objectives and culture. They also support the Group's acquisition strategy by taking the lead on the integration and management of each new business into the Group before, during and after the acquisition.
Building on our acquisition track record
The successful integration, ahead of schedule, of the Fraser Brown, Shulmans and ASB acquisitions which were announced in February and March 2020 during a period of transitioning to home working, only served to increase our confidence in our ability to execute on our attractive pipeline of acquisitions.
Building on our track record of acquiring high quality businesses with a strong cultural fit, we have continued to execute on our strategy to acquire businesses that provide entry in to a key market, providing a platform for organic growth in the region, or that can be bolted on to build scale in our existing locations.
Entry into Exeter, a key city in the large South West legal services market
Accordingly, on 14 December 2020 we completed the acquisition of OTB Eveling LLP, providing an entry into the South West and the city of Exeter, a key city in one of the largest regional markets for legal services (Bureau van Dijk, Mintel UK Legal Services Report 2021).
Founded in 2012, OTB Eveling further extends Knights' existing national presence with a full offering including corporate, employment, dispute resolution and real estate services. Since welcoming its 17 fee earners to the Group, Knights' scale and national reputation has already attracted quality recruits across the region. Now fully integrated into the Group, the business continues to progress well, with performance to date in line with our expectations.
Strengthened presence in the South East provides a strong platform for recruitment
On 16 April 2021 we completed the acquisition of Mundays LLP, an independent commercial law firm based in Surrey. Established over sixty years ago in Weybridge, Mundays' strong corporate, real estate and private client services offering further strengthens Knights' existing presence in the South East, achieved through the acquisition of Crawley and Maidstone based ASB, in April 2020.
With its strong cultural fit evident from meeting a considerable number of the team before acquisition, its 34 fee earners and systems have integrated well, delivering initial synergy savings in line with expectations. The period of home working during lockdowns has also shown early signs of some talented lawyers being drawn to working in towns surrounding London instead of commuting, providing invigorated momentum to an already strong recruitment pipeline for talent on the outskirts of London.
On 23 April 2021 the Group completed the small acquisition of Housing Law Services, a niche housing team based in the South East, to complement Knights' existing housing services offering.
Joining up our presence in Yorkshire with entry into Sheffield
Having grown our position in Yorkshire significantly, we were delighted to announce the acquisition of Keebles at the year end. Established over a century ago, its full service offering and leading position in both corporate and real estate law provides an entry into the important city of Sheffield and the wider South Yorkshire area, complementing Knights' existing presence in Nottingham and Leeds.
The acquisition added 138 fee earners to Knights, bringing critical mass in an important market. The business has proved to be an exceptional cultural fit for Knights and early integration is encouraging.
Current trading and outlook
The well-balanced and highly diversified business we have built over a number of years proved to be resilient during a difficult economic period and, having further strengthened our depth and breadth, the Group's enhanced reputation is attracting high quality talent, clients and acquisition candidates.
Having emerged in a stronger position from the initial stages of the pandemic, our momentum continued to build through the second half of the year, allowing us to return to strong levels of organic growth in the last two months of the trading period. This momentum has continued with an increasing quantum and quality of new instructions across the business as we entered FY22, supported by a growing team of motivated and committed people across the Group.
We continue to see a high level of senior fee earner recruitment and acquisition opportunities, providing a strong pipeline of candidates from which to select. Having effectively executed several acquisitions and onboarded new joiners despite a period of home working, we look forward to building on this track record as we exit the latest lockdown.
In a challenging year for many businesses across the UK, the Board's confidence in the Group's strategy has been reinforced. We expect that COVID-19 will only accentuate the recruitment and acquisition opportunities for our resilient, well-invested, diversified and cash generative business in the highly fragmented and often under-invested market for legal services outside London.
David Beech
Chief Executive Officer
14 July 2021
Chief Financial Officer Review
I am pleased to report a strong performance for the Group in the financial year, despite the impact from the economic effect of the COVID-19 pandemic during the period.
Our swift and prudent cost reduction programme undertaken at the start of the pandemic enabled us to trade well through the difficult macro-economic environment during the first quarter of the financial year. Although our robust IT platforms and paperless way of working meant that, as a business, we were able to transition to remote working immediately with no down time or reduction in our ability to transact, difficulties encountered in the wider economic environment had a significant impact on our level of fee income for the first quarter of the financial year. However, as the wider environment adapted to the new way of working, we experienced a significant increase in activity levels and new business instructions and were well positioned to maximise the opportunities available.
During the year we continued to invest in the recruitment of high quality senior recruits, who bring with them a strong client following, develop and train our client service professionals and expand the strong management and operational professionals required to support our continued growth strategy. We also used the time working remotely to invest in the high quality office environment that we consider key to maintaining our collaborative, one team culture by relocating to new office space in Birmingham, Leeds and Nottingham and investing in the refurbishment of these spaces as necessary, taking advantage of the attractive lease arrangements available. Despite the disruption caused by the pandemic, I am delighted that we have continued to build on our historic strong track record of cash generative revenue and profit growth over the past six years, with a further 39.0% increase in revenue and a 35.3% increase in Underlying Profit Before Tax (PBT).
Our continued focus on cash flow has resulted in excellent cash conversion of 96% for the year, with net debt being lower than expected, positioning the Group well to maximise on the organic and acquisition opportunities that are expected to arise as we emerge from the pandemic and lockdown conditions.
Revenue
Reported revenue for the period was GBP103.2m compared with GBP74.3m in FY20, representing a 39.0% increase.
Of this increase 2.8%, or GBP2.1m, was a result of the acquisitions made during the financial year and GBP28.4m relates to the full year benefit of acquisitions made in FY20.
The Group achieved strong organic growth of 10% in the second half of the year amounting to GBP3.2m when compared to the second half of FY20. This was offset by a 15% reduction in organic revenue in the first half of the year due to the immediate impact of the COVID-19 pandemic, giving a 3% reduction in organic revenue for the financial year as a whole.
As a well-diversified business with a full-service offering, the business has proven to be resilient as the macro economic environment started to recover from the initial shock of the pandemic. Whilst the extended lockdown in January and February 2021 had some impact on trading levels during February, momentum and activity have increased in the last two months of FY21 and the start of the current financial year as we emerge from the pandemic.
This strong momentum in activity with both existing and new clients along with recruitment of high calibre individuals and a continued focus on appropriate pricing of matters, gives confidence in our ability to drive our strategy to deliver strong organic growth, supplemented by further revenue growth from carefully selected acquisitions.
Staff costs
Total staff costs represented 60.8% of revenue during the financial year compared with 61.4% in 2020.
During the initial stages of the COVID-19 pandemic we undertook a cost reduction exercise. As part of this exercise all employees earning more than GBP30,000 took a temporary 10% reduction in salary, with the Board taking a 30% reduction. These cost saving measures remained in place until 1 November when all employees returned to full salaries as the Board became confident that activity levels were returning to pre COVID-19 levels. No companies within the Group benefitted from the Government's Job Retention Scheme whilst operating under Knights' ownership.
Fee earner staff costs have decreased from 52.1% of revenue to 51.1% reflecting the continued effort to control costs whilst also investing in high quality senior recruits who bring a client following. During the year 29 partners have joined the Group as part of our active recruitment process. This represents a significant investment as it would typically take three to six months for each of these new recruits to achieve the full expected fee earning run rate.
We have continued to invest in our operational infrastructure in FY21, focusing on increasing the management resource available within the Group to ensure we have a properly structured operational management team with the bandwidth to drive growth, operational efficiency, profitability and cash generation as well as the effective integration of acquisitions. This together with the full year impact of the investment in FY 20 has increased support staff costs for the year to 9.7% of revenue from 9.3% in the prior year.
Management anticipates that these costs will now begin to be leveraged by the increased fee generating capacity of the business and the return to normal levels of trading as the economy recovers from the pandemic.
Underlying Profit Before Tax (PBT)
The first half of the year was significantly impacted by the impact of COVID-19, therefore headline figures for the year have been analysed into half years in the table below to enable a view of the Group's trading performance as the economy recovers from the initial shock of the pandemic.
H1 FY H2 FY H1 FY H2 FY
21 21 FY 21 20 20 FY 20
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue 46,237 56,964 103,201 31,977 42,277 74,254
Other operating income 539 771 1,310 281 613 894
Staff costs (29,635) (33,072) (62,707) (19,931) (25,647) (45,578)
Depreciation and amortisation
charges (3,367) (4,363) (7,730) (2,010) (2,266) (4,276)
Impairment of trade receivables
and contract assets (105) (118) (223) (93) (19) (112)
Other operating charges (7,909) (8,264) (16,173) (4,921) (6,583) (11,504)
Non-underlying costs (6,007) (4,281) (10,288) (1,848) (6,242) (8,090)
--------- --------- --------- --------- --------- ---------
Operating profit / (loss) (247) 7,637 7,390 3,455 2,133 5,588
Finance costs (890) (991) (1,881) (625) (864) (1,489)
Non-recurring finance
costs - - - (41) - (41)
--------- --------- --------- --------- --------- ---------
Profit / (Loss) before
tax (1,137) 6,646 5,509 2,789 1,269 4,058
Taxation (337) (1,770) (2,107) (675) (1,564) (2,239)
Profit / (loss) and total
comprehensive income
for the year attributable
to equity owners of the
parent (1,474) 4,876 3,402 2,114 (295) 1,819
========= ========= ========= ========= ========= =========
Underlying Profit Before
Tax 5,993 12,646 18,419 5,253 8,363 13,616
========= ========= ========= ========= ========= =========
Underlying PBT margin 13.0% 21.8% 17.8% 16.4% 19.8% 18.3%
========= ========= ========= ========= ========= =========
Underlying Profit After
Tax 15,040 10,706
========= =========
Basic EPS (pence) 4.14 2.44
========= =========
Underlying profit before tax excludes amortisation of acquired intangibles, transaction and onerous lease costs in relation to acquisitions, disposals of acquired assets, restructuring costs as a result of the streamlining of the support function in acquisitions and the restructuring undertaken in response to the COVID-19 pandemic. It also excludes contingent consideration payments required to be reflected through the Statement of Comprehensive Income under IFRS and share-based payments for one-off share awards made at IPO and as part of the acquisitions, and the one-off Share Incentive Plan offered to employees as a result of the listing. Any share-based payments charges relating to ongoing SAYE and LTIP schemes are recognised as underlying costs of the Group.
Underlying profit before tax has been calculated as an alternative performance measure (see note 36 of the financial statements) in order to provide a more meaningful measure and year on year comparison of the profitability of the underlying business.
Underlying profit before tax has increased by 35.3% compared with the same period last year to GBP18.4m (2020: GBP13.6m), representing a margin of 17.8% for the full year compared with 18.3% in the prior year. This represented a resilient performance given the significant impact of the COVID-19 pandemic in the first half of the year which reduced the margin in the first half of the financial year to 13.0%, compared to 16.4% in the prior period, despite the mitigating cost reduction measures taken.
As the Group entered the second half of the year and activity levels were beginning to return to pre pandemic levels, all employees returned to full salary levels. Despite the impact of the extended lock down in January and February 2021 and the continued investment in recruitment, the support function and the office base, the Group generated an underlying PBT margin of 21.8% in the second half of the year compared to 19.8% in the comparative period of the prior year. The improvement in margin is a result of the increase in fee income leveraging general overheads and finance costs in the business which is particularly encouraging given the level of investment in the business.
In addition to the investment in fee earning and support staff as discussed above, acquisitions also have a margin-diluting impact for the first full year post acquisition as support functions are streamlined and the acquired business is integrated into the Group more generally before obtaining expected profitability
levels thereafter.
Reported profit before tax (PBT)
The reported profit before tax for the year has increased by 35.8% to GBP5.5m (2020: GBP4.1m). The increase in reported profit before tax of GBP1.4m in the year reflects the net impact of increased underlying profit before tax of GBP4.8m driven by increased revenue at a slightly reduced underlying PBT margin, increased amortisation of acquired intangibles of GBP1.2m and the increased non-underlying costs of GBP2.2m. The significant increase in the non-underlying costs incurred is due to an increase of GBP2.9m in the contingent consideration element of the purchase cost of acquisitions being recognised in the Statement of Comprehensive Income in accordance with IFRS accounting conventions, offset by a reduction of GBP0.7m in other restructuring and one off transaction costs.
Earnings per share (EPS)
The weighted average number of shares in the year to 30 April 2021was 82,189,113 (2020: 74,675,462) which gives a basic earnings per share (Basic EPS) for the year of 4.14p (2020: 2.44p). Taking into account the number of share options that the Group has outstanding at the year end gives a diluted EPS of 4.09p (2020: 2.41p).
In order to compare the EPS year on year, the underlying EPS has been calculated showing 18.30p in the year to 30 April 2021 compared with 14.33p in the prior year. This measure eliminates the effect of any non-recurring and non-underlying costs on the EPS calculation.
Corporation tax
The Group's tax charge for the year is GBP2.1m (2020: GBP2.2m) which was made up of a current corporation tax charge of GBP2.6m (2020: GBP1.9m) and a deferred tax credit of GBP0.5m (2020: deferred tax charge of GBP0.3m).
The deferred tax charge credit arises largely from the reversal of the deferred tax liability on acquired intangibles. The total effective rate of tax is 38% (2020: 55%) based on reported profit before tax. This has been adversely affected by non-underlying items (largely amortisation of acquired intangible assets and the recognition of contingent consideration on acquisitions against profits) that are not tax deductible. The effective rate of tax on the underlying profit of the business is 18% (2020: 21%) (see note 16 of the financial statements).
Dividend
Due to the COVID-19 pandemic and the resultant uncertainty of the effects on the UK economy the Board undertook cost cutting measures across the Group to ensure that the business was in the best possible position given the current uncertainty. The Board has therefore decided that, given the cost saving measures put in place during the year in relation to Covid-19, it would not be appropriate to propose a final dividend for the financial year at this time.
The Board intends to resume paying dividends in respect of the year ended 30 April 2022 in accordance with the previous dividend policy, being 20% of profits after tax.
Balance Sheet
30 April 30 April
2021 2020
GBP'000 GBP'000
Goodwill and intangible assets 79,523 69,135
Right of use assets 40,406 23,749
Working capital 28,619 27,681
Other net assets / (liabilities) (991) (2,012)
Lease liabilities (42,640) (23,844)
--------- ---------
104,917 94,709
--------- ---------
Cash and cash equivalents 4,783 12,741
Overdraft (1,852) -
Borrowings (24,064) (28,650)
Net debt* (21,133) (15,909)
--------- ---------
Deferred consideration (1,095) (2,850)
Net assets 82,689 75,950
========= =========
* Net debt excluded lease liabilities
The Group's net assets as at 30 April 2021 increased by GBP6.7m from the prior year reflecting the shares issued in relation to acquisitions in the year and profit during the year.
Goodwill and intangible assets
Included within intangible assets and goodwill is GBP31.8m of intangible assets, identified on current and prior acquisitions. This relates to customer relationships, values attached to restrictive covenants, brand and computer software. The balance relates to goodwill of GBP47.7m arising from acquisitions.
