Notes to the Consolidated Financial Statements

For the year ended 30 April 2019

 

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 Company was incorporated in England as Knights Group Holdings Limited on 4 April 2018 as a private company limited by shares (registered no. 11290101) and subsequently acquired Knights 1759 Limited (the previous parent company in the group) and its subsidiaries on 18 June 2018 through a share for share exchange. The Company was re-registered as a public limited company on 20 June 2018 and became Knights Group Holdings plc.

The Group consists of Knights Group Holdings plc and all of its subsidiaries.

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

The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW

 

2.      Accounting policies

2.1    Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the European Union (IFRSs).

 

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

 

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

 

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

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

2.2  Going concern

 

The accounts are prepared on a going concern basis as, at the time of approving the financial statements, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has a strong trading performance, is cash generative and has banking facilities of £27,000,000 available until June 2023.  The Group's forecasts show sufficient cash generation, and headroom in banking and covenant facilities, in relation to anticipated future requirements to support the directors' decision to continue to adopt the going concern basis of accounting in preparing the financial statements.

 

2.3  Basis of consolidation

 

The consolidated financial statements incorporate the results of Knights Group Holdings plc and all of its subsidiaries.  Subsidiaries results are consolidated in the financial statements from the earlier date that economic benefit is obtained or control commences until the date that control ceases.

 

On 18 June 2018, the whole of the share capital of Knights 1759 Limited was acquired by the Group via a share for share exchange agreement. The acquisition is outside the scope of IFRS 3 because Knights Group Holdings Limited did not meet the definition of a business. In the absence of specific guidance in IFRS, the group has selected an appropriate accounting policy using the hierarchy described in paragraphs 10 to 12 of IAS 8, which permits the consideration of other Financial Reporting Standards. The Group has adopted the principles of merger accounting from FRS 102. Accordingly, the consolidated financial statements for the Group have been presented as if Knights 1759 Limited has been owned by Knights Group Holdings plc throughout the current and preceding periods. The comparative figures include the results of the merged entity, the assets and liabilities at the previous balance sheet dates and the shares issued by Knights Group Holdings Limited as consideration as if they had always been in issue.

 

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 earlier date on which economic benefit or control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the earlier date that economic benefit is obtained or control commences until the date that control ceases.

 

Transactions eliminated on consolidation

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

 

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

 

Audit exemption of subsidiaries

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

 

Name	Registered number
Turner Parkinson LLP	OC312799
Spearing Waite LLP	OC361998
Cummins Solicitors Limited	07403259

 

The outstanding liabilities at 30 April 2019 of the above named subsidiaries have been guaranteed by the Group 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 liabilities of these subsidiaries were transferred to Knights Professional Services Limited before 30 April 2019.

2.4  Business combinations

 

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

 

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

 

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

 

2.5  Revenue

The Group earns revenue from the provision of legal and professional services. Revenue for these services is recognised over time in the accounting period when services are rendered.

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

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

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

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

For variable or contingent fee arrangements management makes a detailed assessment of the amount of revenue expected to be received and the probability of success of each case. Variable consideration is recognised 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. 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 work in progress recognised in contract assets is limited to the costs incurred, which are expected to be recoverable in respect of the matter.

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 included in revenue 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.

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 Statement of Comprehensive Income in the period in which the circumstances that give rise to the revision become known by management.

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

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

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

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

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

2.6  Taxation

 

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

 

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates that have been enacted or substantively enacted by the reporting date. 

Deferred tax liabilities are recognised in respect of all timing differences that exist at the reporting date.  Timing differences are differences between taxable profits and total comprehensive income that arise from the inclusion of income and expenses in tax assessments in different periods from their recognition in the financial statements.  Deferred tax assets are recognised only to the extent that it is probable that they will be recovered by the reversal of deferred tax liabilities or other future taxable profits.

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

 

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

 

2.7  Intangible assets - Goodwill 

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

2.8  Intangible assets - Other than goodwill

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

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

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

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

Purchased computer software Customer relationships Brand

4 years 12-25 years 100 years

 

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

Customer relationships are amortised over a period of 12-25 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 acquired entities are rebranded as Knights and the impact of such recognition would not be material.

