Knights Group Holdings plc

("Knights" or the "Group")

Full Year Results

A good performance, reflecting resilience, scale and financial discipline

Plan to double the business in medium term

Knights, the legal and professional services business, today announces its full year results for the year ended 30 April 2024.

Financial highlights

·       Revenue increased by 6% to £150m (FY23: £142.1m); organic growth of 1.9%

·       Gross margin of 48.8% (FY23: 48.5%)

·       Underlying PBT¹ up 17.3% to £25.3m (FY23: £21.6m); underlying PBT¹ margin increased to 16.9% (FY23: 15.2%)

·       Reported PBT increased 28.6% to £14.8m (FY23: £11.5m)

·       Underlying EPS² increased 8% to 21.81p (FY23: 20.20p). Basic EPS of 11.47p (FY23: 9.28p)

·       Strong improvement in lock up³ days to 78 (FY23: 87 days), with debtor days improving to 28 (FY23: 30 days)

·       Continued excellent cash conversion⁴ of 131% (FY23: 117%) enabling investment in growth

·       Net debt⁵ of £35.2m (30 April 23: £29.2m), after a cash outlay of £11.3m relating to acquisitions and a joint venture investment in Convex Corporate Finance Limited resulting in a reduction in banking covenant EBITDA / net debt ratio to 1.1x (30 April 2023: 1.2x)

·       Final dividend of 2.79p (FY23: 2.50p), giving a 9% increase in the total dividend to 4.40p (FY23: 4.03p)

Strategic and operational highlights

A good performance as we strengthened our platform for growth

·       40 senior fee earners joined the business (FY23: 27), as awareness increases of our national scale, differentiated model, and strong culture. Strong retention with 12% churn (FY23: 18%)

·       Won a number of new and significant clients and extended our relationships with a number of existing clients

·       Continued focus on cost discipline and operational excellence

Increased scale and diversification through considered acquisitions and partnerships 

·      Acquired Baines Wilson and St James Law in the period, both are trading ahead of expectations and provide strong platforms for future organic growth; seven senior recruits have joined these new offices since acquisition 

·      Formed a joint venture with Convex, diversifying our range of services further, with its entrepreneur focus bringing synergies with our corporate and private wealth offering

Current trading and Outlook

·      Encouraging start to the year with a strong recovery in residential property

·      Focused on client acquisition and deeper collaboration across offices to bring more services to existing clients

·      Sustained recruitment momentum and good retention

·      Active pipeline of attractive acquisitions

·      Confident of delivering a meaningful improvement in organic growth in the current financial year

Plan to double the business in the medium term

·      Execution of strategy and market tailwinds to drive revenue and profit growth 

·      Expected to be delivered through strong organic growth complemented by our value accretive acquisition strategy

·      Builds on considerable growth to date, EBITDA more than quadrupled since IPO in 2018

David Beech, CEO of Knights, commented:

"Knights has delivered a good performance against a challenging market backdrop, reflecting the strength of our diversified service offering, and continued execution against our strategy, and building on our strong track record of profitable growth since IPO in 2018.

"We have diversified our service offering, won a number of new clients, sharpened our focus on operational excellence and made considered strategic acquisitions, bolstering our scale in the North, an important region.

"This progress, together with an encouraging start to the year, including a strong recovery in residential property, in line with our expectations, means we are confident in delivering our ambitions plans to double the size of the business in the medium term."

Footnotes

¹      Underlying PBT is before amortisation of acquired intangibles, non-underlying operating expenses, and non-underlying finance costs. Non-underlying operating expenses include transaction and onerous lease expenses in relation to acquisitions, contingent acquisition payments, disposal of acquired assets, along with one-off restructuring staff and professional expenses, mainly incurred on acquisitions, through streamlining support functions or strategic reorganisations.

Contingent acquisition payments are treated as a non-underlying expense as this represents payments for acquisitions which are dependent on the continued employment of certain individuals in the business for an agreed contractual period after an acquisition of one to three years to preserve the acquired goodwill and customer relationships. Accounting standards require such arrangements to be treated as remuneration in the Statement of Comprehensive Income. However, the individuals also receive market rate salaries, therefore, if not separately identified, these payments would significantly distort the reported results. 

²      Underlying EPS is underlying PAT divided by the weighted average number of ordinary shares in issue.

³      Lock up is calculated as the combined debtor and WIP days as at a point in time. Debtor days are calculated on a count back basis using the gross debtors at the period end and compared with total fees raised over prior months. WIP days are calculated based on the gross work in progress (excluding that relating to clinical negligence claims, insolvency, and ground rents, as these matters operate mainly on a conditional fee arrangement and a different profile to the rest of the business) and calculating how many days billing this relates to, based on average fees (again excluding clinical negligence claims, insolvency, and ground rents fees) per month for the last 3 months. Lock up days excludes the impact of acquisitions in the last quarter of the reporting period.

⁴     Cash conversion is calculated as the total of cash from operations, less tax paid and underlying IFRS 16 net lease payments, divided by underlying profit after tax.

⁵      Net debt includes cash and cash equivalents, borrowings and acquired debt but excludes lease liabilities.

⁶      Underlying EBITDA is operating profit before depreciation, amortisation and non-underlying operating expenses as defined above¹  

⁷      Underlying PAT is underlying PBT less any tax in respect of underlying items.

⁸      Underlying EBITDA post IFRS 16 is used as a metric as this reflects the profits after deduction of rental costs which is most comparable to the EBITDA reported at IPO, before the introduction of IFRS 16.

These footnotes apply throughout the RNS

Enquiries

Notes to Editors

Knights is a fast-growing, legal and professional services business, ranked within the UK's top 50 largest law firms by revenue. Knights was one of the first law firms in the UK to move from the traditional partnership model to a corporate structure in 2012 and has since grown rapidly. Knights has specialists in all key areas of corporate and commercial law so that it can offer end-to-end support to businesses of all sizes and in all sectors. It is focussed on key UK markets outside London and currently operates from 23 offices located in Birmingham, Brighton, Bristol, Carlisle, Cheltenham, Chester, Exeter, Kings Hill, Leeds, Leicester, Lincoln, Manchester, Newbury, Newcastle, Nottingham, Oxford, Portsmouth, Sheffield, Stoke, Teesside, Weybridge, Wilmslow and York.

Chairmans's statement

I am delighted to introduce my first full year results as Chair of Knights.

Pleasingly, my first six months as Chair have confirmed my expectations that Knights is a quality legal and professional services business of scale, with a very driven, strong management team and a proven scalable operating platform for future growth.

As one of the largest legal and professional services businesses outside London, we provide the full scope of legal services, delivered to clients locally. This together with the truly collaborative culture I have witnessed, sets the business apart from traditional firms, and underpins its ability to provide premium services with on the ground expertise, without limiting the breadth of what we are able to offer.

It is these attributes, combined with the hard work of our talented professionals and executive management team, that have facilitated the delivery of a good performance in a difficult operating environment, amid ongoing macroeconomic uncertainty. Despite these challenges, and their impact primarily in the residential property market and on corporate transactions, the Group's financial performance was in line with the Board's and market expectations, with a significant rise in profitability.

The Group delivered revenue of £150m for the first time, representing growth of 6%, while underlying EBITDA⁶ post IFRS 16⁸ charges reached £31.6m, up 21%. This is over four times the underlying EBITDA⁶ reported when the Group floated on the London Stock Exchange's AIM market in 2018, an outstanding achievement. Reported profit before tax (PBT) increased by 29% to £14.8m in the year.

On behalf of the Board, I would like to thank all our dedicated employees for their contribution to the delivery of this performance and our clients and our shareholders for their ongoing support.

Further Strategic Progress

Our strategy has delivered exemplary growth since IPO, and the management team pressed ahead with executing this during the year. The Group enhanced its platform both through acquisition, and by focusing on driving cost efficiencies and hiring the best people, positioning us well for organic growth and operational leverage in the year ahead.

We have a strong track record of executing a proven value accretive strategy to enhance our footprint through acquisitions. We added St James Law and Baines Wilson to our network in the year, which both provide good platforms for future organic growth and complement our existing presence in the North East of England. These businesses were attracted by our model and the benefits of being part of Knights for their next phase of growth, motivation shared with those businesses that have joined over previous years.