The Board carries out an impairment review of goodwill each year to ensure the carrying value is supportable. The value in use of the goodwill was calculated using a number of different scenarios, some of which assumed a considerably worse outcome than is anticipated by the directors. In all instances the future trading of the business was more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2021, the Board concluded that the goodwill was not impaired.
Working Capital
The Group manages its working capital requirements closely, with impact on working capital being a key consideration in all business decisions. The management of working capital has always been a key performance indicator for management with strong controls and systems in place to monitor the level of debtors and work in progress in the business. Lock up days is the primary metric used by the Group to measure the length of time it takes to convert work recorded into cash received and this is discussed in the Key Performance Indicators section.
Due to the strong controls already in place the Group did not experience any significant change in its working capital cycle throughout the year as a result of the pandemic. Bad debts remain low at the same level as prior years of 0.2% of turnover.
Management are satisfied with the level of working capital at the year end which at GBP28.6m remains at a similar level to FY20 (GBP27.7m) despite the acquisitions and growth in business during in the year.
Right of use assets and lease liabilities
The right of use assets capitalised in the Statement of Financial Position represents the present value of property, equipment and vehicle lease arrangements. The increase in right of use assets during the year from GBP23.7m in FY20 to GBP40.4m in FY21 is due to new leases acquired as part of the acquisitions completed during the year and new leases entered into by the Group during the period.
The lease liabilities represent the present value the total liabilities recognised for right of use assets and the increase during the year to GBP42.6m (FY20: GBP23.8m) again reflects the leases in acquired entities and new leases entered into during the period.
Net debt, financing and leverage
The strong cash conversion in the period has resulted in net debt of GBP21.1m at the year end which was GBP1m better than expectations. This figure represents an increase in net debt from the GBP15.9m as at April 2020 due to an aggregate cash outlay of GBP12.5m relating to consideration for acquisitions made during the period and deferred consideration paid in relation to acquisitions in prior years.
The Group's RCF facility remains at GBP40m giving significant headroom to continue to support the growth strategy into 2022 through organic recruitment and carefully selected, culturally aligned acquisitions.
Cash conversion
2021 2020
GBP'000 GBP'000
Net cash generated from underlying operating
activities* 20,378 13,791
Tax paid (2,125) (2,907)
Cash outflow for IFRS16 leases (rental payments
excluded from operating activity cash flows under
IFRS 16) (3,741) (2,366)
-------- --------
Free cash flow 14,512 8,518
-------- --------
Underlying profit after tax* 15,040 10,706
Cash conversion 96% 80%
======== ========
* see glossary
The cash conversion percentage measures the Group's conversion of its underlying profit after tax into free cash flow. Due to the continued focus on management of working capital and lock up, the Group has again delivered strong cash conversion of 96% (2020: 80%). This includes the payment of the GBP800,000 of VAT deferred under the Government VAT deferral scheme at 30 April 2020. Excluding this payment would give a cash conversion of 102%.
Capital expenditure
During the year the Group continued to invest in its systems and premises to expand its capacity and ensure staff continue to benefit from a high quality working environment, with consistent systems across the Group to aid integration and a one firm culture.
The total GBP4.3m (FY20: GBP2.1m) invested in capital expenditure (excluding right of use assets capitalised as part of the adoption of IFRS 16) included the following one-off non-recurring significant items required as a result of the acquisitions and continued growth of the Group:
GBPm
Refurbishment of new offices
in Birmingham, Leeds and Nottingham 3.2
Provision of new / upgraded
IT equipment 0.6
Total 3.8
Other capital spend in the financial year relates to general investment in the IT, communications and infrastructure required for the increase in the number of employees, and to support the programme of rolling out IT upgrades to ensure the Group's technology is up to date and sufficient to meet the needs of the business.
During the year, the Group signed leases for new or upgraded premises in Leeds, Nottingham and York. Under IFRS16 these are accounted for as right of use assets and, accordingly, GBP16.4m has been capitalised within non-current assets in the Consolidated Statement of Financial Position.
The significant investment in both the signing of new leases and refurbishment of offices during the year underpins the Group's strategy of building a team culture of working together in modern offices in prime locations. The home working period during the pandemic offered the opportunity to carry out this work whilst minimising disruption to the business. Whilst our plan is to move to a hybrid way of working once social distancing guidelines allow, offering a high quality office environment is seen as key to encouraging individuals to work together collaboratively as one team and to attracting high quality recruits. The future hybrid format of working should enable the Group to get a further 20% capacity out of current office space, thereby maximising the potential leverage of these costs.
The capital budgets for FY22 include the normal level of expected investment in general IT, communications and infrastructure to ensure we have the capacity required for a growing business. Due to the acquisitions completed during the year and some relocation of offices due to expiring leases we expect some one-off refurbishment costs in respect of the York, Maidstone, Sheffield and Weybridge offices amounting to circa GBP1.8m in the current financial year.
Acquisitions
During the year we completed three acquisitions and exchanged on a fourth. The table below summarises the net impact of the acquisitions during the year and in prior years on cash in the current year and in future years. This shows the impact of consideration payable net of any cash in the acquired businesses.
Cash impact Cash impact Total cash
from acquisitions from prior impact
Financial year ended in the year year acquisitions from acquisitions
GBPm GBPm GBPm
2021 3.6 8.8 12.4
2022 6.1 5.0 11.1
2023 2.7 - 2.7
2024 1.6 - 1.6
The above includes estimated contingent consideration charged as remuneration in the Consolidated Statement of Comprehensive Income.
Acquisitions completed are generally structured with an initial cash outlay of just one third of the total consideration, with one third of the consideration being offered in shares and the balance being paid upon the first and second year anniversaries post completion.
The strong cash and lock up management systems in the Group mean that often cash is generated from the balance sheets of acquired businesses.
Tax - Cash flow impact
Corporation tax
Corporation tax of GBP2.1m (FY20 GBP2.9m) was paid during the year.
VAT
During the COVID-19 pandemic the Group benefitted from the temporary ability to defer VAT payments. As at 30 April 2020 this had a positive impact on cash of approximately GBP0.8m. All deferred VAT has been repaid before the end of the financial year but this had a negative impact on the cash flow figure during FY21.
Key performance indicators
Management uses a number of key performance indicators (KPIs) to monitor the Group's performance against its strategic objectives. These comprise a number of financial and non-financial measures which are agreed and monitored regularly at Board meetings.
The financial indicators are calculated based on underlying results excluding any one-off transactional and acquisition related costs. The Board is of the opinion that these operational factors are key drivers for the Group's financial success.
From our first acquisition in 2012, the management team has been focused on growing the profitability and improving the cash generating ability of the business. As a result, the Board reviews KPI's related to these metrics in line with the long term strategy of building a strong sustainable business with strong cash flows and increasing underlying profitability.
As the business has grown and diversified the Board has de- emphasised the importance of KPIs related to absolute fees and profits generated per fee earner. Focus is now increasingly placed on overall growth in fee income and profitability with a view to improving the profit margins achieved across the business, whilst still maintaining a well invested business with a strong management and support function able to meet the changing needs of a fast growing business.
Lock up
Lock up days is a key driver in delivering strong cash performance and is the primary metric used by the Group to measure the length of time it takes to convert work recorded into cash received.
It is calculated as the combined debtor and work in progress (WIP) days for the Group. Management of lock up has continued to be a key focus of the Group over the period as it drives the cash generation necessary to support the growth strategy of the Group.
Year end lock up days of 89 remained below the Group's targeted figure of 90 days. This compares favourably to the total lock up of 105 days as at 30 April 2020. The prior year total lock up days of 105 was adversely affected by the longer lock up profiles of acquisitions during the year, which at 30 April 2020 averaged at 130 days. By 30 April 2021 this had been reduced to 97 days, which was more in line with the Group lock up target of 90 days, demonstrating how well all of the acquired businesses have integrated into the Group over the period, adopting our culture of ensuring strong cash generation.
The acquisitions made during FY21 have had an adverse impact on the lock up profile of the Group at the year end. Excluding FY21 acquisitions, lock up remains at 89 days (30 April 20: 85 days excluding acquisitions in the financial year). The average lock up days of acquisitions at the time of completion was 108 days which had reduced to 91 days as at 30 April 2021. These figures exclude the lock up relating to the Keebles acquisition due to the exchange on this acquisition taking place on the final day of the trading period.
Management are satisfied with the level of lock up at the year end which remains significantly better than the industry average.
Underlying Profit Before Tax (PBT)
Since the adoption of IFRS16 in FY20 the Board has prioritised the KPI of underlying
PBT as a more accurate measure of its performance as this reflects all of the property and lease costs incurred by the Group. The Board believes that it is an important metric for monitoring the profitability of ongoing operations.
Underlying PBT excludes amortisation of acquired intangibles, transaction and onerous lease costs in relation to acquisitions, disposals of acquired assets, restructuring costs as a result of the streamlining of the support function in acquisitions and the cost saving exercise undertaken in response to the COVID-19 pandemic. It also excludes contingent consideration payments required to be reflected through the Statement of Comprehensive Income under IFRS and share-based payments for one-off share awards made at IPO and as part of the acquisitions, and the one-off Share Incentive Plan offered to employees as a result of the listing. Any share-based payments charges relating to ongoing SAYE and LTIP schemes are recognised as underlying costs of the Group.
The underlying PBT for 2021 has grown by 35% over the 2020 comparative period.
This represents a PBT margin of 17.8% compared with 18.3% in FY 20 and 17.9% in FY19. The profitability in FY21 has been held back by the significant impact that the COVID 19 pandemic had on the business during the first quarter of the year, and the acquisitions completed during both the latter half of FY20 and FY21 that initially operate at lower than Group margins, with the Group taking twelve to eighteen months to maximise cost savings and increase profitability in line with Group profit margins. However, analysis of the results on a half year basis shows that margins in the second half of the financial year were 21.8% compared to 19.8% in H2 of FY 20 and 17.4% in H2 of FY19. Comparing the profitability in the second half of FY21 to the second half of FY19 eliminates the impact of COVID-19 on margins in the last month of the FY20 financial year. The increase in margin over the two year period reflects the fact that the increased scale of the business is further leveraging the overheads of the business whilst also allowing the Group to invest in new fee earners, support staff and larger premises to provide a strong base for future growth.
Fee earner to non-fee earner ratio
Knights' business model and use of technologies have been key in enabling the Group to maintain a fee earner to non-fee earner staff ratio that is much higher than the average for the sector. This continues to be one of the key differentiators in Knights' business model enabling the Group to generate such strong margins.
This ratio depends on where the Group is at in terms of its growth strategy. As at 30 April 2021 the Group was operating at a ratio of 4.5 fee earners for every one support staff (30 April 2020 4.8:1). The reduction in the ratio compared to the previous period reflects the restructuring of excess resource at the start of the pandemic and a focus on recruiting at partner level.
Revenue growth
Although underlying profit before tax is our main KPI, a key strategy for the Board is to grow fee income via a combination of organic and acquisitive growth and as such the level of fee income growth is monitored closely by the Board on a monthly basis.
Acquisitive growth is generated via the acquisitions completed each year. No targets are set for the revenue acquired during the year as acquisitions will always be led by where cultural fit is strongest. Income from acquisitions is treated as acquisitive income growth in the year of acquisition and the first full financial year following acquisition, based on the fees generated by the individuals joining the Group from the newly acquired offices. Recruitment of individuals into the acquired offices post acquisition is treated as part of the organic growth of the business. Due to the Group's strategy to fully integrate all acquisitions into the business within approximately 12 months post acquisition, at the end of the first full financial year following acquisition the income from acquired individuals is deemed to form part of the base Group business and any future growth / decline in revenues impacts the organic growth of the Group.
Organic growth in revenue is achieved via annual pricing reviews and recovery of time recorded, cross selling of further services to existing clients, new client wins and recruitment of senior fee earners who bring with them a good quality client following and capacity to take on more work.
Acquisitive fee income growth
Acquisitions that completed during the year contributed GBP2.1m to revenue for the year and the full year impact of acquisitions made in FY20 added GBP28.4m. Total income from the FY20 acquisitions was GBP38.9m, the full year impact being net of the income recognised in FY20 for these acquisitions of GBP10.5m.
The acquisitions that completed in FY20 were generating income of GBP45.9m per annum at the point of acquisition. We typically budget for a circa 20% loss of income through intended churn and streamlining of unprofitable work streams giving a base expected fee income of GBP36.7m. Therefore, during the year, the FY20 acquisitions have outperformed management's expectations.
The number of full time equivalent fee earners in the Group remained constant at 865 (FY20: 865). Underlying this was a combination of successfully bringing on new recruits and new joiners via acquisition, partially offset by restructuring undertaken as a result of the COVID-19 pandemic and normal course performance management.
Organic fee income growth
The overall movement in organic fee income for the year shows a decline of 3% compared to FY20. This reflects the impact of the Covid-19 pandemic on the macro economic environment during the first quarter of the year, with the organic growth result in H2 being significantly higher than H1 (-15%). However, through a combination of the increasing momentum through the second half of the year, the continued work on recovery of time, pricing and the recruitment of high quality individuals with a client following, the Group reported strong organic growth of 10% for the second half of the year (compared to H2 in FY20). As the economy continues to recover from the pandemic, management remain focussed on maximising the organic opportunities available to the Group through further focus on developing existing client relationships and further recruitment of high calibre individuals with a client following.
Although not a KPI in its own right, the level of fee income is a product of the number of fee earners employed and the fees per fee earner generated during the year, with the quality of the people in the business being an important driver of the latter.
In summary
The Board is pleased with the profitability during the year which has been achieved despite the significant investment in the strengthening of the management and support staff function. Income has grown as a result of acquisitions during the current and prior year and strong organic growth was achieved in the second half of the year, reflecting the continued onboarding of high quality talent and clients, as well as improving our pricing.
The ability of the Group to deliver such a strong result is particularly pleasing in the context of the significant impact of COVID-19 during the year.
In addition to the above, the lower than anticipated levels of net debt, due to the Group's excellent cash management, places the Group in a strong position to continue to grow the business both organically and through selective acquisition opportunities.