2.9  Property, plant and equipment

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

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

Expenditure on short leasehold property Office equipment Furniture and fittings Motor vehicles

10% on cost 25% on cost 10% on cost 25% on cost

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

2.10  Impairment of non-current assets

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

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

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

2.11 Provisions

In common with comparable practices, the Group is involved in a number of disputes in the ordinary course of business which may give rise to claims.  Provision is made in the financial statements within provisions (transferred from accrued expenses on 1 May 2018), for all claims where costs are likely to be incurred.  This represents the cost of defending and concluding claims and any excesses that may become payable.  The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

2.12  Leases

Where assets are financed by leasing agreements that give rights approximating to ownership ("finance leases"), the assets are treated as if they had been purchased outright.  The amount capitalised is the present value of the minimum lease payments payable during the lease term.  The corresponding leasing commitments are shown as obligations to the lessor.

Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the Statement of Comprehensive Income in proportion to the remaining balance outstanding.

All other leases are "operating leases" and the annual rentals are charged to the Statement of Comprehensive Income on a straight line basis over the lease term.

2.13  Retirement benefits

 

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

2.14 Share Based Payments

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

2.15  Financial instruments

Financial instruments are recognised on the date when the Group becomes a party to the contractual provisions of the instrument.  Financial instruments are recognised initially at fair value.  Financial instruments are derecognised when the Group is no longer party to the contractual provisions of the instrument.

Financial assets
 

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

 

Impairment of financial assets

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

 

 Financial liabilities and equity

 

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

 

Trade and other payables

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

 

Deferred consideration

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

 

Borrowings

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

Derecognition of financial assets and liabilities

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

 

 3.  Accounting developments

 

New and revised IFRSs in issue but not yet effective

At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:

Revised IFRS		Effective date
IFRS 16	Leases	1 January 2019
IFRIC 23	Uncertainty over Income Tax Treatments	1 January 2019
IFRS 9 (amendments)	Prepayment Features with Negative Compensation	1 January 2019
IFRS3	Business Combinations	1 January 2020
IFRS 17	Insurance Contracts	1 January 2021

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods, except as noted below:

IFRS 16 - Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019. The date of initial application of IFRS 16 for the Group will be 1 May 2019.

 

The Group has chosen the simplified application of IFRS 16.

 

IFRS 16 will change how the Group accounts for leases previously classified as operating leases under IAS 17, which were off‑balance sheet.

 

 On initial application of IFRS 16, for all leases (except as noted below), the Group will:

 

a)   Recognise right‑of‑use assets and lease liabilities in the Consolidated Statement of Financial Position, initially measured at the present value of the future lease payments;

b)   Recognise depreciation of right‑of‑use assets and finance costs on lease liabilities in the Consolidated Statement of Comprehensive Income;

c)   Separate the total amount of cash paid into a principal portion and finance costs in the Consolidated Statement of Cash Flows.

 

Lease incentives (e.g. rent‑free periods) will be recognised as part of the measurement of the right‑of‑use assets and lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive, recognised in accruals and amortised as a reduction of rental expenses on a straight‑line basis.

 

Under IFRS 16, right‑of‑use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets. This will replace the previous requirement to recognise a provision for onerous lease contracts.

 

For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as personal computers

And office furniture), which are exempt under IFRS16, the Group will continue to expense these costs in the Statement of Comprehensive Income as they arise. 

 

As at 30 April 2019, the Group has non‑cancellable operating lease commitments of £26,240,000. The Group will recognise an adjusted right‑of‑use asset of £18,868,000 and a corresponding lease liability of £20,419,000 in respect of all these leases, being the present value of future lease payments

 

The derecognition of prepayments of £185,000, lease incentive accruals of £1,759,000 and a £159,000 provision for onerous lease contracts will reduce the carrying amount of right-of-use asset and offset against the lease liability.

 

The expected impact on profit or loss in the year ended 30 April 2020 is to decrease other operating charges by £2,084,000, to increase depreciation by £1,632,000, to reduce non-underlying costs by £126,000 and to increase finance costs by £594,000.

 

Under IAS 17, all lease payments on operating leases are presented as part of cash flows from operating activities.

 

The impact of the changes under IFRS 16 would be to increase the cash generated by operating activities by £2,084,000 and to increase net cash used in financing activities by the same amount.

  

4.     Critical accounting judgements and key sources of estimation uncertainty

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

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

 

Critical accounting judgements

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

 

Amounts recoverable on contracts - contingent fee arrangements

A level of judgement is required to determine the likelihood of success of a given matter for contingent fee arrangements. This is determined on a contract-by-contract basis after considering the relevant facts and circumstances surrounding each matter. The valuation exercise is conducted by experienced fee earners with detailed understanding of the cases. The carrying value of contingent fee arrangements work in progress at 30 April 2019 was £2,201,000 (2018: £1,613,000). 

