TIDMDWF
RNS Number : 4119K
DWF Group PLC
25 August 2023
DWF Group PLC
("DWF" or "the company" or "Group)
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon publication of this
announcement, this inside information is now considered to be in
the public domain.
25 August 2023
Full year results for the year ended 30 April 2023
DWF, the global provider of integrated legal and business
services, today announces its full-year results for the year ended
30 April 2023. The Board is pleased with the Group's performance
considering the challenging backdrop for the broader economy and
the legal sector.
GROUP FINANCIAL SUMMARY
GBPm (unless otherwise stated) FY2022/23 FY2021/22 Change
Revenue 451.6 416.1 8.6 %
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Net revenue (1) 380.1 350.2 8.5 %
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Gross profit 191.7 180.9 6.0 %
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Gross profit margin (2) 50.4% 51.7% (1.3) ppts
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Cost to income ratio (1) 37.2% 38.4% (1.2) ppts
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Adjusted EBITDA (1) 69.6 66.7 4.3 %
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Operating profit 24.2 27.7 (12.4)%
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Adjusted profit before tax
('Adjusted PBT') (1) 43.3 41.4 4.7 %
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Profit before tax ('PBT') 17.2 22.3 (23.1)%
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Adjusted diluted EPS (pence)
(1) 10.2 10.7 (4.7)%
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Diluted EPS (pence) 3.8 6.5 (41.5)%
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Gross lock-up days (1) 196 days 179 days 17 days
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Free cash flow (1) 12.9 12.9 (0.5) %
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Net debt (1) 101.7 71.8 29.9
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Leverage (1) 1.46x 1.08x 0.38x
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FY2022/23 HIGHLIGHTS
-- Group net revenue growth of 8.5% (5% like-for-like (3) ) to
GBP380.1m. Reported revenue growth of 8.6% to GBP451.6m.
-- Gross profit margin reduced by 1.3ppts to 50.4% (FY22 51.7%)
reflecting direct cost pressure from salary increases.
-- Cost to income ratio improved by 1.2ppts versus FY22 to
37.2%, helping to offset margin pressures.
-- Adjusted PBT up 4.7% to GBP43.3m, with direct cost and interest rate pressures weighing on profitability.
-- Adjusted PBT margin (4) of 11.4%, a reduction of 0.4
percentage points on FY22 reflecting cost pressures.
-- Reported PBT of GBP17.2m (FY22 GBP22.3m), which differs to
Adjusted PBT due to adjusting items of GBP26.2m (FY22
GBP19.1m).
-- Adjusted diluted EPS of 10.2p (FY22 10.7p) a 4.7% decrease on
prior year due to the non-recurring tax benefit in the prior year
which related to deductions for historical restructuring costs.
-- Lock-up days of 196 versus prior year of 179, representing a
17 day stretch (14 excluding acquisitions) due to sector wide trend
towards extended billing and payment terms
-- GBP12.9m free cash flow generated (FY22 GBP12.9m), flat on PY due to lock-up stretch.
-- Net debt of GBP101.7m, GBP29.9m higher than FY22 due to
initial consideration payments of GBP10m for the acquisition of
Acumension and Whitelaw Twining in the year, combined with the
impact of the 17 day lock-up stretch versus the prior year.
-- Leverage has increased to 1.46x EBITDA (FY22 1.08x).
STRATEGIC HIGHLIGHTS
-- Two strategic acquisitions made in the year with Acumension and Whitelaw Twining.
-- Cost efficiency programme has continued with target savings
of GBP15.0m offsetting salary pressures and interest rate
increases.
-- New divisional structure from 1(st) May 2023 further
integrates the delivery of client service by combining legal and
business services which are aligned with the needs of the Group's
clients, whilst maximising the opportunity for future profitable
revenue growth.
-- On 21 July 2023, we were pleased to announce the Board's
unanimous recommendation of an all cash offer for DWF Group plc
from Aquila Bidco Limited, a newly incorporated wholly-owned
subsidiary of funds advised by Inflexion ("Offer").
OUTLOOK AND CURRENT TRADING
-- The first three months of trading for FY24 have been in line
with management expectations from a revenue and income perspective,
however lock-up stretch has had a balance sheet and cash
impact.
-- Management are considering the achievability of the lock-up
target of 170 days given economic headwinds which are driving
longer billing and payment cycles.
-- With the current trends not expected to abate, the Board is
not expecting to undertake any material M&A in the short term
on a stand-alone basis as it seeks to address the ongoing
challenges presented by lock-up stretch, increasing interest costs
and the balance sheet leverage.
ACQUISITION BY INFLEXION
-- The acquisition by Inflexion is expected to complete during
the final quarter of this calendar year.
-- As part of the Offer from Inflexion, shareholders will be
entitled to receive a special dividend of 3 pence per share. The
special dividend, payment of which will be funded by Inflexion, is
conditional upon, and only payable if, the Offer becomes effective.
Absent the Offer, in light of the broader challenges in the sector
and for DWF, the Board would need to consider the appropriate level
of dividend for the 6 month period ending Apr-23, if any, and also
its medium term capital management framework including sustainable
dividend distributions.
-- With respect to the recommended cash acquisition of DWF Group
plc by Inflexion Private Equity Partners LLP the shareholder Court
Meetings and a General Meeting are to be held on 12(th) September
2023 to consider the scheme of arrangement.
-- The DWF Directors recommend unanimously that DWF Shareholders
vote in favour (or procure votes in favour) of the Scheme at the
applicable Court Meetings and vote in favour (or procure votes in
favour) of the Resolution at the General Meeting as the DWF
Directors who hold DWF Shares as at the date of the Scheme Document
have irrevocably undertaken to do (or procure to be done) in
respect of their own beneficial holdings, amounting to 9,655,772
DWF Shares in aggregate, representing approximately 2.8 per cent.
of the ordinary share capital of DWF as at 11 August 2023.
-- Bidco has also received irrevocable undertakings to vote (or,
where applicable, procure voting) in favour of the Court Meetings
and the General Meeting from 107 DWF Partners and Senior Employees
who hold DWF Shares totalling 132,370,677 DWF Shares representing
approximately 38.7 per cent. of the existing issued ordinary share
capital of DWF as at 11 August 2023.
Sir Nigel Knowles, Chief Executive Officer, commented:
"We have once again grown the business profitably in what
continues to be a very challenging economic environment. Like other
legal businesses, we have seen salary and inflationary pressures,
the impact of interest rate increases and variable demand
particularly in transactional areas. Despite these challenges, we
have seen our organic growth strategy and integrated propositions
continue to resonate with clients, and have also added quality
businesses to the Group via our acquisitions of Acumension and
Whitelaw Twining"
Paul Rimmer, CEO of Commercial Services, commented:
"The Senior Partners and leaders and I wanted to take this
opportunity, on behalf of ourselves and the broader DWF partners
and employees, to say thank you to our institutional shareholders
for their support since DWF's IPO. The business has made
substantial progress over the last 4.5 years in an evolving market
and we are now excited about delivering the next stage of our
strategy under private ownership. The quantum of irrevocable
undertakings obtained from the senior partners and leaders
demonstrates our collective strong belief in the rationale for the
proposed acquisition, especially access to additional capital, more
flexibility on investment spend and the ability to maintain
additional leverage capacity in the business as we invest to
counter macro headwinds. This is an essential opportunity to ensure
DWF has a firm footing for growth over the medium term and we all
look forward to supporting our clients under Inflexion's
ownership."
The person responsible for making this announcement on behalf of
the Company is Chris Stefani, Group Chief Financial Officer.
For further information:
H/Advisors Maitland (public relations advisers to DWF)
Sam Turvey or Sam Cartwright
+44(0)20 7379 5151
DWF Group plc
James Igoe
+44(0)7971 783533
Head of Communications & IR
About DWF Group
DWF is a global provider of integrated legal and business
services. It has approximately 4,000 people and with offices and
associations located across the globe. For more information visit:
dwfgroup.com
Forward looking statements
This announcement contains certain forward--looking statements
with respect to the Company's current targets, expectations and
projections about future performance, anticipated events or trends
and other matters that are not historical facts. These
forward--looking statements, which sometimes use words such as
"aim", "anticipate", "believe", "intend", "plan" "estimate",
"expect" and words of similar meaning, include all matters that are
not historical facts and reflect the directors' beliefs and
expectations and involve a number of risks, uncertainties and
assumptions that could cause actual results and performance to
differ materially from any expected future results or performance
expressed or implied by the forward--looking statement.
LEI: 213800O9QREOHTOGQ266
(1) Described in the glossary to the financial statements
(2) Gross profit margin is defined as gross profit divided by
net revenue
(3) Like-for-like ('L4L') net revenue growth removes the impact
of acquisitions
(4) Adjusted PBT margin is defined as Adjusted PBT divided by
net revenue
Chair's Statement
Dear Shareholder,
I am delighted to introduce our Annual Report and Accounts for
the year ended 30 April 2023. The past year has been marked by
continued macroeconomic volatility with considerable inflationary
pressures across food, energy and other essential consumer
categories. These pressures have led, in many countries, to a cost
of living crisis and rising interest rates, which in turn, has
fuelled further uncertainty about economic growth rates.
Despite these challenging conditions, our differentiated
integrated legal and business services offering and our focus on
delivering positive outcomes has enabled us to continue to perform
well relative to some challenging sentiments in the legal
sector.
I would like to offer my thanks, and the thanks of the whole
Board, to all of our colleagues across the Group for their
continued commitment, dedication and high-quality delivery
throughout the year.
Group performance
We are focused on driving shareholder value through the delivery
of sustainable attractive growth. That is what we have achieved
again this year.
The Board is pleased with the Group's performance on revenue
growth, profitability and cost control. Net revenue is up by more
than 8% to GBP380m, with a like-for-like growth rate of 5%.
Pleasingly we have seen this rate of growth improve in the second
half of the financial year although this was against a challenging
H2 in FY22.
Adjusted profit before tax increased by 4.7% to GBP43.3m,
supported by our cost programme which now anticipates savings of
GBP15m, helping to in part offset the well-publicised upward salary
cost pressures affecting the sector. Reported profit before tax was
GBP17.2m which represents a GBP5m or 23% reduction on prior year
owing to an increase in adjusting items of GBP7m in the year as
well as rising interest costs.
This performance reflects the impact of the Group's Integrated
Legal Management strategy and ongoing key client focus, delivering
integrated solutions to more Group clients.
Culture
We are a people business where developing a positive and
inclusive culture, underpinned by our values and behaviours, is
critical to our success.
Over the past year, I have enjoyed spending more time in our
offices meeting with partners and colleagues, hearing first-hand
about their experiences of working for DWF and perspectives on the
culture within our organisation.
We have been able to organise more colleague engagement
activities in-person and in different locations. This allowed the
Board to hold informal meetings with a cross-section of DWF
colleagues, at every career level and from all parts of the
business. We have all found these very valuable.
I would like to express my thanks to all attendees at these
meetings in providing their thoughts and opinions in an open and
constructive manner.
The feedback received at these meetings is echoed through our
well established engagement survey, where our engagement score has
remained stable at 76. In the context of macroeconomic volatility,
we are pleased with this strong performance in this key
indicator.
Our role in society
ESG is core to our business model and long-term strategy and it
remains a priority focus area for the Board. FY22/23 marked the
first full year since publication of our ESG Strategy and I am
pleased to report that we have made meaningful progress in a number
of areas.
This includes reductions of our Scope 1 and Scope 2 CO2
emissions of 20% and 41% respectively, compared with FY21/22. We
have continued to enhance our office space, with Pune, India and
the new Edinburgh office both powered entirely by renewable
energy.
On our diversity & inclusion agenda, we increased overall
ethnic minority representation to 14%, against a target of 13% by
2025 and we invested in a range of new and improved family friendly
policies, significantly enhancing our maternity, paternity and
adoption leave schemes.
We are also proud that in the last financial year the DWF
Foundation, an independent charity established by DWF in 2015,
exceeded the GBP1 million mark for grants distributed. Funded in
large part by the fundraising activities of DWF colleagues, the
Foundation is an excellent example of the positive outcomes
achieved through colleagues living our values. A point reinforced
by the nearly 9,000 hours of volunteering time delivered by
colleagues through the last financial year.
I talk more about our purpose, values and culture in the
Governance introduction. You can read more detail on our priorities
and actions in the ESG section of our Annual Report and
Accounts.
Annual General Meeting 2023
The Annual General Meeting will be held on 20 October 2023.
Looking ahead
On 21 July 2023, we were pleased to announce the Board's
unanimous recommendation of an all cash offer for DWF Group plc
from Aquila Bidco Limited, a newly incorporated wholly-owned
subsidiary of funds advised by Inflexion. This transaction is
highly attractive not only for our internal and external
shareholders, but also for our clients, employees and other
stakeholders. The DWF board of directors recognises the
opportunities that could be delivered under private ownership with
Inflexion, which includes access to significant capital to invest
in people and technology, accelerated lateral hiring and
transformative acquisitions across jurisdictions. Inflexion has a
clear ambition to support the management team to execute its
strategy to create a global professional services business
emanating from the legal sector and this will enhance the already
exceptional and differentiated services that we deliver for our
clients.
Shareholders will already have received a copy of the Scheme
Document which was published on 15 August 2023. The shareholder
Court Meetings and a General Meeting to approve the scheme of
arrangement have been scheduled for 12 September 2023.
Subject to shareholder approval and the satisfaction (or, where
applicable, waiver) of the Conditions and further terms set out in
Part 3 of the Scheme Document, the Acquisition is expected to
become effective during Q2 FY2024.
I would like to thank all of our Board members for their time
and focus throughout this year.
Jonathan Bloomer
Chair
24 August 2023
Chief Executive Officer's Review
How did the Group perform this year?
We have once again grown the business profitably in what has
been a very challenging economic environment. Like other legal
businesses, we have seen salary and inflationary pressures, the
impact of interest rate increases and variable demand particularly
in transactional areas. Despite these challenges, we have seen our
organic growth strategy and integrated propositions continue to
resonate with clients, and have also added quality businesses to
the Group via our acquisitions of Acumension and Whitelaw
Twining.
You have further extended your capabilities in North America
through the transaction with Whitelaw Twining in Canada. How is
this integration progressing and what next for this region?
We were pleased to complete this transaction with Whitelaw
Twining, one of Canada's top legal businesses which we knew would
always represent a high quality opportunity for our clients. Good
progress has been made since they became part of the DWF Group in
December.
We have already expanded into the Toronto legal services market
with the hire of three partners, four additional lawyers, one
paralegal and two support staff. We are also seeing great
collaboration - between our legal and business services colleagues
within Canada and between our Canadian team and colleagues
globally.
This move marked the next step in DWF's North American strategy
and has given us an integrated legal and business services offering
in Canada which also aligns to the Group's existing claims and
legal operations offering in Chicago.
In a highly-competitive talent market, what have you done this
year to strengthen your colleague proposition?
Attracting and retaining the very best talent remains a top
priority. That is why in the past year we have taken steps to
continue strengthening our colleague proposition. I would highlight
two areas where we have made particular progress, through
significantly enhanced family friendly policies and improvements
made to a number of our office locations through our future
workplace strategy.
Our enhanced family friendly policies including aligning our
maternity leave provision for all colleagues and partners to offer
26 weeks at full salary, with this same 26-week provision available
to colleagues and partners taking adoption leave. We have doubled
our paternity leave entitlement from two weeks to a four-week
benefit and increased our Shared Parental Leave benefit from two
weeks with full pay, to eight weeks. These investments carry a
cost, but the improvements benefit our colleagues and support our
drive to create an inclusive culture.
Our future workplace strategy includes a commitment to reducing
the amount of overall office space and improving the quality,
contributing to our ESG commitments through our use of materials
and improving colleague wellbeing with smart and functional work
areas. The actions taken this year include a relocation in
Edinburgh, where we selected a building which has been designed
with a clear focus on sustainability, creating an exceptional
working environment and having a positive impact on the local
community.
We have also delivered a refit of our Bristol office, with work
also underway in Liverpool. Whilst this strategy remains a work in
progress, our expectation is that we will review all of our office
space globally with the aim that our current and future colleagues
view our office spaces as places they enjoy working from.
In March you announced changes to your global operating
structure. What will these changes allow you to do differently and
how do they support your integrated legal management approach?
The changes we announced in March were a natural evolution in
our strategy as they allow us to go further in how we deliver our
integrated offering to clients. It means our internal operations
are better aligned with the services we provide and the clients and
markets we serve. Many of our largest global clients are insurers
and our integrated legal management approach is of particular
relevance to them. By bringing legal and business services
colleagues together into our two largest divisions, we are
delivering a truly integrated offering to clients, driving greater
internal collaboration and supporting profitable revenue
growth.
What is the outlook for the year ahead?
We continue to be in turbulent times economically, and indeed
the legal sector has seen pressures from both rising costs and
volatility in demand particularly for transactional work. We have
always viewed ourselves as having a defensive model but are not
immune to the environment in which we operate. The margin dilution
from salary and interest rate increases, which brought us in at the
bottom end of Adjusted PBT expectations, will continue to need
mitigating actions on price, productivity and cost control. We
believe we have put the right initiatives in place to protect our
P&L, but are also having to work hard to ensure lock-up stays
within a sensible range as clients are inevitably holding on to
cash for longer. This has implications for our leverage and our
ability to execute our strategy. We remain confident in our
prospects, but cannot be complacent about the headwinds affecting
all businesses. Indeed, absent the Offer from Inflexion, the Board
would need to consider the appropriate level of dividend, if any,
for the period ending Apr-23 and DWF's medium term capital
management framework.
Sir Nigel Knowles
Group Chief Executive Officer
24 August 2023
Financial Review
A Challenging Environment
The Group has delivered profitable growth in a particularly
difficult environment for the sector. The results include reported
revenue growth of 8.6% to GBP452m (PY GBP416m), net revenue growth
of 8.5% to GBP380m (PY GBP350m), a 4.7% increase in adjusted profit
before tax to GBP43.3m (PY GBP41.4m) and a reported profit before
tax reduction of 23% to GBP17.2m (PY GBP22.3m).
In addition to top-line growth rates, the Group is gradually
seeing the stabilisation and reversal of gross margin dilution from
salary inflation over the last 18 months. The gross margin gap to
prior year at FY23 has reduced compared to HY23, reflecting some
improvements in pricing combined with the cost programme announced
in December 2022. Overheads and the cost-to-income ratio are
trending favourably with GBP11m of the previously announced cost
savings secured by the end of FY23. These dynamics help to
underscore confidence in market guidance as management has taken
action to offset some of the adverse economic circumstances not
envisaged when guidance was last issued.
Working capital performance continues to be an area of challenge
in an environment where clients are generally looking to manage
their own working capital cycle by often seeking longer billing or
payment cycles. The Group reported lock-up days of 190 at HY23
which reflected an 11 day increase on FY22. As expected, this
position stabilised in H2 with the like-for-like lock-up day
performance for the full year at 193 days (like-for-like excludes
M&A). Net debt performance follows lock-up days with FY23 net
debt of GBP101.7m.