Kate Lewis
Chief Financial Officer
13 July 2021
Consolidated Statement of Comprehensive Income
For the year ended 30 April 2021
Year ended Year ended
30 April 2021 30 April 2020
Note GBP'000 GBP'000
Revenue 5 103,201 74,254
Other operating income 7 1,310 894
Staff costs 8 (62,707) (45,578)
Depreciation and amortisation charges 11 (7,730) (4,276)
Impairment of trade receivables and contract
assets (223) (112)
Other operating charges 12 (16,173) (11,504)
--------------------------------------------- ---- --------------- ---------------
Operating profit before non-underlying
charges 17,678 13,678
Non-underlying operating costs 13 (10,288) (8,090)
--------------------------------------------- ---- --------------- ---------------
Operating profit 7,390 5,588
Finance costs 14 (1,881) (1,530)
Profit before tax 5,509 4,058
Taxation 16 (2,107) (2,238)
--------------- ---------------
Profit and total comprehensive income
for the year attributable to equity owners
of the parent 3,402 1,820
=============== ===============
Earnings per share Pence Pence
Basic earnings per share 17 4.14 2.44
Diluted earnings per share 17 4.09 2.41
=============== ===============
Consolidated Statement of Financial Position
As at 30 April 2021
30 April 2021 30 April 2020
Note GBP'000 GBP'000
Assets
Non-current assets
Intangible assets and goodwill 19 79,523 69,135
Property, plant and equipment 21 9,538 5,562
Right-of-use assets 21 40,406 23,749
--------------- ---------------
129,467 98,446
--------------- ---------------
Current assets
Contract assets 22 28,530 21,507
Trade and other receivables 23 31,521 27,046
Cash and cash equivalents 4,783 12,741
--------------- ---------------
64,834 61,294
--------------- ---------------
Total assets 194,301 159,740
--------------- ---------------
Equity and liabilities
Equity
Share capital 24 165 164
Share premium 25 68,369 66,252
Merger reserve 26 (3,536) (3,536)
Retained earnings 26 17,691 13,070
--------------- ---------------
Equity attributable to owners of the
parent 82,689 75,950
--------------- ---------------
Non-current liabilities
Lease liabilities 37 39,020 21,078
Borrowings 27 23,650 28,650
Deferred consideration 28 - 127
Deferred tax 29 5,655 5,429
Provisions 31 2,998 -
--------------- ---------------
71,323 55,284
--------------- ---------------
Current liabilities
Lease liabilities 37 3,620 2,766
Borrowings 27 414 -
Trade and other payables 30 32,303 20,019
Deferred consideration 28 1,095 2,723
Contract liabilities 22 216 177
Corporation tax liability 765 675
Provisions 31 1,876 2,146
--------------- ---------------
40,289 28,506
--------------- ---------------
Total liabilities 111,612 83,790
--------------- ---------------
Total equity and liabilities 194,301 159,740
--------------- ---------------
The financial statements were approved by the board and authorised for issue on 13 July 2021 and are signed on its behalf by:
Kate Lewis
Director
Registered No. 11290101
Consolidated Statement of Changes in Equity
For the year ended 30 April 2021
Share Merger Retained
capital Share premium reserve earnings Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2019 147 32,486 (3,536) 12,216 41,313
Profit for the period
and total comprehensive
income - - - 1,820 1,820
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - - - 789 789
Issue of shares 24,25 17 33,766 - - 33,783
Dividends 18 - - - (1,755) (1,755)
-------- ------------- --------- --------- --------
Balance at 30 April
2020 164 66,252 (3,536) 13,070 75,950
Profit for the period
and total comprehensive
income - - - 3,402 3,402
Transactions with owners
in their capacity as
owners :
Credit to equity for
equity-settled share-based
payments 9 - - - 1,219 1,219
Issue of shares 24,25 1 2,117 2,118
Dividends 18 - - - - -
-------- ------------- --------- --------- --------
Balance at 30 April
2021 165 68,369 (3,536) 17,691 82,689
======== ============= ========= ========= ========
Consolidated Statement of Cash Flows
For the year ended 30 April 2021
Year ended
30 April Year ended
2021 30 April 2020
Note GBP'000 GBP'000
Operating activities
Cash generated from operations 34 20,378 13,791
Non-underlying operating costs paid 13 (4,268) (3,398)
Interest received 461 328
Tax paid (2,125) (2,907)
Contingent acquisition payments (5,597) (1,850)
------------ ---------------
Net cash from operating activities 8,849 5,964
Investing activities
Acquisition of subsidiaries 20 (1,195) (11,907)
Purchase of intangible fixed assets 19 (196) (26)
Purchase of property, plant and equipment 21 (4,356) (2,501)
Proceeds from sale of property, plant
and equipment 6 21
Landlord capital contribution 2,265 -
Payment of deferred and contingent
consideration (3,171) (2,116)
Net cash used in investing activities (6,647) (16,529)
Financing activities
Proceeds from issue of share capital - 20,543
Proceeds of new borrowings 19,000 44,800
Repayment of borrowings (24,000) (35,150)
Repayment of debt acquired with subsidiaries 20 (2,387) (7,049)
Repayment of lease liabilities (2,564) (1,576)
Interest and other finance costs paid (1,772) (1,411)
Associated lease costs (289)
Dividends paid - (1,755)
------------ ---------------
Net cash (used in)/generated from financing
activities (12,012) 18,402
------------ ---------------
Net (decrease)/increase in cash and
cash equivalents (9,810) 7,837
Cash and cash equivalents at the beginning
of the period 12,741 4,904
------------ ---------------
Cash and cash equivalents at end of
period (net of overdraft GBP1,852,000) 2,931 12,741
============ ===============
Notes to the Consolidated Financial Statements
For the year ended 30 April 2021
1. General Information
Knights Group Holdings plc ("the Company") is a public company limited by shares and is registered, domiciled and incorporated in England.
The Group consists of Knights Group Holdings plc and all of its subsidiaries.
The principal activity and nature of operations of the Group is the provision of legal and professional services. The address of its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
2. Accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with IAS in conformity with the requirements of Companies Act 2006.
Applying IFRS requires the directors to exercise judgement and use certain critical accounting estimates, the judgments and estimates that the directors deem significant in the preparation of these financial statements are explained in note 4.
The financial statements have been prepared on the historical cost basis unless IFRSs requires an alternative treatment. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
Monetary amounts are presented in sterling, being the functional currency of the Group, rounded to the nearest thousand except where otherwise indicated.
The principal accounting policies adopted are set out below. These policies have been consistently applied to all periods presented in the financial statements, unless otherwise stated.
2.2 Going concern
The accounts are prepared on a going concern basis as, at the time of approving the financial statements, the directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Group has a strong trading performance, generates strong operating cashflows and has banking facilities of GBP40,000,000 available until June 2023. The Group's forecasts show sufficient cash generation and headroom in banking facilities and covenants, in relation to anticipated future requirements to support the directors' conclusion that the assumption of the going concern basis of accounting in preparing the financial statements is appropriate.
In the period since the pandemic arose and the UK entered lockdown at the end of March 2020, the Group has continued to trade profitably and cash generation at an operating cashflow level has remained strong and in line with expectation. In order to satisfy the validity of the going concern assumption, a number of different trading scenarios have been modelled and reviewed. Some of these scenarios forecast a significantly more negative trading performance than is expected. In all of these scenarios the Group remained profitable and with significant headroom in its cash resources for the 12 months from the date of approval of the accounts.
2.3 Basis of consolidation
The consolidated financial statements incorporate the results of Knights Group Holdings plc and all of its subsidiaries. Subsidiaries results are consolidated in the financial statements from the earlier date that economic benefit is obtained or control commences until the date that control ceases.
On 18 June 2018, the whole of the share capital of Knights 1759 Limited was acquired by the Company via a share for share exchange agreement. The acquisition is outside the scope of IFRS 3 because Knights Group Holdings Limited did not meet the definition of a business. In the absence of specific guidance in IFRS, the group has selected an appropriate accounting policy using the hierarchy described in paragraphs 10 to 12 of IAS 8, which permits the consideration of other Financial Reporting Standards. The Group has adopted the principles of merger accounting from FRS 102. Accordingly, the consolidated financial statements for the Group have been presented as if Knights 1759 Limited had been owned by Knights Group Holdings plc throughout the preceding period.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the earlier date that control commences until the date that control ceases.
Transactions eliminated on consolidation
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group.
Audit exemption of subsidiaries
The following subsidiaries are exempt from the requirements of the UK Companies Act 2006 relating to the audit of individual accounts by virtue of s479A of the Act.
Name Registered number BrookStreet Des Roches OC317863 Dakeyne Emms Gilmore Liberson Limited 06850969 ERT Law Limited 09182964 Croftons Solicitors LLP OC343375 Shulmans LLP OC348166 ASB Law LLP OC351354 ASB Aspire LLP OC327667 OTB Eveling LLP OC371214 Mundays LLP OC313856
The outstanding liabilities at 30 April 2021 of the above named subsidiaries have been guaranteed by the Company pursuant to s479A to s479C of the Act. In the opinion of the directors, the possibility of the guarantee being called upon is remote since the trade, assets and majority of liabilities of these subsidiaries were transferred to Knights Professional Services Limited before 30 April 2021.
2.4 Business combinations
The cost of a business combination is the fair value at the acquisition date, of the assets given, equity instruments issued and liabilities incurred or assumed.
The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
2.5 Revenue
The Group earns revenue from the provision of legal and professional services. Revenue for these services is recognised over time in the accounting period when services are rendered as the Group has an enforceable right to payment for work performed to date under its client terms of engagement.
Fee arrangements for legal and professional services include fixed fee arrangements, unconditional fee-for-service arrangements ("time and materials"), and variable or contingent fee arrangements.
For fixed fee arrangements, revenue is recognised based on the stage of completion with reference to the actual services provided as a proportion of the total services expected to be provided under the contract. The stage of completion is tracked on a contract-by-contract basis using the hours spent by fee-earners providing the services.
In fee-for-service contracts, revenue is recognised up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates.
Under variable or contingent fee arrangements, fees may be earned only in the event of a successful outcome of a client's claim. Fees under these arrangements may be fixed or may be variable based on a specified percentage of damages awarded under a claim.
For variable or contingent fee arrangements management makes a detailed assessment of the amount of revenue expected to be received and the probability of success of each case. Variable consideration is recognised over the duration of the matter only to the extent that it is highly probable that the amount recognised will not be subject to significant reversal when the matter is concluded based on the expected amount recoverable at that point in time. In such circumstances, a level of judgement is required to determine the likelihood of success of a given matter, as well as the estimated amount of fees that will be recovered in respect of the matter. Where the likelihood of success of a contingent fee arrangement is less than highly probable, the value recognised in contract assets is further reduced to reflect this uncertainty.
Certain contingent fee arrangements are undertaken on a partially funded basis. In such arrangements, the funded portion of fees is not contingent on the successful outcome of the litigation and in these instances the revenue is recognised up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates. The remaining consideration is variable and conditional on the successful resolution of the litigation. The variable consideration is recognised over the duration of the matter and included in revenue based on the expected amount recoverable only to the extent that it is highly probable that the amount recognised will not be subject to significant reversal when the uncertainty is resolved at that point in time.
The Group's contracts with clients each comprise of a single distinct performance obligation, being the provision of legal and professional services in relation to a particular matter and the transaction price is therefore allocated to this single performance obligation.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in the Statement of Comprehensive Income in the period in which the circumstances that give rise to the revision become known by management.
The Group has determined that no significant financing component exists in respect of the provision of legal and professional services because the period between when the entity transfers its services to a client and when the client pays for that service will generally be one year or less.
Consideration for services provided under contingent or variable fee arrangements may be paid after a longer period. In these cases, no significant financing component exists because the consideration promised by the customer is variable subject to the occurrence or non-occurrence of a future event that is not substantially within the control of the client or the Group.
A receivable is recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
Unbilled revenue is recognised as contract assets. Costs incurred in fulfilling the future performance obligations of a contract are recognised as contract assets if the costs are expected to be recovered.
Contract liabilities are recognised in respect of consideration billed in advance of satisfying the performance obligation under the contract.
Revenue does not include disbursements. Recoverable expenses incurred on client matters that are expected to be recovered and are billed during the period are recognised in other income.
2.6 Taxation
The tax expense represents the sum of the current tax expense and the deferred tax expense. Current tax assets are recognised when the tax paid exceeds the tax payable. Current tax is based on taxable profit for the year. Current tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax liabilities are recognised in respect of all timing differences that exist at the reporting date. Timing differences are differences between taxable profits and total comprehensive income that arise from the inclusion of income and expenses in tax assessments in different periods from their recognition in the financial statements. Deferred tax assets are recognised only to the extent that it is probable that they will be recovered by the reversal of deferred tax liabilities or other future taxable profits.
Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination and the amounts that can be deducted or assessed for tax. The deferred tax recognised is adjusted against goodwill.
Current tax assets and current tax liabilities and deferred tax assets and deferred tax liabilities are offset, if and only if, there is a legally enforceable right to set off the amounts and the entity intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
2.7 Intangible assets - Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment losses. Goodwill is tested annually by the directors for evidence of impairment.
2.8 Intangible assets - Other than goodwill
Intangible assets purchased, other than in a business combination, are recognised when future economic benefits are probable and the cost or value of the asset can be measured reliably.
Intangible assets arising on a business combination, such as customer relationships, are initially recognised at estimated fair value, except where the asset does not arise from legal or contractual rights, and there is no history or evidence of exchange transactions for the same or similar assets and estimating the assets fair value would depend on immeasurable variables. The fair value represents the directors' best estimate of future economic benefit to be derived from these assets discounted at an appropriate rate.
Intangible assets are initially recognised at cost (which for intangible assets acquired in a business combination is the fair value at acquisition date) and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.
Intangible assets are amortised to the Statement of Comprehensive Income on a straight-line basis over their estimated useful lives, as follows:
Purchased computer software 4 years Customer relationships 4-25 years Restrictive covenants remaining length of covenant Brand 100 years
Purchased computer software is amortised over a period of 4 years, being the minimum period expected to benefit from the asset.
Customer relationships are amortised over a period of 4-25 years being the average length of relationship with key clients for acquired entities.
Restrictive covenants are amortised over the remaining length of covenant.
Brand value is amortised over a period of 100 years based on the directors' assessment of the future life of the brand. This is supported by a trading history dating back to 1759. Brand value relates to the 'Knights' brand only. Other acquired brands are not recognised as an asset as the acquired entities are rebranded as Knights and the impact of such recognition would not be material.
2.9 Property, plant and equipment
Property, plant and equipment are stated at cost net of depreciation and any provision for impairment.
Depreciation is provided on property, plant and equipment at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows:
Expenditure on short leasehold 10% on cost
property
Office equipment 25% on cost
Furniture and fittings 10% on cost
Motor vehicles 25% on cost
Right-of-use assets useful life of the lease (between
1 and 21 years)
Residual value is calculated on prices prevailing at the reporting date, after estimated costs of disposal, for the asset as if it were at the age and in the condition expected at the end of its useful life.
2.10 Impairment of non-current assets
An assessment is made at each reporting date of whether there are indications that non-current assets may be impaired or that an impairment loss previously recognised has fully or partially reversed. If such indications exist, the Group estimates the recoverable amount of the asset or, for goodwill, the recoverable amount of the cash-generating unit.
Shortfalls between the carrying value of non-current assets and their recoverable amounts, being the higher of fair value less costs to sell and value in use, are recognised as impairment losses. All other impairment losses are recognised in the Statement of Comprehensive Income.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Reversals of impairment losses are recognised in the Statement of Comprehensive Income. On reversal of an impairment loss, the depreciation or amortisation is adjusted to allocate the asset's revised carrying amount (less any residual value) over its remaining useful life.
2.11 Professional indemnity provisions
In common with comparable practices, the Group is involved in a number of disputes in the ordinary course of business which may give rise to claims. Provision is made in the financial statements, within provisions for all claims where costs are likely to be incurred. This represents the cost of defending and concluding claims and any excesses that may become payable. The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.
2.12 Leases
The Group leases offices, equipment and vehicles. Rental contracts are for periods of between 1 and 25 years. Lease terms are negotiated on a lease by lease basis and contain a variety of terms and conditions.