We also entered into a joint venture to form Convex Corporate Finance Limited ('Convex'). This boutique corporate finance business has a compelling proposition, supporting the founders of small and medium size enterprises through sales processes, which provides us with a service complementary to its M&A legal work, while providing Convex with access to our wider range of private wealth services. We are confident in the prospects of the business as M&A markets recover, with the businesses already benefitting from their symbiotic relationship.

Dividend

The Group's dividend policy, of paying 20% of underlying profit after tax⁷, balances the retention of profits to fund our long-term growth strategy with providing shareholders with a return, as our growth strategy delivers positive results.

The Board is proposing a final dividend of 2.79p, which, together with the interim dividend of 1.61p per share gives a total dividend for the year of 4.40p (FY23: 4.03p), an increase of 9%. The dividend will be payable on 27 September 2024 to shareholders on the register at 30 August 2024, subject to shareholder approval at the Group's AGM.

Summary

The Board is pleased with the Group's performance. We expect the good strategic progress we have made over the course of the year, as well as the work undertaken to enhance our platform, to support future organic growth, recruitment momentum, M&A opportunities and client wins in the year ahead, as we continue to scale across the UK.

With our national capabilities and deep expertise, delivered locally by a network of talented lawyers, we are confident of making further progress.

Chief Executive's review

Our performance for the year demonstrates that the continued successful execution of our strategy is delivering for the business and its stakeholders, despite challenging macroeconomic conditions, with FY24 underlying EBITDA⁶ post IFRS 16⁸ charges more than four times the Group's underlying EBITDA⁶ (the equivalent metric in 2018) at the time of our IPO. We continued to make considered strategic acquisitions, bolstering our scale in the North, an important region, and also diversified our service offering, won a number of new clients, and sharpened our focus on driving cost savings whilst improving operational excellence. As a result, our position as the preeminent provider of premium professional services outside London, with the ability to deliver a high calibre, full-scope service, locally, became even more firmly established.

Operationally and strategically, it was a year of two distinct halves. Early in the year, we expanded our presence in the North of England with two carefully chosen acquisitions which have since integrated into the Group well and are performing ahead of expectations. In the second half, we focussed on optimising operational gearing by making salary and administrative cost savings as we continued to drive future organic growth, enhanced by our joint venture with corporate financier, Convex, which further strengthens our foundation for diversified growth.

Momentum in recruitment has been good, with our strong reputation, scale, and differentiated model and culture continuing to attract quality talent to the Group from leading law firms across the country; during the year, 40 senior fee earners joined us, a 48% increase compared with 27 the previous year. As we continued to build our teams, we also secured a number of new and significant clients and extended our relationships with a number of existing clients. This demonstrates that our unique combination of scale, breadth of services, and locally delivered expertise is resonating with potential and existing clients.

A robust performance, reflecting the Group's resilience, scale and financial discipline

Our operating environment continued to be challenged through the year, with uncertainties impacting business sentiment, such as high interest rates, and the UK's mini recession, weighing on residential property markets and M&A activity in particular. Despite this, we were able to deliver our 12th consecutive year of profitable revenue growth, testament to the strength of the business and its diversified service offering and client base.

Total revenue for the year increased by 6% to £150m (FY23: £142m), reflecting the resilience of the Group and the tireless efforts of our people.  Contributions from acquisitions accounted for 4% of the growth in the year. Revenues grew by 2% organically, with good growth in our non-cyclical work, particularly private wealth, dispute resolution, CL Medilaw, and our growing regulatory team, which more than offset softer performances from the more cyclical residential property and corporate activities. If the reduced revenues in the housing and corporate activities are excluded, along with the reduction in insolvency revenue, due to the strategic decision to reduce this work stream, organic growth for the Group is 6% for the year. We also focused on cost optimisation, driving efficiencies through the business and fully achieving all integration synergies on acquisitions.

Debtor days for the year improved yet again to 28 (FY23: 30), demonstrating our strong discipline and market leading position in managing working capital.

Our Client Services Directors remain a core strength and a critical part of the business. As well as facilitating our unrivalled focus on cash management, as our local leaders, they maintain a focus on driving growth across the Group through strategic recruitment, winning new business and developing and enhancing key client relationships.

A strengthened platform for growth

Our differentiated model and strong corporate culture continue to set Knights apart within the industry, driving strong talent acquisition. The Group's agility, entrepreneurial spirit and speed of decision making in responding to evolving client demands and market conditions have been sustained despite our increasing size, and are instrumental in securing, motivating and retaining high quality talent. Attracted by this, and our scale, 40 senior fee earning professionals joined the business during the year. Acquisitions we completed during this and the prior year also brought new talent into the business and provided stronger platforms for recruitment in their respective regions, widening the pool from which we can source high quality individuals with strong client followings.

The deepening breadth of expertise within the Group is also driving wider business performance, with colleagues increasingly introducing specialists from across our network to offer a fuller service to their clients. This is testament to the power of our commercial mindset, which is becoming increasingly embedded across our teams, and a key example of our collaborative one team culture in action. Together with growing recognition of Knights and its capabilities, it is this mindset that has helped to secure significant new client wins and led to an increase in the value of a number of our existing client relationships. It has also prompted a shift in the type of client we are able to attract, signalling a step change for the business as greater awareness of our comprehensive, premium offer gathers pace.

We are proud of the technology, centralised IT systems, and automation tools we deploy across our network. We aim to be at the forefront of implementing new technologies that can help us refine and enhance our internal processes and better serve our clients. In addition, we are trialling a number of AI-enabled tools, in partnership with technology leaders, to facilitate the delivery of services to our growing portfolio of clients. We have long been a market leader in deploying automation tools and innovative technology to drive workflow efficiencies, which has enabled us to operate a lean support function, as evidenced by our low ratio of non-fee earners to fee earners. Building on our past learnings, we recognise that a considered approach to emerging technologies is required and we are taking care to ensure we adopt the right tools for our business and our clients. While it is early days, we are excited about how these developments will help us to do more for our clients, more efficiently.

Executing our value-accretive acquisition strategy

A core part of our strategy remains the pursuit of considered acquisitions to drive future organic growth and consolidate the fragmented regional legal services market further. We focused more on acquisition activity in the first half, when we bolstered our regional footprint through two high quality acquisitions in strategic growth markets. As ever, we acquired firms that were not only a great cultural fit, but that also have clear potential to support the Group's future organic growth. We are delighted by how both these businesses have integrated, demonstrating our ability to realise synergies and realise value from the firms we acquire.

Strengthened presence in the North of England

During the year, we acquired St James Law and Baines Wilson, which both provide access to important markets, further diversification and strong platforms for talent acquisition in the region. They also support our growing brand awareness in the North of England, where our presence and reputation has been building steadily in recent years, delivering excellent results for the Group.

The acquisition of independent full service commercial law firm, St James Law, brought entry into Newcastle, an important strategic location and the financial centre of the North East, complementing our existing Teesside presence. It has already proved to be a strong platform for recruitment of high-quality talent, with six senior recruits having joined since acquisition.

The North East is one of the UK's largest markets outside London for legal and professional services. We entered the region in 2023, with the acquisition of Archers Law in Teesside. Since joining, our Teesside business has gone from strength to strength, delivering over 25% organic growth in its second full financial year as part of the Group.

We also acquired Baines Wilson, the leading commercial law firm in Carlisle. The firm offers corporate, real estate, dispute resolution and employment services, and provides us with entry into Cumbria. This acquisition has integrated well and is performing ahead of plan.

There remains a healthy pipeline of independent legal and professional services firms across the country, predominantly in locations outside major cities, seeking to join a group that offers the stability associated with a larger, more diversified business, the ability to offer a broad range of services at scale, and the benefit of a corporatised model over equity partnerships. This underpins our longstanding strategy to scale through acquisition, expanding our reach and enabling us to offer premium legal services, locally, across the UK and leverage our strong operational platform.

To pursue our value accretive acquisition strategy, a new, extended revolving credit facility was agreed during the year, providing total committed funding of £70m until November 2026. This new facility provides the headroom and flexibility for us to execute the right opportunities as they arise.

Convex joint venture

Towards the end of the financial year, we entered into an exciting joint venture with the former Convex Capital management team, to form Convex Corporate Finance Limited ("Convex").