Share issue and IPO

The directors consider that the issue of shares in Knights Group Holdings plc prior to its IPO was unrelated to the subsequent IPO. The directors considered carefully which costs should be allocated to the issue of the new share capital.  Where costs covered both the issue of new share capital and the IPO, the directors applied judgement in determining a fair method of apportionment of these costs between the share premium account and the Statement of Comprehensive Income.   The method used allocated joint costs to share premium in proportion to the percentage of the new shares issued compared to the total number of shares.  A different method of apportionment may have resulted in a different allocation to the share premium account and a different expense being charged to the Statement of Comprehensive Income.

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.

Amounts recoverable on contracts - recoverable amounts

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

This percentage represents management's best estimate of future value following a line by line review of the matters by fee earners. The estimation process has to take into account the progress of the case at the reporting date, and the estimated eventual fee payable by the client and the amount of time which will be incurred by fee earners in bringing the matter to a successful conclusion. The amount recognised in AROC at the year end was £8,911,000 (2018: £5,836,000), A 5% change in the estimated recovery of all matters would impact the profit for the period by approximately £570,000.

Accounting for business combinations and valuation of intangibles
Business combinations are accounted for at fair value.  The valuation of goodwill and acquired intangibles is calculated separately on each individual acquisition. In attributing value to intangible assets arising on acquisition, management has made certain assumptions in relation to the expected growth rates, profitability, length of key customer relationships and the appropriate weighted average cost of capital.

 

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 arising from business combinations in the year is £27,247,000 

 

In order to assess the impact of the key assumptions on the values disclosed in the accounts the directors have applied the following sensitivities:

 

Key assumption	Rate applied in the financial statements	Sensitivity tested	Profit impact £'000	Value of intangible assets £'000
Long term growth rate	3%	1%	17	(35)
WACC	16%	5%	207	479
Length of customer relationships	12-25 years	10%	62	(132)
Profitability	-	5%	(97)	(132)

 

The growth rate was determined using independent surveys of future growth rates in the legal profession in real, inflation adjusted terms.

 

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

 

The directors consider the resulting valuations used give a reasonable approximation as to the value of the intangibles acquired and that any reasonably possible change in any one of the estimations in isolation would not have a material impact on the financial statements.  The directors undertake an annual impairment review of goodwill to assess the carrying value is still supported by the cash flows from the CGU. 

 

5.      Revenue

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

The transaction price allocated to unsatisfied performance obligations of contracts at 30 April 2019 is not required to be disclosed because it is comprised of contracts that are expected to have a duration of one year or less.

 

6.      Segmental reporting

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

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

7.      Other operating income

 

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Other income	253	166
Bank interest	162	121
	415	287

 

8.      Staff costs

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

	Year ended 30 April 2019 Number	Year ended 30 April 2018 Number
Fee earners	430	349
Other employees	123	86
	553	435

Their aggregate remuneration comprised:

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Wages and salaries	26,284	18,376
Social security costs	2,792	1,960
Other pension costs	614	327
Other employment costs	628	273
Aggregate remuneration of employees	30,318	20,936
One off redundancy costs analysed as non-underlying costs (note 13)	(712)	(119)
Movement in contract assets relating to staff costs	(73)	(368)
Members' costs	604	-
Underlying staff costs in income statement	30,137	20,449

Members' costs relate to the remuneration of members of the Group's LLPs.

Directors' remuneration

Companies Act disclosures

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

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Salaries, fees, bonuses and benefits in kind	444	110
Money purchase pension contributions	5	12
	449	122

 

 

The number of directors to whom benefits are accruing under money purchase pension schemes is 3 (2018: 3).

 

 

The remuneration of the highest paid director was:	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Salaries, fees, bonuses and benefits in kind	142	104
Money purchase pension contributions	1	12
	143	116

 

The comparatives above relate to the directors of Knights 1759 Limited, the former parent company of the Group.

 

9.      Share-based payments

The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of £356,000 (2018: £nil) relating to equity-settled share-based payment transactions in the year.

 

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

 

The following schemes were in place during the period.