The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (being those assets with a value less than GBP4,000). For short term and low value leases, the Group recognises the lease payments as an operating expense on a straight line basis over the term of the lease.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
-- fixed payments (including in-substance fixed payments), less any lease incentives receivable;
-- variable lease payments that are based on an index or a rate; -- amounts expected to be payable by the Group under residual value guarantees;
-- the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease term assumed reflects the group exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
Lease payments of both principal and interest are included in financing activities in the cash flow.
The lease liability is presented as a separate line in the Consolidated Statement of Financial Position.
Right-of-use assets are recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group.
Subsequent to initial recognition, the lease liability is reduced for payments made and increased to reflect interest on the lease liability (using the effective interest method). The related right-of-use asset is depreciated over the term of the lease or, if shorter, the useful economic life of the leased asset. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Interest on the
lease liability is recognised in the Statement of Comprehensive Income.
An estimate of the costs to be incurred in restoring the leased asset to the condition required under the terms and conditions of the lease is recognised as part of the cost of the right-of-use asset when the Group incurs the obligation for these costs. The costs are incurred at the start of the lease or over the lease term. The provision is measured at the best estimate of the expenditure required to settle the obligation.
The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use
asset) whenever:
-- the lease term has changed or there is a significant change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
-- The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used);
-- a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The Group did not make any such adjustments during the periods presented.
2.13 Retirement benefits
2.13a Defined contribution scheme
The Group operates a defined contribution scheme. The amount charged to the Statement of Comprehensive Income in respect of pension costs is the contributions payable in the year. Differences between contributions payable in the year and contributions actually paid are shown as either accrued expenses or prepayments and other receivables.
2.13b Defined benefit pension scheme
For defined benefit schemes the amounts charged to operating profit are the current service costs and gains and losses on settlements and curtailments. They are included as part of staff costs. The interest cost and the expected return on assets are shown as a net amount of other finance costs or credits adjacent to interest. Actuarial gains and losses are recognised immediately in the Statement of Comprehensive Income.
Defined benefit schemes are funded, with the assets of the scheme held separately from those of the Group, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date.
Defined benefit assets are not recognised in the Statement of Financial Position, on the basis that future economic benefits are not available to the Group in the form of a reduction in future contributions or a cash refund.
For the 'With Profit Section' contributions are recognised in Statement of Comprehensive Income in the period to which they relate as there is insufficient information available to use defined benefit accounting. A liability will be recognised based on the agreed share of the Group in the scheme. No asset (2020: liability) has been recognised on the basis that future economic benefits are not available to the Group in the form of a reduction in future contributions or a cash refund.
2.14 Share Based Payments
The cost of providing share based payments to employees is charged to the Statement of Comprehensive Income over the vesting period of the awards. The cost is based on the fair value of awards at the date of grant of the award using an appropriate valuation model. The amount recognised as an expense will be adjusted to reflect differences between the expected and actual vesting levels. Further details of the schemes are included in note 9.
2.15 Financial instruments
Financial instruments are recognised on the date when the Group becomes a party to the contractual provisions of the instrument. Financial instruments are recognised initially at fair value. Financial instruments are derecognised when the Group is no longer party to the contractual provisions of the instrument.
Financial assets
Contract assets and trade receivables
Contract assets and trade receivables which are receivable within one year are initially measured at fair value. These assets are subsequently measured at amortised cost, being the transaction price less any amounts settled and any impairment losses.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses ('ECL') on contract assets and trade receivables. The expected credit losses on trade receivables includes specific provisions against known receivables and an estimate using a provision matrix by reference to past experience and an analysis of the debtor's current financial position on the remaining balance. The expected credit losses on contract assets and other receivables is assessed based on historical credit loss experienced on these types of assets adjusted for known foreseeable estimated losses.
Financial liabilities and equity
Financial instruments are classified as liabilities and equity instruments according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Trade and other payables
Trade and other payables due within one year are initially measured at fair value and subsequently measured at amortised cost, being the transaction price less any amounts settled.
Deferred consideration
Deferred consideration is initially recognised at the fair value of the amounts payable and subsequently at amortised cost of the agreed payments in accordance with the agreement. Any interest payable on the balance is reflected in the value of the liability and charged monthly to the Statement of Comprehensive Income as it arises.
Borrowings
Borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings. Borrowings are subsequently measured at amortised cost using the effective interest method. Interest expense is recognised on the basis of the effective interest method and is included in interest payable and other similar charges.
Derecognition of financial assets and liabilities
A financial asset is derecognised only when the contractual rights to cash flows expire or are settled, or substantially all the risks and rewards of ownership are transferred to another party. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or expires.
3. Accounting developments
New and amended IFRSs that are effective for the future
At the date of these financial statements, there were new and revised IFRSs which were in issue but which were not yet effective and which have not been applied. The principal ones are;
Revised IFRS Effective date
Amendments to IFRS9, IAS39, IFRS7, IFRS4 and Effective 1 January
IFRS16 2021, endorsed
13 January 2021
Amendments to IFRS4 Insurance Contracts - deferral Effective 1 January
of IFRS9 2021, endorsed
15 December 2020
Amendments to IFRS3 Business Combinations; Effective 1 January
IAS16 Property, Plant and Equipment, IAS37 2022
Provisions, Contingent
Liabilities and Contingent Assets and Annual
Improvements 2018 - 2020
IFRS 17 : Insurance contracts 1 January 2023
Amendments to IAS1 Presentation of Financial 1 January 2023
Statements: Classification of Liabilities as
Current and Non- current and Classification
of Liabilities as Current or Non-current
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group's accounting policies, which are described in note 2, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Amounts recoverable on contracts - contingent fee arrangements
A level of judgement is required to determine the likelihood of success of a given matter for contingent fee arrangements. This is determined on a contract-by-contract basis after considering the relevant facts and circumstances surrounding each matter. The valuation exercise is conducted by experienced fee earners with detailed understanding of the cases. The carrying value of contingent fee arrangements at 30 April 2021 was GBP5,781,000 (2020: GBP4,114,000).
IFRS 16
In applying IFRS 16, the Group uses judgement to assess whether the interest rate implicit in the lease is readily determinable. When the interest rate implicit in the lease is not readily determinable, the Group estimates the incremental borrowing rate based on its external borrowings secured against similar assets, adjusted for the term of the lease.
Business Combinations
Management make judgements regarding the date of control of an acquisition in accordance with IFRS10. The judgement considers the individual legal agreements on each transaction and the date at which the Group starts to exercise control over the activities of the subsidiary, usually the date of exchange of contracts. Financial performance of the acquisitions are included in the consolidated group from the deemed date of control.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty in the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
IFRS 16
The Group makes estimates of the cost of restoring leased assets to their original condition when required to do so under the terms and conditions of the lease. Those estimates are based on the current condition of the leased assets and past experience of restoration costs.
Amounts recoverable on contracts - recoverable amounts
The valuation of amounts recoverable on contracts ("AROC") involves the use of estimates of the likely recovery rate which will be made on the gross value of chargeable time recorded to each matter.
This percentage represents management's best estimate of future value following a line by line review of the matters by fee earners. The estimation process takes into account the progress of the case at the reporting date, the estimated eventual fee payable by the client and the amount of time which will be incurred by fee earners in bringing the matter to a successful conclusion. The amount recognised in AROC at the year end was GBP28,530,000 (2020: GBP21,507,000), a 3% change in the estimated recovery of all matters would impact the profit for the period by approximately GBP982,000 (2020: GBP990,000).
Accounting for business combinations and valuation of intangibles
Business combinations are accounted for at fair value. The valuation of goodwill and acquired intangibles is calculated separately on each individual acquisition. In attributing value to intangible assets arising on acquisition, management has made certain assumptions in relation to the expected growth rates, profitability, length of key customer relationships and the appropriate weighted average cost of capital ('WACC') and internal rate of
return ('IRR').
The value attributable to the intangible assets acquired on acquisitions also impacts the deferred tax provision relating to these items.
The total carrying value of intangibles is GBP26,544,000 (2020: GBP24,195,000).
In order to assess the impact of the key assumptions on the values disclosed in the accounts the directors have applied the following sensitivities to the acquisitions in the current year:
Rate applied Sensitivity Annual profit Value of
in the financial tested impact intangible
statements GBP'000 assets
Key assumption GBP'000
Long term growth
rate 2% 0% 9 (10)
------------------ ------------ -------------- ------------
11% - 24%
WACC and IRR (1) 5% 55 (64)
------------------ ------------ -------------- ------------
Length of customer
relationships 4-10 years 5 years (243) 491
------------------ ------------ -------------- ------------
(1) each acquisition has been reviewed and, dependent upon the structure of the acquisition, an appropriate WACC or IRR rate has been applied. These sensitivities have been calculated by adjusting the adopted rates as noted above.
Growth rates are estimated based on the current conditions at the date of each acquisition with reference to independent surveys of future growth rates in the legal profession in real, inflation adjusted terms.
The length of customer relationships is estimated by considering the length of time the acquiree has had its significant client relationships up to the date of acquisition and historic customer attrition rates as appropriate.
The Directors consider the resulting valuations used give a reasonable approximation as to the value of the intangibles acquired and that any reasonably possible change in any one of the estimations in isolation would not have a material impact on the financial statements.
The Directors undertake an annual impairment review of goodwill to assess whether the carrying value is still supported by using a discounted cash flow model to derive the value in use of the cash generating unit ('CGU'). Cash flow forecasts are derived from the most recent financial budgets approved by management for the next three years and extrapolated using a terminal value calculation.
The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for the Group's revenues from legal and professional services and the EBITDA margin. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.
Revenue growth over the three years of the forecast period reflects, for FY22, the current run rate of revenue from the Group's existing business and a full year of revenue from acquisitions made during the year ended 30 April 2021, with an element of growth in FY23 and FY24. The long term growth rate of 2% (2020: 2%) is based on UK economic growth forecasts for the legal services market.
The Group has conducted a sensitivity analysis on the impairment test of the CGU value in use. Management considers there is no reasonably plausible scenario under which goodwill would be impaired.
5. Revenue
All revenue is derived from contracts with customers and is recognised over time. As more fully explained in note 6, the Group's legal and professional services business operates as a single business unit so there are no relevant categories into which revenue can be disaggregated.
The transaction price allocated to unsatisfied performance obligations of contracts at 30 April 2021 is not required to be disclosed because it is comprised of contracts that are expected to have a duration of one year or less.
Management information does not distinguish between contingent and non-contingent revenue as contingent fees are not separately identifiable from other fees.
6. Segmental reporting
The Board of Directors, as the chief operating decision-making body, reviews financial information for and makes decisions about the Group's overall legal and professional services business and has identified a single operating segment, that of legal and professional services operating entirely in the UK.
The legal and professional services business operates through a number of different service lines and in different locations; however, management effort is consistently directed to the firm operating as a single segment. No segmental reporting disclosure is therefore provided as all revenue is derived from this single segment.
7. Other operating income
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Other income 912 495
Bank interest 398 399
----------------- ---------------
1,310 894
================= ===============
8. Staff costs
The average monthly number of employees (including executive directors) of the Group was:
Year ended Year ended
30 April 2021 30 April 2020
Number Number
Fee earners 933 664
Other employees 230 168
1,163 832
=============== ===============
Their aggregate remuneration comprised:
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Wages and salaries 54,927 40,290
Social security costs 5,603 4,244
Other pension costs 1,848 2,938
Share based payment charge 619 276
Other employment costs 1,169 782
--------------- ---------------
Aggregate remuneration of employees 64,166 48,530
Redundancy costs analysed as non-underlying
costs (note 13 ) (1,459) (2,952)
Underlying staff costs in Statement of
Comprehensive Income 62,707 45,578
=============== ===============
Directors' remuneration
Companies Act disclosures
The total amounts for directors' remuneration in accordance with Schedule 5 to the Accounting Regulations were as follows:
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Salaries, fees, bonuses and benefits
in kind 729 698
Money purchase pension contributions 10 10
739 708
=========== ===========
The number of directors to whom benefits are accruing under money purchase pension schemes is 2 (2020: 2).
The remuneration of the highest paid Year ended Year ended
director was: 30 April 30 April
2021 2020
GBP'000 GBP'000
Salaries, fees, bonuses and benefits
in kind 212 231
=========== ===========
9. Share-based payments
The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of GBP1,219,000 (2020: GBP789,000) relating to equity-settled share-based payment transactions in the year.
Any charges relating to schemes introduced as one-off schemes as part of the listing are included in non-underlying costs because the directors view these schemes as a reward to employees for their past performance prior to the IPO. All charges relating to other recurring LTIP or SAYE schemes are included as a normal operating expense.
The following schemes were in place during the period.
Omnibus Plan
The Omnibus Plan is a discretionary share plan, which is administered, and the grant of awards is supervised by, the Remuneration Committee.
Three forms of award are available under the Omnibus Plan, as considered appropriate by the Remuneration Committee, as follows:
a) "Restricted Stock Awards": Awards granted in the form of nil or nominal cost share options, subject to time-based vesting requirements and continued employment within the Group. No performance targets will apply to Restricted Stock Awards.
b) "Performance Share Awards": Awards granted in the form of nil or nominal cost share options, whereby vesting is subject to satisfaction of performance conditions and continued employment within the Group.
c) "Share Options": Awards granted in form of a share option with an exercise price equal to the market value of an Ordinary share at the time of grant, subject to continued employment within the Group. Share Options may or may not be subject to performance conditions.
Restricted stock awards Performance share awards
Weighted average Weighted average
exercise exercise
price price
Number Pence Number Pence
Outstanding at 1 May 2019 451,845 0.2 63,352 0.2
Granted during the period 129,112 - 142,862 -
Forfeited during the period (11,104) - - -
Exercised during the period (28,967) - - -
Outstanding at 30 April 2020 540,886 0.2 206,214 0.2
-------- ---------------- -------- ----------------
Exercisable at 30 April 2020 53,819 0.2 - -
-------- ---------------- -------- ----------------
Granted during the period 85,322 0.2 77,410 0.2
Forfeited during the period (15,278) - (39,814) -
Exercised during the period (59,119) - - -
-------- ---------------- -------- ----------------
Outstanding at 30 April 2021 551,811 0.2 243,810 0.2
-------- ---------------- -------- ----------------
Exercisable at 30 April 2021 69,934 0.2 - -
-------- ---------------- -------- ----------------
The options outstanding at 30 April 2021 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 0.9 years. Shares options exercised during the year had a weighted average price of 432p.
The following restricted stock awards were granted in the period; 65,214 options were granted on 12 June 2020, and 20,108 options were granted on 1 September 2020. In addition 65,782 of performance share awards were granted on 24 July 2020 and 11,628 on 1 September 2020. The maximum term of any award is 3 years.