Revenue
Revenue for the year is GBP452m (FY2021/22 GBP416m) representing
growth of 8.6%. However, the Group focusses revenue measurement on
net revenue as revenue is distorted by the level of irrecoverable
expenses incurred on delivery of client matters where such expenses
do not necessarily reflect the activity levels of the projects or
the business.
Net revenue for the Group is GBP380m (FY2021/22 GBP350m)
representing reported growth of 8.5% and like-for-like growth
(excluding acquisitions of Acumension and Whitelaw Twining) of
5%.
Divisional performance
Highlights of the performance by division are set out below:
Legal Advisory (83% of Group Net Revenue/85% of Group Gross
Profit)
GBPm FY2022/23 FY2021/22 Change
%/ppts
-----------------
+8.5
Revenue 385.3 355.1 %
----------------- ---------- ---------- -----------
+8.4
Net revenue 316.6 292.0 %
----------------- ---------- ---------- -----------
+11.0
Direct costs (154.0) (138.7) %
----------------- ---------- ---------- -----------
+6.1
Gross profit 162.6 153.2 %
----------------- ---------- ---------- -----------
Gross margin
%/ppts 51.4% 52.5% -(1.1)ppts
----------------- ---------- ---------- -----------
Legal Advisory delivered net revenue growth of 8% (LFL growth of
5%) despite facing a number of challenges throughout FY23,
including the impact of the Russia and Ukraine conflict and
significant political uncertainty in the United Kingdom during Q2
and Q3. High single digit percentage growth in a number of our
global teams such as Dispute Resolution and Finance &
Restructuring, with double digit percentage growth in Tax &
Private Capital, has been partly offset by transactional teams
which have been impacted by the broader economic uncertainty and
delays in the regulatory pipeline. Insurance grew by 5% and is
generally less affected by macro factors due to its defensive
nature. As the first financial year following the easing of
Covid-19 restrictions, FY23 chargeable activity was also adversely
impacted by increased absence as many colleagues took their first
substantial holidays since 2019.
Given these various top line headwinds, fee earner, team and
location performance levels have been closely monitored to identify
potential strategic cost savings and protect margins. Along with
tight controls over recruitment, these activities helped mitigate
the impact of cost pressures that intensified from the FY23 sector
'war on talent' and market demands including cost of living pay
increases for non-qualified grades upwards. Such actions needed to
be balanced sensibly with the longer-term needs of the
division.
Recruitment has been enhanced where the future pipeline warrants
investment, for example in insurance and our new sustainable
business offering and global arbitration teams. There has been a
drive to build presence in London and to recruit high quality
lateral hires into France and other overseas locations, whilst
supporting wider growth in lower cost jurisdictions to facilitate
efficient best-shoring of work.
Consequently direct costs have increased ahead of net revenue
growth, resulting in a degree of gross margin degradation. There
has also been an impact from lengthening matter lifecycles which
have led to slower payments from clients, placing pressure on
working capital and increasing lock-up days. This is consistent
with trends reported across the sector and a broad range of
measures have been introduced to mitigate risks in this regard.
This working capital stretch is considered to be a timing issue
which will ultimately unwind.
The end of the year saw the launch of a number of initiatives,
such as the planned introduction of pricing technology solutions to
help counteract ongoing inflationary cost pressures.
In addition, expansion into new locations (including Saudi
Arabia and Canada) will support the drive for profitable future
growth.
Connected Services (11% of Group Net Revenue/9% of Group Gross
Profit)
GBPm FY2022/23 FY2021/22 Change
%/ppts
-----------------
+21.5
Revenue 41.5 34.2 %
----------------- ---------- ---------- -----------
+20.1
Net revenue 40.7 33.9 %
----------------- ---------- ---------- -----------
+20.8
Direct costs (22.7) (18.8) %
----------------- ---------- ---------- -----------
+19.1
Gross profit 17.9 15.0 %
----------------- ---------- ---------- -----------
Gross margin
%/ppts 44.0% 44.4% -(0.4)ppts
----------------- ---------- ---------- -----------
Connected Services delivered net revenue growth of 20% compared
to FY22 (LFL growth of 14%). This growth was supported by the
acquisition of Acumension in September, a team of 47 legal costs
management specialists in the UK, which has expanded DWF's costs
management capability and enhanced the service for clients in the
insurance and public sectors.
Whilst net revenue has grown by GBP6.8m, gross profit did not
increase by the same proportion, resulting in gross margin decline
for the division. This was due to cost pressures driven primarily
by cost of living linked pay increases across a number of
territories, particularly the UK, US and Canada. This margin
dilution began to ease in Q4 as a result of cost measures and
pricing interventions and is expected to improve along with the
rest of the Group over time, particularly as efficiencies are
secured through the new divisional structure.
The Claims Management and Adjusting business has grown by 12%.
This was driven by both the US and Canadian geographies where the
strength of the North American insurance market led to new client
wins, teams in Chicago and Vancouver were expanded and as the
business benefitted from the pound weakening against the dollar.
The United Kingdom and Ireland business remained flat as new
business replaced Covid-19 Business Interruption claims work.
Combining the Claims Management and Adjusting business with
Insurance Legal Services in FY24 will promote greater client
sharing and collaboration.
The Regulatory business, which largely aligns to the new
Commercial Services Division, has grown by 23% and saw an improving
gross margin. With the exception of Audit, which underwent a
restructure during the year, all businesses showed double-digit net
revenue growth, reflecting a strong pipeline of work due to our
clients increasing demand for regulatory advice.
The wider Group restructure produces synergies with what was the
Legal Advisory division and presents the opportunity to reduce cost
within the division. The full impact of the cost efficiency
programme began to show through in the final quarter and, with the
majority of the identified savings being support roles, should have
limited impact on revenue.
Mindcrest (6% of Group Net Revenue/6% of Group Gross Profit)
GBPm FY2022/23 FY2021/22 Change
%/ppts
-----------------
Revenue 24.8 26.8 -(7.4)%
----------------- ---------- ---------- -----------
Net revenue 22.9 24.4 -(6.3)%
----------------- ---------- ---------- -----------
Direct costs (11.7) (11.8) -(0.7)%
----------------- ---------- ---------- -----------
Gross profit 11.2 12.7 -(11.4)%
----------------- ---------- ---------- -----------
Gross margin
%/ppts 49.0% 51.8% -(2.8)ppts
----------------- ---------- ---------- -----------
Mindcrest had a transitionary year as structural changes were
implemented, including a change in leadership and the recruitment
of new sales resource. The focus for H2 has been on building
pipeline and embedding the new dual go-to-market strategy,
focussing both on sales to the top 450 Group clients as well as
internal work transfer to secure Group margin benefit. As with
other divisions, the cost efficiency programme has driven some cost
removal but has also facilitated investment into sales resource in
the US (the largest alternative legal services provider market
globally).
Divisional net revenue contracted by 6% in the year, owing to
the conclusion of one of the division's flagship engagements which
began winding down in H2 of FY22. Despite net revenue having
contracted year-on-year, H2 of FY23 saw top line growth of 9% as
compared to H2 of FY22 as the division starts to generate momentum.
Certain services within the division have enjoyed particular
success, reflecting improved demand from financial services
clients. This includes eDiscovery services, which grew revenue by
15%, and lender/recovery services, which grew by 10%.
In addition to the restructuring and refocussing activities, the
division saw similar inflationary cost of living pressure across
all geographies (more so in United Kingdom following announcement
of Living Wage increases). The margin pressures began to ease in Q4
due to cost savings and the positive pipeline development.
Direct costs
Direct costs, which reflect the salary costs of fee-earning
partners and staff, have increased by GBP19m, or 11%, to GBP188m.
The acquisitions of Acumension and Whitelaw Twining accounted for
GBP6.5m of year-on-year increases, and in addition salary increases
and recruitment of new partners and fee-earners accounted for the
remaining GBP12.5m (7%) increase. A combination of broader
inflationary pressures and the well documented legal sector battle
for talent have driven the salary uplifts.
Gross profit
Gross profit of GBP192m reflects the impact of organic and
inorganic revenue growth and the salary increases from recruitment
and salary uplifts, with gross profit increasing by GBP11m or 6% on
FY2021/22. This reflects a gross margin % of net revenue of 50.4%
(FY2021/22 51.7%). This reduction reflects the investment made in
additional fee earning resources and the impact of salary increases
driven by sector and broader inflationary pressures. Pricing and
productivity are areas of focus which are expected to help mitigate
the gross margin dilution.
Administrative expenses
Administrative expenses (including impairment) have increased to
GBP168m (FY2021/22 GBP153m) which is a GBP14m or 9% increase.
However, on an underlying basis excluding adjusting items,
administrative expenses for FY2022/23 are GBP141m (FY2021/22
GBP134m), an increase of GBP7m or 5%. Approximately two thirds of
the year-on-year increase is attributable to the additional
overheads from the acquisitions of Acumension and Whitelaw Twining.
The balance predominantly represents increases in support staff
salaries, travel, business development and IT costs.
The restriction of underlying overhead growth to 5% has
delivered a cost-to-income ratio of 37.2% (FY2021/22 38.4%).
During the year, the Group announced a cost efficiency programme
with the aim of reducing both direct and indirect costs to help
offset other inflationary pressures. The outturn on administrative
expenses and the resulting reduction in cost-to-income ratio is
partly attributable to the savings delivered by this cost
programme, which began to reflect in the numbers in the final
quarter of the year. In May, the Group announced an increase in the
cost savings target from GBP10-GBP12m to GBP15m in recognition of
the continuing (and in the case of interest rates, increasing)
pressure on the Group's 'Adjusted Profit Before Tax' guidance. Cost
control will continue to be an area of focus with savings in
property (via estate reduction), project spend and other
discretionary overheads helping to mitigate ongoing salary
inflation and interest increases.
Adjusting items (the difference between reported and underlying
administrative expenses) were GBP26m (FY2021/22 GBP19m). The
increase is due to additional share based payment charges,
accelerated depreciation for vacant property, acquisition fees and
restructuring costs. The table below provides more details with
full analysis contained in note 2 to the financial statements:
GBPm FY2022/23 FY2021/22
-----------------------
Office closures
and scale-backs 10.0 (0.2)
----------------------- ---------- ----------
Acquisition related
expenses 6.5 9.6
----------------------- ---------- ----------
Gain on bargain (4.5) -
purchase
----------------------- ---------- ----------
Other share based
payments 10.8 9.6
----------------------- ---------- ----------
Restructuring costs 3.3 -
----------------------- ---------- ----------
Refinancing costs - 0.1
----------------------- ---------- ----------
Total adjusting
items 26.2 19.1
----------------------- ---------- ----------
Adjusting items in FY2022/23 can be summarised as:
1. Historical office closures, impairments and scalebacks where
some final costs were charged to the income statement in the year
in relation to Germany and the Pune lease for the unused 8(th)
floor was impaired;
2. Acquisition related expenses principally relating to
amortisation and impairment of intangibles recognised on
acquisition, acquisition related remuneration for Acumension and
Whitelaw Twining and acquisition related advisory fees;
3. Share based payment expenses reflecting grants from the
Employee Benefit Trust which is a pre-funded trust established on
IPO; and,
4. Non-recurring costs relating to the execution of the cost reduction programme
Net finance expense and interest payable on leases
Net finance expenses relating to bank charges and borrowings
were GBP5.3m (FY2021/22 GBP3.7m). Interest on bank borrowings
increased as a result of a combination of higher interest rates and
an increase in the level of net debt due to acquisition outflows
and higher lock-up.
Interest payable on leases of GBP1.7m (FY2021/22 GBP1.7m)
reflects the notional interest cost relating to lease
borrowings.
Profit before tax
The Group reported a profit before tax of GBP17.2m (FY2021/22
GBP22.3m) which represents a GBP5m or 23% reduction on the prior
year. The reduction is primarily driven by the GBP7m increase in
adjusting items as detailed above in the administrative expenses
section.
Adjusted PBT is GBP43.3m (FY2021/22 GBP41.4m) which represents a
4.7% increase on the prior year. The key factors driving the
slightly lower "drop-through" from revenue growth are the gross
margin dilution due to direct cost increases and significant
interest increases from both base rate rises and sector lock-up
stretch driving higher net debt. These factors are partially, but
not wholly, offset by the initial impacts from the cost programme
which means the adjusted PBT margin of 11.4% represents a 0.4ppts
reduction on prior year (FY2021/22 11.8%).
Tax
The reported tax charge for the year, excluding prior year
adjustments, is GBP5.7m (FY2021/22 GBP6.1m) on a profit before tax
of GBP17.2m (FY2021/22 GBP22.3m). This represents an effective rate
of tax of 32.9%. The effective tax rate was higher than the UK
statutory tax rate primarily due to current year tax losses that
have not been recognised as deferred tax assets (increasing the tax
charge by GBP2.5m) and the tax effect of non-deductible expenses
(increasing the tax charge by GBP1.7m) offset by the utilisation of
unrecognised losses brought forward (reducing the tax charge by
GBP2.1m).
The Group also booked prior year adjustments of a net credit of
GBP1.0m. Those adjustments principally arise as a result of (a)
finalisation of prior period partnership tax returns and partner
drawings impacting the profits subject to UK corporation tax
(GBP0.5m), and (b) revaluations of the Group's deferred tax assets
relating to tax depreciation timing differences and expected tax
deductions for share based payments as at 30 April 2022
(GBP0.5m).
This gives a net tax charge of GBP4.7m for the year (FY2021/22
GBP2.0m).
There are no open tax audits or investigations across the Group.
In line with Group tax strategy, it is not considered that any
aggressive or materially uncertain tax positions have been adopted
by any of the Group entities. As such, the level of tax risk faced
by the Group is considered to be low.
EPS
Diluted EPS has decreased to 3.8p in FY2022/23 compared to 6.5p
in FY2021/22. The reduction is due to three factors: an increase in
one-off (adjusting items) compared to the prior year, reducing the
reported profit; an increase in tax charge compared to prior year,
which benefitted from deductions from historical closures and
scalebacks; and an increase in the share count from the acquisition
of Whitelaw Twining during the second half of the year.
Adjusted diluted EPS has decreased to 10.2p (FY2021/22 10.7p), a
reduction of 0.5p or 5%. This reduction is due to the
aforementioned one-off benefit in the prior year tax charge which
enhanced the prior year EPS by an estimated 0.9p.
Dividend
The Group's capital allocation policy is to prioritise having
sufficient capital to fund ongoing operating requirements and
strategic investment in the Group's long term growth. Under normal
circumstances, the Board targets a pay-out ratio of up to 70% of
adjusted profit after tax. For FY2022/23, however, no final
dividend has yet been declared given the proposed acquisition of
DWF Group by Inflexion (which will include a special dividend
payment of 3 pence per share if the Offer becomes effective) and
unanimous recommendation that DWF Shareholders vote in favour of
the deal. If the Offer does not become effective, the Board will
need to consider the appropriate level of dividend, if any, for H2
2022/23.
Working capital, cash flow and net debt
The Group measures working capital efficiency using "lock-up
days". Lock-up days are comprised of two elements: Work-in-progress
("WIP days"), representing the amount of time between performing
work and invoicing clients; and Debtor days, representing the
length of time between invoicing and cash collection.
During the year, the Group saw a stretch in lock-up days to 190
days at the half year, after achieving consistent reductions over
the previous four reporting periods. This lock-up increase was in
line with reported lock-up stretch in the legal sector as client
demands have driven either extended billing cycles or longer
payment terms. Whilst the lock-up increase for the Group, at 5% at
half year, outperformed the sector-wide increase of 10% it
nevertheless has driven a higher overall lock-up balance and
resultant net debt outcome. The stated intention at the half-year
was to stabilise the position and this was broadly achieved with
year-end lock-up of 196 days (193 on a like-for-like basis
excluding Whitelaw Twining acquisition). In an inflationary
environment with rising interest rates the upward pressure on
billing and collection terms is potentially an ongoing risk. Whilst
the Group will continue to mitigate this by improving the
efficiency of internal influencing factors, the external
environment is not expected to enable significant near-term
reductions in lock-up.
The Group expects to continue to operate well within its
available facilities and for all covenants to be compliant for the
remaining tenure of the RCF.
Capital expenditure
The main capital expenditure requirements of the Group are for
IT infrastructure, replenishment and project work and office
refurbishments. Overall capex (excluding right-of-use asset
additions under IFRS 16, and intangible assets recognised from
acquisitions) in FY2022/23 was GBP6.3m compared to GBP7.9m in
FY2021/22.
Current trading and future outlook
The performance in FY2022/23 reflects another year of profitable
growth, albeit delivering an Adjusted PBT figure at the lower end
of expectations. Whilst profits increased year-on-year, gross and
net margins were diluted primarily as a result of direct cost
pressures from increased salaries demanded across the sector. The
Group has taken actions to mitigate these cost challenges via the
cost programme which has made good progress and is expected to help
to mitigate the ongoing upward cost pressures.
The balance sheet, specifically lock-up, has proved to be a
continuing challenge with the lock-up stretch seen in H1 sustaining
through H2 and into the new year. This increase in lock-up days has
led to increases in net debt and leverage and reflects sector-wide
pressures on billing frequencies and payment terms. Working capital
efficiency remains a key focus of the Group in order to maximise
cash generation to manage borrowing costs. Inevitably, there are
conflicting pressures between lock-up management, borrowing costs,
leverage, investments in M&A and dividend requirements which
are being carefully managed and considered by management and the
Board.
The Group continues to see growth and profit opportunities but
the various performance levers will require cautious management in
what continues to be a challenging environment.
Chris Stefani
Group Chief Financial Officer
24 August 2023
FINANCIAL STATEMENTS
Consolidated income statement
Year ended 30 April 2023
2023 2022
Notes GBP'000 GBP'000
---------------------------------------------- ------ ------------ ------------
Revenue 3 451,641 416,052
---------------------------------------------- ------------ ------------
Recoverable expenses 3 (71,505) (65,810)
---------------------------------------------- ------ ------------ ------------
Net revenue 3 380,136 350,242
---------------------------------------------- ------------ ------------
Direct costs 3 (188,395) (169,332)
---------------------------------------------- ------ ------------ ------------
Gross profit 3 191,741 180,910
---------------------------------------------- ------------ ------------
Administrative expenses (162,220) (146,691)
---------------------------------------------- ------------ ------------
Gain on bargain purchase 9 4,459 -
---------------------------------------------- ------------ ------------
Trade receivables impairment 13 (1,454) (2,973)
---------------------------------------------- ------------ ------------
Accelerated depreciation/amortisation 4 (6,452) -
---------------------------------------------- ------------ ------------
Other impairment 4 (1,856) (3,593)
---------------------------------------------- ------ ------------ ------------
Operating profit 4 24,218 27,653
---------------------------------------------- ------ ------------ ------------
Net finance expense 5 (5,310) (3,664)
---------------------------------------------- ------------ ------------
Net interest expense on leases 5 (1,739) (1,673)
---------------------------------------------- ------ ------------ ------------
Profit before tax 17,169 22,316
---------------------------------------------- ------ ------------ ------------
Total of adjusting items as defined
under the Group's alternative performance
measures 2 (26,158) (19,081)
---------------------------------------------- ------ ------------ ------------
Adjusted profit before tax 2 43,327 41,397
---------------------------------------------- ------ ------------ ------------
Taxation 6 (4,722) (2,029)
---------------------------------------------- ------ ------------ ------------
Profit for the year 12,447 20,287
---------------------------------------------- ------ ------------ ------------
Earnings per share attributable
to the owners of the parent:
---------------------------------------------- ------ ------------ ------------
Basic (p) 8 4.0 6.8
---------------------------------------------- ------ ------------ ------------
Diluted (p) 8 3.8 6.5
---------------------------------------------- ------ ------------ ------------
The results are from continuing operations.