Convex's primary activity is supporting vendors of entrepreneur-led businesses in maximising their equity value through sales to strategic acquirers globally. For us, entering into this partnership shows our commitment to diversifying and developing the range of professional services available to our clients, in this case, an expansion of our M&A services from purely legal to corporate finance. Through this venture, which is based in Manchester, Convex clients will benefit from our existing legal M&A and private wealth services and national scale.

While M&A market sentiment has been depressed, we are beginning to see signs of renewed confidence returning in the pipeline and are now even better positioned to benefit as activity picks up.

Employees at the heart of our ESG commitments

ESG remains central to everything we do, and we retain a relentless focus on developing a more sustainable business for all stakeholders. While our efforts span commitments across all aspects of our operations, this is particularly evident in our focus on culture, and our employee value proposition, which continues to drive momentum in recruitment and retention. We recognise that our talent is our greatest asset and strive to ensure that we are always improving our employee offering. We have a fierce commitment to fostering an inclusive, equitable, meritocratic environment, and we are proud that anonymous feedback provided to external consultants during the year signalled this was a stand-out cultural feature at Knights.

From an environmental perspective, while we remain a low carbon intensive business, we continuously seek ways in which to further reduce our emissions and drive energy efficiency across the group. During the year, we launched an EV scheme whereby colleagues can acquire electric vehicles through an approved salary sacrifice scheme, and in November 2023 also introduced a cycle to work initiative. We also seek to ensure that all acquired property meets minimum standards of energy efficiency, and during the year, we have focused on optimising our existing property portfolio.

Board changes

During the year, we were delighted to welcome Dave Wilson as non-executive Chairman of the Group. Dave brings more than 30 years' international board-level and operational experience to our Board, including in AIM-listed, acquisitive businesses. Since joining, Dave's insights and experience have been invaluable, and his contribution has already made a real impact.

Bal Johal stepped down from the Board at the same time, having served as non-executive Chair of Knights since 2012. On behalf of the Board, I reiterate our thanks to him for his immense contribution to the business over the past 11 years, during which time the Group has seen significant growth.

Current trading and outlook and medium-term plan

Trading in the first few weeks of the year has been encouraging. Despite some continued macroeconomic uncertainty, we are seeing a strong recovery in the residential property market, and anticipate an improving corporate M&A market, which we expect to support organic growth in our revenues during the current financial year and beyond.

While the past three fiscal years have presented the Group with multiple challenges, the business has responded well to these and is now poised to build on the work we have done during the past year to strengthen our platform for future growth. We entered the new financial year as a more connected, better organised business, able to offer and deliver a far broader range of services to our clients than ever before. This gives us great confidence that Knights is well-positioned to take advantage of improving market trends now, and longer term. We also have the headroom in our existing financing facilities and the expertise to add high quality acquisitions to our scalable platform, and we are encouraged by our active pipeline of opportunities.

We therefore expect organic growth to continue to improve in FY25, supported by sustained recruitment momentum and more new client wins, together with a more concerted approach to client acquisition and bringing more of our services to more of our existing clients, complemented by high-quality, considered acquisitions.

Looking beyond this year, we are focused on delivering an ambitious medium-term plan to significantly grow the business, building on our success to date, the clear momentum across the Group, and market tailwinds. Through a combination of strong organic growth, complemented by our strong pipeline of acquisition opportunities, we are confident in our ability to double the business in the medium term.

CFO Review

I am pleased to report another year of profitable, cash generative growth with revenue of £150.0m, up 6% compared to the prior year (FY23: £142.1m) and underlying EBITDA⁶ increasing by 16% to £38.7m (FY23: £33.4m). Reported profit before tax (PBT) increased by 29% to £14.8m in the year (FY23: £11.5m). Our disciplined approach to management of lock up³ has generated excellent cash conversion⁴ of 131% for the year (FY23: 117%) resulting in a strong balance sheet position at the year end.

Two complementary acquisitions during the year, an investment in a joint venture, recruitment of partners with new specialisms and strong growth in certain service lines has further increased the diversity of the Group's revenue. This diversity has been key to enabling the Group to deliver these positive results for FY24 despite the headwinds experienced in certain business sectors such as housing and M&A, due to the increased cost of debt.

FY24 has been a year of consolidation. Following several years of consistent and rapid growth through acquisitions, we have focused on our core business platform, consolidating services and facilities where appropriate and maximising efficiencies. Management of our cost base and treasury resources has enabled us to deliver strong growth in profits with improvements in margins achieved.

Whilst managing our cost base, we have continued to invest in our infrastructure ensuring we have the necessary management team, property portfolio and systems and technology resources in place to sustain our future growth plans.

Financial results

Revenue

Reported revenue for the year is £150.0m compared to £142.1m in FY23, an increase of 6%.

Of this increase, £5.1m was generated from acquisitions made during the year and £1.0m is from the full year impact of FY23 acquisitions, with the disposal of HPL (acquired as part of Langleys in FY22) in July 22 reducing revenues year on year by £0.7m.

The remaining increase in revenue of £2.5m was generated through net organic growth.

Organic revenues

We are pleased to report a return to organic revenue growth of 2% in the year despite the challenging macro-economic conditions, demonstrating the resilience of our business driven by the diversity of our revenue streams and client base. The strategic decision to significantly reduce our restructuring and insolvency team during the second half of the year due to poor profitability and our commitment to positioning the business in the premium market had a negative impact on revenue growth of 1%. The economic impact of the increased costs of debt on the housing market (a 19% reduction in revenue) and corporate transactions (a 9% reduction in revenue) had a negative impact on total organic growth of 3%.

Excluding the effects of these strategic decisions and the macro-economic conditions on the housing market and corporate transactions, organic growth was 6% for the year. Strong growth in our non-cyclical areas of the business such as Private Wealth, Dispute Resolution along with our growing Regulatory and Immigration teams demonstrates the opportunities available for future organic growth when macro-economic conditions stabilise.

Our organic growth during the year results mainly from improved pricing and the quality of work undertaken, together with the recruitment of partners with strong client followings and networks. 

Revenue from acquisitions

The acquisitions of Coffin Mew, Globe Consultants and Meade King completed during FY23. At acquisition we typically budget to retain 80% of acquired revenues. Other than Coffin Mew, where revenue has been impacted by the downturn in the housing market, the acquisitions are trading well and ahead of expectations. Current run rates for new housing matters acquired as part of the Coffin Mew acquisition indicate increases in revenue in FY25 to around expected levels. As well as driving the acquisition-related revenue, these acquisitions have continued to help drive organic revenues with recruits into these offices generating strong organic revenues in the year.

During FY24 we acquired Baines Wilson and St James Law. Both acquisitions have integrated into the business and are performing well and have contributed £5.1m of revenue in the year, which is higher than anticipated.

As well as contributing to acquisition revenues, both acquisitions are proving to be an excellent platform to generate strong organic growth with several new partner hires already being made into these offices.

Staff Costs

Total staff costs of £93.0m (FY23: £88.4m) have decreased as a percentage of revenue for the year to 62.0% (FY23: 62.2%) reflecting the continued discipline over cost control balanced against investing in the future growth of the business.  This investment included the recruitment of partners and senior associates with good client following and networks as well as ensuring the appropriate leadership structure is in place providing a sustainable base for future growth.

Direct staff costs

Fee earning staff costs have reduced to 51.2% of revenue (FY23: 51.5%). This reflected a reduction in fee earner numbers through churn in some less productive and profitable areas of the Group and a continued leverage of the staff cost base through focus on improvements in pricing and recovery of client time. Pleasingly, we have started to leverage direct fee earner costs and improve gross margin whilst continuing to invest in the recruitment of new senior recruits to support our future organic growth. During FY24 we recruited 40 partners and senior associates (FY23: 27) representing investment for future organic growth.

Support staff costs

Support staff costs increased marginally to 10.8% (FY23: 10.7%). This is mainly due to delays in the timing of being able to leverage our past investment in creating an optimised operational platform due to the economic challenges affecting the housing-related and M&A service lines. FY24 has been a year of consolidation enabling the Group to focus on and benefit from process automation and centralisation of support services. This consolidation of support staff costs, whilst maintaining an excellent management structure to support future growth, puts the Group in a strong position to leverage this cost base in FY25 and beyond.