The aggregate of the estimated fair values of the options granted on these dates is GBP661,027. The model used is based on intrinsic values and the inputs are as follows:
20,979 20,979 23,256 65,782 10,684 21,052
options options options options options options Weighted
12 June 2020 12 June 2020 12 June 2020 12 June 2020 12 June 2020 12 June 2020 average
Share price 358p 358p 358p 427p 462p 462p 406p
Exercise price 0.2p 0.2p 0.2p 0.2p 0.2p 0.2p 0.2p
Expected life 0.9 years 1.9 years 2.7 years 3.0 years 2.0 years 3.0 years 2.2 years
Share Incentive Plan ("SIP")
The SIP is an "all employee" scheme under which every eligible employee within the Group was invited to participate. Eligible employees could apply to invest up to GBP1,800 from pre-tax income in partnership shares; matching shares were awarded on the basis of 2 free matching shares for each partnership share purchased. The matching shares are forfeited if the employee leaves within 3 years of the grant date.
Matching
Partnership Shares Shares
Number Number
Outstanding at 1 May 2019 204,173 408,347
Withdrawn during the period (22,649) -
Forfeited during the period - (45,298)
Outstanding at 30 April 2020 181,524 363,049
------------------ ---------
Unrestricted at 30 April 2020 - -
------------------ ---------
Withdrawn during the period (66,891) -
Forfeited during the period - (133,782)
------------------ ---------
Outstanding at 30 April 2021 114,633 229,267
------------------ ---------
Unrestricted at 30 April 2021 - -
================== =========
Sharesave Scheme ("SAYE")
This is an HMRC approved scheme and is open to any person that was an employee or officer of the Group at the launch date of each scheme. Under the scheme, members save a fixed amount each month for three years. Subject to remaining in employment by the Group, at the end of the three-year period they are entitled to use these savings to buy shares in the Company at 80% of the market value at launch date.
The first scheme was launched in November 2018 and a new SAYE scheme was launched in February 2020.
SAYE options
Weighted average exercise price
Number Pence
Outstanding at 1 May 2019 896,435 162
Granted during the period 664,796 361
Forfeited during the period (188,681) 221
Exercised during the period (12,361) 162
--------- -------------------------------
Outstanding at 30 April 2020 1,360,189 251
--------- -------------------------------
Exercisable at 30 April 2020 - -
--------- -------------------------------
Forfeited during the period (104,557) 350
Exercised during the period (16,678) 164
--------- -------------------------------
Outstanding at 30 April 2021 1,238,954 244
--------- -------------------------------
Exercisable at 30 April 2021 - -
========= ===============================
The options outstanding at 30 April 2021 had a weighted average exercise price of 244p and a weighted average remaining contractual life of 1.2 years.
November 2018 scheme
The aggregate of the estimated fair values of the options granted in November 2018 is GBP500,000. The inputs into the Black-Scholes model are as follows:
Exercise price 162p
Expected volatility 39.2%
Expected life 3.1 years
Risk-free rate 1.4%
Expected dividend yield 1.1%
=========
February 2020 scheme
The aggregate of the estimated fair values of the options granted in February 2020 is GBP1,163,000. The inputs into the Black-Scholes model are as follows:
Exercise price 361p
Expected volatility 34.3%
Expected life 3.1 years
Risk-free rate 1.1%
Expected dividend yield 0.7%
=========
Warrants
Warrants were issued to Numis Securities Limited on Admission in respect of their services and shall be exercisable for a period of five years.
Warrants
Weighted average exercise price
Number Pence
Outstanding at 30 April 2019 706,897 1.7
Exercised during the period (706,897) -
--------- -------------------------------
Outstanding at 30 April 2020 - -
--------- -------------------------------
Outstanding at 30 April 2021 - -
--------- -------------------------------
The warrants were exercised in the prior period and raised GBP1,230,000.
10. Retirement benefit schemes
The Group operates a defined contribution pension scheme for employees. The total cost charged to income of GBP1,848,000 (2020: GBP2,938,000) represents contributions payable to the scheme by the Group. As at 30 April 2021, contributions of GBP439,000 (2020: GBP281,000) due in respect of the reporting period had not been paid over to the schemes.
The defined benefit impact is discussed in note 38. There were no charges against income in the year ended 30 April 2021.
11. Depreciation and amortisation charges
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Depreciation 1,309 858
Depreciation on right-of-use assets 3,684 1,909
Amortisation 2,704 1,501
Loss on disposal of property, plant and
equipment 33 8
7,730 4,276
=============== ===============
Depreciation of GBP43,000 (2020: GBP86,000) is included in non-underlying operating costs.
12. Other operating charges
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Establishment costs 4,140 2,335
Short term and low value lease costs 291 161
Other overhead expenses 11,742 9,008
16,173 11,504
=============== ===============
13. Non-underlying operating costs
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Redundancy and reorganisation costs 1,459 2,952
Transaction costs 1,245 1,406
Onerous short life asset leases 132 -
Impairment of right-of-use assets and interest 635 126
Loss on disposal 284 97
Share based payment charges 600 513
Contingent consideration treated as remuneration 5,933 2,996
10,288 8,090
=============== ===============
Non-underlying costs cash movement
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Non-underlying operating costs 10,288 8,090
Contingent consideration shown separately (5,933) (2,996)
Non cash movements:
Share based payment charge (600) (513)
Loss on disposal (284) (97)
Onerous leases (302) (111)
Accrual 1,099 (975)
4,268 3,398
=============== ===============
Non-underlying costs relate to redundancy costs to streamline the support function of the Group following acquisitions and in FY21 as a result of reorganisation actions taken in response to the impact of COVID19, transaction costs in respect of acquisitions, onerous lease costs in respect of acquisitions,
disposals of acquired assets and share based payment charges relating to one off share schemes offered to employees as part of the IPO and on acquisitions. None of the above costs relate to the underlying costs of the business.
Contingent consideration is included in non-underlying costs as it represents payments agreed under the terms of the sale and purchase agreements with vendors of certain businesses acquired which are contingent on the continued employment of those individuals with the Group. The payments extend over periods of one to three years and are designed to preserve the value of goodwill and customer relationships acquired in the business combinations. IFRS requires such arrangements to be treated as remuneration and charged to the Statement of Comprehensive Income. The individuals also receive market rate salaries for their work, in line with other similar members of staff in the Group. The contingent earnout payments are significantly in excess of these market salaries and would distort the Group's results if not separately identified.
14. Finance costs
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Interest on borrowings 704 628
Interest on leases 1,177 790
Bank arrangement fees - 71
Interest on deferred consideration - 41
1,881 1,530
============== ==============
15. Auditor's remuneration
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Fees payable to the parent company's auditor
and their associates for the audit of the
parent company's annual accounts 29 29
Fees payable to the auditor and their associates
for other services to the Group:
- The audit of the Company's subsidiaries 113 95
--------------- ---------------
Total audit fees 142 124
=============== ===============
- Audit-related assurance services 16 21
- Other advisory services - 3
--------------- ---------------
Total non-audit fees 16 24
=============== ===============
For the year ended 30 April 2021 GBPnil (2020: GBP5,000) of non-audit costs relating to tax services have been charged to the share premium account in the year.
16. Taxation
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Corporation tax:
Current year 2,852 1,915
Adjustments in respect of prior years (247) (20)
--------------- ---------------
2,605 1,895
--------------- ---------------
Deferred tax:
Origination and reversal of temporary differences (498) 343
Tax expense for the year 2,107 2,238
=============== ===============
The charge for the period can be reconciled to the Statement of Comprehensive Income as follows:
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Profit before tax 5,509 4,058
--------------- ---------------
Tax at the UK corporation tax rate of 19% (2020: 19%) 1,047 771
Expenses that are not deductible in determining taxable profit 1,307 1,487
Adjustment in respect of prior years (247) (20)
Tax expense for the year 2,107 2,238
=============== ===============
The impact of non-underlying costs on the effective rate of tax is set out below:
Year ended 30 April Year ended 30 April 2020
2021
Non-Underlying Non-Underlying
Total Underlying GBP'000 Total Underlying GBP'000
GBP'000 GBP'000 GBP'000 GBP'000
Profit before
tax 5,509 18,419 (12,910) 4,058 13,616 (9,558)
Tax expense 2,107 3,379 (1,272) (2,238) (2,910) 672
Effective rate
of tax 38% 18% 10% 55% 21% (7%)
---------- ------------- --------------- ---------- ------------- ---------------
In the budget on 3 March 2021, the UK Government announced an increase in the main UK corporation tax rate from 19% to 25% with effect from 1 April 2023. The change in rate was substantively enacted on 24 May 2021. Deferred tax has been calculated at 19% which was the tax rate substantively enacted at 30 April 2021. The effect of remeasuring deferred tax to 25% would increase recognised deferred tax liabilities at 30 April 2021 to GBP8,400,000 and increase recognised deferred tax assets at 30 April 2021 to GBP959,000. The impact of this on the year ended 30 April 2021 would result in a deferred tax charge of GBP1,287,000.
17. Earnings per share
Basic and diluted earnings per share have been calculated using profit after tax and the weighted average number of Ordinary Shares in issue during the period.
Year ended
30 April Year ended
2021 30 April 2020
Number Number
Weighted average number of ordinary shares
for the purposes of basic earnings per
share 82,189,113 74,675,462
Effect of dilutive potential ordinary shares:
Share options 1,021,132 724,542
Weighted average number of ordinary shares
for the purposes of diluted earnings per
share 83,210,245 75,400,004
============ ===============
GBP'000 GBP'000
Profit after tax 3,416 1,820
Earnings per share Pence Pence
Basic earnings per share 4.14 2.44
Diluted earnings per share 4.09 2.41
============ ===============
Adjusted earnings per share is calculated as an alternative performance measure in note 36.
18. Dividends
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Amounts recognised as distributions to
equity holders in the year:
Final dividend for the year ended 30 April
2021 of 0p per share (2020: 0p per share) - 931
Interim dividend for the year ended 30
April 2021 of 0p per share (2020: 1.10p
per share) - 824
- 1,755
=============== ===============
For the year ended 30 April 2021 the Board decided not to propose a final dividend.
19. Intangible assets and goodwill
Customer
relationships Purchased
and restrictive computer
Goodwill Brand covenants software Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 2019 26,607 5,401 15,380 346 47,734
Acquisitions of
subsidiaries 13,270 - 11,095 - 24,365
Adjustment in
respect of consideration
not payable (199) - - - (199)
Additions - - - 26 26
As at 30 April
2020 39,678 5,401 26,475 372 71,926
Acquisitions of
subsidiaries 7,435 - 3,702 - 11,137
Measurement period
adjustments 544 - 118 9 671
Additions - - 1,097 196 1,293
-------- -------- ---------------- --------- --------
As at 30 April
2021 47,657 5,401 31,392 577 85,027
-------- -------- ---------------- --------- --------
Amortisation and
impairment
As at 1 May 2019 - 216 907 167 1,290
Amortisation charge - 54 1,373 74 1,501
As at 30 April
2020 - 270 2,280 241 2,791
Adjustments - - - 9 9
Amortisation charge - 54 2,568 82 2,704
-------- -------- ---------------- --------- --------
As at 30 April
2021 - 324 4,848 332 5,504
-------- -------- ---------------- --------- --------
Carrying amount
At 30 April 2021 47,657 5,077 26,544 245 79,523
======== ======== ================ ========= ========
At 30 April 2020 39,678 5,131 24,195 131 69,135
======== ======== ================ ========= ========
At 30 April 2019 26,607 5,185 14,473 179 46,444
======== ======== ================ ========= ========
The adjustments to goodwill are measurement period adjustments which have not been applied retrospectively as they are considered to be immaterial.
An intangible asset of GBP1,097,000 was recognised in the year ended 30 April 2021 relating to certain individuals who left the business with restrictive covenants. The agreed terms of the restrictive covenants are deemed to preserve the value of the asset and it is therefore amortised to the Consolidated Statement of Comprehensive Income on a straightline basis in line with the terms of the restrictive covenants.
The carrying amount of goodwill of GBP47,657,000 (2020: GBP39,678,000) has been allocated to the single cash generating unit (CGU) present in the business, which is the provision of legal and professional services.
The recoverable amount of the Group's goodwill has been determined by a value in use calculation using a discounted cash flow model. The Group prepared cash flow forecasts derived from the most recent financial budgets approved by management for the next three years and extrapolates cash flow using a terminal value calculation based on an estimated growth rate of 2% (2020: 2%). This rate does not exceed the expected average
long-term growth rate for the UK legal services market.
The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for the Group's revenues from legal and professional services and the EBITDA margin. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.
The rate used to discount the forecast cash flows is 15.1% (2020: 19.4%).
Revenue growth over the three years of the forecast period reflects, for FY22, the current run rate of revenue from the Group's existing business and a full year of revenue from acquisitions made during the year ended 30 April 2021, and an element of organic growth in FY22, FY23 and FY24 through continued recruitment and increases in chargeable hours and recovered rates. The long-term growth rate is based on UK economic growth forecasts for the legal services market.
The Group has conducted a sensitivity analysis on the impairment test of the CGU value in use. Management considers there is no reasonably plausible scenario under which goodwill would be impaired.
20. Acquisitions
Acquisitions summary
During the year the Group has completed three acquisitions and exchanged on one more, the table below
summarises the consideration paid and the net cash flow arising on all acquisitions in the period.
Total
GBP'000
Total identifiable assets and liabilities acquired 7,224
Goodwill 7,435
---------
Total consideration 14,659
---------
Satisfied by:
Cash (GBP4.8m yet to pay on Keebles completion) 8,909
Equity instruments (1,246,234 ordinary shares of
Knights Group Holdings plc) (GBP3.5m yet to issue
on Keebles completion) 5,450
Deferred consideration arrangement 300
---------
Total consideration transferred 14,659
---------
Net cash outflows arising on acquisition:
Cash consideration (net of cash acquired) (GBP4.8m
yet to pay on Keebles completion) 6,005
---------
Net investing cash outflow arising on acquisition 6,005
---------
Repayment of debt acquired (excluding GBP0.4m yet
to pay on Keebles completion) 2,387
---------
Net financing cash outflow arising on acquisition 2,387
---------
The allocation of fair values is incomplete at the period end and values are provisional. Details for the individual acquisitions are included over page.
The acquisition date in each case is the date of exchange of the sale and purchase agreement, being the date on which control passes and the Group is exposed to variable returns.
OTB Eveling LLP ('OTBE')
On 23 November 2020, the Group exchanged contracts to acquire OTBE by purchasing the controlling membership interests of the entity.. This acquisition completed on 14 December 2020. OTBE is a law firm which will introduce Knights' existing corporate, employment, dispute resolution and real estate offering to the South West region.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets - 443 443
Property, plant and equipment 58 - 58
Right-of-use assets - 201 201
Contract assets 490 (58) 432
Trade and other receivables 375 - 375
Cash and cash equivalents 64 - 64
Liabilities
Trade and other payables (202) (34) (236)
Lease liabilities - (201) (201)
Borrowings (255) - (255)
Provisions (20) (54) (74)
Deferred tax - (84) (84)
--------- ------------ ---------
Total identifiable assets and liabilities 510 213 723
--------- ------------ ---------
Goodwill 683
---------
Total consideration 1,406
---------
Satisfied by:
Cash 706
Equity instruments (164,336 Ordinary
Shares of Knights Group Holdings plc) 700
---------
Total consideration transferred 1,406
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 642
Repayment of debt 255
---------
Net cash outflow arising on acquisition 897
---------
The goodwill of GBP683,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the 5 days prior to exchange.