 

Omnibus plan

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

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

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

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

c)   "Share Options": Awards granted in form of a share option with an exercise price equal to the market value of an Ordinary share at the time of grant, subject to continued employment within the Group. Share Options may or may not be subject to performance conditions.

 

 

	Restricted stock awards
	Number	Weighted average exercise price Pence
Outstanding at 1 May 2017 and 30 April 2018	-	-
Granted during the period	451,845	0.2
Outstanding at 30 April 2019	451,845	0.2
Exercisable at 30 April 2019	-	-

 

	Performance share awards
	Number	Weighted average exercise price Pence
Outstanding at 1 May 2017 and 30 April 2018	-	-
Granted during the period	63,352	0.2
Outstanding at 30 April 2019	63,352	0.2
Exercisable at 30 April 2019	-	-

 

 

The options outstanding at 30 April 2019 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 2.1 years. In the period, 379,308 options were granted on 29 June 2018, 68,210 options were granted on 30 November 2018, 4,327 on 1 February 2019 and 63,352 on 29 March 2019.

The aggregate of the estimated fair values of the options granted on these dates is £861,000. The inputs into the Black-Scholes model are as follows:

Weighted average share price	169p
Weighted average exercise price	0.2p
Weighted average expected volatility	28.1%
Weighted average expected life	2.7 years
Risk-free rate	1.5%
Expected dividend yield	1.1%

 

Expected volatility on 29 June  2018 was determined by using the historical data of comparable quoted companies because there was no historical data for the Company at that date. Expected volatility at 30 November 2018, 1 February 2019 and 29 March 2019 was determined by using historical share price data of the Company since it listed on 29 June 2018. The expected life used in the model has been based on management's best estimate after considering exercise restrictions and behavioural considerations.

 

Share Incentive Plan ("SIP")

The SIP is an "all employee" scheme under which every eligible employee within the Group was invited to participate. Eligible employees could apply to invest up to £1,800 from pre-tax income in partnership shares; matching shares were awarded on the basis of 2 free matching shares for each partnership share purchased. The matching shares are forfeited if the employee leaves within 3 years of the grant date.

 

	Partnership Shares Number	Matching Shares Number
Outstanding at 1 May 2017 and 30 April 2018	-	-
Granted during the period	219,244	438,488
Withdrawn during the period	(15,071)	-
Forfeited during the period	-	(30,141)
Outstanding at 30 April 2019	204,173	408,347
Unrestricted at 30 April 2019	204,173	-

 

The aggregate fair value of the matching shares was calculated at £846,000 using the observed share price at the grant date with regard to the non-vesting requirement of holding the partnership shares.      

 

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 in November 2018. 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.

 

	SAYE options
	Number	Weighted average exercise price Pence
Outstanding at 1 May 2017 and 30 April 2018	-	-
Granted during the period	900,785	162
Forfeited during the period	(4,350)	-
Outstanding at 30 April 2019	896,435	-
Exercisable at 30 April 2019	-	-

 

The options outstanding at 30 April 2019 had a weighted average exercise price of 162p and a weighted average remaining contractual life of 3 years. In the period, 900,785 options were granted on 21 December 2018. The aggregate of the estimated fair values of the options granted is £500,000. The inputs into the Black-Scholes model are as follows:

Exercise price	162p
Expected volatility	39.2%
Expected life	3.1 years
Risk-free rate	1.4%
Expected dividend yield	1.1%

 

Expected volatility was determined by using historical share price data of the Company since it listed on 29 June 2018. The expected life used in the model has been based on management's best estimate after considering exercise restrictions and behavioural considerations.

Warrants

Warrants were issued to Numis Securities Limited on Admission in respect of their services and shall be exercisable for a period of five years.

 

 

	Warrants
	Number	Weighted average exercise price Pence
Outstanding at 1 May 2017 and 30 April 2018	-	-
Granted during the period	706,897	1.7
Outstanding at 30 April 2019	706,897	1.7
Exercisable at 30 April 2019	-	-

 

 

This transaction results in no change to profit, assets, liabilities or overall equity of the Group.

 

10.    Retirement benefit schemes

The Group operates a defined contribution pension scheme for employees. The total cost charged to income of £614,000 (2018: £327,000) represents contributions payable to the scheme by the Group. As at 30 April 2019, contributions of £207,000 (2018: £95,000) due in respect of the reporting period had not been paid over to the schemes.