Consolidated statement of comprehensive income
Year ended 30 April 2023
2023 2022
GBP'000 GBP'000
------------------------------------------------------ ---------- ----------
Profit for the year 12,447 20,287
------------------------------------------------------ ---------- ----------
Items that are or may be subsequently reclassified
to the income statement:
------------------------------------------------------ ---------- ----------
Foreign currency translation differences - foreign
operations (1,388) 83
------------------------------------------------------ ---------- ----------
Total other comprehensive (expense)/income for
the year (1,388) 83
------------------------------------------------------ ---------- ----------
Total comprehensive income for the year 11,059 20,370
------------------------------------------------------ ---------- ----------
There is no taxation on items within other comprehensive
income.
Consolidated statement of financial position
As at 30 April 2023
2023 2022
Notes GBP'000 GBP'000
------------------------------------------ ------ ----------- -----------
Non-current assets
------------------------------------------ ------ ----------- -----------
Intangible assets 10 49,890 45,604
------------------------------------------ ------ ----------- -----------
Property, plant and equipment 11 9,300 11,239
------------------------------------------ ------ ----------- -----------
Right-of-use assets 12 57,223 65,234
------------------------------------------ ------ ----------- -----------
Trade and other receivables 13 412 1,464
------------------------------------------ ------ ----------- -----------
Deferred tax assets 20 4,320 3,938
------------------------------------------ ------ ----------- -----------
Total non-current assets 121,145 127,479
------------------------------------------ ------ ----------- -----------
Current assets
------------------------------------------ ------ ----------- -----------
Trade and other receivables 13 243,339 190,174
------------------------------------------ ------ ----------- -----------
Cash and cash equivalents (excluding
bank overdrafts) 14 36,404 28,310
------------------------------------------ ------ ----------- -----------
Total current assets 279,743 218,484
------------------------------------------ ------ ----------- -----------
Total assets 400,888 345,963
------------------------------------------ ------ ----------- -----------
Current liabilities
------------------------------------------ ------ ----------- -----------
Trade and other payables 15 59,855 63,325
------------------------------------------ ------ ----------- -----------
Corporation tax liabilities 9,366 6,190
------------------------------------------ ------ ----------- -----------
Deferred consideration 583 890
------------------------------------------ ------ ----------- -----------
Lease liabilities 16 13,712 14,576
------------------------------------------ ------ ----------- -----------
Interest-bearing loans and borrowings 17 23,512 9,786
------------------------------------------ ------ ----------- -----------
Provisions 18 6,898 6,315
------------------------------------------ ------ ----------- -----------
Amounts due to members of partnerships
in the Group 27 30,700 28,243
------------------------------------------ ------ ----------- -----------
Total current liabilities 144,626 129,325
------------------------------------------ ------ ----------- -----------
Non-current liabilities
------------------------------------------ ------ ----------- -----------
Deferred tax liabilities 20 7,501 5,869
------------------------------------------ ------ ----------- -----------
Lease liabilities 16 58,298 63,163
------------------------------------------ ------ ----------- -----------
Interest-bearing loans and borrowings 17 114,640 90,344
------------------------------------------ ------ ----------- -----------
Provisions 18 3,772 4,147
------------------------------------------ ------ ----------- -----------
Total non-current liabilities 184,211 163,523
------------------------------------------ ------ ----------- -----------
Total liabilities 328,837 292,848
------------------------------------------ ------ ----------- -----------
Net assets 72,051 53,115
------------------------------------------ ------ ----------- -----------
Equity
------------------------------------------ ------ ----------- -----------
Share capital 21 3,420 3,254
------------------------------------------ ------ ----------- -----------
Share premium 21 91,940 89,365
------------------------------------------ ------ ----------- -----------
Treasury shares 21 (129) (129)
------------------------------------------ ------ ----------- -----------
Other reserves 22 17,021 4,929
------------------------------------------ ------ ----------- -----------
Accumulated losses 22 (40,201) (44,304)
------------------------------------------ ------ ----------- -----------
Total equity 72,051 53,115
------------------------------------------ ------ ----------- -----------
Consolidated statement of changes in equity
Year ended 30 April 2023
Other reserves
---------------------------------------
Share-based
Share Share Treasury Merger payments Translation Accumulated Total
capital premium shares reserve reserve reserve losses equity
(note (note (note (note (note (note (note
21) 21) 21) 22) 22) 22) 22)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
At 1 May 2022 3,254 89,365 (129) (2,385) 11,512 (4,198) (44,304) 53,115
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Profit for
the year - - - - - - 12,447 12,447
---------------- --------- ---------- --------- ------------- ------------- ------------- ----------
Other
comprehensive
income - - - - - (1,388) - (1,388)
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Total
comprehensive
income - - - - - (1,388) 12,447 11,059
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Shares issued 166 2,575 - - - 2,741
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Dividends paid - - - - - - (15,113) (15,113)
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Share-based
payments
(note
23) - - - - 20,774 - - 20,774
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Recycling of
share-based
payments
(note
23) - - - - (7,294) - 7,294 -
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Tax on
share-based
payments - - - - - - (525) (525)
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
At 30 April
2023 3,420 91,940 (129) (2,385) 24,992 (5,586) (40,201) 72,051
---------------- --------- --------- ---------- --------- ------------- ------------- ------------- ----------
Year ended 30 April 2022
Other reserves
-------------------------------
Share-based
Share Share Treasury Merger payments Translation Accumulated Total
capital premium shares reserve reserve reserve losses equity
(note 22) (note 22) (note (note
(note 21) (note 21) (note 21) 22) 22)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
At 1 May 2021 3,246 88,610 (129) (2,385) 12,885 (4,281) (60,566) 37,380
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Profit for the
year - - - - - - 20,287 20,287
---------------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Other
comprehensive
income - - - - - 83 - 83
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Total
comprehensive
income - - - - - 83 20,287 20,370
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Shares issued 8 755 - - - - - 763
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Dividends paid - - - - - - (13,537) (13,537)
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Share-based
payments
(note 23) - - - - 7,701 - - 7,701
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Recycling of
share-based
payments
(note 23) - - - - (9,074) - 9,074 -
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Tax on
share-based
payments - - - - - - 438 438
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
At 30 April
2022 3,254 89,365 (129) (2,385) 11,512 (4,198) (44,304) 53,115
---------------- ----------- ----------- ----------- ----------- ------------- --------------- --------------- ------------
Consolidated statement of cash flows
Year ended 30 April 2023
2023 2022
Note GBP'000 GBP'000
------------------------------------------------ ----- ----------- ------------
Cash flows from operating activities
------------------------------------------------ ----------- ------------
Cash generated from operations before
adjusting items 26 42,929 41,623
------------------------------------------------ ----------- ------------
Cash used to settle non-underlying items (6,756) (8,464)
------------------------------------------------ ----- ----------- ------------
Cash generated from operations 36,173 33,159
------------------------------------------------ ----------- ------------
Interest paid (5,979) (4,596)
------------------------------------------------ ----------- ------------
Interest received 468 -
------------------------------------------------ ----------- ------------
Tax paid (3,713) (2,854)
------------------------------------------------ ----- ----------- ------------
Net cash generated from operating activities 26,949 25,709
------------------------------------------------ ----- ----------- ------------
Cash flows from investing activities
------------------------------------------------ ----------- ------------
Proceeds from sale of investment - 227
------------------------------------------------ ----------- ------------
Acquisition of subsidiary, net of cash
acquired 9 (16,807) (3,540)
------------------------------------------------ ----------- ------------
Purchase of property, plant and equipment (2,874) (3,581)
------------------------------------------------ ----------- ------------
Purchase of other intangible assets (3,452) (4,300)
------------------------------------------------ ----- ----------- ------------
Net cash flows used in investing activities (23,133) (11,194)
------------------------------------------------ ----- ----------- ------------
Cash flows from financing activities
------------------------------------------------ ----------- ------------
Dividends paid 7 (15,113) (13,537)
------------------------------------------------ ----------- ------------
Loan arrangement fee (163) (626)
------------------------------------------------ ----------- ------------
Proceeds from borrowings 37,089 109,727
------------------------------------------------ ----------- ------------
Repayment of borrowings (10,908) (104,861)
------------------------------------------------ ----------- ------------
Repayment of principal of lease liabilities 16 (14,447) (13,396)
------------------------------------------------ ----------- ------------
Interest received - 101
------------------------------------------------ ----------- ------------
Capital contributions by members 27 7,237 2,132
------------------------------------------------ ----------- ------------
Repayments to former members 27 (4,807) (1,072)
------------------------------------------------ ----- ----------- ------------
Net cash flows used in financing activities (1,112) (21,532)
------------------------------------------------ ----- ----------- ------------
Net increase/(decrease) in cash and
cash equivalents 2,704 (7,017)
------------------------------------------------ ----- ----------- ------------
Cash and cash equivalents at the beginning
of year 27,704 34,580
------------------------------------------------ ----- ----------- ------------
Effects of foreign exchange rate changes
on cash and cash equivalents 188 141
------------------------------------------------ ----- ----------- ------------
Cash and cash equivalents at the end
of year 14 30,596 27,704
------------------------------------------------ ----- ----------- ------------
Consolidated notes to the financial statements
Year ended 30 April 2023
1 Accounting policies
1.1 Nature of these financial statements
The following financial information does not amount to full
financial statements within the meaning of Section 434 of Companies
Act 2006. The financial information has been extracted from the
Group's Annual Report and Financial Statements for the year ended
30 April 2023 on which an unqualified report has been made by the
Company's auditors. The 2023 statutory accounts will be delivered
to Companies House in due course.
Copies of the Annual Report and Financial Statements will be
posted to shareholders shortly and will be available from the
Company's registered office at 20 Fenchurch Street, London, EC2M
3AG.
1.2 Statement of accounting policies
The preliminary announcement for the year ended 30 April 2023
has been produced based on the Group's annual financial statements
which are prepared in accordance with UK-adopted International
Financial Reporting Standards. The accounting policies applied in
this preliminary announcement are consistent with those reported in
the Group's annual financial statements for the year ended 30 April
2023 along with new standards and interpretations which became
mandatory for the financial year.
1.3 Going concern
The Directors have assessed the going concern basis adopted by
the Group in the preparation of the consolidated financial
statements, taking into account the current financial position
including its available financing facilities, the business model
and future outlook, as well as the principal risks as listed in the
Strategic Report. The Directors conclude that the Group has
adequate resources to continue as a going concern across the period
of assessment.
Assessment of going concern
The going concern assessment has been considered for the period
to 31 October 2024 and is carried out as follows:
-- The Group's Board-approved budget base case is used to
calculate the net debt position, liquidity, covenant compliance and
available headroom over the going concern period.
-- The going concern assessment has been carried out on two
different base cases, the first of which assumes the recommendation
of an all cash offer for DWF Group plc from Aquila Bidco Limited is
accepted, and the second of which assumes that the business
continues as a Plc.
-- The assessment of going concern is carried out with reference
to available financing facilities under both scenarios, the ability
to pay debts as they fall due and the covenants associated with the
financing facilities.
-- Plausible downside scenarios are modelled to quantify the
impact of a variety of risks materialising over the going concern
period.
-- Mitigating actions which could be taken are identified,
quantified and included in the assessment.
-- The reasonable worst case scenario, along with mitigating
actions, is then used to test that the Group would continue to have
headroom in its available financing facilities, settle liabilities
as they fall due and comply with the associated financial covenants
over the going concern period.
Financing facilities
The Group closed the year with committed banking facilities of
GBP158m (of which GBP139m were drawn). The largest of these is the
GBP120m revolving credit facility ('RCF'), which was increased
through exercising the accordion facility in February 2023. This
RCF matures in December 2025, with one additional 12-month
extension option. The undrawn portion of the RCF is readily
accessible and does not require any further approval for drawdown
by the Group's banking syndicate. The facility agreement also
permits the Group to obtain a further GBP25m of external funding
and GBP15m of leasing facilities, if required. The covenant
thresholds across the assessment period are set out below:
Covenant Oct-23 Jan-24 Apr-24 Jul-24 Oct-24
------- ------- ------- -------
Net Asset Value to Consolidated
Net Borrowings 1.60x 1.60x 1.60x 1.60x 1.60x
Interest Cover 4.00x 4.00x 4.00x 4.00x 4.00x
Leverage 1.75x 1.75x 1.75x 1.75x 1.75x
--------------------------------- ------- ------- ------- ------- -------
Each of the covenants noted above is measured on a pre-IFRS 16
basis in accordance with the banking facility agreement. Interest
cover is defined as the ratio of EBITDA to interest expense, and
leverage is defined as the ratio of net debt to EBITDA.
If the recommendation of an all cash offer for DWF Group plc
from Aquila Bidco Limited is approved, the current facilities will
be fully repaid on completion, and new committed banking facilities
of GBP330m will become available to the Group. The new facilities
have long-term maturity dates, and include two working capital
facilities, comprising GBP30m initial, with an additional optional
GBP40m to drawdown on. There is also an additional GBP60m facility
available to be utilised for future acquisitions, subject to lender
approval. There are different covenant thresholds across the
facilities, but the minimum covenant ratio has been modelled for
the assessment period and these are as follows:
Covenant Oct-23 Jan-24 Apr-24 Jul-24 Oct-24
-------- -------- -------- -------
Leverage - - - 4.50x 4.50x
---------- -------- -------- -------- ------- -------
Future outlook, risks and uncertainties
The going concern and viability assessments are closely linked
and therefore the conclusions of the going concern assessment are
directly relevant to and should be read in conjunction with the
viability statement. The Board-approved base case combined with the
annual three-year plan, adjusted to include Whitelaw Twining, has
been used to measure the going concern and future viability of the
Group. This assessment has been performed on the same two bases as
going concern. This includes monitoring net debt positions and cash
management activities of the Group and their effect on covenant
testing. The going concern and viability of the Group have been
assessed taking into account the potential impact of certain
downside scenarios arising from the principal risks and
uncertainties.
In particular, the Board has considered the impact of both a
de-listing and business-as-usual scenario, including impacts on
cash flows and covenants. In addition the assessment considers the
potential reduction in demand caused by either macro environmental
factors, commercial pipeline, our ability to retain or attract the
correct level of talent as well as inflationary pressures over and
above each base case.
Mitigating actions
If faced with the reasonable worst-case scenario, the Board also
considers possible mitigating actions available to the Group to
maintain liquidity and covenant compliance. These can be swiftly
implemented should the worst-case scenario arise and include (but
are not limited to):
-- freezing recruitment and a slowdown in investment in recruitment and reward;
-- reducing discretionary operating spend such as marketing and travel;
-- reducing non-committed capital expenditure;
-- revision of the existing dividend policy; and
-- cost cutting measures in non-fee earning areas including an
acceleration of the execution of the Group's real estate reduction
strategy
Reverse stress test
In addition to the modelling of the above scenarios, a reverse
stress test was conducted by the Group to assess the quantum of
increased inflationary pressures and a stretch in working capital
that would materially impact our ability to comply with financial
covenants. Such a material impact is not considered a reasonable
scenario to adversely impact the going concern assessment, under
either scenario.
Conclusion
Based on this assessment, the Directors have a reasonable
expectation that the Group and Company has sufficient resources to
continue its operations for the period of assessment. In particular
the Directors have a reasonable expectation that the Group and
Company will operate under its existing financing facilities, will
comply with all covenants with adequate headroom and settle all
other liabilities as they fall due. The Directors therefore
consider it appropriate for the Group and Company to adopt the
going concern basis in preparing these financial statements.
The directors are satisfied that under the no deal basis there
is sufficient support and knowledge of the cash flows and
operations of the business to adopt a going concern basis for the
Group and Company. The all cash offer for DWF Group plc from Aquila
Bidco Limited outlined above remains subject to shareholder
approval. Assuming such approval is received, the transaction is
expected to complete within 12 months of these Financial
Statements. Aquila Bidco Limited have stated their intentions
surrounding the Group's future outlook and funding plans and these
align to the Group's current business plan and strategy. However,
as the decisions around future strategy and intentions will no
longer be in the exclusive control of the DWF Group PLC Directors,
this creates a material uncertainty that may cast significant doubt
on the Group and Company's ability to continue as a going concern
as at 24th August 2023. The financial statements do not include the
adjustments that would result if the Group or Company were unable
to continue as a going concern.
2 Alternative performance measures
APM's are not intended to supplant IFRS measures but are
included in response to investor feedback or to provide readers of
the financial statements with additional understanding of the
underlying trading performance of the Group.
APMs are fully defined and information as to why they are useful
is provided in the glossary. Adjusted profit before tax reconciles
to profit before tax as follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------------- ---------- ----------
Profit before tax 17,169 22,316
-------------------------------------------------- ---------- ----------
Adjusting items:
-------------------------------------------------- ---------- ----------
Amortisation of intangible assets - acquired 3,929 4,655
-------------------------------------------------- ---------- ----------
Impairment of intangible assets 1,494 2,966
-------------------------------------------------- ---------- ----------
Impairment of tangible and right of use assets 362 627
-------------------------------------------------- ---------- ----------
Accelerated depreciation/amortisation 6,452 -
-------------------------------------------------- ---------- ----------
Non-underlying items 6,248 1,224
-------------------------------------------------- ---------- ----------
Gain on bargain purchase (4,459) -
-------------------------------------------------- ---------- ----------
Share-based payments expense 12,132 9,609
-------------------------------------------------- ---------- ----------
Total of adjusting items 26,158 19,081
-------------------------------------------------- ---------- ----------
Adjusted PBT 43,327 41,397
-------------------------------------------------- ---------- ----------
In FY23, an accelerated depreciation charge of GBP6.5m (FY22:
GBPnil) was recognised in relation to the right of use, and other
fixed assets located within a vacant floor in the Pune office.
There are no future plans to occupy this space given the adoption
of hybrid working, therefore associated assets have been fully
depreciated in the year.