A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the Statement of Comprehensive Income on a straight-line basis over the 2 year post-acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is GBP700,000 and is payable in equal instalments on the first and second anniversary of completion.
OTBE contributed GBP1,003,000 of revenue to the Group's Statement of Comprehensive Income for the period from 1 November 2020 to 30 April 2021.
The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 14 December 2020.
The revenue and profit had the acquisition occurred at the beginning of the year is not separately identifiable due to lack of management account information available and the full integration on hive up.
Mundays LLP ('Mundays')
On 21 March 2021, the Group exchanged contracts to acquire Mundays by purchasing the controlling membership interests of the entity. Economic benefit is assumed from 21 March 2021. This acquisition completed on 16 April 2021. Mundays is a law firm which will strengthen Knights' presence in the South East.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets - 905 905
Property, plant and equipment 795 (9) 786
Right-of-use assets - 3,159 3,159
Contract assets 753 (117) 636
Trade and other receivables 1,144 (114) 1,030
Cash and cash equivalents 3,051 - 3,051
Liabilities
Trade and other payables (1,977) 268 (1,709)
Lease liabilities - (3,201) (3,201)
Borrowings (2,132) - (2,132)
Provisions (172) (149) (321)
Deferred tax - (173) (173)
--------- ------------ ---------
Total identifiable assets and liabilities 1,462 569 2,031
--------- ------------ ---------
Goodwill 1,974
---------
Total consideration 4,005
---------
Satisfied by:
Cash 2,755
Equity instruments (289,908 Ordinary
Shares of Knights Group Holdings plc) 1,250
---------
Total consideration transferred 4,005
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) (296)
Repayment of debt 2,132
---------
Net cash outflow arising on acquisition 1,836
---------
The goodwill of GBP1,974,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The fair value of the Ordinary Shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the 5 days prior to exchange.
A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the Statement of Comprehensive Income on a straight-line basis over the 2 year post acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is GBP1,375,000 and is payable on the first and second anniversary of completion, GBP750,000 and GBP625,000 retrospectively.
Mundays contributed GBP956,000 of revenue to the Group's Statement of Comprehensive Income for the period from 22 March 2021 to 30 April 2021.
The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 16 April 2021.
The revenue and profit had the acquisition occurred at the beginning of the year is not separately identifiable due to lack of management account information available and the full integration on hive up.
Housing Law Services LLP ('HLS')
On 31 March 2021 the Group exchanged contracts to acquire specific asset and liabilities of HLS. HLS provides niche housing team that will complement the existing Knights housing services offering. The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets - 503 503
Contract assets 15 - 15
Trade and other receivables 128 - 128
Cash and cash equivalents 267 - 267
Liabilities
Trade and other payables (62) (9) (71)
Deferred tax - (96) (96)
--------- ------------ ---------
Total identifiable assets
and liabilities 348 398 746
--------- ------------ ---------
Goodwill 92
Total consideration 838
---------
Satisfied by:
Cash 538
Deferred consideration 300
Total consideration transferred 838
----
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired) 271
Net cash outflow arising on acquisition 271
----
The goodwill of GBP92,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
HLS contributed GBP181,000 of revenue to the Group's Statement of Comprehensive Income for the period from 31 March 2021. The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 23 April 2021.
The revenue and profit had the acquisition occurred at the beginning of the year is not separately identifiable due to lack of management account information available.
Keebles LLP ('Keebles)
On 30 April 2021, the Group exchanged contracts to acquire Keebles by purchasing the controlling membership interests of the entity. Economic benefit was obtained from 30 April 2021. This acquisition completed on 11 June 2021. Keebles provides entry into Sheffield and complements the Group's existing presence in Nottingham and Leeds.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.
Carrying Fair value
amount adjustment Total
GBP'000 GBP'000 GBP'000
Identifiable assets
Identifiable intangible assets - 1,851 1,851
Property, plant and equipment 398 - 398
Right-of-use assets - 1,255 1,255
Contract assets 3,114 - 3,114
Trade and other receivables 3,109 (109) 3,000
Cash and cash equivalents 1,374 - 1,374
Liabilities
Trade and other payables (2,087) (640) (2,727)
Lease liabilities - (1,255) (1,255)
Overdraft (1,852) - (1,852)
Debt (414) - (414)
Provisions (189) (480) (669)
Deferred tax - (351) (351)
--------- ------------ ---------
Total identifiable assets and liabilities 3,453 271 3,724
--------- ------------ ---------
Goodwill 4,686
---------
Total consideration 8,410
---------
Satisfied by:
Cash 4,910
Equity instruments (791,990 Ordinary
Shares of Knights Group Holdings plc) 3,500
---------
Total consideration transferred 8,410
---------
Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)
(GBP4.8m yet to pay on Keebles completion) 5,388
Repayment of debt 414
---------
Net cash outflow arising on acquisition 5,802
---------
The goodwill of GBP4,686,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.
The fair value of the Ordinary Shares issued as part of the consideration will be determined on the basis of the volume weighted average share price for the 5 days prior to exchange.
A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the Statement of Comprehensive Income on a straight-line basis over the 2 year post acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is GBP3,132,000 and is payable on the first and second anniversary of completion.
A non-refundable deposit of GBP100,000 was paid on exchange.
The revenue and profit had the acquisition occurred at the beginning of the year is not separately identifiable due to lack of management account information available and the business structure of the acquired entity.
21. Property, plant and equipment
Expenditure
on short
leasehold Office Furniture Right-of-use
property equipment and fittings Motor vehicles assets Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1 May 19 2,006 1,932 1,049 5 19,407 24,399
Acquisitions of
subsidiaries 367 586 151 - 4,515 5,619
Additions 1,129 982 12 - 1,822 3,945
Disposals (1) (70) (217) (5) - (293)
----------- ---------- ------------- -------------- -------------- --------
As at 30 April
2020 3,501 3,430 995 - 25,744 33,670
Acquisitions of
subsidiaries 566 493 183 - 4,615 5,857
Additions 3,350 1,005 1 - 16,385 20,741
Disposals (160) (20) (149) - (154) (483)
Impairment - - - - (739) (739)
Alignment 618 (452) 11 - - 177
----------- ---------- ------------- -------------- -------------- --------
As at 30 April
2021 7,875 4,456 1,041 - 45,851 59,223
----------- ---------- ------------- -------------- -------------- --------
Depreciation and
impairment
As at 1 May 2019 406 950 312 5 - 1,673
Depreciation charge 250 494 114 - 1,995 2,853
Eliminated on
disposal - (4) (158) (5) - (167)
As at 30 April
2020 656 1,440 268 - 1,995 4,359
Depreciation charge 446 761 102 - 3,727 5,036
Eliminated on
disposal (25) (3) (24) - (84) (136)
Impairment - - - - (193) (193)
Alignment 616 (416) 13 - - 213
----------- ---------- ------------- -------------- -------------- --------
As at 30 April
2021 1,693 1,782 359 - 5,445 9,279
----------- ---------- ------------- -------------- -------------- --------
Carrying amount
At 30 April 2021 6,182 2,674 682 - 40,406 49,944
=========== ========== ============= ============== ============== ========
At 30 April 2020 2,845 1,990 727 - 23,749 29,311
=========== ========== ============= ============== ============== ========
At 30 April 2019 1,600 982 737 - - 3,319
=========== ========== ============= ============== ============== ========
Depreciation of GBP43,000 (2020: GBP86,000) and net impairment due to leases being classified as onerous of GBP546,000 (2020: GBPnil) is included in non-underlying operating costs.
See note 37 for further details of Right-of-use assets.
22. Contract assets and liabilities
Contract Contract
assets Trade receivables liabilities
GBP'000 GBP'000 GBP'000
As at 30 April 2021 28,530 25,951 (216)
========= ================== =============
As at 30 April 2020 21,507 22,450 (177)
========= ================== =============
The movement during the year is not separately identifiable.
Contract assets
Contract assets consist of unbilled revenue in respect of legal and professional services performed to date.
Contract assets in respect of fee-for-service and fixed fee arrangements are billed at appropriate intervals, normally on a monthly basis in arrears, in line with the performance of the services. Where such matters remain unbilled at the period end the asset is valued on a contract-by-contract basis at its expected recoverable amount.
The Group undertakes some matters based on contingent fee arrangements. These matters are billed when the claim is successfully settled. For matters ongoing at the period end, each matter is valued based on its specific circumstances. If the matter has agreed funding arrangements in place, then it is valued based on the estimated amount recoverable from the funding depending on the stage of completion of the matter.
If the liability of a matter has been admitted and performance obligations satisfied, such that it is no longer contingent, these matters are valued based on the expected recoverable amount. Due to the complex nature of these matters, they can take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter not billed until a later financial period. The amount of contingent fee
work in progress at 30 April 2021 was GBP5,781,000 (2020: GBP4,114,000).
If the performance obligations for contingent matters have not been satisfied at the reporting date, these assets are valued on a contract-by-contract basis taking into account the expected recoverable amount and the likelihood of success. Where the likelihood of success of a contingent fee arrangement is less than highly probable, the amount recognised in contract assets is further reduced to reflect this uncertainty.
During the year, contract assets of GBP4,196,000 (2020: GBP8,292,000) were acquired in business combinations.
An impairment loss of GBP30,000 has been recognised in relation to contract assets in the year (2020: GBP27,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The contract asset loss is estimated at 0.2% (2020: 0.2%) of the balance.
Trade receivables
Trade receivables are recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Trade receivables also includes disbursements.
Bills are payable within thirty days unless otherwise agreed with the client.
Contract liabilities
When matters are billed in advance or on the basis of a monthly retainer, this is recognised in contract liabilities and released over time when the services are performed.
23. Trade and other receivables
30 April 30 April
2021 2020
GBP'000 GBP'000
Trade receivables 26,953 23,003
Impairment provision - Trade receivables (1,002) (553)
Prepayments and other receivables 5,570 4,596
31,521 27,046
========= =========
Trade receivables
The average credit period taken on sales is 35 days as at 30 April 2021 (2020: 42 days). No interest is charged on trade receivables. The Group uses appropriate methods to recover all balances once overdue. Once the expectation of recovery is deemed remote a debt may be written off.
The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses ('ECL'). The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. As the Group's historical credit loss experience does not show significantly different loss patterns for different client segments, the provision for loss allowance is based on past due status.
The following table details the risk profile of trade receivables (excluding disbursements) based on the Group's provision matrix.
91-120
31-60 61-90 days >120
days days past days
Not past past past due past
30 April 2021 due due due due Total
Expected credit
loss rate 0.21% 0.22% 0.24% 1.17% 23.20% 3.10%
Estimated total
gross carrying amount
(GBP'000) 12,925 3,958 1,362 827 2,696 21,768
Lifetime ECL GBP'000 27 9 3 10 625 674
========= ====== ====== ======= ======= =======
In addition to the above on trade receivables a further GBP328,000 (2020: GBP90,000) impairment loss has been recognised against disbursement balances. This is based on 100% impairment against all disbursements with no activity on the matter for over 12 months and 0.2% against the remainder of the balance based upon the expected credit loss of this type of asset.
Other receivables
As at 30 April 2021 other receivables includes GBPnil (2020: GBP187,000) of consideration paid in advance relating to the acquisition of Cummins Solicitors Limited which is contingent on continued employment over a 2 year period. This is being released to the Statement of Comprehensive Income over the 2 year period.
24. Share capital
Ordinary shares
Number GBP'000
As at 1 May 2019 73,325,419 147
Changes during the period
Ordinary shares of 0.2p each issued at share placing 4,761,905 9
Ordinary shares of 0.2p each issued in respect of exercised share options 41,328 1
Ordinary shares of 0.2p each issued in respect of exercised share options
equivalent to dividend
entitlement 139 -
Ordinary shares of 0.2p each issued in respect of exercised share warrants 706,897 1
Ordinary shares of 0.2p each issued as consideration in the purchase of
subsidiaries 3,240,644 6
---------------- --------------------
As at 30 April 2020 82,076,332 164
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options 75,798 -
Ordinary shares of 0.2p each issued in respect of exercised share options
equivalent to dividend
entitlement 418 -
Ordinary shares of 0.2p each issued as consideration in the purchase of
subsidiaries 454,244 1
---------------- --------------------
At 30 April 2021 (allotted, called up and fully paid) 82,606,792 165
================ ====================
25. Share premium
GBP'000
As at 1 May 2019 32,486
Premium arising on issue of equity shares 34,475
Expenses of issue of equity shares (709)
-------
As at 30 April 2020 66,252
Premium arising on issue of equity shares 2,117
At 30 April 2021 68,369
-------
26. Reserves
Merger Retained
reserve earnings
GBP'000 GBP'000
As at 1 May 2019 (3,536) 10,158
IFRS 16 impact (note 37) - 2,058
Profit for the period and total
comprehensive income - 1,820
Credit to equity for equity-settled
share-based payments - 789
Dividends (note 18) - (1,755)
--------- ---------
Balance at 30 April 2020 (3,536) 13,070
Profit for the period and total
comprehensive income - 3,402
Credit to equity for equity-settled
share-based payments - 1,219
Balance at 30 April 2021 (3,536) 17,691
========= =========
The merger reserve of GBP3,536,000 arose on the share for share exchange by Knights 1759 Limited and Knights Professional Services Limited. The reserve is the difference between the nominal value of Knights 1759 Limited share capital and amounts paid to the shareholders as part of the Group reorganisation in October 2016 and the share capital, share premium value and capital redemption of the shares acquired in Knights Professional Services Limited.
Retained Earnings represents cumulative profits and losses of the Group net of distributions to members.
27. Borrowings
30 April 30 April
2021 2020
GBP'000 GBP'000
Secured borrowings at amortised cost:
Bank loans 24,064 28,650
Total borrowings 24,064 28,650
--------- ---------
Amount due for settlement within 12 months 414 -
========= =========
Amount due for settlement after 12 months 23,650 28,650
========= =========
The above excludes lease liabilities.
All of the Group's borrowings are denominated in sterling.
The Group has a credit facility of GBP40,000,000 in total (2020: GBP40,000,000). The facility remains available until 25 June 2023.
The facility is a revolving credit facility and is has the ability to roll on a monthly or quarterly basis and is due for final repayment on 25 June 2023. The facility is secured by a fixed and floating charge over the Group's assets. The facility carries an interest margin above LIBOR of between 1.65% and 2.45% depending on the leverage level. A commitment fee of one third of the applicable margin is payable on the undrawn amounts.
The short term bank loan is secured by a debenture over all of the assets of Keebles LLP. The debenture was released on 14 June 2021.
28. Deferred consideration
30 April 30 April
2021 2020
GBP'000 GBP'000
Non-current liabilities
Deferred consideration - 127
--------- ---------
- 127
========= =========
Current liabilities
Deferred consideration 1,095 2,723
1,095 2,723
========= =========
Deferred consideration as at 30 April 2021 relates to the acquisitions of Fraser Brown, ASB Law LLP, EGL and Shulmans LLP and is not contingent.