11.    Depreciation and amortisation charges

 

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Depreciation	702	406
Amortisation	757	199
Loss on disposal of property, plant and equipment	14	30
	1,473	635

 

12.    Other operating charges

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Establishment costs	3,184	2,007
Other overhead expenses	7,980	4,928
	11,164	6,935

 

13.    Non-underlying operating costs

 

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Redundancy costs	712	119
Transaction costs	602	334
Share based payment charges	300	-
Contingent consideration	233	-
	1,847	453

 

Non-underlying costs relate to redundancy costs to streamline the support function of the Group; transaction costs in respect of acquisitions, the placing of existing shares during the period; and share based payment charges relating to one off share schemes offered to employees as part of the IPO.

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

 

14.    Finance costs

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Interest on borrowings	734	2,228
Exit and release of arrangement fees arising on the repayment of debt at the IPO	1,924	-
Interest on deferred consideration	114	-
Other interest payable	4	-
	2,776	2,228

 

15.    Auditor's remuneration

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Fees payable to the parent company's auditor and their associates for the audit of the parent company's annual accounts	21	14
Fees payable to the auditor and their associates for other services to the Group:
- The audit of the Company's subsidiaries	38	10
Total audit fees	59	24
- Audit-related assurance services	21	7
- Taxation advisory services	7	-
- Corporate finance services	80	-
- Other advisory services	63	2
Total non-audit fees	171	9

In addition to the above, £95,000 of non-audit costs relating to corporate finance services have been charged to the share premium account in the year.    
 

16.    Taxation

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Corporation tax:
Current year	1,327	955
Adjustments in respect of prior years	-	(8)
	1,327	947
Deferred tax:
Origination and reversal of temporary differences	(87)	-
Tax expense for the year	1,240	947

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

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit before tax	5,241	4,166
Tax at the UK corporation tax rate of 19% (2018: 19%)	995	792
Expenses that are not deductible in determining taxable profit	245	179
Adjustment in respect of prior years	-	(8)
Effect of changes in tax rates	-	(16)
Tax expense for the year	1,240	947

 

 

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

 

	Year ended 30 April 2019			Year ended 30 April 2018
	Total   £'000	Underlying    £'000	Non-Underlying £'000	Total   £'000	Underlying    £'000	Non-Underlying £'000
Profit before tax	5,241	9,819	(4,578)	4,166	4,818	(652)
Tax expense	1,240	1,678	(438)	947	976	(29)
Effective rate of tax	24%	17%	(10%)	23%	20%	(4%)

 

 

17.    Earnings per share

 

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

	Year ended 30 April 2019 Number	Year ended 30 April 2018 Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	68,533,094	50,000,000
Effect of dilutive potential ordinary shares:
Share options	194,389	-
Warrants	117,350	-
Weighted average number of ordinary shares for the purposes of diluted earnings per share	68,844,833	50,000,000
	£'000	£'000
Profit after tax	4,001	3,219
Earnings per share	Pence	Pence
Basic earnings per share	5.84	6.44
Diluted earnings per share	5.81	6.44

 

The denominators for the purposes of calculating both basic and diluted earnings per share have been adjusted to reflect the group reorganisation with Knights 1759 Limited and the subdivision of ordinary shares in the period ended 30 April 2019.

Underlying earnings per share is calculated as an alternative performance measure in note 36.

 

18.    Dividends

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 30 April 2019 of 0.6p per share	433	-
	433	-
Proposed final dividend for the year ended 30 April 2019 of 1.27p per share	931	-

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 2019. The total estimated dividend to be paid is 1.27p per share. The payment of this dividend will not have any tax consequences for the Group.

19.    Intangible assets and goodwill

	Goodwill £'000	Brand £'000	Customer relationships £'000		Purchased computer software £'000	Total £'000
Cost
As at 1 May 2017	12,244	5,401	2,496		155	20,296
Additions	-	-	-		101	101
As at 30 April 2018	12,244	5,401	2,496		256	20,397
Acquisitions of subsidiaries	14,363	-	12,884		-	27,247
Additions	-	-	-	90		90
As at 30 April 2019	26,607	5,401	15,380	346		47,734
Amortisation and impairment
As at 1 May 2017	-	108	168	58		334
Amortisation charge	-	54	100	45		199
As at 30 April 2018	-	162	268	103		533
Amortisation charge	-	54	639	64		757
As at 30 April 2019	-	216	907	167		1,290
Carrying amount
At 30 April 2019	26,607	5,185	14,473	179		46,444
At 30 April 2018	12,244	5,239	2,228	153		19,864
At 1 May 2017	12,244	5,293	2,328	97		19,962

The carrying amount of goodwill has been allocated to the single cash generating unit (CGU) present in the business, which is the provision of legal and professional services.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next 3 years and extrapolates cash using a terminal value calculation based on an estimated growth rate of 3% (2018: 3%). This rate does not exceed the expected average long-term growth rate for the UK legal services market.