Adjusted profit before tax reconciles to profit before tax with
reconciling items by nature as follows:
2023 2022
GBP'000 GBP'000
----------------------------------- ---------- ----------
Profit before tax 17,169 22,316
----------------------------------- ---------- ----------
Office closures and scale-backs 9,972 (238)
----------------------------------- ---------- ----------
Acquisition-related expenses 6,493 9,564
----------------------------------- ---------- ----------
Gain on bargain purchase (4,459) -
----------------------------------- ---------- ----------
Share-based payment expense 10,822 9,609
----------------------------------- ---------- ----------
Restructuring costs 3,330 -
----------------------------------- ---------- ----------
Refinancing costs - 146
----------------------------------- ---------- ----------
Adjusted PBT 43,327 41,397
----------------------------------- ---------- ----------
Cash used to settle non-underlying items includes GBP5.4m (FY22:
GBP3.8m) relating to closures and other restructure costs and
GBP1.4m (FY22: GBP4.6m) relating to acquisition-related advisory
fees.
Non-underlying items are set out in the table below:
2023 2022
GBP'000 GBP'000
------------------------------------------------ --- ---------- ----------
Acquisition-related advisory fees a 1,254 336
------------------------------------------------ --- ---------- ----------
Acquisition-related expenses b - 1,104
------------------------------------------------ --- ---------- ----------
Closure and scale-back of operations c 1,664 (362)
------------------------------------------------ --- ---------- ----------
Restructuring costs d 3,330 -
------------------------------------------------ --- ---------- ----------
Non-underlying items within operating profit 6,248 1,078
----------------------------------------------------- ---------- ----------
Non-underlying finance expense e - 146
------------------------------------------------ --- ---------- ----------
Total non-underlying items 6,248 1,224
----------------------------------------------------- ---------- ----------
a. The Group periodically considers and analyses potential
acquisition targets and recognises there is inherent complexity and
risk associated with acquisitions. The Group manages this by
employing external professional advisors to perform legal,
financial, commercial and tax due diligence on targets. These costs
relate to opportunities the Group identifies and pursues, of which
a portion result in successful acquisitions. Acquisition fees in
the current period relate to the acquisitions of Acumension and
Whitelaw Twining as well as fees for aborted acquisitions.
b. Acquisition-related expense relates to the remuneration
expense from the acquisition of Mindcrest in FY20. Payments to the
sellers of Mindcrest were deemed to be remuneration (and not
consideration) under IFRS 3, and therefore expensed over the deemed
service period rather than included in goodwill. As these costs are
not considered recurring and ceased in February 2022, they have
been included within adjusting items in order to give greater
clarity of underlying trading performance.
c. Closure and scale-back of operations in the current year
relate to ongoing costs relating to the scale-back of operations in
Germany which commenced in FY21 and final costs for the completion
of closures and scale-backs in other jurisdictions such as
Singapore. These costs comprise people and supplier exit expenses
as a result of the decision taken.
d. During the year, the Group commenced an efficiency programme
with the aim of removing cost from the business. Costs of executing
the restructuring are considered non-recurring as a restructuring
of this size is one-off and as a result is reported as a
non-underlying item to provide clarity of underlying trading
performance.
e. These costs are associated with the FY22 re-financing and
include professional fees incurred that are significant in value
and by their nature are not recurring annually.
The cost to income ratio is used to assess the levels of
operational gearing in the Group. The cost to income ratio is
defined as administrative expenses less adjusting items and divided
by net revenue and is calculated as follows:
2023 2022
GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Net revenue 380,136 350,242
------------------------------------------------------ ----------- -----------
Administrative expenses, gain on bargain purchase,
accelerated depreciation and impairment 167,523 153,257
------------------------------------------------------ ----------- -----------
Total of adjusting items (26,158) (19,081)
------------------------------------------------------ ----------- -----------
Less: re-financing costs included in adjusting
items - 146
------------------------------------------------------ ----------- -----------
Adjusted administrative expenses 141,365 134,322
------------------------------------------------------ ----------- -----------
Cost to income ratio 37.2% 38.4%
------------------------------------------------------ ----------- -----------
3 Operating segments
Reporting segments
In accordance with IFRS 8: Operating Segments ('IFRS 8'), the
Group's operating segments are based on the operating results
reviewed by the Board, who represent the chief operating decision
maker ('CODM'). The Group has the following three strategic
divisions, which are its reportable segments. These divisions offer
different services and are reported separately because of different
specialisms within teams in the business group.
The following summary describes the operations of each
reportable segment:
Reportable segment Operations
Legal Advisory Premium legal advice, commercial intelligence
and relevant industry experience.
Connected Services Collection of products and business services
that enhance and complement our legal
offerings.
Mindcrest* Outsourced and process-led legal services,
designed to standardise, systemise, scale
and optimise legal workflows.
The revenue, net revenue and gross profit are attributable to
the principal activities of the Group.
Effective from 1 May 2023, the Group changed from the above
strategic divisions to:
Reportable segment Operations
Commercial Services Combining our commercial Legal Advisory
teams with business services including
Global Entity Management, Forensic Accountants,
ESG Consulting and Regulatory Consulting.
Insurance Services Combining our insurance-focused legal
and business services expertise under
a single leadership team.
Legal Operations Our alternative legal services provider,
delivering services including eDiscovery,
contract management, compliance, legal
technology, consulting and operations,
and knowledge management.
These changes to the Group's internal structure are a natural
evolution to those made at the start of FY22, and will allow DWF to
go further in how it delivers its integrated offering to
clients.
For year ended 30 April 2023
Connected
Legal Advisory Services Mindcrest Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------------- ----------- ----------- -----------
Revenue 385,263 41,547 24,831 451,641
----------------------- ---------------- ----------- ----------- -----------
Recoverable expenses (68,685) (894) (1,926) (71,505)
----------------------- ---------------- ----------- ----------- -----------
Net revenue 316,578 40,653 22,905 380,136
----------------------- ---------------- ----------- ----------- -----------
Direct costs (153,959) (22,749) (11,687) (188,395)
----------------------- ---------------- ----------- ----------- -----------
Gross profit 162,619 17,904 11,218 191,741
----------------------- ---------------- ----------- ----------- -----------
Gross margin % 51.4% 44.0% 49.0% 50.4%
----------------------- ---------------- ----------- ----------- -----------
Administrative expenses (162,220)
------------------------------------------------------------------- -----------
Gain on bargain purchase 4,459
------------------------------------------------------------------- -----------
Trade receivables impairment (1,454)
------------------------------------------------------------------- -----------
Other impairment (1,856)
------------------------------------------------------------------- -----------
Accelerated depreciation/amortisation (6,452)
------------------------------------------------------------------- -----------
Operating profit 24,218
------------------------------------------------------------------- -----------
Net finance expense (5,310)
------------------------------------------------------------------- -----------
Net interest expense on leases (1,739)
------------------------------------------------------------------- -----------
Profit before tax 17,169
------------------------------------------------------------------- -----------
Taxation (4,722)
------------------------------------------------------------------- -----------
Profit for the year 12,447
------------------------------------------------------------------- -----------
In FY23, an accelerated depreciation charge of GBP6.5m (FY22:
GBPnil) was recognised in relation to the right of use, and other
fixed assets located within a vacant floor in the Pune office.
There are no future plans to occupy this space given the adoption
of hybrid working, therefore associated assets have been fully
depreciated in the year.
Within administrative expenses, there is an impairment loss of
GBP1.5m recognised relating to the Zing CGU. This is attributable
to the Connected Services segment.
For year ended 30 April 2022
Connected
Legal Advisory Services Mindcrest Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------- ---------------- ----------- ----------- -----------
Revenue 355,063 34,181 26,808 416,052
----------------------- ---------------- ----------- ----------- -----------
Recoverable expenses (63,110) (324) (2,376) (65,810)
----------------------- ---------------- ----------- ----------- -----------
Net revenue 291,953 33,857 24,432 350,242
----------------------- ---------------- ----------- ----------- -----------
Direct costs (138,729) (18,828) (11,775) (169,332)
----------------------- ---------------- ----------- ----------- -----------
Gross profit 153,224 15,029 12,657 180,910
----------------------- ---------------- ----------- ----------- -----------
Gross margin % 52.5% 44.4% 51.8% 51.7%
----------------------- ---------------- ----------- ----------- -----------
Administrative expenses (146,691)
------------------------------------------------------------------- -----------
Trade receivables impairment (2,973)
------------------------------------------------------------------- -----------
Other impairment (3,593)
------------------------------------------------------------------- -----------
Operating profit 27,653
------------------------------------------------------------------- -----------
Net finance expense (3,664)
------------------------------------------------------------------- -----------
Net interest expense on leases (1,673)
------------------------------------------------------------------- -----------
Profit before tax 22,316
------------------------------------------------------------------- -----------
Taxation (2,029)
------------------------------------------------------------------- -----------
Profit for the year 20,287
------------------------------------------------------------------- -----------
There are no inter-segmental revenues which are material for
disclosure. Administrative expenses represent indirect costs that
are not specifically allocated to segments.
Non-current assets, revenue and net revenue by region
The UK is the Parent Company's country of domicile and the Group
generates the majority of its revenue from external clients in the
UK. The geographical analysis of revenue and net revenue is on the
basis of the country of origin in which the client is invoiced.
The Group's non-current assets, net revenue and revenue by
geographical region are as follows:
Non-current assets Revenue Net revenue
2023 2022 2023 2022 2023 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------- --------- -------- -------- -------- --------
UK 75,702 57,141 333,442 310,381 268,284 250,584
--------------------- ---------- --------- -------- -------- -------- --------
Spain 23,419 23,935 40,241 36,515 40,241 36,515
--------------------- ---------- --------- -------- -------- -------- --------
North America 14,331 12,100 23,833 7,717 23,828 7,702
--------------------- ---------- --------- -------- -------- -------- --------
Asia 1,464 14,063 11,654 11,107 10,312 8,838
--------------------- ---------- --------- -------- -------- -------- --------
Rest of World 1,497 14,838 42,471 50,332 37,471 46,603
--------------------- ---------- --------- -------- -------- -------- --------
Total allocated
to geographical
regions 116,413 122,077 451,641 416,052 380,136 350,242
--------------------- ---------- --------- -------- -------- -------- --------
Deferred tax assets 4,320 3,938
--------------------- ---------- ---------
Non-current other
trade receivables 412 1,464
--------------------- ---------- ---------
Total 121,145 127,479
--------------------- ---------- ---------
Total assets and liabilities for each reportable segment are not
provided to the CODM and therefore not presented.
4 Operating profit and auditor's remuneration
2023 2022
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
Recognised in the income statement
--------------------------------------------------- ---------- ----------
Impairment of intangible assets 1,494 2,966
--------------------------------------------------- ---------- ----------
Amortisation of intangible assets - acquired 3,929 4,655
--------------------------------------------------- ---------- ----------
Impairment of property, plant and equipment
and right-of-use assets 362 627
--------------------------------------------------- ---------- ----------
Accelerated depreciation/amortisation 6,452 -
--------------------------------------------------- ---------- ----------
Gain on bargain purchase (4,459) -
--------------------------------------------------- ---------- ----------
Non-underlying items (less: non-underlying
finance expense) 6,248 1,078
--------------------------------------------------- ---------- ----------
Share-based payments expense (note 23) 12,132 9,609
--------------------------------------------------- ---------- ----------
Total of adjusting items within operating
profit 26,158 18,935
--------------------------------------------------- ---------- ----------
Members' remuneration charged as an expense 44,829 43,670
--------------------------------------------------- ---------- ----------
Net foreign exchange gain (1,431) (1,856)
--------------------------------------------------- ---------- ----------
Amortisation of intangible assets - software
and capitalised development costs 3,268 4,251
--------------------------------------------------- ---------- ----------
Depreciation of tangible assets 3,562 2,960
--------------------------------------------------- ---------- ----------
Depreciation of right-of-use assets 12,365 12,737
--------------------------------------------------- ---------- ----------
Auditor's remuneration
--------------------------------------------------- ---------- ----------
Audit of the Group financial statements 535 510
--------------------------------------------------- ---------- ----------
Total audit fees 535 510
--------------------------------------------------- ---------- ----------
Amounts payable to the Company's auditor
and its associates in respect of:
--------------------------------------------------- ---------- ----------
Audit of financial information of subsidiaries,
subsidiary undertakings and partnerships
of the DWF Group plc 150 125
--------------------------------------------------- ---------- ----------
Other services pursuant to legislation or
regulation 429 105
--------------------------------------------------- ---------- ----------
Total fees 1,114 740
--------------------------------------------------- ---------- ----------
5 Net finance expense and net interest expense on leases
2023 2022
GBP'000 GBP'000
----------------------------------------- ---------- ----------
Finance income
----------------------------------------- ---------- ----------
Interest receivable 861 101
----------------------------------------- ---------- ----------
861 101
----------------------------------------- ---------- ----------
Finance expense
----------------------------------------- ---------- ----------
Interest payable on bank borrowings 4,969 2,300
----------------------------------------- ---------- ----------
Other interest payable 112 54
----------------------------------------- ---------- ----------
Bank and other charges 1,090 1,265
----------------------------------------- ---------- ----------
Non-underlying finance expense - 146
----------------------------------------- ---------- ----------
6,171 3,765
----------------------------------------- ---------- ----------
Net finance expense 5,310 3,664
----------------------------------------- ---------- ----------
Net interest expense on leases
----------------------------------------- ---------- ----------
Interest expense on lease liabilities 1,739 1,673
----------------------------------------- ---------- ----------
1,739 1,673
----------------------------------------- ---------- ----------
6 Taxation
2023 2022
GBP'000 GBP'000
------------------------------------------- ---------- ----------
UK corporation tax on profit 4,858 5,639
Foreign tax on profit 2,188 2,822
-------------------------------------------
Adjustments in respect of prior periods (445) (5,443)
------------------------------------------- ---------- ----------
Current tax expense 6,601 3,018
------------------------------------------- ---------- ----------
Deferred tax credit (1,341) (2,354)
------------------------------------------- ---------- ----------
Adjustments in respect of prior periods (538) 1,365
------------------------------------------- ---------- ----------
Total deferred tax credit (1,879) (989)
------------------------------------------- ---------- ----------
Total tax charge for the year 4,722 2,029
------------------------------------------- ---------- ----------
The effective tax rate is higher (2022: lower) than the average
rate of corporate tax in the UK of 19.5% (2022: 19%), and excluding
prior year adjustments the effective tax rate is higher than the
average rate of corporate tax in the UK. The difference is
explained below:
2023 2022
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
Profit before taxation 17,169 22,316
--------------------------------------------------- ---------- ------------
Tax on Group profit at standard UK corporation
tax rate of 19.5%/25% (2022: 19%) 3,348 4,240
--------------------------------------------------- ---------- ------------
Foreign tax rate differences 498 (4)
--------------------------------------------------- ---------- ------------
Non-deductible expenses 1,656 706
--------------------------------------------------- ---------- ------------
Adjustments in respect of prior periods (983) (4,079)
--------------------------------------------------- ---------- ------------
Brought forward tax losses utilised (2,115) (263)
--------------------------------------------------- ---------- ------------
Tax losses in year not recognised as assets 2,478 2,060
--------------------------------------------------- ---------- ------------
Impact of share price on expected tax deduction - 203
--------------------------------------------------- ---------- ------------
Effect on deferred tax of change in corporation
tax rate (160) (834)
--------------------------------------------------- ---------- ------------
Group total tax charge for the year 4,722 2,029
--------------------------------------------------- ---------- ------------
In the Spring Budget 2021, the Government announced that from 1
April 2023 the corporation tax rate would increase to 25%. The
impact of the change in tax rate has been recognised in tax expense
in the income statement, except to the extent that it relates to
items previously recognised outside the income statement.
The reported tax charge for the year, excluding prior year
adjustments, is GBP5.7m on a profit before tax of GBP17.2m,
representing an effective rate of tax of 33%. The effective tax
rate was higher than the UK statutory tax rate primarily due to tax
losses that have not been recognised as deferred tax assets
(increasing the tax charge by GBP2.5m) and the tax effect of
non-tax deductible expenses (increasing the tax charge by GBP1.6m)
offset by the effect of the utilisation of unrecognised losses
brought forward (reducing the tax charge by GBP2.1m). Please refer
to Note 20 for further details.
7 Dividends
Distributions to owners of the parent in the year:
2023 2022
pence pence per
per share share
------------------------------------------------- ------------- ------------
Final dividend recognised as distributions in
the year 3.25 3.00
------------------------------------------------- ------------- ------------
Interim dividend recognised as distributions
in the year 1.60 1.50
------------------------------------------------- ------------- ------------
Total dividend paid in the year 4.85 4.50
------------------------------------------------- ------------- ------------
Final dividend proposed - 3.25
------------------------------------------------- ------------- ------------
2023 2022
GBP'000 GBP'000
------------------------------------------------- ---------- ----------
Final dividend recognised as distributions in
the year 9,821 9,008
------------------------------------------------- ---------- ----------
Interim dividend recognised as distributions
in the year 5,292 4,529
------------------------------------------------- ---------- ----------
Total dividend paid in the year 15,113 13,537
------------------------------------------------- ---------- ----------
Final dividend proposed - 10,574
------------------------------------------------- ---------- ----------
The Directors are not proposing a final dividend for the
financial year ended 30 April 2023. A special dividend, which is
conditional upon the scheme of arrangement becoming effective, is
proposed as described in the scheme document published by the
Company on 15 August 2023.
8 Earnings per share
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------------- --------------
Profit for the year for the purpose of basic
earnings per share 12,447 20,287
--------------------------------------------------- -------------- --------------
Number Number
--------------------------------------------------- -------------- --------------
Weighted average number of ordinary shares
for the purposes of basic earnings per share 311,419,070 298,898,991
--------------------------------------------------- -------------- --------------
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options 12,001,403 13,639,188
--------------------------------------------------- -------------- --------------
Weighted average number of ordinary shares
for the purposes of diluted earnings per share 323,420,473 312,538,179
--------------------------------------------------- -------------- --------------
Earnings per share attributable to the owners
of the parent:
--------------------------------------------------- -------------- --------------
Basic earnings per share (p) 4.0 6.8
--------------------------------------------------- -------------- --------------
Diluted earnings per share (p) 3.8 6.5
--------------------------------------------------- -------------- --------------
Adjusted basic and adjusted diluted earnings per share are APMs
(as defined in the glossary) and have been calculated using profit
for the purpose of basic earnings per share adjusted for total
adjusting items and the tax effect of those items.