In addition the Group has contingent consideration relating to acquisitions accrued and included within trade and other payables. This is contingent based upon continued employment and is being accrued on a monthly basis in the Statement of Comprehensive Income in accordance with the terms of the agreements. It is expected that employment will continue for the terms of the agreements and, therefore, the contingent consideration will be payable in full.
29. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and prior reporting period.
Accelerated Intangible Share-based
capital allowances assets payments IFRS16 Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2019 201 3,347 (60) - 3,488
IFRS 16 impact - - - (299) (299)
Charge/(credit) for the
prior year (87) (5) 9 - (83)
Acquisitions of subsidiaries - 1,897 - - 1,897
Charge/(credit) for the
year 282 308 (156) (8) 426
------------------- ---------- ----------- --------- --------
As at 30 April 2020 396 5,547 (207) (307) 5,429
Acquisitions of subsidiaries - 704 - - 704
Charge/(credit) for the
year 148 (411) (242) 27 (478)
------------------- ---------- ----------- --------- --------
As at 30 April 2021 544 5,840 (449) (280) 5,655
=================== ========== =========== ========= ========
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances after offset for financial reporting purposes:
30 April 30 April
2021 2020
GBP'000 GBP'000
Deferred tax assets (729) (514)
Deferred tax liabilities 6,384 5,943
5,655 5,429
--------- ---------
30. Trade and other payables
30 April 30 April
2021 2020
GBP'000 GBP'000
Bank overdraft 1,852 -
Trade payables 3,715 3,033
Other taxation and social security 6,564 6,180
Other payables 2,293 2,817
Accrued consideration 8,310 -
Accruals 9,569 7,989
32,303 20,019
========= =========
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 26 days (2020: 25 days). No interest is charged on the trade payables.
The directors consider that the carrying amount of trade payables approximates to their fair value.
Accrued consideration relates the acquisition of Keebles LLP where contracts were exchanged as at 30 April 2021 but did not formally complete until 11 June 2021.
The bank overdraft is secured by a debenture over all of the assets of Keebles LLP. The debenture was released on 14 June 2021.
31. Provisions
Onerous Professional
Dilapidation contract indemnity
provision provision provision Total
GBP'000 GBP'000 GBP'000 GBP'000
As at 1 May 2019 473 435 539 1,447
IFRS 16 reallocation - (435) - (435)
Acquisitions of subsidiaries 652 - 264 916
Additional provision
in the year 546 - 90 636
Utilisation of provision (123) - (295) (418)
------------ ---------- ------------- ---------
As at 30 April 2020 1,548 - 598 2,146
Acquisitions of subsidiaries 768 - 296 1,064
Additional provision
in the year 1,828 133 195 2,156
Utilisation of provision (145) (127) (220) (492)
------------ ---------- ------------- ---------
As at 30 April 2021 3,999 6 869 4,874
============ ========== ============= =========
The dilapidations provision relates to the potential rectification of leasehold sites upon expiration of the leases. This has been based on internal estimates of the schedule of works included in the lease.
The onerous contract provision relates to vacant offices where the Group is the lessee. The Group is actively marketing these leases for reassignment. The provision represents the directors' estimate of the future lease payments and other associated property costs to be paid by the Group prior to reassignment of the leases. The onerous contracts provision also includes contracts acquired via acquisition that are non-cancellable. The provision represents the remaining payments and other associated property costs under the terms of the lease. Future lease payments are offset against the provision.
The professional indemnity provision relates to a number of disputes in the ordinary course of business for all claims where costs are likely to be incurred and represents the cost of defending and concluding claims and any excess that may become payable. The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.
32. Financial instruments
Categories of financial instruments
30 April 30 April
2021 2020
GBP'000 GBP'000
Financial assets
Amortised cost
Contract assets 28,530 21,507
Trade and other receivables (excluding
prepayments) 26,421 23,425
Cash and cash equivalents 4,783 12,741
Financial liabilities
Amortised cost
Borrowings 24,064 28,650
Deferred consideration 1,095 2,850
Trade and other payables 25,739 12,872
Leases 42,640 23,844
Fair value
Trade and other payables - 967
Financial risk management objectives
The Group's finance function monitors and manages the financial risks relating to the operations of the Group. These risks include market risk (interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.
Market risk
The Group's activities expose it primarily to the financial risks of changes in interest rates (see below). Market risk exposures are measured using sensitivity analysis.
There has been no change to the Group's exposure to market risks or the manner in which these risks are managed and measured.
Interest rate risk management
The Group is exposed to interest rate risk because the Group borrows funds at floating interest rates. The risk is managed by the Group by keeping the level of borrowings at a manageable level.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit for the year ended 30 April 2021 would decrease/increase by GBP120,000 (2020: decrease/increase by GBP143,000). This is attributable to the Group's exposure to interest rates on its variable rate borrowings.
The Group's sensitivity to interest rates has increased during the current year mainly due to the increase in the borrowings of the Group.
Credit risk management
Note 23 details the Group's maximum exposure to credit risk and the measurement bases used to determine expected credit losses.
The risk of bad debts is mitigated by the Group having a policy of performing credit checks or receiving payments on account for new clients when practical and ensuring that the Group's exposure to any individual client is tightly controlled, through credit control policies and procedures.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the financial charges on its debt instruments and repayments of principal. There is a risk that the Group will encounter difficulty in meetings its financial obligations as they fall due or not meet its required covenants. The Group manages this risk and its cash flow requirements through detailed annual and monthly cash flow forecasts. These forecasts are reviewed regularly to ensure that the Group has sufficient working capital to enable it to meet all of its short-term and long-term cash flow needs.
The tables below analyse the Group's financial liabilities into relevant maturity groupings based on their contractual maturities. The amounts disclosed in the table are the contractual undiscounted cash flows.
Contractual maturities of financial liabilities
30 April 2021
< 1 year 1-2 years 2-5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Borrowings 414 - 23,650 24,064
Deferred consideration 1,095 - - 1,095
Bank overdraft 1,852 - - 1,852
Trade and other payables 23,887 - - 23,887
========= ========== ============ ==========
30 April 2020 < 1 year 1-2 years 2-5 years Total
GBP'000 GBP'000 GBP'000 GBP'000
Borrowings - - 28,650 28,650
Deferred consideration 2,723 127 - 2,850
Trade and other payables 13,839 - - 13,839
========= ========== ========== =========
The Group has met its covenant tests during the year.
For lease maturity see note 37.
Capital management
The capital structure of the Group consists of borrowings (as disclosed in note 27 ) and equity of the Group (comprising issued capital, reserves, and retained earnings as disclosed in the Statement of Changes in Equity).
In managing its capital, the Group's primary objective is to provide a return for its equity shareholders through capital growth and future dividend income. The Group seeks to maintain a gearing ratio that balances risk and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs and objectives.
Gearing ratio
The gearing ratio at the year end is as follows:
30 April 30 April
2021 2020
GBP'000 GBP'000
Borrowings (note 27 ) 24,064 28,650
Cash and cash equivalents (4,783) (12,741)
Bank overdraft 1,852 -
--------- ---------
Net debt 21,133 15,909
--------- ---------
Equity 82,689 75,950
--------- ---------
% %
Net debt to equity ratio 26 21
========= =========
Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 2 .
33. Capital commitments
As at 30 April 2021 there is a capital commitment of GBP71,000 (2020: GBP82,000) in relation to an ongoing office refurbishment.
34. Reconciliation of profit before taxation to net cash generated from operations
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Profit before taxation 5,509 4,058
Adjustments for:
Amortisation 2,704 1,501
Depreciation - property, plant and equipment 1,309 858
Depreciation - right-of-use assets (net
of GBP43,000 (2020: GBP86,000) included
in non-underlying costs) 3,684 1,909
Loss on disposal of equipment (net of
GBP284,000 (2020: GBP97,000) included
in non-underlying costs) 33 8
Contingent consideration expense 5,933 2,996
Non-underlying operating costs 3,755 4,581
Share based payments 1,387 861
Interest income (398) (399)
Interest expense 1,881 1,530
------------- -------------
Operating cash flows before movements
in working capital 25,797 17,903
Increase in contract assets (2,827) (2,103)
Increase in trade and other receivables (135) (1,186)
Decrease in provisions (263) (183)
Increase in contract liabilities 39 57
Decrease in trade and other payables (2,233) (697)
Cash generated from operations 20,378 13,791
------------- -------------
Adjusted as follows:
Trade Trade
Contract and other Contract and other
assets receivables Provisions liabilities payables
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Movement per balance
sheet (7,023) (4,475) 2,728 39 12,284
Acquired 4,196 4,534 (1,064) - (5,043)
Measurement period
adjustments - (125) (417) - (482)
Keebles consideration
yet to be paid/issued - - - - (8,310)
Dilapidation adjustments - - (1,510) - 150
One off - - - - 1,099
Other - (69) - - (79)
Overdraft classed
as cash and cash equivalent - - - - (1,852)
--------- ------------- ------------ ------------- -----------
Total (2,827) (135) (263) 39 (2,233)
========= ============= ============ ============= ===========
35. Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's Consolidated Statement of Cash Flows as cash flows from financing activities.
Borrowings Leases
GBP'000 GBP'000
As at 1 May 2020 28,650 23,844
New 19,000 17,049
Acquired 2,801 4,657
Interest (net of GBP22,000 included in
non-underlying) 573 1,199
Disposals - (60)
Repayments (net of GBP308,000 included
in non-underlying) (26,960) (4,049)
As at 30 April 2021 24,064 42,640
========== ========
36. Alternative performance measures
This Annual Report contains both statutory measures and alternative performance measures. In management's view the underlying performance of the business provides a more meaningful comparison of how the Group's business is managed and measured on a day-to-day basis.
The Group's alternative performance measures and key performance indicators are aligned to the Group's strategy and together are used to measure the performance of the business.
Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and provide supplementary information to assist with the understanding of the Group's financial results and with the evaluation of operating performance for all the periods presented. Alternative performance measures, however, are not a measure of financial performance under International Financial Reporting Standards ('IFRS') as adopted by the European Union and should not be considered as a substitute for measures determined in accordance with IFRS. As the Group's alternative performance measures are not defined terms under IFRS they may therefore not be comparable with similarly titled measures reported by other companies.
Reconciliations of alternative performance measures to the most directly comparable measures reported in accordance with IFRS are provided below.
a) Underlying EBITDA
Underlying EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding the effects of depreciation, amortisation and non-underlying items.
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Operating profit 7,390 5,588
Depreciation and amortisation charges
(note 11) 7,730 4,276
Non-underlying costs (note 13) 10,288 8,090
Underlying EBITDA 25,408 17,954
============= =============
b) Underlying profit before tax (PBT)
Underlying PBT is presented as an alternative performance measure to show the underlying performance of the Group excluding the effects of amortisation of intangible assets and non-underlying items.
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Profit before tax 5,509 4,058
Amortisation (adjusted for amortisation
on computer software) 2,622 1,427
Non-underlying costs (note 13) 10,288 8,090
Non-recurring finance costs - 41
Underlying profit before tax 18,419 13,616
============= =============
For the year ended 30 April 2020 non-recurring finance costs relate to exit fees and arrangement fees expensed due to the refinancing of the Group during the year and accrued interest on deferred consideration.
c) Underlying profit after tax (PAT) and adjusted earnings per share (EPS)
Underlying PAT and EPS are presented as alternative performance measures to show the underlying performance of the Group excluding the effects of amortisation of intangible assets, share-based payments and non-underlying items.
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Profit after tax 3,402 1,820
Amortisation (adjusted for amortisation
on computer software) 2,622 1,427
Non-underlying operating costs (note
13) 10,288 8,090
Non-recurring finance costs - 41
Tax in respect of the above (1,272) (672)
Underlying profit after tax 15,040 10,706
------------ ------------
Adjusted earnings per share Pence Pence
Basic adjusted earnings per share 18.30 14.33
Diluted adjusted earnings per share 18.07 14.20
============ ============
Tax has been calculated at the corporation tax rate 19% (2020: 19%) and deferred tax rate of 19% (2020: 19%)
d) Free cash flow and cash conversion %
Free cash flow measures the Group's underlying cash generation. Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities after adjusting for tax paid and the impact of IFRS 16. Cash conversion % is calculated by dividing free cash flow by underlying profit after tax, which is reconciled to profit after tax above.
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Cash generated from operations (note
34) 20,378 13,791
Tax paid (2,125) (2,907)
Total cash outflow for IFRS16 leases
(non underlying) (3,741) (2,366)
------------- -------------
Free cashflow 14,512 8,518
Adjusted profit after tax 15,040 10,706
Cash conversion (%) 96% 80%
------------- -------------
37. Lease liabilities - IFRS 16 Leases
Incremental borrowing rates applied to individual leases ranged between 1.70% and 6.49%.
The table below sets out the Consolidated Statement of Financial Position as at 30 April 2021 and 30 April 2020:
30 April 2021 30 April 2020
GBP'000 GBP'000
Right-of-use assets
Property 39,420 22,649
Equipment 986 1,100
------------- -------------
40,406 23,749
============= =============
Lease liability
> 1 year 39,020 21,078
< 1 year 3,620 2,766
------------- -------------
42,640 23,844
============= =============
The table below shows lease liabilities maturity analysis - contractual undiscounted cash flows at 30 April 2021.
30 April 2021 30 April 2020
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Less than one year 4,594 349 4,943 3,424 565 3,989
One to five years 18,313 709 19,022 11,015 850 11,865
More than five years 24,834 - 24,834 15,099 - 15,099
---------- ----------- ------------------- ---------- ----------- -------------------
47,741 1,058 48,799 29,538 1,415 30,953
========== =========== =================== ========== =========== ===================
The table below shows amounts recognised in the Statement of Comprehensive Income for short term and low value leases as at 30 April 2021:
30 April 2021 30 April 2020
Property Equipment Total Property Equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Expenses relating to
short - term leases 244 47 291 143 18 161
========== =========== ========= ========== =========== =========
For right-of-use asset depreciation and lease interest charges on leases please see note 11 and 14. Total lease payments, including for short term and low value leases, for the year ended 30 April 2021 were GBP4,340,000 (2020: GBP2,366,000).
38. Defined benefit pension schemes
The Stonehams Pension Scheme
The Group operates a defined benefit pension arrangement, the Stonehams Pension Scheme (the "Scheme"). The Scheme provides benefits based on salary and length of service on retirement, leaving service, or death. The following disclosures exclude any allowance for any other pension schemes operated by the Group.
The Scheme was acquired as part of the acquisition of ASB Law where contracts were exchanged on 5 March 2020. Therefore the disclosures below represent the period of ownership from 5 March 2020 to 30 April 2021. The scheme is closed and provides benefits for 43 legacy employees (now pensioners and deferred members).
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the Group must agree with the Trustees of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding Objective.
The most recent comprehensive actuarial valuation of the Scheme was carried out as at 31 December 2018. The results of that valuation were updated to 30 April 2021 allowing for cashflows in and out of the Scheme and changes to assumptions over the period.
From January 2020 the Employer started to make annual contributions of GBP35,000 per annum towards administration expenses. No change in this is expected for the next financial year. Administration expenses from 1 November 2017 to 31 December 2019 have been met directly from the assets of the Scheme. The Group will separately meet the cost of the PPF levy.