Other operating charges

Other operating charges of £28.2m have increased to 18.8% of revenue (FY23: 18.7%), again reflecting our investment for the future. During the period we refreshed our brand as well as investing in a review of our employee value proposition, an important investment in identifying and capturing the values, opportunities and culture our people can expect from us in return for their skills, experience and commitment. Investment in property, business development and office travel has also increased as we focus on building organic growth through building on existing client relationships, developing new client relationships and exploring new markets, including working with international clients and law firms requiring support in the UK. Whilst investing in these areas for growth we have also spent the year reviewing and consolidating supplier contracts maximising all synergy savings from past acquisitions. This has enabled us to manage our cost base whilst investing in business development, systems and technology necessary to support future growth.

Other operating income

Other operating income has increased to £10.4m from £6.7m driven by an increase in interest earned on client monies held due to higher interest rates in FY24 than the previous year.

Underlying EBITDA⁶

Underlying EBITDA⁶ excludes non-underlying operating expenses. These expenses include transaction and onerous lease expenses in relation to acquisitions, contingent acquisition payments and one-off restructuring and professional expenses mainly incurred in the streamlining of support functions or strategic reorganisations. The Board considers this to be a key metric to measure underlying business performance.

Contingent acquisition payments are treated as a non-underlying expense as this represents payments for acquisitions which are dependent on the continued employment of certain individuals in the business for an agreed contractual period after an acquisition of one to three years to preserve the acquired goodwill and customer relationships. Accounting standards require such arrangements to be treated as remuneration in the Statement of Comprehensive Income. However, the individuals also receive market rate salaries, therefore, if not separately identified, these payments would significantly distort the reported results. 

During the year, underlying EBITDA⁶ increased by £5.3m to £38.7m (FY23: £33.4m) representing an increase in margin to 25.8% (FY23: 23.5%), mainly due to the increase in the net interest earned on client monies in the period.

IFRS 16 Depreciation and finance charges

The IFRS 16 rental and finance expenses represents the accounting charge in respect of all leases with a term of over one year. During the year total expenses of £7.1m have reduced to 4.7% of revenue (FY23: 5.1%) as we continue to focus on rightsizing our property portfolio which has grown through acquisition. During the year the property portfolio has been managed to ensure we are optimising our space wherever possible, including subletting excess space in Leeds and Teesside, exiting offices in Manchester, Crawley, Southampton and Lancaster, with colleagues transferring to other existing offices.

Depreciation and amortisation charges

The increased charge from £2.5m (1.7% of revenue) in FY23 to £2.9m (1.9% of revenue) in FY24 is due to continued investment in systems and investment in property upgrades and refurbishments to support growth.

Finance charges

Finance charges increased by £1.3m in the year to £3.4m (FY23: £2.1m) driven mainly by the higher level of UK interest rates.

Underlying profit before tax (PBT)

Underlying profit before tax excludes amortisation of acquired intangibles, transaction, and onerous lease expenses in relation to acquisitions, contingent acquisition payments, disposals of acquired assets, one-off restructuring and professional costs mainly incurred in the streamlining of support functions or strategic reorganisations. 

Underlying PBT has been calculated as an alternative performance measure (see note 37 of the financial statements) to provide a more meaningful measure and year on year comparison of the profitability of the underlying business.

Total Group underlying PBT has increased by 17.3% to £25.3m (FY23: £21.6m).

The underlying profit before tax margin increased to 16.9% from 15.2% in the prior year benefitting from an increase in EBITDA margin, offset by an increase in interest payable.

Reported Profit Before Tax (PBT)

Reported PBT for the year has increased 28.6% to £14.8m (FY23: £11.5m) reflecting the increased profit in the underlying business.

Taxation

The tax charge for the year is £5.0m (FY23: £3.6m) made up of a current tax charge of £5.2m (FY23: £4.1m) partially offset by a deferred tax credit of £0.2m (FY23: £0.5m) giving an increased effective rate of tax for the Group of 34% (FY23: 31%). The increase in current tax charge reflects the increase in profits before tax and the full year impact of the increase in corporation tax rates in April 23 to 25% from 19%. The effective rate of tax is 34% compared to the UK corporation tax rate of 25% due to disallowable expenses, mainly contingent acquisition payments.

The effective rate of tax on the underlying profit of the Group is 26% (FY23: 20%) again mainly reflecting the increase in corporation tax rates from April 2023.

Earnings per share (EPS)

Basic EPS in the period increased by 24% to 11.47p per share (FY23: 9.28p per share). To aid comparison of EPS on a like for like basis, underlying EPS² has also been calculated based on the underlying profit after tax, calculated as set out below.

The underlying EPS² has increased by 8% to 21.81p for the year (FY23: 20.20p). The weighted average number of shares used to calculate the undiluted EPS in the year was 85,840,067.

Considering the dilutive impact of potential share options, the basic diluted EPS for FY24 is 11.11p per share (FY23: 9.19p per share). Underlying diluted EPS has increased by 6% to 21.13p per share (FY23 20.00p per share).

Dividend

The Board continues to adopt a progressive dividend policy balanced with its commitment to continue to invest in the future growth potential of the business. Subject to approval at the Annual General Meeting in September 2024 the board proposes a final dividend of 2.79p per share. This together with the interim dividend of 1.61p per share brings the total dividend in respect of FY24 to 4.40p per share (FY23: 4.03p per share) representing an increase of 9%.

Balance Sheet

The Group's net assets as at 30 April 2024 increased by £7.5m to £100.3m (FY23: £92.8m) primarily reflecting profit for the year net of dividends paid in the period. The key movements in the Balance Sheet are discussed in more detail below.

Goodwill and intangible assets

Goodwill and intangible assets includes £24.9m of intangible assets relating to the Knights brand and customer relationships from current and prior year acquisitions. Purchased computer software amounts to £0.2m with the remaining balance of £61.8m relating to goodwill from acquisitions.

The Board carries out an impairment review of goodwill each year to ensure the carrying value in the financial statements is supportable. The value in use of the goodwill was calculated using a number of different scenarios, some of which assumed a considerably more negative outcome than is anticipated by the Directors. In all instances, the future trading of the business was more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2024, the Board is satisfied that the goodwill was not impaired.

Investment in, and Loan to joint venture

Towards the end of the financial year, we entered into a joint venture with Convex. We purchased 50% of the equity of Convex for £50,000 and provided loans of £2.5m. These loans attract a minimum interest rate of 10%. There are no set repayment terms in respect of these loans which are repayable from the profit and cash generated by the business, therefore they are classified as non-current assets on the balance sheet as at 30 April 2024.

Property, Plant and Equipment

During the year the Group has continued to invest in its business platform to ensure the necessary IT and property infrastructure is in place to support our future growth plans. We continued our programme of investment in our IT systems and technology investing £1.4m (FY23: £1.3m) in the year. After a period of expansion of our property portfolio through acquisitions, during FY24 we have carried out a review of our properties, rightsizing and subletting some offices as appropriate. As part of this review, we have also invested in the refurbishment of certain offices to ensure we offer quality grade A office space where possible across the business. During FY24 we invested £6.7m in our refurbishment of office space (FY23: £0.4m). This investment, net of disposals and depreciation has resulted in an increase in our tangible fixed assets, excluding leasehold property, of £4.9m to £14.9m as at 30 April 2024 (30 April 23: £10.0m).

Working capital

Working capital is calculated as follows:

Net working capital has increased to £53.1m as at 30 April 2024 (30 April 23: £48.4m), an increase of £4.7m or 10% from the prior year. Whilst the combined total for contract assets and trade receivables have reduced marginally as a percentage of revenue to 48.6% as at 30 April 2024 (30 April 23: 48.8%), timing of supplier payments has reduced the trade payables balance by £0.9m compared to the prior year.

The management of working capital continues to be a fundamental KPI for the Group, with strong controls and systems in place to monitor the levels of receivables and work in progress across the business. The number of lock up³ days (the time taken to convert a unit of time incurred into cash) is a key focus for the Board, Client Services Directors, and wider management team. As at 30 April 2024 lock up³ was 78 days (30 April 23: 87 days). This decrease was driven by a reduction in debtor days to 28 days (30 April 23: 30 days) and WIP (work in progress) days of 50 days (30 April 23: 57 days). Due to the disproportionate amount of time that it takes to conclude certain work types, such as our CL Medilaw, Real Estate Investment and Insolvency matters, these work types are excluded from our WIP days calculation as exceptions, so as not to distract the majority of the business from focusing on achieving its excellent lock up³ days. If WIP days were calculated including all valued WIP of the Group this would give WIP days of 85 days and hence a total lock up³, with no exclusions, of 113 days as at 30 April 2024 (30 April 23: 116 days).