Adjusted basic and adjusted diluted earnings per share may be
reconciled to basic earnings per share as follows:
2023 2022
GBP'000 GBP'000
------------------------------------------------- -------------- --------------
Profit for the year 12,447 20,287
------------------------------------------------- -------------- --------------
Add / (remove):
-------------- --------------
Total of adjusting items (note 2) 26,158 19,081
-------------- --------------
Tax effect of adjustments above (3,763) (4,651)
-------------- --------------
Adjusted profit for the purpose of adjusted
earnings per share 34,842 34,717
------------------------------------------------- -------------- --------------
Number Number
------------------------------------------------- -------------- --------------
Weighted average number of ordinary shares
for the purposes of adjusted basic earnings
per share 311,419,070 298,898,991
------------------------------------------------- -------------- --------------
Ordinary shares for the purposes of adjusted
diluted earnings per share 341,979,578 325,352,865
------------------------------------------------- -------------- --------------
Adjusted basic earnings per share (p) 11.2 11.6
------------------------------------------------- -------------- --------------
Adjusted diluted earnings per share (p) 10.2 10.7
------------------------------------------------- -------------- --------------
Shares held in trust are issued shares that are owned by the
Group's employee benefit trusts for future issue to employees as
part of share incentive schemes. These are recognised on
consolidation as treasury shares. The future exercise of share
awards and options is the dilutive effect of share awards granted
to employees that have not yet vested.
Shares held in trust are deducted from the weighted average
number of ordinary shares for basic earnings per share and adjusted
basic earnings per share.
The definitions of adjusted basic earnings per share and
adjusted diluted earnings per share can be found in the glossary to
these financial statements.
9 Acquisitions of subsidiaries and transactions related to previous acquisitions
Acquisitions in the year to 30 April 2023
Business combinations are accounted for using the acquisition
accounting method as at the acquisition date, which is the date at
which control is transferred to the Group.
Two acquisitions were made in the year; Acuhold Limited
('Acumension') and Whitelaw Twining Law Corporation ('Whitelaw
Twining'). Details of the acquisitions are as follows:
Country Nature of Date of Consideration Percentage
of incorporation activity acquisition GBP'000 ownership
------------ ------------------- ------------------ -------------- -------------- -----------
2 September
Acumension UK Costs management 2022 5,530 100%
------------ ------------------ -------------- -------------- -----------
Whitelaw 5 December
Twining Canada Insurance 2022 5,260 100%
------------ ------------------- ------------------ -------------- -------------- -----------
Acumension is a leading specialist in legal costs management
headquartered in Manchester, focused on utilising technological
capability to deal with complex defendant costs, and will expand
our existing Costs business within the Connected Services
division.
Whitelaw Twining, is a leading Canadian law firm headquartered
in Vancouver, specialising in insurance, commercial litigation,
personal injury and dispute resolution. Whitelaw Twining brings a
strong strategic fit, greater scale and an enhanced platform in
North America, with synergy opportunities alongside DWF's existing
Canadian claims and adjusting businesses.
The fair values of the assets and liabilities and the associated
goodwill arising from the acquisitions are as follows:
Whitelaw
Acumension Twining
GBP'000 GBP'000
--------------------------------------------------- ----------- ---------
Intangible assets 223 8,453
--------------------------------------------------- ---------
Property, plant and equipment 89 -
--------------------------------------------------- ---------
Right-of-use asset - 4,835
--------------------------------------------------- ---------
Trade and other receivables 2,854 15,204
--------------------------------------------------- ---------
Cash and cash equivalents 1,690 91
--------------------------------------------------- ---------
Trade and other payables (352) (4,466)
--------------------------------------------------- ---------
Lease liabilities - (4,835)
--------------------------------------------------- ---------
Provisions - (342)
--------------------------------------------------- ---------
Amounts due to members - (3,361)
--------------------------------------------------- ---------
Loans and borrowings - (3,614)
--------------------------------------------------- ---------
Deferred tax liability (81) (2,246)
--------------------------------------------------- ----------- ---------
Net assets acquired 4,423 9,719
--------------------------------------------------- ----------- ---------
Purchase consideration 5,530 5,260
--------------------------------------------------- ----------- ---------
Purchase consideration satisfied by:
--------------------------------------------------- ---------
Initial cash consideration 4,368 304
--------------------------------------------------- ---------
Deferred cash consideration 1,086 2,347
--------------------------------------------------- ---------
Assets transferred as consideration 76 -
--------------------------------------------------- ---------
Contingent consideration - 15
--------------------------------------------------- ---------
Shares issued to shareholders - 2,594
--------------------------------------------------- ----------- ---------
Provisional goodwill / (gain on bargain purchase) 1,107 (4,459)
--------------------------------------------------- ----------- ---------
Within the GBP5,530,000 consideration for Acumension,
GBP1,086,000 is deferred and payable over one year post-acquisition
and is not contingent on future performance targets. Of this
deferred consideration, GBP760,000 has been paid in the period.
Contingent consideration of GBP1,250,000 was payable based on
certain KPIs being met in the first year post-acquisition. These
targets were deemed to be unlikely to be met as at the acquisition
date and therefore not included within the fair value assessment of
consideration. The provisional fair values in relation to
Acumension as disclosed in the FY23 interim accounts have been
updated resulting in an increase to goodwill of GBP452,000 and a
decrease in acquired net assets of GBP1,761,000.
Of the GBP5,260,000 consideration for Whitelaw Twining,
GBP2,347,000 was deferred and payable in February 2023. This was
not contingent on future performance targets. During the period,
all deferred consideration was paid. An additional consideration of
GBP15,000 was contingent on future performance targets in FY23.
These were achieved, and the contingent consideration paid in March
2023.
In addition to the consideration paid for Whitelaw Twining,
13,143,000 of shares were issued that vest over a period of between
one and five years to July 2027. These shares are contingent on
continuing service of the sellers. This is accounted for as
remuneration and within the scope of IFRS 2 Share-Based Payments.
An IFRS 2 charge of GBP1,293,000 has been recognised in the income
statement for FY23, and a balance of GBP9,234,000 included within
prepayments.
The goodwill for Acumension is attributable to the benefits of
operating an already well-established business in the relevant
sector and the synergies that are expected to be achieved from
incorporating the business into the Group's operations. The
goodwill will be allocated to the Costs CGU. As the purchase was
not made with any qualifying intellectual property, all goodwill
acquired is non-tax deductible.
Goodwill is measured at the acquisition date as the fair value
of consideration transferred, plus non-controlling interests and
the fair value of any previously held equity interests less the net
recognised amount (which is generally fair value) of the
identifiable assets and liabilities assumed. Goodwill is subject to
an annual review for impairment (or more frequently if necessary)
in accordance with our accounting policies. Any impairment is
charged to the income statement as it arises.
The following intangible assets were recognised at acquisition.
These have been measured at their fair value through the
multi-period excess earnings method (customer relationships) and
royalty relief method (brand).
Acumension Whitelaw Twining
GBP'000 GBP'000
-------------------------------------------------------- ----------- -----------------
Intangible assets - brands - 2,086
-------------------------------------------------------- -----------------
Intangible assets - customer relationships 223 6,235
-------------------------------------------------------- ----------- -----------------
Total fair value of intangibles on acquisition 223 8,321
-------------------------------------------------------- ----------- -----------------
Deferred tax recognised as a result of the intangibles (57) (2,246)
-------------------------------------------------------- ----------- -----------------
Total fair value on acquisition 166 6,075
-------------------------------------------------------- ----------- -----------------
Cash flows arising from the acquisition were as follows:
Acumension Whitelaw Twining
GBP'000 GBP'000
----------------------------------------- ----------- -----------------
Initial purchase consideration (4,368) (304)
----------------------------------------- -----------------
Cash and cash equivalents acquired 1,690 (3,523)
----------------------------------------- ----------- -----------------
Total fair value on acquisition (2,678) (3,827)
----------------------------------------- ----------- -----------------
Deferred consideration paid in the year (760) (2,347)
----------------------------------------- ----------- -----------------
Net cash outflow in the year (3,438) (6,174)
----------------------------------------- ----------- -----------------
The table below outlines the revenue and PBT of the acquirees
since the acquisition date, which is included in the consolidated
statement of comprehensive income for the year, and the annualised
revenue and PBT of the acquirees had the acquisition dates for the
business combinations been at the beginning of the year:
Revenue contributed PBT contributed Revenue in PBT in year
post-acquisition post-acquisition year of acquisition of acquisition
GBP'000 GBP'000 GBP'000 GBP'000
------------------ -------------------- ------------------ --------------------- ----------------
Acumension 2,233 427 3,137 126
------------------ -------------------- ------------------ --------------------- ----------------
Whitelaw Twining 10,025 877 23,676 997
------------------ -------------------- ------------------ --------------------- ----------------
Transaction costs comprised mainly advisor fees, including
financial, tax and legal due diligence. These are all included
within administrative expenses (non-underlying items) within note
2.
During FY23, the Group has concluded on the fair value of the
net assets in respect of acquisitions completed, resulting in an
increase of of GBP3.9m in net assets and a corresponding decrease
in goodwill.
Acquisitions in the year to 30 April 2022
Two acquisitions were made in the year; Zing 365 Holdings
Limited ('Zing') and BCA Claims and Consulting Limited ('BCA').
Full details of the acquisitions can be found in the Annual
Report and Accounts 2022 at www.dwfgroup.com .
10 Intangible assets
Acquired
---------- --------
External Capitalised
Customer software development
Goodwill relationships Brand costs costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
Cost
--------------------------- ---------- --------- ------------- ---------------- -----------
At 1 May 2022 14,034 36,812 1,933 6,762 14,165 73,706
--------------------------- ---------- --------- ------------- ---------------- -----------
Additions - internally
developed - - - - 2,726 2,726
--------------------------- ---------- --------- ------------- ---------------- -----------
Additions - externally
purchased - - - 731 - 731
--------------------------- ---------- --------- ------------- ---------------- -----------
Additions through
acquisitions 1,107 6,458 2,086 132 - 9,783
--------------------------- ---------- --------- ------------- ---------------- -----------
Effect of movements
in foreign exchange (38) (110) 263 (58) - 57
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
At 30 April 2023 15,103 43,160 4,282 7,567 16,891 87,003
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
Amortisation
and impairment
--------------------------- ---------- --------- ------------- ---------------- -----------
At 1 May 2022 1,357 13,132 1,782 4,444 7,387 28,102
--------------------------- ---------- --------- ------------- ---------------- -----------
Amortisation for
the year - 3,743 186 987 2,281 7,197
--------------------------- ---------- --------- ------------- ---------------- -----------
Accelerated Amortisation - - - 133 - 133
--------------------------- ---------- --------- ------------- ---------------- -----------
Impairment 1,403 91 - - - 1,494
--------------------------- ---------- --------- ------------- ---------------- -----------
Effect of movements
in foreign exchange - 172 36 (21) - 187
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
At 30 April 2023 2,760 17,138 2,004 5,543 9,668 37,113
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
Net book value
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
At 30 April 2023 12,343 26,022 2,278 2,024 7,223 49,890
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
At 1 May 2022 12,677 23,680 151 2,318 6,778 45,604
--------------------------- ---------- ---------------- --------- ------------- ---------------- -----------
Acquired
----------
External Capitalised
Customer software development
Goodwill relationships Brand costs costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
Cost
------------------------ ---------- ----------- ------------- ---------------- -----------
At 1 May 2021 11,141 35,608 1,633 4,322 11,311 64,015
------------------------ ---------- ----------- ------------- ---------------- -----------
Additions - internally
developed - - - - 2,854 2,854
------------------------ ---------- ----------- ------------- ---------------- -----------
Additions - externally
purchased 2,403 1,475 248 1,446 - 5,572
------------------------ ---------- ----------- ------------- ---------------- -----------
Disposals - - - (354) - (354)
------------------------ ---------- ----------- ------------- ---------------- -----------
Asset transfers - - - 1,347 - 1,347
------------------------ ---------- ----------- ------------- ---------------- -----------
Effect of movements
in foreign exchange 490 (271) 52 1 - 272
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
At 30 April 2022 14,034 36,812 1,933 6,762 14,165 73,706
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
Amortisation
and impairment
------------------------ ---------- ----------- ------------- ---------------- -----------
At 1 May 2021 1,357 6,128 1,041 1,587 4,729 14,842
------------------------ ---------- ----------- ------------- ---------------- -----------
Amortisation for
the year - 3,945 711 1,593 2,658 8,907
------------------------ ---------- ----------- ------------- ---------------- -----------
Disposals - - - (94) - (94)
------------------------ ---------- ----------- ------------- ---------------- -----------
Impairment - 2,955 - 11 - 2,966
------------------------ ---------- ----------- ------------- ---------------- -----------
Asset transfers - - - 1,347 - 1,347
------------------------ ---------- ----------- ------------- ---------------- -----------
Effect of movements
in foreign exchange - 104 30 - - 134
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
At 30 April 2022 1,357 13,132 1,782 4,444 7,387 28,102
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
Net book value
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
At 30 April 2022 12,677 23,680 151 2,318 6,778 45,604
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
At 1 May 2021 9,784 29,480 592 2,735 6,582 49,173
------------------------ ---------- --------------------- ----------- ------------- ---------------- -----------
Individual intangible assets that are material to the financial
statements are set out below:
-- Customer relationships - Whitelaw Twining: Net book value at
30 April 2023 GBP6.0m (2022: GBPnil) - remaining amortisation
period is 13.5 years
-- Customer relationships - Spain: Net book value at 30 April
2023 GBP18.0m (2022: GBP19.5m) - remaining amortisation period is 7
years
Goodwill
Goodwill considered significant in comparison to the Group's
total carrying amount of such assets has been allocated to CGU's or
groups of CGU's as follows:
2023 2022
GBP'000 GBP'000
------------------------------------- --------- ---------
Insurance 3,921 3,921
------------------------------------- --------- ---------
Claims Management and Adjusting 2,150 2,150
------------------------------------- --------- ---------
Costs 1,398 1,398
------------------------------------- --------- ---------
Other individually immaterial CGUs 4,874 5,208
------------------------------------- --------- ---------
12,343 12,677
------------------------------------- --------- ---------
The recoverable amounts of the CGUs are determined from value in
use calculations. The calculations have been based on a discounted
cash flow model covering a period of five years using forecast
revenues and costs, extended to perpetuity. The inputs into the
model appropriately consider the relevant market maturity and local
factors. The first year of the forecast is established from the
budget for FY24 which is underpinned by the business plan that has
been signed off by the Board. Cash flows for FY24 through to FY27
have been included on a consistent basis with the Board approved
strategy. In each case, the calculations use a long term growth
rate of 2% (2022: 2%) consistent with the sector average and a
pre-tax discount rate of 12-13% (2022: 10-12%). These pre-tax
discount rates reflect current market assessments for the time
value of money and the specific risks associated with each CGU. The
long-term growth rates used are based on management's expectations
of future changes in the markets for each CGU.
The review for the Zing 365 CGU indicated that the recoverable
amount was lower than the carrying value by GBP1.5m. The carrying
value of the CGU has therefore been reduced to its recoverable
amount, resulting in a Goodwill impairment charge of GBP1.4m, with
the remaining GBP0.1m impairment allocated against the Customer
Relationships intangible. This charge is recognised within
administrative expenses in the Group income statement, and is
attributable to the Connected Services segment.
Goodwill that has been allocated to other individually
immaterial CGUs in the table above is monitored at a lower level
than operating segment. Significant headroom exists for each CGU,
with the exception of the Zing 365 CGU. No other reasonable
worst-case scenario gives rise to a material impairment risk.
11 Property, plant and equipment
Office
equipment
Leasehold and fixtures Computer
improvements and fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ --------------- --------------- ------------ ---------
Cost
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2022 18,170 13,938 37,491 69,599
------------------------------------------ --------------- --------------- ------------ ---------
Additions 855 1,160 871 2,886
------------------------------------------ --------------- --------------- ------------ ---------
Acquired through business combinations - 89 - 89
------------------------------------------ --------------- --------------- ------------ ---------
Disposals (68) (322) (151) (541)
------------------------------------------ --------------- --------------- ------------ ---------
Effect of movements in foreign exchange (209) (29) (20) (258)
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2023 18,748 14,836 38,191 71,775
------------------------------------------ --------------- --------------- ------------ ---------
Accumulated depreciation
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2022 14,066 9,163 35,131 58,360
------------------------------------------ --------------- --------------- ------------ ---------
Charge for the year 789 1,367 1,406 3,562
------------------------------------------ --------------- --------------- ------------ ---------
Accelerated depreciation 985 190 - 1,175
------------------------------------------ --------------- --------------- ------------ ---------
Disposals - (319) (57) (376)
------------------------------------------ --------------- --------------- ------------ ---------
Effect of movements in foreign exchange (32) (181) (33) (246)
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2023 15,808 10,220 36,447 62,475
------------------------------------------ --------------- --------------- ------------ ---------
Net book value
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2023 2,940 4,616 1,744 9,300
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2022 4,104 4,775 2,360 11,239
------------------------------------------ --------------- --------------- ------------ ---------
In FY23, an accelerated depreciation charge of GBP1.2m (FY22:
GBPnil) was recognised in relation to leasehold improvements and
office equipment located within a vacant floor in the Pune office.
There are no future plans to occupy this space given the adoption
of hybrid working, therefore associated assets have been fully
depreciated in the year.
Office
equipment
Leasehold and fixtures Computer
improvements and fittings equipment Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------ --------------- --------------- ------------ ---------
Cost
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2021 16,179 15,366 38,499 70,044
------------------------------------------ --------------- --------------- ------------ ---------
Additions 508 1,169 1,903 3,580
------------------------------------------ --------------- --------------- ------------ ---------
Disposals (669) (448) (1,584) (2,701)
------------------------------------------ --------------- --------------- ------------ ---------
Asset transfers 2,130 (2,130) (1,347) (1,347)
------------------------------------------ --------------- --------------- ------------ ---------
Effect of movements in foreign exchange 22 (19) 20 23
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2022 18,170 13,938 37,491 69,599
------------------------------------------ --------------- --------------- ------------ ---------
Accumulated depreciation
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2021 13,287 8,235 35,907 57,429
------------------------------------------ --------------- --------------- ------------ ---------
Charge for the year 778 1,029 1,153 2,960
------------------------------------------ --------------- --------------- ------------ ---------
Disposals (463) (129) (608) (1,200)
------------------------------------------ --------------- --------------- ------------ ---------
Impairment 402 84 17 503
------------------------------------------ --------------- --------------- ------------ ---------
Asset transfers 46 (46) (1,347) (1,347)
------------------------------------------ --------------- --------------- ------------ ---------
Effect of movements in foreign exchange 16 (10) 9 15
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2022 14,066 9,163 35,131 58,360
------------------------------------------ --------------- --------------- ------------ ---------
Net book value
------------------------------------------ --------------- --------------- ------------ ---------
At 30 April 2022 4,104 4,775 2,360 11,239
------------------------------------------ --------------- --------------- ------------ ---------
At 1 May 2021 2,892 7,131 2,592 12,615
------------------------------------------ --------------- --------------- ------------ ---------
12 Right-of-use assets
Leases as a lessee
Property Equipment Total
GBP'000 GBP'000 GBP'000
------------------------------------------ ---------- ----------- ----------
Right-of-use assets
------------------------------------------ ----------- ----------
At 1 May 2021 67,073 2,093 69,166
------------------------------------------ ----------- ----------
Additions 10,467 - 10,467
------------------------------------------ ----------- ----------
Acquisitions - - -
------------------------------------------ ----------- ----------
Depreciation (12,264) (473) (12,737)
------------------------------------------ ----------- ----------
Impairment (124) - (124)
------------------------------------------ ----------- ----------
Disposals (1,110) - (1,110)
------------------------------------------ ----------- ----------
Remeasurement adjustment (1,156) - (1,156)
------------------------------------------ ----------- ----------
Effect of movements in foreign exchange 729 (1) 728
------------------------------------------ ---------- ----------- ----------
At 30 April 2022 63,615 1,619 65,234
------------------------------------------ ---------- ----------- ----------
Additions 3,487 - 3,487
------------------------------------------ ----------- ----------
Acquisitions 4,835 - 4,835
------------------------------------------ ----------- ----------
Depreciation (11,907) (458) (12,365)
------------------------------------------ ----------- ----------
Accelerated depreciation (5,144) - (5,144)
------------------------------------------ ----------- ----------
Impairment (362) - (362)
------------------------------------------ ----------- ----------
Remeasurement adjustment 1,559 (23) 1,536
------------------------------------------ ----------- ----------
Effect of movements in foreign exchange 2 - 2
------------------------------------------ ---------- ----------- ----------
At 30 April 2023 56,085 1,138 57,223
------------------------------------------ ---------- ----------- ----------
In FY23, an accelerated depreciation charge of GBP5.1m (FY22:
GBPnil) was recognised in relation to the right of use asset for a
vacant floor in the Pune office. There are no future plans to
occupy this space given the adoption of hybrid working, therefore
associated assets have been fully depreciated in the year. The
remeasurement adjustment relates to the impact of term and rent
changes on property leases during the year.