The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for legal and professional services. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on UK economic growth forecasts for the legal services market.

The rate used to discount the forecast cash flows is 16.6% (2018: 20%).

The Group has conducted a sensitivity analysis on the impairment test of the CGU carrying value. The directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of goodwill is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.

 

20.    Acquisitions

Acquisitions summary

During the year the Group has completed four acquisitions, the table below summarises the consideration paid and the net cash flow arising on all acquisitions in the period.

			Total
			£'000
Total identifiable assets and liabilities acquired			10,712
Goodwill			14,363
Total consideration			25,075

 

Satisfied by:
Cash	16,225
Less: cash consideration treated as remuneration	(600)
	15,625
Equity instruments (1,978,031 ordinary shares of Knights Group Holdings plc)	3,950
Deferred consideration arrangement	4,000
Retention and settlement payment	1,500
Total consideration transferred	25,075
Net cash outflows arising on acquisition:
Cash consideration	15,625
Net investing cash outflow arising on acquisition	15,625
Repayment of loans net of cash acquired	4,443
Net financing cash outflow arising on acquisition	4,443

 

Details for the individual acquisitions are included below.

 

Turner Parkinson LLP

On 18 May 2018, the Group exchanged contracts to acquire Turner Parkinson LLP, with economic benefit from 1 May 2018, through the agreement to purchase the controlling membership interests of the entity. This acquisition completed on 29 June 2018.  Turner Parkinson LLP is a law firm based in Manchester and it was acquired to assist the Group in entering the Manchester legal and professional services market.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	43	4,100	4,143
Property, plant and equipment	562	(387)	175
Contract assets	491	-	491
Trade and other receivables	1,725	-	1,725
Cash and cash equivalents	1,059	-	1,059
Liabilities
Trade and other payables	(673)	(163)	(836)
Borrowings	(101)	-	(101)
Members' interests classified as a liability	(3,106)	-	(3,106)
Provisions	-	(95)	(95)
Deferred tax	-	(704)	(704)
Total identifiable assets and liabilities	-	2,751	2,751
Goodwill			8,180
Total consideration			10,931

 

Satisfied by:
Cash	5,931
Equity instruments (689,655 ordinary shares of Knights Group Holdings plc)	1,000
Deferred consideration arrangement	4,000
Total consideration transferred	10,931
Net cash outflow arising on acquisition:
Cash consideration	5,932
Repayment of loans net of cash acquired	2,148
Net cash outflow arising on acquisition	8,080

 

The goodwill of £8,180,000 arising from the acquisition consists of the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the IPO admission price.

Future payments under the deferred consideration arrangement are £4,000,000. This deferred consideration attracts interest at a rate of 3.5% per annum.  £875,000 of the deferred consideration was paid in the year, £1,562,500 is due on 1 May 2019 and the remaining £1,562,500 on 1 May 2020. 

Economic benefit was attained as at 1 May 2018 therefore a full year's revenue and profit is represented within the accounts. Turner Parkinson LLP contributed £7,555,000 of revenue to the Group's Statement of Comprehensive Income for the period 1 May 2019 to 30 April 2019.  The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 22 August 2018.

 

Spearing Waite LLP

On 8 October 2018, the Group obtained control of Spearing Waite LLP through the agreement to purchase the controlling membership interests of the entity. Spearing Waite LLP is a law firm based in Leicester and it was acquired to assist the Group in entering the Leicester legal and professional services market.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	-	3,091	3,091
Property, plant and equipment	209	(25)	184
Contract assets	795	-	795
Trade and other receivables	1,455	-	1,455
Cash and cash equivalents	2,053	-	2,053
Liabilities
Trade and other payables	(639)	(162)	(801)
Borrowings	(478)	-	(478)
Members' interests classified as a liability	(3,263)	-	(3,263)
Provisions	(132)	-	(132)
Deferred tax	-	(525)	(525)
Total identifiable assets and liabilities	-	2,379	2,379
Goodwill			3,071
Total consideration			5,450

 

Satisfied by:
Cash	5,250
Equity instruments (97,208 ordinary shares of Knights Group Holdings plc)	200
Total consideration transferred	5,450
Net cash outflow arising on acquisition:
Cash consideration	5,250
Repayment of loans net of cash acquired	1,669
Net cash outflow arising on acquisition	6,919

 

The goodwill of £3,071,000 arising from the acquisition consists of the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the 5 days prior to completion.