The Group's strong controls over and focus on invoice collection continue to deliver excellent results with the bad debt charge for the year remaining at 0.3% of revenue, consistent with the prior year.

Right of Use Assets 

The right of use assets capitalised in the Consolidated Statement of Financial Position represents the present value of property, equipment and vehicle leases. The decrease in the value of right of use assets during the year to £34.0m, from £38.2m as at 30 April 2023, resulted from an increase in assets of £7.0m relating to new leases acquired through acquisitions and the relocation of existing offices to new properties, less disposals and impairment of £5.6m as we terminate existing leases, and sublet excess space as part of our ongoing review of the property portfolio, less deprecation of £5.6m for the year.

Lease liabilities net of lease receivables

Lease liabilities net of lease receivables represents the present value of the total liabilities recognised in respect of the right of use assets, net of the present value of all amounts receivable in respect of any subleases of these assets.

The decrease in net lease liabilities and receivables in the year to £38.6m (30 April 2023: £42.9m) is the net impact of receipts and payments made in respect of existing lease agreements together with the impact of the lease receivable from the sublease of part of the Teesside office during the year together with the increase in lease liabilities from new leases acquired net of disposals of leases during the period.

Cash conversion, net debt⁵, financing and leverage

Cash generation continues to be a key focus for the Board and management team. The Group measures cash conversion by comparing the free cash flow from operations as a percentage of its underlying profit after tax⁷. As a result of the continued focus on this and specifically the management of lock up³, the Group generated underlying cashflows before capital expenditure of £24.6m during year equating to a cash conversion of 131%. 

Cash flow

The strong cash generation in the year has resulted in net debt⁵ of £35.2m at the year-end (30 April 23: £29.2m) despite a cash outlay of £11.3m relating to acquisitions and investments in the year along with deferred and contingent acquisition payments paid for acquisitions in prior years. The continued strong cash conversion has also enabled us to invest £8.2m in our systems and property portfolio to provide high quality infrastructure to support our future growth strategy and focus on premium service delivery.

The table below shows a reconciliation of the key cashflows impacting the movement in net debt in the year.

In November 2023 we renewed and extended our revolving credit facility (RCF) to £70m, committed until November 2026. As at 30 April 2024 the Group has c.£35m headroom in the RCF and is well within all covenants. For banking purposes our leverage as at 30 April 2024 was 1.1 times EBITDA (as defined for covenant purposes). Interest is payable on the loan at a margin of between 1.65% and 2.55% above SONIA dependent on leverage.

The Group is therefore in a strong financial position with sufficient headroom and flexibility within our financing arrangements to enable us to continue to execute our growth strategy.

Capital Expenditure

Capital expenditure (net of landlord contributions) during the year was £7.9m (FY23: £1.9m). The increase in the amount spent in the year compared to the prior year is due to the review of our property portfolio and the refurbishment of existing and acquisition of new office spaces as we look to consolidate our existing portfolio where appropriate, and invest in new and existing space to provide Grade A office space ensuring colleagues benefit from a high-quality working environment. Investment in office space and systems will continue into FY25, with circa £11m budgeted to be spent on completing the refurbishment of all existing offices together with the continued investment in our IT systems together to ensure we have top quality premises and systems in place to support our future growth strategy.

Acquisitions

During the year we completed two acquisitions and invested in a joint venture. The table below summarises the impact of these acquisitions on the cashflows during the year and in future years. This shows the consideration payable net of any cash in the acquired business.

The payment to the joint venture included a £50,000 investment in the equity of the business with the balance of £2.5m being a loan repayable from the future profits of the business. There is no agreed timescale for repayment of the loan therefore this has not been included in current forecast cashflows shown below, any repayments would therefore represent upside on forecast cashflows.

The above includes estimated contingent acquisition payments as remuneration in the Consolidated Statement of Comprehensive Income.

Summary

Results for the year to 30 April 2024 reflect a steady year of consolidation enabling us to continue to build our platform to support future growth. We have seen both acquisitive growth and a return to modest organic growth during the year, with our scale and diversity providing good resilience against an uncertain macro-economic environment. The centralisation of many support services and continued investment in recruitment and business development places the Group in a strong position to enable it to leverage costs and deliver higher levels of growth as external markets improve.

Our continued excellent management of cash has resulted in a strong Balance Sheet with significant headroom in our banking facilities to fund future investment and growth, both organically and through acquisitions

For the year ended 30 April 2024

The above results were derived from the Group's continuing operations.

* Excluding non-underlying items and amortisation on acquired intangibles

Consolidated Statement of Financial Position

As at 30 April 2024

Consolidated Statement of Changes in Equity

For the year ended 30 April 2024

Consolidated Statement of Cash Flows

For the year ended 30 April 2024

Notes to the Consolidated Financial Statements

For the year ended 30 April 2024

1.      General information

Knights Group Holdings plc ("the Company") is a public company limited by shares and is registered, domiciled and incorporated in England.

The Group consists of Knights Group Holdings plc, all of its subsidiaries and its share of joint ventures.

The principal activity and nature of operations of the Group is the provision of legal and professional services. The address of its registered office is:

The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW

2.      Accounting policies

2.1 Basis of preparation

The financial statements have been prepared in accordance with UK-adopted International Accounting Standards.

Applying these standards requires the directors to exercise judgement and use certain critical accounting estimates. The judgments and estimates that the directors deem significant in the preparation of these financial statements are explained in note 4.

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Monetary amounts are presented in sterling, being the functional currency of the Group's subsidiaries, rounded to the nearest thousand except where otherwise indicated.

The principal accounting policies adopted are set out below. These policies have been consistently applied to all periods presented in the financial statements, unless otherwise stated.

2.2 Going concern

The accounts are prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has a strong trading performance, generates strong operating cashflows and has recently renewed and increased its banking facilities from £60,000,000 to £70,000,000, available until 7 November 2026. The Group's forecasts show sufficient cash generation and headroom in banking facilities and covenants, by comparison to anticipated future requirements, to support the Directors' conclusions that the assumption of the going concern basis of accounting in preparing the financial statements is appropriate.

The Group continues to trade profitably and cash generation at an operating cashflow level has remained strong and in line with expectation. In order to satisfy the validity of the going concern assumption, a number of different trading scenarios including a reduction in revenues and costs have been modelled and reviewed. Some of these scenarios forecast a significantly more negative trading performance than is expected. In all of these scenarios the Group remained profitable and with significant headroom in its cash resources for the 12 months from the date of approval of the accounts.

2.3 Basis of consolidation

The consolidated financial statements incorporate the results of Knights Group Holdings plc, all of its subsidiaries and share of joint venture.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer which is the date of exchange of the sale and purchase agreement. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Transactions eliminated on consolidation

All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group.

Audit exemption of subsidiaries

The following subsidiaries are exempt from the requirements of the UK Companies Act 2006 relating to the audit of individual accounts by virtue of s479A of the Act.

The outstanding liabilities at 30 April 2024 of the above named subsidiaries have been guaranteed by the Company pursuant to s479A to s479C of the Act. In the opinion of the directors, the possibility of the guarantee being called upon is remote since the trade, assets and majority of liabilities of these subsidiaries were transferred to Knights Professional Services Limited before 30 April 2024.

2.4 Business combinations

The cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed.

The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.

Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange.  This discount rate used is the rate at which similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Deferred consideration is classified as a financial liability, which is held at amortised cost. The unwinding of the discount is recognised in non-underlying costs. Contingent acquisition payments are contingent on an employee remaining in employment with the Group is accounted for separately from the business combination as remuneration as described in notes 13 and 21.

2.5 Revenue

The Group earns revenue from the provision of legal and professional services. Revenue for these services is recognised over time in the accounting period in which the services are rendered, as the Group has an enforceable right to payment for work performed to date under its client terms of engagement.