Leases as a lessor
During FY22, the Group has sub-leased property in Australia. In
the recognition of the lease receivables pertaining to the
sub-leased property, the Group has reversed impairment of GBPnil
(2022: GBP1.0m) which was previously recorded against the
right-of-use assets.
13 Trade and other receivables
2023 2022
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Current
----------------------------------------------- ---------- ----------
Trade receivables 104,593 88,949
----------------------------------------------- ---------- ----------
Amounts recoverable from clients in respect
of unbilled revenue 92,890 71,958
----------------------------------------------- ---------- ----------
Unbilled disbursements 11,232 7,982
----------------------------------------------- ---------- ----------
Contract assets 104,122 79,940
----------------------------------------------- ---------- ----------
Trade receivables and contract assets 208,715 168,889
----------------------------------------------- ---------- ----------
Other receivables 4,143 2,216
----------------------------------------------- ---------- ----------
Amounts due from Members of partnerships 2,441 2,238
----------------------------------------------- ---------- ----------
Lease receivables 310 432
----------------------------------------------- ---------- ----------
Reimbursement asset 4,962 4,040
----------------------------------------------- ---------- ----------
Prepayments 22,768 12,359
----------------------------------------------- ---------- ----------
243,339 190,174
----------------------------------------------- ---------- ----------
Non-current
Other receivables 225 938
-----------------------------------------------
Lease receivables 187 526
----------------------------------------------- ---------- ----------
412 1,464
----------------------------------------------- ---------- ----------
The reimbursement asset is principally attributable to the
professional indemnity provision (see note 18). Prepayments include
GBP9.2m (2022: GBPnil) relating to acquisition-related remuneration
expense (see note 9).
Ageing of trade receivables, amounts recoverable from clients in
respect of unbilled revenue and unbilled disbursements
2023 2022
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Trade receivables not past due 18,286 14,794
Trade receivables past due
------------------------------------------------
0 - 90 days 68,522 59,876
------------------------------------------------ ---------- ----------
91 - 180 days 11,432 8,846
------------------------------------------------ ---------- ----------
181 - 270 days 4,538 3,337
------------------------------------------------ ---------- ----------
271 - 365 days 2,746 2,366
------------------------------------------------ ---------- ----------
More than 365 days 10,615 11,459
------------------------------------------------ ---------- ----------
Gross trade receivables 116,139 100,678
------------------------------------------------ ---------- ----------
Amounts recoverable from clients in respect
of unbilled revenue 92,890 71,958
------------------------------------------------ ---------- ----------
Unbilled disbursements 11,232 7,982
------------------------------------------------ ---------- ----------
Expected credit losses (8,438) (8,588)
------------------------------------------------ ---------- ----------
Other impairment provisions (3,108) (3,141)
------------------------------------------------ ---------- ----------
Total trade receivables and contract assets 208,715 168,889
------------------------------------------------ ---------- ----------
Lifetime expected credit losses are used to measure the loss
allowance. These balances are held against trade receivables,
amounts recoverable from clients in respect of unbilled revenue and
unbilled disbursements. Other impairment provisions are applied
against the trade receivables which are not based on the average
expected credit loss rates presented below. The other categories of
trade and other receivables do not contain impaired assets.
Expected credit loss rates
To measure the expected credit losses, trade receivables and
contract assets have been grouped based on shared credit risk
characteristics and the days past due. The contract assets relate
to unbilled revenue and have substantially the same risk
characteristics as the trade receivables for the same types of
contracts.
The average expected credit loss rates for trade receivables and
contract assets are presented below.
Group rates Spain rates
2023 2022 2023 2022
-------------------- ------ ------ ------ ------
0 - 90 days 0.9% 0.5% 2.7% 0.9%
-------------------- ------ ------ ------ ------
91 - 180 days 3.5% 3.4% 8.7% 4.2%
-------------------- ------ ------ ------ ------
181 - 270 days 7.6% 10.5% 19.8% 13.1%
-------------------- ------ ------ ------ ------
271 - 365 days 12.5% 19.9% 25.8% 20.7%
-------------------- ------ ------ ------ ------
More than 365 days 63.4% 50.6% 49.1% 45.0%
-------------------- ------ ------ ------ ------
Movement in provision for impairment
2023 2022
GBP'000 GBP'000
------------------------------------------ ---------- ----------
At 1 May 2022 11,729 13,031
------------------------------------------ ---------- ----------
Provision utilised and other movements (1,637) (4,275)
------------------------------------------ ---------- ----------
Charges to income statement 1,454 2,973
------------------------------------------ ---------- ----------
At 30 April 2023 11,546 11,729
------------------------------------------ ---------- ----------
Other movements include expected credit loss provisions acquired
from business combinations in the year of GBP421,000 (2022:
GBP61,500).
Trade receivables, unbilled disbursements and contracts assets
are written off where there is no reasonable expectation of
recovery. For trade receivables and unbilled disbursements,
impairment losses are presented as net impairment losses within
operating profit whereas contract asset impairment losses are
presented as a reduction in revenue. Subsequent recoveries of
amounts previously written off are credited against the same line
item.
14 Cash and cash equivalents
2023 2022
GBP'000 GBP'000
----------------------------- ---------- ----------
Cash at bank and in hand 36,404 28,310
Bank overdrafts (5,808) (606)
----------------------------- ---------- ----------
Cash and cash equivalents 30,596 27,704
----------------------------- ---------- ----------
15 Trade and other payables
2023 2022
GBP'000 GBP'000
-------------------------------------- ---------- ----------
Trade payables 28,716 27,896
-------------------------------------- ---------- ----------
Other payables 3,101 3,748
-------------------------------------- ---------- ----------
Other taxation and social security 14,164 15,284
-------------------------------------- ---------- ----------
Deferred income 1,795 2,014
-------------------------------------- ---------- ----------
Accruals 12,079 14,383
-------------------------------------- ---------- ----------
Trade and other payables 59,855 63,325
-------------------------------------- ---------- ----------
Other payables relates principally to payroll-related
creditors.
16 Lease liabilities
2023 2022
GBP'000 GBP'000
------------------------------------------------------- ----------- -----------
At 1 May 2022 77,739 84,002
------------------------------------------------------- -----------
Additions 3,387 7,683
------------------------------------------------------- -----------
Acquisitions 4,835 -
------------------------------------------------------- -----------
Interest expense related to lease liabilities 1,738 1,673
Net foreign currency translation (gain)/loss (379) 763
Remeasurement adjustment 875 (1,313)
Repayment of lease liabilities (including interest) (16,185) (15,069)
------------------------------------------------------- ----------- -----------
At 30 April 2023 72,010 77,739
------------------------------------------------------- ----------- -----------
Current lease liabilities 13,712 14,576
--------------------------------- --------- ---------
Non-current lease liabilities 58,298 63,163
--------------------------------- --------- ---------
72,010 77,739
--------------------------------- --------- ---------
The maturity of lease liabilities can be found in note 19. The
undiscounted contractual cash flows relating to lease liabilities
accounted for in accordance with IFRS 16 is GBP78.1m (2022:
GBP82.9m). Operating costs, included within administrative
expenses, relating to short-term and low value leases during the
year were GBP2.2m (2022: GBP1.6m).
17 Interest-bearing loans and borrowings
This note provides information about the Group's
interest-bearing loans and borrowings, which are measured at
amortised cost. For more information about the contractual terms
and the Group's exposure to interest rate and foreign currency
risk, refer to note 19.
Obligations under interest-bearing loans and borrowings
2023 2022
GBP'000 GBP'000
----------------------------- ---------- ----------
Current liabilities
----------------------------- ---------- ----------
Bank loans 11,425 9,093
----------------------------- ---------- ----------
Supplier payment facility 6,279 87
---------- ----------
Bank overdrafts 5,808 606
----------------------------- ---------- ----------
23,512 9,786
----------------------------- ---------- ----------
Non-current liabilities
----------------------------- ---------- ----------
Bank loans 115,069 90,907
----------------------------- ---------- ----------
Unamortised finance costs (429) (563)
----------
114,640 90,344
----------------------------- ---------- ----------
138,152 100,130
----------------------------- ---------- ----------
On 22 December 2021, the Group completed a refinancing of its
principal rolling credit facility ('RCF'). The new facility was
increased to GBP120m in February 2023 and matures in December 2025
with one additional 12-month extension option.
The Group operates a supplier payment facility with HSBC, which
has a limit of GBP11m. This facility is utilised in paying certain
suppliers from time to time and repaid in the short-term.
Analysis of cash and cash equivalents and other interest-bearing
loans and borrowings:
Exchange Non-cash 30 April
1 May 2022 Cash flow movement movement 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------- ------------ ------------ ------------ ------------
Cash and cash equivalents 27,704 2,705 187 - 30,596
----------------------------- ------------ ------------ ------------ ------------
Bank loans (99,437) (26,017) (313) (297) (126,064)
----------------------------- ------------ ------------ ------------ ------------
Supplier payments
facility (87) 34,831 - (41,023) (6,279)
----------------------------- ------------- ------------ ------------ ------------ ------------
Total net debt
(excluding IFRS
16) (71,820) 11,519 (126) (41,320) (101,747)
----------------------------- ------------- ------------ ------------ ------------ ------------
Exchange Non-cash 30 April
1 May 2021 Cash flow movement movement 2022
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ------------- ------------ ------------ ------------ -----------
Cash and cash equivalents 34,580 (7,017) 141 - 27,704
----------------------------- ------------ ------------ ------------ -----------
Bank loans (94,544) (4,240) 227 (880) (99,437)
----------------------------- ------------ ------------ ------------ -----------
Supplier payments
facility (204) 15,683 - (15,566) (87)
----------------------------- ------------- ------------ ------------ ------------ -----------
Total net debt
(excluding IFRS
16) (60,168) 4,426 368 (16,446) (71,820)
----------------------------- ------------- ------------ ------------ ------------ -----------
Non-cash movements within bank loans relate to the amortisation
of fees incurred on arrangement of the facility, over the expected
life of the facility. Non-cash movements within the supplier
payments facility relate to the utilisation of the facility to
settle liabilities with suppliers, with the supplier payments
facility being settled with cash when the liability becomes
due.
Net debt including lease liabilities in scope of IFRS 16 is
GBP173.8m (2022: GBP149.6m).
Net debt is an APM and is defined in the glossary.
18 Provisions
Professional
Dilapidation indemnity
provision provision Total
GBP'000 GBP'000 GBP'000
---------------------------------------- ------------- ------------- --------
At 1 May 2022 4,462 6,000 10,462
---------------------------------------- ------------- ------------- --------
Utilised in the year (213) (2,428) (2,641)
---------------------------------------- ------------- ------------- --------
Released in the year (68) (414) (482)
---------------------------------------- ------------- ------------- --------
Provisions made in the year 107 4,014 4,121
---------------------------------------- ------------- ------------- --------
Acquired through business combinations 342 - 342
---------------------------------------- ------------- ------------- --------
Reclassified to other payables - (1,132) (1,132)
---------------------------------------- ------------- ------------- --------
At 30 April 2023 4,630 6,040 10,670
---------------------------------------- ------------- ------------- --------
Current 858 6,040 6,898
---------------------------------------- ------------- ------------- --------
Non-current 3,772 - 3,772
---------------------------------------- ------------- ------------- --------
Professional indemnity provision
The provision for professional indemnity reflects the Group's
expected outflow for legal claims brought against the Group
relating to historic professional services rendered. A provision is
only recognised where an outflow is probable. The probability is
established by reference to whether a claim is more likely than not
to be successful. A professional indemnity liability for a claim
that is agreed (i.e. the timing and amount of payments are well
understood) is recognised in accruals (see note 15). Claims are
assessed as being settled in full within the next five years.
Separately, the Group recognises expected reimbursements from
professional indemnity insurance when it is virtually certain that
the reimbursement will be received (note 13). No separate
disclosure is made of the detail of such claims or proceedings, or
the costs recovered by insurance, as such detail would be seriously
prejudicial to the position of the Group.
There are circumstances of which the Group is aware but there is
insufficient information available to either estimate whether a
claim will develop or, where a claim appears possible, make an
assessment of the outflow. Such circumstances are contingent
liabilities of the Group.
Dilapidation provision
Dilapidation provisions are established for restoration and
reinstatement costs for property leases, held at the date of the
statement of financial position. Such provisions are estimated at
the start of the lease and updated annually. The Group's current
lease portfolio terminates over the course of the next eleven
years.
19 Financial instruments
The Directors have overall responsibility for the oversight of
the Group's risk management framework. Further explanation on
management of risk factors is provided in the risk section of the
Strategic report.
The Group's trading and financing activities expose it to
various financial risks that if left unmanaged could adversely
impact on current or future earnings. These risks can be
categorised as credit risk, liquidity risk, market risk (interest
rate risk and foreign currency risk) and capital risk.
Credit risk
Credit risk is the risk of financial loss to the Group if a
client or counterparty to a financial instrument fails to meet its
contractual obligations, and arises principally from the Group's
trade receivables. Credit checks are performed for new clients and
ongoing monitoring takes place for existing clients. A provision is
carried for expected credit losses, see note 13.
In connection with the Group's financial instruments there is
not believed to be a material concentration risk based on the
nature of the instruments.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group
maintains sufficient cash or working capital facilities to meet the
cash requirements of the Group in order to mitigate this risk.
The Group is financed through a combination of members' capital
(repayable on retirement of the member), undistributed profits,
cash and bank borrowing facilities.
The Group's principal facility is a GBP120m (2022: GBP100m) RCF.
Details of amounts drawn can be found in note 17. Management
maintain a rolling 12-month cash flow and covenant forecasts to
ensure visibility of short-term liquidity and manage facility
usage, in addition to annual budgets and longer-term planning. The
RCF matures in 2025, with one 12-month extension option and there
are no contracted repayments until that date. The Group anticipates
continued utilisation of the facility to fund working capital.
Note 1.3 sets out the financial covenants attached to the RCF
held with the Group's banking syndicate, and more information on
how the Group manages liquidity risk.
The Group has bank guarantees of GBP0.7m denominated in euros
(2022: GBP0.7m). The Group has issued rental guarantees of GBP2.1m
denominated in Euros and Australian dollars (2022: GBP2.1m).
Maturity analysis
The table below presents the outstanding contractual maturity
profile by fiscal year for the Group's interest-bearing loans and
borrowings and lease liabilities. Trade and other payables are
excluded from this profile as they fall due within a year.
The majority of the Group's borrowings comprise the drawn-down
balance on the RCF, as discussed above. The payments shown below
reflect the contractual repayments upon expiry of the facility,
excluding the extension options, so if the facility is extended
these repayments will be deferred.
Borrowings Lease liabilities
2023 2022 2023 2022
Payments GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------ -------- -------- --------- ---------
Year to 2023 - 9,180 - 16,030
------------------------------------
Year to 2024 11,451 - 15,364 14,639
------------------------------------
Year to 2025 - 90,907 14,212 13,056
------------------------------------
Year to 2026 115,042 - 13,102 11,850
------------------------------------
Year to 2027 - - 11,867 -
------------------------------------
Later years - - 23,553 27,326
------------------------------------ -------- -------- --------- ---------
126,493 100,087 78,098 82,901
------------------------------------ -------- -------- --------- ---------
Effect of discounting cash flows - - (6,088) (5,162)
Carrying value 126,493 100,087 72,010 77,739
------------------------------------ -------- --------- ---------
Market risk
Market risk is the risk that changes in market prices, such as
foreign exchange rates and interest rates, will affect the Group's
income. The Group's exposure to market risk predominantly relates
to interest and currency risk.
Interest rate risk
The Group's bank borrowings incur both fixed and variable
interest charges. The variable rates on its principal borrowing
facilities are linked to SONIA or EURIBOR plus a margin.
The Group's principal facility exposure to variable interest
rates poses a risk in both the cash flows and the impact on the
income statement with potential interest increases expected in
FY24.
Foreign currency risk
The Group has overseas operations in Europe, the Middle East,
Asia, Australia, and North America and is therefore exposed to
changes in the respective currencies in these territories. The
Group maintains bank balances in local currency. Cash positions are
monitored and any imbalances are dealt with by purchasing currency
at the spot rate.
Capital risk
The capital structure of the Group consists of net debt, as
disclosed in note 17, and equity. The Group's objectives when
managing capital are to safeguard the Group's ability to continue
as a going concern and to provide optimal returns for shareholders.
The Group manages its capital structure and makes adjustments to
it, in light of changes to economic conditions and the strategic
objectives of the Group.
Fair value measurement
Financial assets and liabilities are measured in accordance with
the fair value hierarchy and assessed as Level 1, 2 or 3 based on
the following criteria:
-- Level 1: fair value measurement based on quoted prices
(unadjusted) in active markets for identical assets or
liabilities;
-- Level 2: fair value measurements derived from inputs other
than quoted prices that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from
prices);
-- Level 3: fair value measurements derived from valuation
techniques that include inputs for the asset or liability that are
not based on observable market data.
Investments, held at fair value through profit or loss, are a
Level 3 financial asset. The remaining financial instruments are
measured at amortised cost. The carrying values of the Group's
financial assets and liabilities approximate their fair values.
The table below sets out the Group's accounting classification
of each category of financial assets and liabilities and their
carrying values at the end of the financial year.