The Scheme typically exposes the Group to actuarial risks such as: investment risk, interest rate risk and longevity risk.
Investment risk The present value of the defined benefit
plan liability is calculated using a discount
rate determined by reference to high quality
corporate bond yields; if the return on
plan assets is below this rate, it will
create a plan deficit.
Currently assets are invested in very
low risk funds, which will reduce volatility.
The investment approach is reviewed every
three years as part of the valuation process.
Interest risk There is some hedging in the asset portfolio,
but at a low level.
A decrease in the bond interest rate will
increase the plan liability but this will
be partially offset by an increase in
the return on the plan's debt investments.
-------------------------------------------------
Longevity risk The present value of the defined benefit
plan liability is calculated by reference
to the best estimate of the mortality
of plan participants both during and after
their employment. An increase in the life
expectancy of the plan participants will
increase the plan's liability.
The average duration of the Schemes obligations
is 16 years.
-------------------------------------------------
Explanation of amounts in the financial statements
Actuarial assumptions
Principal actuarial assumptions
30 April 2021 30 April 2020
% %
Discount rate 1.83 1.58
Retail Prices Index ("RPI") Inflation 3.53 2.85
Consumer Price Index ("CPI") Inflation 2.83 1.95
Pension increase (LPI 5%) 3.36 2.80
Pension increase (LPI 2.5%) 2.24 2.03
90%/100% (m/f)
S2PA CMI_2017
90%/100% (m/f) projections (with
S2PA CMI_2020 projections standard smoothing
(with standard parameter of
smoothing parameter 7.5) using a
of 7.5) using a long-term improvement
long-term improvement rate of 1.0%
Post retirement mortality rate of 1.0% pa pa
80% of members 80% of members
are assumed to are assumed to
take the maximum take the maximum
tax free cash possible tax free cash
using current commutation possible using
factors current commutation
Commutation factors
Life expectancy at age 65 of male aged
45 22.6 23.6
Life expectancy at age 65 of male aged
65 24.1 22.6
Life expectancy at age 65 of female
aged 45 23.5 25.2
Life expectancy at age 65 of female
aged 65 25.3 24.1
The average duration of the Schemes obligations is 16 years.
The current asset split is as follows
Asset allocation Asset allocation
at 30 April 2021 at 30 April 2020
Equities and growth assets 78% 20%
Bonds, LDI and cash 22% 80%
Value as at 30
April Value as at 30
2021 April 2020
GBP'000 GBP'000
Fair value of assets 3,255 3,384
Present value of funded obligations (2,791) (2,732)
-------------------------- ----------------------
Surplus in scheme 464 652
Deferred tax - -
-------------------------- ----------------------
Net defined benefit surplus after deferred
tax 464 652
========================== ======================
The fair value of the assets can be
analysed as follows:
Value as at 30
April Value as at 30
2021 April 2020
GBP'000 GBP'000
GBP'000 GBP'000
Low risk investment funds 720 692
Credit Investment funds 1,673 1,434
Matching funds 691 998
Cash 171 260
-------------------------- ----------------------
Fair value of assets 3,255 3,384
========================== ======================
30 April 2021 30 April 2020
GBP'000 GBP'000
Administration costs 29 2
Interest on liabilities (10) (2)
Total charge to the Statement of Comprehensive
Income 19 -
-------------------------- ----------------------
Remeasurements over the period since
acquisition
30 April 2021 30 April 2020
GBP'000 GBP'000
Loss on assets in excess of interest (17) (145)
Loss om scheme obligation from assumptions
and experience (157) -
Gain on scheme obligations due to scheme
experience 5 -
Total remeasurements (169) (145)
-------------------------- ----------------------
The change in value of assets
30 April 2021 30 April 2020
GBP'000 GBP'000
Fair value of assets 3,384 3,534
Interest on assets 50 8
Benefits paid (133) (11)
Administration costs (29) (2)
Loss on assets in excess of interest (17) (145)
-------------------------- ----------------------
Fair value of assets 3,255 3,384
========================== ======================
Actual return on assets 33 (137)
-------------------------- ----------------------
Change in value of liabilities
30 April 2021 30 April 2020
GBP'000 GBP'000
Value of liabilities 2,732 2,737
Interest cost 40 6
Benefits paid (133) (11)
Actuarial gain 152 -
-------------------------- ----------------------
Value of liabilities 2,791 2,732
========================== ======================
Sensitivity of the value placed on the
liabilities
Approximate effect on liability
30 April 2021 30 April 2020
GBP'000 GBP'000
Discount rate
Minus 0.50% 229 208
Inflation
Plus 0.50% 164 161
Life Expectancy
Plus 1.0 years 113 123
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and mortality. The sensitivity analysis above has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant .
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated .
The With Profits Section of the Cheviot pension
Allocation of liabilities between employers
The With Profits Section was acquired as part of the acquisition of ASB Law where contracts were exchanged on 5 March 2020 and the transaction completed on 17(th) April 2020.
The Trustee has discretion under the contribution rule on how the cost of providing the benefits of the With Profits Section is allocated between employers. The contribution rule applies until the earlier of the discharge of the employer by the Trustee and the termination of the With Profits Section. The Trustee's current policy is not to discharge employers. Employers therefore remain liable under the contribution rule even if their last member dies or transfers out.
The Trustee has been considering how best to ensure all employers bear an appropriate share of the With Profits Section's obligations whilst ensuring fairness between employers and a practical and transparent methodology for the future.
As discussed at the Employers' Meeting on 5 July 2017, the Trustee has decided to fix the allocation between employers on the basis of the promised benefits just before the Section was re-classified in 2014 (the valuation as at 31 December 2013). The allocation to each employer will be expressed as a percentage of the total Scheme liabilities. The intention is to apply this percentage to any funding, buyout or IFRS deficit in the future to calculate any contribution that may be due or any accounting liability.
The estimated percentage in relation to Knights Professional Services Limited is 0.790%.
This approach enables each employer to calculate the extent of their obligation to the Section on the basis of the funding level at any time. Cheviot will publish funding updates on the website: quarterly, on the scheme funding basis, which includes an allowance for future investment returns; and annually, on an estimated buyout basis, which looks at the position should all benefits be secured with an external provider.
Estimated funding position as at 30 April:
Scheme funding basis
30 April 2021 30 April 2020
GBP'000 GBP'000
Total assets 92,200 94,400
Total liabilities excluding
expenses (88,600) (97,200)
------------- -------------
Surplus/(deficit) 3,600 (2,800)
------------- -------------
Funding level 104% 97%
Allocation to the Group
The estimated share of the Scheme liabilities is 0.790%.
Over the year to 30 April 2021, the Section's funding position improved from a small deficit to a small surplus.
30 April 2021 30 April 2020
GBP'000 GBP'000
Estimated cost of providing
benefits (700) (768)
Value of assets 728 746
------------- -------------
Resulting surplus/ (shortfall) 28 (22)
------------- -------------
Funding level 104% 97%
The surplus/deficit has not been recognised as management consider this to be temporary and not material.
The Trustee continues to monitor the funding position.
The Trustee reserves the right to withdraw, replace or amend the policy for the allocation between employers in the future.
39. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its other related parties are disclosed below.
KPV Propco Ltd is a company controlled by Mr DA Beech, a person with significant influence over the Group and a member of key management personnel.
The Group leases a property from KPV Propco Ltd. During the year rents of GBP376,000 (2020: GBP367,000) were charged by KPV Propco Ltd to the Group. A FRI lease of The Brampton, Newcastle-under-Lyme was granted for a term of 25 years from and including 24 July 2017 to 24 July 2039 at a current rent of GBP376,000 per annum (excluding VAT).
The Group received a contribution for repair work in the year from KPV Propco Ltd of GBP26,000 (2020: GBPnil). These repairs relates to the building and site and were therefore paid by KPV Propco Ltd.
During the year Knights Professional Services Limited charged KPV Propco Ltd for professional services totalling GBP126,000 (2020: GBP98,000).
At 30 April 2021, there was an amount of GBP3,000 owed to the Group from KPV Propco Ltd (2020: GBP246,000 owed to KPV Propco Ltd by the Group).
During the year Knights Professional Services Limited provided legal services to the Directors in an individual capacity of GBP154,000 (2020:GBPnil). At 30 April 2021, there was an amount of GBP1,000 (2020: GBPnil) owed to the Group from the Directors which was subsequently settled in line with normal credit terms offered.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.
Year ended Year ended
30 April 30 April
2021 2020
GBP'000 GBP'000
Short-term employee benefits and social
security costs 1,193 1,174
Pension costs 22 23
Share-based payments 209 181
1,424 1,378
=========== ===========
Key management personnel includes Board members and directors of the Group and the main trading company Knights Professional Services Limited.
Transactions with directors
Dividends totalling GBPnil (2020: GBP787,000) were paid in the year in respect of ordinary shares held by the Company's directors.
Glossary of Terms
Financial Performance Measure
This document contains certain financial measures that are not defined or separately recognised under IFRS. These measures are used by the Board and other users of the accounts to evaluate the Group's underlying trading performance excluding the impact of any non-recurring items and items that do not reflect the underlying day-to-day trading of the Group. These measures are not audited and are not standard measures of financial performance under IFRS. There are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. Accordingly, these measures should be viewed as supplemental to, not as a substitute for, the financial measures calculated under IFRS.
Underlying EBITDA
Underlying EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding the effects of depreciation, amortisation, and non-underlying items.
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Operating profit 7,390 5,588
Depreciation and amortisation charges 7,730 4,276
Non-underlying costs (note 13) 10,288 8,090
--------------- ---------------
Underlying EBITDA 25,408 17,954
=============== ===============
Underlying Profit Before Tax (PBT)
Underlying PBT is presented as an alternative performance measure to show the underlying performance of the Group excluding the effects of amortisation of acquired intangible assets, and non-underlying items.
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Profit before tax 5,509 4,058
Amortisation of acquired intangibles 2,622 1,427
Non-underlying costs 10,288 8,090
Effective interest on deferred consideration - 41
--------------- ---------------
Underlying profit before tax 18,419 13,616
=============== ===============
Underlying Operating profit to Underlying Profit Before Tax (PBT)
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Operating profit before non-underlying
charges 17,687 13,678
Less: Finance costs (1,881) (1,489)
Add: Amortisation of acquired intangibles 2,622 1,427
Underlying profit before tax 18,419 13,616
=============== ===============
Non-recurring finance costs
Non recurring finance costs relate to interest on deferred consideration payable as part of the consideration on acquisitions.
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Interest on deferred consideration - -
Non-recurring finance costs - 41
=============== ===============
Underlying Profit After Tax (PAT) and Underlying Earnings per Share (EPS)
Underlying PAT and underlying EPS are presented as alternative performance measures to show the underlying performance of the Group excluding the effects of amortisation of acquired intangible assets and non-underlying items.
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Profit after tax 3,402 1,820
Amortisation of acquired intangibles 2,622 1,427
Non-underlying operating costs 10,288 8,090
Effective interest on deferred consideration - 41
Tax in respect of the above (1,272) (672)
--------------- ---------------
Underlying profit after tax 15,040 10,706
=============== ===============
Underlying earnings per share Pence Pence
Basic earnings per share 18.30 14.33
Diluted underlying earnings per share 18.07 14.20
Free Cash Flow and Cash Conversion %
Free cash flow measures the Group's underlying cash generation.
Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities, tax paid and cash outflows for IFRS 16 leases. Cash conversion % is calculated by dividing free cash flow by underlying profit after tax, which is reconciled to profit after tax above.
Year ended Year ended
30 April 2021 30 April 2020
GBP'000 GBP'000
Cash generated from operations 20,378 13,791
Tax paid (2,125) (2,907)
Total cash outflow for IFRS16 leases (3,741) (2,366)
Free cashflow 14,512 8,518
--------------- ---------------
Underlying profit after tax 15,040 10,706
=============== ===============
Cash conversion (%) 96% 80%
Working Capital
Working capital is calculated as:
30 April 2021 30 April 2020
GBP'000 GBP'000
Current assets
Contract assets 28,530 21,507
Trade and other receivables 31,521 27,046
--------------- ---------------
Total current assets 60,051 48,553
--------------- ---------------
Current liabilities
Trade and other payables 32,303 20,019
Overdraft included in payables (1,852) -
Contract liabilities 216 177
Corporation tax liability 765 675
--------------- ---------------
Total current liabilities 31,432 20,871
--------------- ---------------
Net working capital 28,619 27,682
=============== ===============
Other Definitions
Colleague/Talent Retention/Employee Turnover
Churn is calculated based on the number of qualified fee earners who had been employed by the Group for more than one year. Churn is calculated taking the number of leavers in the above group over the financial year as a percentage of the average number of colleagues for the year. Retention is 100% less the churn rate.
Fee Earner Concentration
This is calculated taking the largest fees allocated to an individual fee earner as a percentage of the total turnover for the year and demonstrates the Group's reliance on the fee earning potential of an individual fee earner.
Client Concentration
On an individual basis this is calculated as the percentage of total turnover for the financial year that arises from fees of the largest client. For the top 10 client concentration calculation this takes the fee income from the 10 largest clients for the year as a percentage of the total turnover for the year.
Client Satisfaction
Net Promoter Score (NPS) measures the loyalty of a client to a company and can be used to gauge client satisfaction. NPS scores are measured with a single question survey and reported with a number from -100 to +100, the higher the score, the higher the client loyalty/satisfaction.
Colleague Satisfaction
Employee Net Promoter Score (ENPS) measures the loyalty of employees to a company and how likely they are to recommend their employer as a place to work, which can also be used to gauge employee satisfaction. ENPS scores are measured with a single question survey and reported with a number from -100 to +100, the higher the score the higher the employee loyalty.
Fee Earners
When referring to the number of fee earners in the Group we include all individuals working in the Group on a mainly fee earning basis. This includes professionals (legal and non-legal) of all levels including paralegals, trainees and legal assistants. When referring to the number of fee earners in the business this will refer to the absolute number of individuals working in the Group. When using the number of fee earners to calculate the average fees or profit per fee earner or the ratio of fee earners to support staff these calculations are based on the number of full-time equivalent (FTE) individuals to reflect that a number of individuals choose to work on a part-time basis.
Non-Fee Earners/Support Staff
This includes all employees that are not fee earning.
Recurring Revenue
This is calculated based on the amount of revenue in a year that reoccurs in the following year from the same clients.
Lock Up
This is calculated as the combined debtor and WIP days as at a point in time. Debtor days are calculated on a count back basis using the gross debtors at the period end and compared with the total fees raised over prior months. WIP (work in progress) days are calculated based on the gross work in progress (excluding that relating to clinical negligence claims) and calculating how many days billing this relates to, based on average fees (again excluding clinical negligence fees) per month for the last 3 months.
Lock up days excludes the impact of acquisitions in the last quarter of the financial year.
Total Shareholder Return (TSR)
Total shareholder return is calculated as:
Share price at 30 April 2021 GBP4.450
Share price at listing (GBP1.450)
Dividend paid in period GBP0.00
Gain on shares in period GBP0.875
As a percentage of opening price 24.5%.
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