Fee arrangements for legal and professional services include fixed fee arrangements, unconditional fee-for-service arrangements ("time and materials"), and variable or contingent fee arrangements.

For fixed fee arrangements, revenue is recognised based on the stage of completion with reference to the actual services provided as a proportion of the total services expected to be provided under the contract. The stage of completion is tracked on a contract-by-contract basis using the hours spent by professionals providing the services.

In fee-for-service contracts, revenue is recognised up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates.

Under variable or contingent fee arrangements, fees may be earned only in the event of a successful outcome of a client's claim. Fees under these arrangements may be fixed or may be variable based on a specified percentage of damages awarded under a claim.

For variable or contingent fee arrangements management makes a detailed assessment of the amount of revenue expected to be received and the probability of success of each case. Variable consideration is recognised over the duration of the matter, only to the extent that it is highly probable that the amount recognised will not be subject to significant reversal when the matter is concluded, based on the expected amount recoverable at that point in time. In such circumstances, a level of judgement is required to determine the likelihood of success of a given matter, as well as the estimated amount of fees that will be recovered in respect of the matter. Where the likelihood of success of a contingent fee arrangement is less than highly probable, the value recognised in contract assets is further reduced to reflect this uncertainty.

Certain contingent fee arrangements are undertaken on a partially funded basis. In such arrangements, the funded portion of fees is not contingent on the successful outcome of the litigation and in these instances the revenue is recognised up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates. The remaining consideration is variable and conditional on the successful resolution of the litigation. The variable consideration is recognised over the duration of the matter and included in revenue based on the expected amount recoverable only to the extent that it is highly probable that the amount recognised will not be subject to significant reversal when the uncertainty is resolved at that point in time.

The Group's contracts with clients each comprise of a single distinct performance obligation, being the provision of legal and professional services in relation to a particular matter, and the transaction price is therefore allocated to this single performance obligation.

Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in the Consolidated Statement of Comprehensive Income in the period in which the circumstances that give rise to the revision become known by management.

The Group has determined that no significant financing component exists in respect of the provision of legal and professional services because the period between when the Group transfers its services to a client and when the client pays for that service will generally be one year or less.

Consideration for services provided under contingent or variable fee arrangements may be paid after a longer period. In these cases, no significant financing component exists because the consideration promised by the client is variable subject to the occurrence or non-occurrence of a future event that is not substantially within the control of the client or the Group.

A receivable is recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.

Unbilled revenue is recognised as contract assets. Costs incurred in fulfilling the future performance obligations of a contract are recognised as contract assets if the costs are expected to be recovered.

Contract liabilities are recognised in respect of consideration billed in advance of satisfying the performance obligation under the contract.

Revenue does not include disbursements. Recoverable expenses incurred on client matters that are expected to be recovered and are billed during the period are recognised in other income.

2.6 Interest received on client deposits

Interest is recognised on client deposits held, this is recognised in the Consolidated Statement of Comprehensive Income as it accrues, based on the effective interest rate during the period. This forms part of other operating income as this is driven by the ongoing operations of the business.

2.7 Taxation

The tax expense represents the sum of the current tax expense and the deferred tax expense. Current tax assets are recognised when the tax paid exceeds the tax payable. Current tax is based on taxable profit for the year. Current tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the reporting date.

Deferred tax is recognised for temporary differences, calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates that have been enacted or substantively enacted by the reporting date except for;

·   When the deferred tax asset or liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting nor taxable profits; or

·     When the taxable temporary difference is associated with interests in subsidiaries, associates or joint ventures, and the timing of the reversal can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets are recognised only to the extent that it is probable that they will be recovered by the reversal of deferred tax liabilities or other future taxable profits.

Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised in a business combination and the amounts that can be deducted or assessed for tax. The deferred tax recognised is adjusted against goodwill.

Current tax assets and current tax liabilities and deferred tax assets and deferred tax liabilities are offset if, and only if, there is a legally enforceable right to set off the amounts and the entity intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

2.8 Intangible assets - Goodwill 

Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment losses. Goodwill is tested annually by the directors for evidence of impairment.

2.9 Intangible assets - Other than goodwill

Intangible assets purchased, other than in a business combination, are recognised when future economic benefits are probable and the cost or value of the asset can be measured reliably.

Intangible assets arising on a business combination, such as customer relationships, are initially recognised at estimated fair value, except where the asset does not arise from legal or contractual rights, and there is no history or evidence of exchange transactions for the same or similar assets and estimating the assets fair value would depend on immeasurable variables. The fair value represents the directors' best estimate of future economic benefit to be derived from these assets discounted at an appropriate rate.

Other intangible assets are initially recognised at cost (which for intangible assets acquired in a business combination is the fair value at acquisition date) and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Customer relationships that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and impairment losses (see accounting policy 'Impairment of non-financial assets'). Cost reflects management's judgement of the fair value of the individual intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset, discounted at an appropriate discount rate

Intangible assets are amortised to the Consolidated Statement of Comprehensive Income on a straight-line basis over their estimated useful lives, as follows:

Purchased computer software is amortised over a period of 4 years, being the minimum period expected to benefit from the asset.

Customer relationships are amortised over a period of 3-25 years being the average length of relationship with key clients for acquired entities.

Brand value is amortised over a period of 100 years based on the directors' assessment of the future life of the brand. This is supported by a trading history dating back to 1759. Brand value relates to the 'Knights' brand only. Other acquired brands are not recognised as an asset as the impact of such recognition would not be material.

2.10 Property, plant and equipment

Property, plant and equipment are stated at cost net of depreciation and any provision for impairment.

Depreciation is provided on property, plant and equipment at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows:

Residual value is calculated on prices prevailing at the reporting date, after estimated costs of disposal, for the asset as if it were at the age and in the condition expected at the end of its useful life.

2.11 Investment in joint ventures

Entities in which the Group has a long-term interest and share control under a contractual arrangement are classified as joint ventures. Joint ventures are accounted for using the equity method. Where necessary, adjustments are made to bring the accounting policies of joint ventures into line with those used by the Group.

2.12 Impairment of non-financial assets

An assessment is made at each reporting date of whether there are indications that non-financial assets may be impaired or that an impairment loss previously recognised has fully or partially reversed. If such indications exist, the Group estimates the recoverable amount of the asset or, for goodwill, the recoverable amount of the cash-generating unit.

Shortfalls between the carrying value of non-financial assets and their recoverable amounts, being the higher of the fair value less costs to sell and value in use, are recognised as impairment losses. All impairment losses are recognised in the Consolidated Statement of Comprehensive Income.

Recognised impairment losses are reversed (other than for goodwill) if, and only if, the reasons for the impairment loss have ceased to apply. Reversals of impairment losses are recognised in the Consolidated Statement of Comprehensive Income. On reversal of an impairment loss, the depreciation or amortisation is adjusted to allocate the asset's revised carrying amount (less any residual value) over its remaining useful life.

2.13 Professional indemnity provisions

In common with comparable practices, the Group is involved in a number of disputes in the ordinary course of business which may give rise to claims. Professional indemnity insurance cover is maintained in respect of professional negligence claims.  Premiums are expensed as they fall due with prepayments being recognised accordingly.

Provision is made in the financial statements for all claims where costs are likely to be incurred. The provision represents management's best estimate of the cost of defending and concluding claims and any excesses that may become payable. No separate disclosure is made for the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

2.14 Leases

Group as lessee

The Group leases offices, equipment and vehicles. Rental contracts are for periods of between 2 and 25 years. Lease terms are negotiated on a lease-by-lease basis and contain a variety of terms and conditions.

The Group assesses whether a contract is, or contains, a lease at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (being those assets with a value less than £4,000). For short term and low value leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

•         fixed payments (including in-substance fixed payments), less any lease incentives receivable;

•         variable lease payments that are based on an index or a rate;

•         amounts expected to be payable by the Group under residual value guarantees;

•         the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

•         payments of penalties for terminating the lease, if the lease term assumed reflects the group exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.

Underlying lease payments of both principal and interest are included in financing activities in the cash flow. Onerous lease payments of both principal and interest are included in non-underlying operating activities in the Statement of Cash Flows.

The lease liability is presented as a separate line in the Consolidated Statement of Financial Position.

Right-of-use assets are recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group.