2023 2022
Notes GBP'000 GBP'000
--------------------------------------------- ------ ---------- ----------
Measured at amortised cost:
--------------------------------------------- ---------- ----------
Cash and cash equivalents 14 30,596 27,704
--------------------------------------------- ---------- ----------
Trade and other receivables 13 220,983 179,279
--------------------------------------------- ---------- ----------
Total financial assets 251,579 206,983
--------------------------------------------- ------ ---------- ----------
Measured at amortised cost:
--------------------------------------------- ---------- ----------
Trade and other payables 15 58,360 61,311
--------------------------------------------- ---------- ----------
Lease liabilities 16 72,010 77,739
--------------------------------------------- ---------- ----------
Borrowings 17 132,773 100,087
--------------------------------------------- ---------- ----------
Amounts due to members of partnerships in
the Group 27 30,700 28,243
--------------------------------------------- ------ ---------- ----------
Total financial liabilities 293,843 267,380
--------------------------------------------- ------ ---------- ----------
Financial instruments sensitivity analysis
The Group has exposure to interest rate and foreign exchange
rate movements given the nature of its borrowings and operations.
At the end of the year, the effect of hypothetical changes in
interest and currency rates are as follows.
Interest rate sensitivity
At 30 April 2023, based upon the amount of variable rate debt
outstanding, the Group's pre-tax profits would change by
approximately GBP1.1m for each one percentage point change in
interest rates applicable to the variable rate debt and, after tax
effect, equity would change by approximately GBP0.9m.
Foreign exchange rate sensitivity
The Group transacts in a range of currencies, but is primarily
exposed to changes in the Euro and US Dollar exchange rates.
A 20% (FY22: 20%) strengthening and weakening of the above
currencies against Pound Sterling would have the following impacts
on net assets and profit shown below.
This calculation assumes that the change occurred at the
statement of financial position date and had been applied to risk
exposures existing at that date. This analysis assumes that all
other variables, in particular interest rates, remain constant. The
analysis is performed on the same basis for comparative
periods.
Effect Effect
of change of change
in in
Strengthening Year EUR rate USD rate
---------------------------- -------- ------------- -------------
Impact on equity FY23 2,041 194
Impact on equity FY22 1,796 203
---------------------------- -------------
Impact on profit or loss FY23 (1,541) (31)
---------------------------- ------------- -------------
Impact on profit or loss FY22 (647) (207)
---------------------------- -------- ------------- -------------
Effect Effect
of change of change
in in
Weakening Year EUR rate USD rate
---------------------------- -------- ------------- -------------
Impact on equity FY23 (1,361) (129)
Impact on equity FY22 (1,198) (135)
---------------------------- -------------
Impact on profit or loss FY23 1,027 1
---------------------------- ------------- -------------
Impact on profit or loss FY22 431 138
---------------------------- -------- ------------- -------------
20 Deferred taxation
The deferred tax asset is as follows:
2023 2022
GBP'000 GBP'000
-------------------------------------------------------- ---------- ----------
Assets
At 1 May 2022 3,938 4,649
--------------------------------------------------------
Deferred tax (credit)/debit recognised directly
in equity (525) 438
-------------------------------------------------------- ---------- ----------
Deferred tax credit/(charge) in the income statement
for the year 894 (1,173)
-------------------------------------------------------- ---------- ----------
Exchange rate translation 13 24
-------------------------------------------------------- ---------- ----------
At 30 April 2023 4,320 3,938
-------------------------------------------------------- ---------- ----------
Deferred tax assets of GBP4.3m have been recognised in respect
of tax depreciation timing differences (GBP1.6m), expected tax
deductions for share-based payments (GBP2.5m) and other temporary
differences (GBP0.2m). It is anticipated that the Group and certain
related subsidiary undertakings will make sufficient taxable profit
to allow the benefit of the deferred tax asset to be utilised. A
potential deferred tax asset of GBP14.2m (2022: GBP11.7m) has not
been recognised relating to tax losses in subsidiary undertakings
that are not anticipated to make sufficient taxable profit to allow
the benefit of the deferred tax asset to be utilised.
The deferred tax liability as at 30 April 2023 is as
follows:
2023 2022
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Non-current liabilities
At 1 May 2022 5,869 7,584
-----------------------------------------------
Arising on acquisition of intangibles 2,303 503
----------------------------------------------- ---------- ----------
Deferred tax credit in the income statement
for the year (985) (2,163)
----------------------------------------------- ---------- ----------
Exchange rate translation 314 (55)
----------------------------------------------- ---------- ----------
At 30 April 2023 7,501 5,869
----------------------------------------------- ---------- ----------
The deferred tax liability principally relates to the
recognition of acquired intangible assets arising on
consolidation.
21 Share capital
Treasury
Number Share capital Share premium shares Total
of 1p each GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------------- ---------------- ---------------- ------------- ----------
At 1 May 2021 324,554,653 3,246 88,610 (129) 91,727
-------------------------- -------------- ---------------- ---------------- ------------- ----------
Shares issued on
acquisition of Zing
365 Holdings Ltd 798,212 8 755 - 763
-------------------------- -------------- ---------------- ---------------- ----------
At 30 April 2022 325,352,865 3,254 89,365 (129) 92,490
-------------------------- -------------- ---------------- ---------------- ------------- ----------
Shares issued on
transaction
with Whitelaw Twining 16,626,713 166 2,575 - 2,741
-------------------------- -------------- ---------------- ---------------- ------------- ----------
At 30 April 2023 341,979,578 3,420 91,940 (129) 95,231
-------------------------- -------------- ---------------- ---------------- ------------- ----------
On 6 December 2022, 16,504,757 ordinary shares were issued as a
result of the transaction with Whitelaw Twining Law Corporation. A
further 121,956 ordinary shares were issued on 31 March 2023 in
relation to the same transaction.
The Group has 11,309,876 (2022: 24,322,488) shares held in
treasury.
22 Reserves
The following describes the nature and purpose of each reserve
within equity:
Share premium The amount subscribed for share capital in
excess of the nominal value.
Treasury shares The treasury shares reserve represents shares
in DWF Group plc held by the Group's share
trusts. The trusts are consolidated in the
Group's financial statements.
Merger reserve The difference between the nominal value of
shares acquired by the Company in the share-for-share
exchange with the former DWF LLP members and
the nominal value of shares issued to acquire
them.
Share-based payments The cumulative share-based payment expense
reserve net of release of amounts in respect of option
exercised.
Translation reserve Gains / losses in translating the net assets
of overseas operations into GBP.
Accumulated losses All other net gains and losses and transactions
with owners not recognised elsewhere.
23 Share-based payments
Share-based payment arrangements
The Group operates three share-based payment plans (2022: three
plans), all of which are equity settled and consist only of share
awards.
-- The equity incentive plan ('EIP'): This is used to
incentivise and reward performance from primarily Directors,
upper-level management and members. Within the EIP are the
following schemes: The EIP-IPO award, the career level 1-3 award,
the long-term incentive plan ('LTIP') and the promotion award.
-- The buy-as-you-earn ('BAYE') plan: All employees, excluding
members, are eligible for the BAYE plan which is used to
incentivise retention and reward contribution. Within the BAYE are
the following schemes: The BAYE-IPO award, the free-share award
and, the share incentive plan matching award ('SIP matching
award').
-- The deferred bonus plan: This comprises the deferred bonus
award scheme. This plan is used as an alternative to cash bonuses
for eligible employees and awards may be made following year-end
results announcements.
The social security expenses in relation to share-based payment
arrangements are based on the rates and treatment prevailing in
each jurisdiction. This is accounted for as a cash-settled
award.
Charge to the income statement
The charge to the income statement is set out below:
2023 2022
GBP'000 GBP'000
Share plans:
---------------------------- ---------- ----------
Equity incentive plan 11,229 6,721
---------------------------- ---------- ----------
Buy-as-you-earn plan 174 871
---------------------------- ---------- ----------
Deferred bonus plan 236 109
---------------------------- ---------- ----------
11,639 7,701
---------------------------- ---------- ----------
Social security expenses 493 1,908
---------------------------- ---------- ----------
Total expense 12,132 9,609
---------------------------- ---------- ----------
Impact of share-based payments ('SBP') movement in 2023:
Other taxation
Accumulated and social
SBP expense SBP reserve losses Prepayments security
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------ ------------ ------------ ------------ ---------------
Acquisition of Whitelaw
Twining 1,310 (10,445) - (9,234) -
-------------------------- ------------ ------------ ------------ ------------ ---------------
Share-based payment
schemes 10,329 (10,329) - - -
-------------------------- ------------ ------------ ------------ ------------ ---------------
Recycling of vested
shares - 7,294 (7,294) - -
-------------------------- ------------ ------------ ------------ ------------ ---------------
Social security expenses 493 - - - (493)
-------------------------- ------------ ------------ ------------ ------------ ---------------
Total movement 12,132 (13,480) (7,294) (9,234) (493)
-------------------------- ------------ ------------ ------------ ------------ ---------------
Prepaid share-based payments charge in the year relates to
shares issued as part of the Whitelaw Twining acquisition that is
treated as remuneration rather than consideration. Refer to Note 9
for further detail.
Impact of share-based payments ('SBP') movement in 2022:
Other taxation
Accumulated and social
SBP expense SBP reserve losses Prepayments security
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------ ------------ ------------ ------------ ---------------
Share-based payment
schemes 7,701 (7,701) - - -
-------------------------- ------------ ------------ ------------ ------------ ---------------
Recycling of vested
shares - 9,074 (9,074) - -
-------------------------- ------------ ------------ ------------ ------------ ---------------
Social security expenses 1,908 - - - (1,908)
-------------------------- ------------ ------------ ------------ ------------ ---------------
Total movement 9,609 1,373 (9,074) - (1,908)
-------------------------- ------------ ------------ ------------ ------------ ---------------
Summary of share awards
The following table shows the movements in share awards across
all plans for the year:
2023 2022
Number Number
of shares of shares
'000 '000
---------------------------------------------- ----------- -----------
Number of shares awards outstanding 1 May 34,073 33,046
---------------------------------------------- ----------- -----------
Awards granted during the year 26,849 12,331
---------------------------------------------- ----------- -----------
Awards vested during the year (7,805) (8,598)
---------------------------------------------- ----------- -----------
Awards lapsed during the year (6,026) (2,706)
---------------------------------------------- ----------- -----------
Number of shares awards outstanding 30 April 47,091 34,073
---------------------------------------------- ----------- -----------
The weighted average remaining contractual life at the end of
the period is 1.3 years (2022: 1.8 years).
The exercise price of all share awards is nil. The weighted
average share price at the vesting date for all awards vested
during the year was GBP0.86 (2022: GBP1.07).
Details of the Group's share awards are as follows:
Share awards under the DWF Group plc 2019 EIP - IPO award
At IPO, conditional and restricted share awards were granted to
a limited number of the senior management team.
The awards are subject to a service condition and have an
entitlement to receive dividend equivalents. A portion of the
awards were previously subject to performance targets, but these
have subsequently been removed.
Share awards under the DWF Group PLC EIP - Career level 1-3
award
This scheme is to incentivise senior employees for performance
and exceptional contributions to the Group, on promotion or as a
lateral or senior hire to the Group. Additionally, as part of the
RCD acquisition, shares are ring-fenced for future grant to
employees of the acquired business which fall under this award.
All of the awards under this scheme are subject to service
conditions and a portion of the awards are also subject to
performance targets. There is an entitlement to receive dividend
equivalents on the awards.
Share awards under the DWF Group PLC EIP - Long-Term Incentive
Plan
The Group incentivises its Executive Board with long-term
rewards based on challenging performance targets.
The awards under this scheme are also subject to service
conditions. There is no dividend or dividend equivalent entitlement
until such time as they vest and after a holding period.
Share awards under the DWF Group PLC EIP - Promotion award
The Group may incentivise its employees on promotion with a
share award from this scheme.
All of the awards under this scheme are subject to service
conditions. A portion of the awards were previously subject to
performance targets, but these have subsequently been removed.
There is an entitlement to receive dividend equivalents on the
awards.
Share awards under the DWF Group plc BAYE - IPO award
At IPO, awards were granted to eligible employees.
The awards under this scheme were subject to service conditions.
There was no entitlement to receive dividends or dividend
equivalents on the awards until such time as they vested.
Share awards under the DWF Group plc BAYE - Free-share award
The Group incentivises its employees for exceptional
contributions from this scheme.
The awards under this scheme are subject to service conditions.
There is no entitlement to receive dividends or dividend
equivalents until such time as they vest.
Share awards under the DWF Group plc BAYE - Plan matching award
('BAYE matching shares award')
The Group offers its employees in the UK, Spain and the US the
opportunity to actively buy shares in DWF Group plc and become an
investor in the business. The Group will match a certain number of
awards, subject to service conditions.
There is no entitlement to receive dividends or dividend
equivalents until such time as they vest.
Share awards under the DWF Group plc - Deferred bonus plan
The Group may make awards under this scheme to eligible
employees as part of the bonus plan.
The awards under this scheme are subject to service conditions.
There is no entitlement to receive dividends or dividend
equivalents until such time as they vest.
Share awards granted
The Black Scholes method was used to value all share awards
granted during the year. The following table outlines the inputs
and assumptions used:
2023 2022
-------------------------------- --------------------------
Deferred Deferred
EIP BAYE bonus EIP BAYE bonus
---------------------------- ------- ------- --------- ------- ------- -----------
Weighted average
fair value at measurement
date 0.75 0.65 0.78 1.14 1.10 0.95
---------------------------- ------- ------- --------- ------- ------- -----------
Weighted average
share price at grant
date 0.84 0.65 0.93 1.19 1.20 1.17
---------------------------- ------- ------- --------- ------- ------- -----------
Expected volatility 38.55% 35.14% 43.21% 42.96% 43.46% 43.52%
---------------------------- ------- ------- --------- ------- ------- -----------
Expected life (years) 1.71 1.96 2.92 2.87 1.37 2.87
---------------------------- ------- ------- --------- ------- ------- -----------
Expected dividend
yield 6.85% 7.60% 7.67% 1.33% 5.72% 6.57%
---------------------------- ------- ------- --------- ------- ------- -----------
Risk free interest
rate 2.99% 4.00% 2.03% 0.50% 0.51% 0.18%
---------------------------- ------- ------- --------- ------- ------- -----------
Estimate of attrition 16.98% 25.18% 27.94% 21.60% 9.42% 20.46%
---------------------------- ------- ------- --------- ------- ------- -----------
Estimate of performance
conditions being
met 88.47% N/A N/A 85.70% N/A N/A
---------------------------- ------- ------- --------- ------- ------- -----------
The expectations and estimates used represent the average across
the tranches granted. Expected volatility was determined by
reference to the period for which the share price history is
available. The expected life used is the vested date of the
award.
24 Key management personnel
Compensation paid to key management personnel
2023 2022
GBP'000 GBP'000
--------------------------------- ---------- ----------
Remuneration of the PLC Board
Short-term employee benefits 1,899 2,717
---------------------------------
Post-employment benefits 101 92
--------------------------------- ---------- ----------
Share-based payments 555 640
--------------------------------- ---------- ----------
2,555 3,449
--------------------------------- ---------- ----------
Key management personnel comprise the PLC Board of Directors.
The amount paid to the highest paid member of key management was
GBP0.8m (2022: GBP0.8m).
Related parties
Zeus Capital Limited was a related party of the Group by virtue
of Sir Nigel Knowles being Chairman of Zeus Capital Limited. Total
sales by the Group to Zeus Capital in the period were GBP5,000 (PY:
GBP255,000) relating to the provision of legal services. Zeus
Capital Limited also act as broker to the Group, and fees payable
to Zeus Capital Limited in the period was GBP50,000 (PY:
GBP43,750). No amounts were payable or outstanding at the year end
or at the prior year end.
Onedome Limited is also a related party of the Group by virtue
of Sir Nigel Knowles being a director of the company. Total sales
to Onedome Limited in the period were GBP78,000 (PY: GBPnil)
relating to the provision of legal services. An amount of GBP94,000
was outstanding from Onedome Limited as at the year end (PY:
GBPnil).
Cannaray Limited is a related party of the Group by virtue of
Sir Nigel Knowles being a director of the company. Total sales by
the Group to Cannaray Limited in the period were GBP11,000 (PY:
GBP30,000) relating to the provision of legal services. An amount
of GBP13,000 was outstanding from Cannaray Limited as at the year
end (PY: GBPnil).
25 Employee information and their pay and benefits
The average number of persons employed by the Group (including
Executive Directors) during the year, analysed by category, and the
aggregate payroll costs of these persons were as follows:
2023 2022
No. No.
----------------------------------------------- ---------- ----------
Legal advisors 2,542 2,426
Support staff 1,296 1,222
----------------------------------------------- ---------- ----------
3,838 3,648
----------------------------------------------- ---------- ----------
GBP'000 GBP'000
----------------------------------------------- ---------- ----------
Wages and salaries 217,504 199,828
Social security costs 13,390 11,694
-----------------------------------------------
Contributions to defined contribution plans 7,843 6,698
----------------------------------------------- ---------- ----------
238,737 218,220
----------------------------------------------- ---------- ----------
The Group operates defined contribution pension plans. The total
annual pension cost for the defined contribution plan was GBP7.8m
(2022: GBP6.7m) and the outstanding balance at 30 April 2023 was
GBP1.3m (30 April 2022: GBP0.9m).
26 Cash generated from operations
a) Cash generated from operations before adjusting items
2023 2022
GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Cash flows from operating activities
------------------------------------------------------ ----------- -----------
Profit before tax 17,169 22,316
------------------------------------------------------ ----------- -----------
Adjustments for:
------------------------------------------------------ ----------- -----------
Amortisation of acquired intangible assets 3,929 4,655
------------------------------------------------------ ----------- -----------
Impairment of intangible assets 1,494 -
------------------------------------------------------ ----------- -----------
Impairment of tangible and right of use 362 -
assets
------------------------------------------------------ ----------- -----------
Accelerated depreciation/amortisation 6,452 3,593
------------------------------------------------------ ----------- -----------
Depreciation of right-of-use asset 12,365 12,737
------------------------------------------------------ ----------- -----------
Other depreciation and amortisation 6,830 7,211
------------------------------------------------------ ----------- -----------
Non-underlying items 6,248 1,224
------------------------------------------------------ ----------- -----------
Gain on bargain purchase (4,459) -
------------------------------------------------------ ----------- -----------
Share-based payments expense 12,132 9,609
------------------------------------------------------ ----------- -----------
Interest expense on lease liabilities 1,739 1,673
------------------------------------------------------ ----------- -----------
Net finance expense 5,310 3,518
------------------------------------------------------ ----------- -----------
Operating cash flows before movements in
working capital 69,571 66,536
------------------------------------------------------ ----------- -----------
Increase in trade and other receivables (24,775) (8,031)
------------------------------------------------------ ----------- -----------
(Decrease) in trade and other payables (79) (17,641)
------------------------------------------------------ ----------- -----------
(Decrease)/increase in provisions (1,309) 4,798
------------------------------------------------------ ----------- -----------
Decrease in amounts due to members of partnerships
in the Group (479) (4,039)
------------------------------------------------------ ----------- -----------
Cash generated in operations before adjusting
items 42,929 41,623
------------------------------------------------------ ----------- -----------
b) Free cash flows
Free cash flow is an APM and is defined in the glossary.
2023 2022
GBP'000 GBP'000
---------------------------------------------------- ----------- -----------
Free cash flows
---------------------------------------------------- ----------- -----------
Operating cash flows before movements in working
capital 69,571 66,536
---------------------------------------------------- ----------- -----------
Net working capital movement (26,163) (20,874)
---------------------------------------------------- ----------- -----------
Amounts due to members of partnerships in
the Group (479) (4,039)
---------------------------------------------------- ----------- -----------
Cash generated from operations before adjusting
items 42,929 41,623
---------------------------------------------------- ----------- -----------
Net interest paid (5,511) (4,596)
---------------------------------------------------- ----------- -----------
Tax paid (3,713) (2,854)
---------------------------------------------------- ----------- -----------
Repayment of lease liabilities (14,447) (13,396)
---------------------------------------------------- ----------- -----------
Purchase of property, plant and equipment (2,874) (3,581)
---------------------------------------------------- ----------- -----------
Purchase of other intangible assets (3,452) (4,300)
---------------------------------------------------- ----------- -----------
Free cash flows 12,932 12,896
---------------------------------------------------- ----------- -----------
c) Working capital measures
2023 2022
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
WIP days
---------- ----------
Amounts recoverable from clients in respect
of unbilled revenue 92,890 71,958
Unbilled disbursements 11,232 7,982
---------------------------------------------------- ---------- ----------
Total WIP 104,122 79,940
---------------------------------------------------- ---------- ----------
Annualised net revenue 396,757 350,490
---------------------------------------------------- ---------- ----------
WIP days 96 83
---------------------------------------------------- ---------- ----------
Debtor days
---------- ----------
Trade receivables (net of allowance for doubtful
receivables) 104,593 88,949
Other receivables 4,368 3,154
---------------------------------------------------- ---------- ----------
Total debtors 108,961 92,103
---------------------------------------------------- ---------- ----------
Annualised net revenue 396,757 350,490
---------------------------------------------------- ---------- ----------
Debtor days 100 96
---------------------------------------------------- ---------- ----------
Total lock-up days
---------- ----------
Total WIP 104,122 79,940
Total debtors 108,961 92,103
---------------------------------------------------- ---------- ----------
Total lock-up 213,083 172,043
---------------------------------------------------- ---------- ----------
Annualised net revenue 396,757 350,490
---------------------------------------------------- ---------- ----------
Total lock-up days 196 179
---------------------------------------------------- ---------- ----------
Annualised net revenue, an APM as defined in the glossary,
reflects the total net revenue for the previous 12-month period
inclusive of pro-forma adjustments for acquisitions.
Lock-up days is an APM and is defined in the glossary.
The Group also measures lock-up as above but excluding other
receivables as this more closely aligns with lock-up measurement of
other businesses in the legal sector and also as other receivables
do not represent sales outstanding. Excluding other receivables,
lockup days are 192 days (2022: 176 days).
27 Amounts due to members of partnerships in the Group
Amounts due to members of partnerships in the Group comprise
members' capital and other amounts due to members classified as
liabilities as follows:
Total amounts
due to members
Members' Other amounts of partnerships
capital due to members in the Group
GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ----------------- ------------------
At 1 May 2022 14,370 13,873 28,243
--------------------------------- ---------- ----------------- ------------------
Members' remuneration charged
as an expense - 44,829 44,829
--------------------------------- ---------- ----------------- ------------------
Unrealised foreign exchange
translation differences 54 452 506
--------------------------------- ---------- ----------------- ------------------
Capital introduced by members 7,237 - 7,237
--------------------------------- ---------- ----------------- ------------------
Repayments of capital (4,807) - (4,807)
--------------------------------- ---------- ----------------- ------------------
Drawings - (45,308) (45,308)
--------------------------------- ---------- ----------------- ------------------
At 30 April 2023 16,854 13,846 30,700
--------------------------------- ---------- ----------------- ------------------
Total amounts
due to members
Members' Other amounts of partnerships
capital due to members in the Group
GBP'000 GBP'000 GBP'000
--------------------------------- ---------- ----------------- ------------------
At 1 May 2021 13,348 18,144 31,492
--------------------------------- ---------- ----------------- ------------------
Members' remuneration charged
as an expense - 43,670 43,670
--------------------------------- ---------- ----------------- ------------------
Unrealised foreign exchange
translation differences (38) (80) (118)
--------------------------------- ---------- ----------------- ------------------
Capital introduced by members 2,132 - 2,132
--------------------------------- ---------- ----------------- ------------------
Repayments of capital (1,072) - (1,072)
--------------------------------- ---------- ----------------- ------------------
Drawings - (47,861) (47,861)
--------------------------------- ---------- ----------------- ------------------
At 30 April 2022 14,370 13,873 28,243
--------------------------------- ---------- ----------------- ------------------
The average number of members during the year was as
follows:
2023 2022
Average number of members of partnerships held
by the Group during the year 385 366
-------------------------------------------------- ------- -------
28 Events after the reporting date
On 21 July 2023, the Board unanimously announced the
recommendation of an all cash offer for DWF Group Plc from Aquila
Bidco Limited, a newly incorporated wholly-owned subsidiary of
funds advised by Inflexion. It is not possible to estimate the
financial effect on the Company as a result of this change in
ultimate parent ownership.
UNAUDITED INFORMATION
Appendix
Reconciliation to new global operating structure - year ended 30
April 2023
The following reconciliation shows how the current year's
revenue, net revenue and gross profit would be presented under the
new operating structure:
Under new
As reported global operating
for the year structure
ended 30 April Impact of effective
2023 restructure 1 May 2023
GBP'000 GBP'000 GBP'000
---------------------- ----------------- -------------- -------------------
Net revenue
---------------------- ----------------- -------------- -------------------
Legal Advisory 316,577 (316,577) -
---------------------- ----------------- -------------- -------------------
Connected Services 40,653 (40,653) -
---------------------- ----------------- -------------- -------------------
Commercial Services - 203,118 203,118
---------------------- ----------------- -------------- -------------------
Insurance Services - 162,930 162,930
---------------------- ----------------- -------------- -------------------
Mindcrest 22,906 (22,906) -
---------------------- ----------------- -------------- -------------------
Legal Operations - 14,088 14,088
---------------------- ----------------- -------------- -------------------
Net revenue 380,136 - 380,136
---------------------- ----------------- -------------- -------------------
Direct cost
---------------------- ----------------- -------------- -------------------
Legal Advisory (153,959) 153,959 -
---------------------- ----------------- -------------- -------------------
Connected Services (22,749) 22,749 -
---------------------- ----------------- -------------- -------------------
Commercial Services - (98,343) (98,343)
---------------------- ----------------- -------------- -------------------
Insurance Services - (83,842) (83,842)
---------------------- ----------------- -------------- -------------------
Mindcrest (11,687) 11,687 -
---------------------- ----------------- -------------- -------------------
Legal Operations - (6,210) (6,210)
---------------------- ----------------- -------------- -------------------
Direct cost (188,395) - (188,395)
---------------------- ----------------- -------------- -------------------
Gross profit
---------------------- ----------------- -------------- -------------------
Legal Advisory 162,618 (162,618) -
---------------------- ----------------- -------------- -------------------
Connected Services 17,904 (17,904) -
---------------------- ----------------- -------------- -------------------
Commercial Services - 104,775 104,775
---------------------- ----------------- -------------- -------------------
Insurance Services - 79,088 79,088
---------------------- ----------------- -------------- -------------------
Mindcrest 11,219 (11,219) -
---------------------- ----------------- -------------- -------------------
Legal Operations - 7,878 7,878
---------------------- ----------------- -------------- -------------------
Gross profit 191,741 - 191,741
---------------------- ----------------- -------------- -------------------
UNAUDITED INFORMATION
Glossary
Alternative Performance Measures ('APMs')
In accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority ('ESMA'), additional information
is provided on the APMs used by the Group below. In the reporting
of financial information, the Group uses certain measures that are
not required under IFRS.
These additional measures (commonly referred to as APMs) provide
the Group's stakeholders with additional information on the
performance of the business. These measures are consistent with
those used internally, and are considered insightful to
understanding the financial performance of the Group. The Group's
APMs provide an important measure of how the Group is performing by
providing a meaningful comparison of how the business is managed
and measured on a day-to-day basis and achieves consistency and
comparability between reporting periods.
These APMs may not be directly comparable with similar measures
reported by other companies and they are not intended to be a
substitute for, or superior to, IFRS measures. All Income Statement
measures are provided for continuing operations unless otherwise
stated.
APM
Net revenue
---------------------------------------------------------------------------
Closest equivalent statutory measure
Revenue
---------------------------------------------------------------------------
Definition and purpose
Revenue less recoverable expenses
Recoverable expenses do not attract a profit margin and can vary
significantly month-to-month such that they may distort the link
between revenue and the performance of the Group. Net revenue
is widely reported in the legal sector as the key measure reflecting
underlying trading, and allows greater comparability with other
legal businesses.
---------------------------------------------------------------------------
Reconciliation 2023 2022
GBP'000 GBP'000
------------------------------------- ----------------- -----------------
Revenue 451,641 416,052
------------------------------------- ----------------- -----------------
Recoverable expenses (71,505) (65,810)
------------------------------------- ----------------- -----------------
Net revenue 380,136 350,242
------------------------------------- ----------------- -----------------
APM
Adjusting items
------------------------------------------------------------------------
Closest equivalent statutory measure
None
Definition and purpose
Those items which the Group excludes from its statutory metrics
to arrive at adjusted profit or cash flow metrics in order to
present further measures of the Group's performance.
These include items w hich are significant in size or by nature
are non-trading or non-recurring. This provides a comparison
of how the business is managed and measured on a day-to-day basis
and provides consistency and comparability between reporting
periods, as well as allows our results to be compared more fairly
with other similar businesses.
Share-based payment charges within adjusting items relate to
shares allocated from the pre-funded employee benefit trust,
which are not dilutive to shareholders.
Reconciliation
See note 2
------------------------------------------------------------------------
APM
Adjusted earnings before interest, tax, depreciation and amortisation
('adjusted EBITDA')
------------------------------------------------------------------------
Closest equivalent statutory measure
Operating profit
Definition and purpose
Operating profit adjusted for adjusting items, as detailed in
note 2, and adding back depreciation and amortisation.
Adjusted EBITDA is useful as a measure of comparative operating
performance between both previous periods, and other companies
as it is reflective of adjustments for adjusting items and other
factors that affect operating performance. Adjusted EBITDA removes
the affect of depreciation and amortisation, and adjusting items
as described above, as well as items relating to capital structure
(finance costs and income) and items outside the control of management.
Reconciliation 2023 2022
GBP'000 GBP'000
---------------------------------------
Operating profit 24,218 27,653
---------------------------------------
Depreciation of right-of-use assets 12,365 12,737
---------------------------------------
Other depreciation and amortisation 6,830 7,211
---------------------------------------
Total of adjusting items 26,158 19,081
---------------------------------------
Adjusted EBITDA 69,571 66,682
---------------------------------------
APM
Adjusted profit before tax ('adjusted PBT')
--------------------------------------------------------------------------
Closest equivalent statutory measure
Profit before tax
--------------------------------------------------------------------------
Definition and purpose
Profit before tax and after reflecting the impact of adjusting
items.
Adjusted PBT is useful as a measure of comparative operating
performance between both previous periods, and other companies
as it is reflective of adjustments for non-underlying items,
amortisation of acquired intangibles, share based payments expense,
impairment/impairment reversal and other factors that affect
operating performance. Adjusted PBT is used to provide a useful
and consistent measure of the ongoing performance of the Group.
Adjusted measures are reconciled to statutory measures in note
2.
--------------------------------------------------------------------------
Reconciliation 2023 2022
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Profit before tax 17,169 22,316
---------------------------------------------- ------------ ------------
Total of adjusting items (note 2) 26,158 19,081
---------------------------------------------- ------------ ------------
Adjusted profit before tax 43,327 41,397
---------------------------------------------- ------------ ------------
APM
Cost to income ratio
---------------------------------------------------------------------------
Closest equivalent statutory measure
Not applicable
Definition and purpose
Adjusted administrative expenses and impairment as detailed in
note 2, divided by net revenue as defined above.
After adjusting for significant items that are one-off in nature,
the cost to income ratio is an essential metric in assessing
the levels of underlying operational gearing in the Group. The
Group uses the cost to income ratio to measure the efficiency
of its activities. A decrease in cost to income ratio indicates
an improvement to efficiency, and likewise an increase indicates
a decline. Management note that the usefulness of the cost to
income ratio is inherently limited by the fact that it is a ratio
and thus does not provide information on the absolute amount
of operating revenue and expenses.
---------------------------------------------------------------------------
Reconciliation 2023 2022
GBP'000 GBP'000
--------------------------------------------------- ---------- ----------
Net revenue 380,136 350,242
--------------------------------------------------- ---------- ----------
Adjusted administrative expenses and impairment
(note 2) 141,365 134,322
--------------------------------------------------- ---------- ----------
Cost to income ratio 37.2% 38.4%
--------------------------------------------------- ---------- ----------
APM
Adjusted administrative expenses
------------------------------------------------------------------
Closest equivalent statutory measure
Administrative expenses and impairment
Definition and purpose
Adjusted administrative expenses are defined as administrative
expenses plus impairment less adjusting items (as defined above).
Adjusted administrative expenses provide a useful and consistent
measure of the ongoing administrative expenses of the Group.
In particular, the adjusted administrative expenses are utilised
within the Group's definition of 'Cost to income ratio' which
is also defined above.
Reconciliation
See note 2
APM
Net debt (excluding IFRS 16)
--------------------------------------------------------------------
Closest equivalent statutory measure
Cash and cash equivalents less borrowings
Definition and purpose
Net debt comprises cash and cash equivalents less interest-bearing
loans and borrowings (including the supplier payments facility).
Net debt is one measure that can be used to indicate the strength
of the Group's statement of financial position and can be a useful
measure of the indebtedness of the Group. This metric excludes
the Group's lease liabilities under IFRS 16 in order to provide
consistency with how the Group manages and reports its indebtedness
and also providing consistency with the definition of Net debt
under the Group's principal banking agreement.
Reconciliation
See note 17
APM
Lock-up days
------------------------------------------------------------------------
Closest equivalent statutory measure
Not applicable
Definition and purpose
Lock-up days comprise work-in-progress ('WIP') days, representing
the amount of time between performing work and invoicing clients;
and debtor days, representing the length of time between invoicing
and cash collection. WIP days are calculated as unbilled revenue
divided by annualised net revenue multiplied by 365 days. Debtor
days are calculated as trade and other receivables, excluding
amounts due from members of partnerships, divided by annualised
net revenue multiplied by 365 days. Annualised net revenue is
the total net revenue for the previous 12 month period with adjustments
for acquisitions and discontinuations .
Reconciliation
See note 26
------------------------------------------------------------------------
APM
Adjusted diluted earnings per share ('adjusted DEPS')
------------------------------------------------------------------------
Closest equivalent statutory measure
Diluted earnings per share ('DEPS')
Definition and purpose
Adjusted earnings divided by the total number of ordinary shares
in issue.
Adjusted earnings is defined as earnings from continuing operations
adjusted for:
* non-underlying items;
* share-based payments expense;
* gain on investment;
* amortisation of acquired intangible assets;
* impairment; and
* the tax effect of the above items;
Whilst this metric is not prepared in accordance with IAS 33
'Earnings per Share', it is an important APM to provide the Group's
stakeholders with a fully diluted EPS metric using the Group's
adjusted earnings for the period that is consistent year on year.
Reconciliation
See note 8
APM
Adjusted earnings per share ('adjusted EPS')
---------------------------------------------------------------------
Closest equivalent statutory measure
Basic EPS
Definition and purpose
Adjusted earnings divided by weighted average number of ordinary
shares for the purposes of the basic earnings per share calculation.
See adjusted diluted EPS definition and purpose above for details
of adjusting measures.
This metric provides the Group's stakeholders with an EPS metric
using the Group's adjusted profitability but with a denominator
consistent with the statutory basic EPS measure.
Reconciliation
See note 8
APM
Like for like ('L4L')
----------------------------------------------------------------------------
Closest equivalent statutory measure
N/A
----------------------------------------------------------------------------
Definition and purpose
Like for like metrics, are applied to net revenue, direct costs,
gross profit and gross margin to exclude the acquisitions of
Acumension and Whitelaw Twining.
This metric allows the Group's stakeholders to compare the performance
of the business on a consistent basis with the prior period,
given that the acquisitions of Acumension and Whitelaw Twining
were a significant change to the Group.
----------------------------------------------------------------------------
Reconciliation
Not applicable
APM
Revenue per partner
Closest equivalent statutory measure
Revenue
Definition and purpose
Revenue per partner is defined as net revenue divided by average
number of partners (on a full time equivalent basis) for the period.
This metric allows the Group's stakeholders to view the performance
of the business based on average revenue per partner, split by
division (this includes both member and employee partners).
Reconciliation 2023 2022
GBP'000 GBP'000
Legal Advisory 937 896
Connected Services 1,457 1,382
Mindcrest 8,589 12,216
Group 1,001 975
APM
Annualised net revenue
----------------------------------------------------------------------
Closest equivalent statutory measure
Revenue
----------------------------------------------------------------------
Definition and purpose
Annualised net revenue reflects the total net revenue for the
previous 12-month period inclusive of pro-forma adjustments for
acquisitions and discontinuations/closures/scale-backs.
This metric is utilised as a denominator for lock up, WIP and
debtor day calculations which allow greater comparability within
the legal sector consistent with prior and full year metrics.
----------------------------------------------------------------------
Reconciliation
Not applicable
APM
Free cash flow
------------------------------------------------------------------------
Closest equivalent statutory measure
Not applicable
------------------------------------------------------------------------
Definition and purpose
Free cash flow is the amount by which the operating cash flow
exceeds working capital, amounts payable to members, tax, interest
and capital expenditure.
This metric provides the Group's stakeholders detail around the
efficiency of cash generation and utilisation.
------------------------------------------------------------------------
Reconciliation
See note 26
APM
Leverage
Closest equivalent statutory measure
Not applicable
Definition and purpose
Leverage is calculated as net debt, divided by the last 12 months
adjusted EBITDA (both defined above).
This metric provides the Group's stakeholders detail around the
Group's ability to repay debt and meet payment obligations. Leverage
should be compared with a benchmark, or industry average and is
widely used by analysts and credit rating agencies.
Reconciliation 2023 2022
GBP'000 GBP'000
Adjusted EBITDA (last 12 months) 69,571 66,682
Net debt 101,747 71,820
Leverage 1.46 1.08
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END
FR SEMSSIEDSESA
(END) Dow Jones Newswires
August 25, 2023 02:00 ET (06:00 GMT)
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