After initial recognition, the lease liability is reduced for payments made and increased to reflect interest on the lease liability (using the effective interest method). The related right-of-use asset is depreciated over the term of the lease or, if shorter, the useful economic life of the leased asset. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Interest on the lease liability is recognised in the Consolidated Statement of Comprehensive Income.

An estimate of the costs to be incurred in restoring the leased asset to the condition required under the terms and conditions of the lease is recognised as part of the cost of the right-of-use asset when the Group incurs the obligation for these costs. The costs are incurred at the start of the lease or over the lease term. The provision is measured at the present value of the best estimate of the expenditure required to settle the obligation.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use

asset) whenever:

•             the lease term has changed or there is a significant change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;

•         the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used);

•             a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

The Group did not make any such adjustments during the periods presented.

Group as lessor

The Group enters into lease agreements as a lessor with respect to some of its properties.

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Group considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease.

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group's net investment outstanding in respect of the leases.

2.15 Retirement benefits

2.15a Defined contribution scheme 

The Group operates a defined contribution scheme. The amount charged to the Consolidated Statement of Comprehensive Income in respect of pension costs is the contributions payable in the year.  Differences between contributions payable in the year and contributions actually paid are shown as either accrued expenses or prepayments and other receivables.

2.15b Defined benefit pension scheme

For defined benefit schemes the amounts charged to operating profit are the current service costs and gains and losses on settlements and curtailments. They are included as part of staff costs. The interest cost and the expected return on assets are shown as a net amount in other finance costs or finance income. Actuarial gains and losses are recognised immediately in Other Comprehensive Income.

Defined benefit schemes are funded, with the assets of the scheme held separately from those of the Group, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. The actuarial valuations are obtained at least triennially and are updated at each reporting date.

Defined benefit assets are not recognised in the Consolidated Statement of Financial Position, on the basis that they are not deemed to be material.

For the 'With Profit Section' contributions are recognised in the Consolidated Statement of Comprehensive Income in the period to which they relate as there is insufficient information available to use defined benefit accounting. A liability will be recognised based on the agreed share of the Group in the scheme. No liability has been recognised in the current or prior period on the basis that they are not deemed to be material.

2.16 Share-based payments

The cost of providing share-based payments to employees is charged to the Consolidated Statement of Comprehensive Income over the vesting period of the awards.  The cost is based on the fair value of awards at the date of grant of the award using an appropriate valuation model.  The amount recognised as an expense will be adjusted to reflect differences between the expected and actual vesting levels.  Further details of the schemes are included in note 9.

2.17 Financial instruments

Financial instruments are recognised on the date when the Group becomes a party to the contractual provisions of the instrument.  Financial instruments are recognised initially at fair value.

Financial assets
Contract assets and trade and other receivables
Contract assets and trade and other receivables which are receivable within one year are initially measured at fair value. These assets are subsequently measured at amortised cost, being the transaction price less any amounts settled and any impairment losses.

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses ('ECL') on contract assets and trade and other receivables. The expected credit losses on trade receivables includes specific provisions against known receivables and an estimate using a provision matrix by reference to past experience, adjusted for forward looking considerations, and an analysis of the debtor's current financial position on the remaining balance.  The expected credit losses on contract assets and other receivables is assessed based on expected credit loss experienced on these types of assets adjusted for known foreseeable estimated losses.  

Financial liabilities and equity

Financial instruments are classified as liabilities and equity instruments according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

Trade and other payables

Trade and other payables due within one year are initially measured at fair value and subsequently measured at amortised cost, being the transaction price less any amounts settled.

Deferred consideration

Deferred consideration is initially recognised at the fair value of the amounts payable and subsequently at amortised cost of the agreed payments in accordance with the agreement.  Any interest payable on the balance is reflected in the value of the liability and charged monthly to the Statement of Comprehensive Income as it arises.

Borrowings

Borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowings.  Borrowings are subsequently measured at amortised cost using the effective interest method.   Interest expense is recognised on the basis of the effective interest method and is included in finance costs.

Derecognition of financial assets and liabilities

A financial asset is derecognised only when the contractual rights to cash flows expire or are settled, or substantially all the risks and rewards of ownership are transferred to another party. A financial liability (or part thereof) is derecognised when the obligation specified in the contract is discharged, cancelled or expires.

3.  Accounting developments

New and amended IFRSs that are effective for the future  

At the date of these financial statements, there are two new standards and amendments to IFRSs in issue but not yet effective and have therefore not been applied as set out below:

The full impact of IFRS 18 on the financial statements is in the process of being reviewed, however the directors do not expect that the adoption of the standard will have a material impact on the financial statements of the Group in future periods. The directors do not expect that the amendments to IAS 1 will have a material impact on the financial statements of the Group in future periods.

4.     Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 2, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical accounting judgements
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Amounts recoverable on contracts - contingent fee arrangements

A level of judgement is required to determine the likelihood of success of a given matter for contingent fee arrangements. This is determined on a contract-by-contract basis after considering the relevant facts and circumstances surrounding each matter. The valuation exercise is conducted by experienced professionals with a detailed understanding of the individual matters. The carrying value of contingent fee arrangements at 30 April 2024 was £13,070,000 (2023: £9,488,000).

IFRS 16
In applying IFRS 16, the Group uses judgement to assess whether the interest rate implicit in the lease is readily determinable. When the interest rate implicit in the lease is not readily determinable, the Group estimates the incremental borrowing rate based on its external borrowings secured against similar assets, adjusted for the term of the lease.

Business combinations
Management make judgements regarding the date of control of an acquisition in accordance with IFRS 10.  The judgement considers the individual legal agreements on each transaction and the date at which the Group starts to exercise control over the activities of the subsidiary, usually the date of exchange of contracts. Financial performance of the acquisitions is included in the consolidated Group from the deemed date of control.

Alternative performance measures (APMs)

The Group presents various APMs to assist the user in understanding the underlying performance of the Group. The selection of these APMs requires the exercise of judgement as to the key performance indicators used.

Key sources of estimation uncertainty

The key assumptions concerning the future, and other key sources of estimation uncertainty in the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

IFRS 16
The Group makes estimates of the cost of restoring leased assets to their original condition when required to do so under the terms and conditions of the lease. Those estimates are based on the current condition of the leased assets and past experience of restoration costs.  As at 30 April 2024 the Group had total provisions of £4,761,000 (2023: £4,827,000) (see note 33).

Amounts recoverable on contract assets- recoverable amounts

The valuation of amounts recoverable on contract assets ('AROC') involves the use of estimates of the likely recovery rate which will be made on the gross value of chargeable time recorded to each matter.

This percentage represents management's best estimate of future value following a line by line review of the matters by professionals. The estimation process takes into account the progress of the case at the reporting date, the estimated eventual fee payable by the client and the amount of time which will be incurred in bringing the matter to a successful conclusion. The amount recognised in AROC at the year end was £40,191,000 (2023: £38,215,000), a 3% change in the estimated recovery of all matters would impact the profit for the period by approximately £1,469,000 (2023: £1,407,000).

Accounting for business combinations and valuation of acquired intangibles
Business combinations are accounted for at fair value. The valuation of goodwill and acquired intangibles is calculated separately on each individual acquisition. In attributing value to intangible assets arising on acquisition, management has made certain assumptions in relation to the expected growth rates, length of key customer relationships and the appropriate weighted average cost of capital ('WACC') and internal rate of return ('IRR'). Profitability at an EBITDA margin level is also assumed, but is considered reasonably predictable.

The value attributable to the intangible assets acquired on acquisitions also impacts the deferred tax provision relating to these items.

The total carrying value of acquired intangibles (excluding brands) is £20,027,000 (2023: £23,158,000). In order to assess the impact of the key assumptions on the values disclosed in the Financial Statements the Directors have applied the following sensitivities to the acquisitions in the current year:

(1)    Each acquisition has been reviewed and, dependent upon the structure of the acquisition, an appropriate WACC or IRR rate has been applied. These sensitivities have been calculated by adjusting the adopted rates as noted above.

Growth rates are estimated based on the current conditions at the date of each acquisition with reference to independent surveys of future growth rates in the legal profession in real, inflation adjusted terms.

The length of customer relationships is estimated by considering the length of time the acquiree has had its significant client relationships up to the date of acquisition and historic customer attrition rates as appropriate.

The Directors consider the resulting valuations used give a reasonable approximation as to the value of the intangibles acquired and that any reasonably possible change in any one of the estimations in isolation would not have a material impact on the financial statements.

Intangible Assets - carrying amount of goodwill - impairment review

The Directors undertake an annual impairment review of goodwill to assess whether the carrying value of £61,788,000 is still supported by using a discounted cash flow model to derive the value in use of the cash generating unit ('CGU'). Cash flow forecasts are derived from the most recent financial budgets approved by management for the next three years and extrapolated using a terminal value calculation.

The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for the Group's revenues from legal and professional services and the EBITDA margin. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.

Revenue growth over the three years of the forecast period reflects, for FY25, the current run rate of revenue from the Group's existing business and a full year of revenue from acquisitions made during the year ended 30 April 2024, with an element of organic growth in FY26 and FY27. The long-term growth rate of 2% (2023: 2%) is based on UK economic growth forecasts for the legal services market.

The Group has conducted a sensitivity analysis on the impairment test of the CGU value in use. Management considers there is no reasonably plausible scenario under which goodwill would be impaired.

5.      Revenue

All revenue is derived from contracts with clients and is recognised over time. As explained further in note 6, the Group's legal and professional services business operates as a single business unit so there are no relevant categories into which revenue can be disaggregated.

The transaction price allocated to unsatisfied performance obligations of contracts at 30 April 2024 is not required to be disclosed because it is comprised of contracts that are expected to have a duration of one year or less.

Management information does not distinguish between contingent and non-contingent revenue as contingent fees are not separately identifiable from other fees.

6.      Segmental reporting

The Board of Directors, as the chief operating decision-making body, reviews financial information for and makes decisions about the Group's overall legal and professional services business and has identified a single operating segment, that of legal and professional services operating entirely in the UK.

The legal and professional services business operates through a number of different service lines and in different locations; however, management effort is consistently directed to the firm operating as a single segment.  No segmental reporting disclosure is therefore provided as all revenue is derived from this single segment.

7.      Other operating income

8.      Staff costs

The average monthly number of employees (including executive directors) of the Group was:

Their aggregate remuneration comprised:

Directors' remuneration

Companies Act disclosures

The total amounts for directors' remuneration in accordance with Schedule 5 to the Accounting Regulations were as follows:

The number of directors to whom benefits are accruing under money purchase pension schemes is 1 (2023: 2).

The remuneration of the highest paid director was:

9.      Share-based payments

The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of £1,131,000 (2023: £1,265,000) relating to equity-settled share-based payment transactions in the year. £1,121,000 (2023: £1,248,000) is recognised within staff costs, and £10,000 (2023: £17,000) is classified as non-underlying costs.

Any charges relating to schemes introduced as one-off schemes as part of the listing on AIM in 2018 are included in non-underlying costs because in the directors view these schemes were as a reward to employees for their past performance prior to the IPO and on acquisitions. All charges relating to other recurring LTIP or SAYE schemes are included as a normal operating expense.

The following schemes were in place during the period:

Omnibus Plan

The Omnibus Plan is a discretionary share plan, which is administered, and the grant of awards is supervised by, the Remuneration Committee.

Three forms of award are available under the Omnibus Plan, as considered appropriate by the Remuneration Committee, as follows:

a)    "Restricted Stock Awards": Awards granted in the form of nil or nominal cost share options, subject to time-based vesting requirements and continued employment within the Group. No performance targets will apply to Restricted Stock Awards.

b)    "Performance Share Awards": Awards granted in the form of nil or nominal cost share options, whereby vesting is subject to satisfaction of performance conditions and continued employment within the Group. The performance condition is in relation to meeting target underlying EPS values.

The options outstanding at 30 April 2024 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 1.25 years. The average share price for options exercised during the year was 109.04p.

During the year 433,332 options were granted as restricted stock awards. The maximum term of any award is three years.

The aggregate of the estimated fair values of the options granted during the year was £414,000. The model used is based on intrinsic values and the inputs are as follows:

Share Incentive Plan ('SIP')

The SIP is an "all employee" scheme under which every eligible employee within the Group was invited to participate. The original SIP scheme was launched in September 2019, eligible employees could apply to invest up to £1,800 from pre-tax income in partnership shares; matching shares were awarded on the basis of two free matching shares for each partnership share purchased.

In January 2024, the Group launched a new 'evergreen' SIP scheme which allows eligible employees to purchase shares each month with the maximum investment per employee per year being £1,800. Matching shares are awarded on the basis of one free matching share for every two partnership shares purchased.

Under both schemes, matching shares are forfeited if the employee leaves within three years of the grant date.

Sharesave Scheme ('SAYE')

This is an HMRC approved scheme and is open to any person that was an employee or officer of the Group at the launch date of each scheme. Under the scheme, members save a fixed amount each month for three years. Subject to remaining in employment by the Group, at the end of the three-year period they are entitled to use these savings to buy shares in the Company at 80% of the market value at launch date.

The first scheme was launched in November 2018 and further new SAYE schemes were launched in February 2020 and March 2022.

The options outstanding at 30 April 2024 had a weighted average exercise price of 298p and a weighted average remaining contractual life of 1.00 years.

February 2020 scheme

The aggregate of the estimated fair values of the options granted in February 2020 is £1,163,000. The inputs into the Black-Scholes model are as follows:

The February 2020 scheme matured on 31 March 2023, the number of share options exercised in respect of this scheme as at 30 April 2024 is 2,622. There are 133,334 share options which remain exercisable.

March 2022 Scheme

The aggregate of the estimated fair values of the options granted in March 2022 is £110,000. The inputs into the Black-Scholes model are as follows:

Volatility is based on the daily change in share price from 29 June 2018 to the date of measurement.

10.    Retirement benefit schemes

The Group operates a defined contribution pension scheme for employees. The total cost charged to income of £2,615,000 (2023: £2,520,000) represents contributions payable to the scheme by the Group. As at 30 April 2024, total contributions of £551,000 (2023: £515,000) due in respect of the reporting period had not been paid over to the schemes.

The defined benefit impact is discussed in note 39.  There were no charges against income in the year ended 30 April 2024.

11.    Depreciation and amortisation charges 

Amortisation on acquired intangibles has been separately identified within overall depreciation and amortisation charges as it is deemed to be a non-underlying cost, on the basis that it relates to acquisitions.  As such in the year ended 30 April 2023 it has been reclassified to enable clearer presentation of the non-underlying items included within operating profit.  This has not resulted in any change to reported operating profit.

12.    Other operating charges

13.    Non-underlying costs

Non-underlying costs cash movement

Non-underlying costs relate to redundancy costs to streamline the support function of the Group following acquisitions or strategic reorganisations, transaction costs in respect of acquisitions, onerous lease costs in respect of acquisitions, disposals of acquired assets and share-based payment charges relating to one off share schemes offered to employees as part of the IPO and on acquisitions.

Contingent acquisition payments are included in non-underlying costs as it represents payments which are contingent on the continued employment of those individuals with the Group, agreed under the terms of the sale and purchase agreements with vendors of certain businesses acquired. The payments extend over periods of one to three years and are designed to preserve the value of goodwill and customer relationships acquired in the business combinations. IFRS requires such arrangements to be treated as remuneration and charged to the Consolidated Statement of Comprehensive Income. The individuals also receive market rate salaries for their work, in line with other similar members of staff in the Group. The contingent earnout payments are significantly in excess of these market salaries and would distort the Group's results if not separately identified.

14.    Finance costs

15.    Finance income

16.    Auditor's remuneration

17.    Taxation

The charge for the period can be reconciled to the Consolidated Statement of Comprehensive Income as follows:

The impact of non-underlying costs on the effective rate of tax is set out below:

18.    Earnings per share

Basic and diluted earnings per share have been calculated using profit after tax and the weighted average number of ordinary shares in issue during the period.

Underlying earnings per share is calculated as an alternative performance measure in note 37.

19.    Dividends

For the year ended 30 April 2024 the Board have proposed a final dividend of 2.79p per share (2023: 2.50p per share). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed dividend is payable to all shareholders on the register of members on 30 August  2024. The payment of this dividend will not have any tax consequences for the Group.

20.    Intangible assets and goodwill