A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the Statement of Comprehensive Income on a straight line basis over the 3 year post acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £1,065,000.

Economic benefit was attained as at 1 October 2018.  Spearing Waite LLP contributed £4,089,000 of  revenue to the Group's Statement of Comprehensive Income for the period 1 October 2018 to 30 April 2019.  The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 1 December 2018.
 

Cummins Solicitors Limited

On 14 January 2019, the Group obtained control of Cummins Solicitors Limited through the agreement to purchase the shares of the entity. Cummins Solicitors Limited is an employment law firm based in Leicester and was acquired to enable the Group to expand its offering in the Leicester legal and professional services market.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	-	764	764
Property, plant and equipment	6	(6)	-
Contract assets	3	-	3
Trade and other receivables	134	-	134
Cash and cash equivalents	223	-	223
Liabilities
Trade and other payables	(82)	(4)	(86)
Borrowings	(29)	-	(29)
Corporation tax liability	(51)	-	(51)
Provisions	-	(45)	(45)
Deferred tax	-	(130)	(130)
Total identifiable assets and liabilities	204	579	783
Goodwill			190
Total consideration			973

 

Satisfied by:
Cash	1,323
Equity instruments (125,318 ordinary shares of Knights Group Holdings plc)	250
Contingent consideration	(600)
Total consideration transferred	973
Net cash outflow arising on acquisition:
Cash consideration	722
Repayment of loans net of cash acquired	(201)
Net cash outflow arising on acquisition	521

 

The Group has the right to claw-back up to £600,000 of this cash consideration transferred if the seller voluntary resigns from his employment in the Group within a two year period post acquisition. Since this is contingent on the seller remaining in employment, IFRS 3:B55(a) requires this to be excluded from the consideration of the business combination and this is expensed as remuneration for post-combination services and is recognised as a non-underlying operating cost.

The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the 5 days prior to completion.

Economic benefit was attained as at 1 January 2019.  Cummins Solicitors Limited contributed £222,000 of revenue to the Group's Statement of Comprehensive Income for the period 1 January 2019 to 30 April 2019.  The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 1 February 2019.

 

BrookStreet des Roches LLP

On 1 April 2019, the Group obtained control of BrookStreet des Roches LLP through the agreement to purchase the controlling membership interests of the entity. BrookStreet des Roches LLP is a leading independent commercial law firm in Oxford with a strong reputation nationally for its real estate practise.  It was acquired so the Group could expand its offering in the Oxford legal and professional services market.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below.

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets	-	4,886	4,886
Property, plant and equipment	20	(5)	15
Contract assets	588	-	588
Trade and other receivables	1,971	-	1,971
Cash and cash equivalents	530	-	530
Liabilities
Trade and other payables	(1,753)	980	(773)
Borrowings	(213)	-	(213)
Members interest classed as a liability	(1,143)	-	(1,143)
Provisions	-	(231)	(231)
Deferred tax	-	(831)	(831)
Total identifiable assets and liabilities	-	4,799	4,799
Goodwill			2,922
Total consideration			7,721

 

Satisfied by:
Cash	3,721
Retention and settlement payments payable	1,500
Equity instruments (1,065,850 ordinary shares of Knights Group Holdings plc)	2,500
Total consideration transferred	7,721
Net cash outflow arising on acquisition:
Cash consideration	3,721
Repayment of loans net of cash acquired	827
Net cash outflow arising on acquisition	4,548

 

The goodwill of £2,922,000 arising from the acquisition consists of the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the 5 days prior to exchange.

A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the Statement of Comprehensive Income on a straight line basis. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £2,500,000.

£500,000 was retained from the completion monies as a retention in accordance with the completion mechanism and is payable on agreement of Completion accounts.  As part of the acquisition agreement for BrookStreet des Roches LLP, the vendors agreed to settle the costs of surrendering the lease on the office premises occupied by the firm which the Group was not prepared to acquire. The lease surrender settlement was agreed at £2 million, of which £1 million was settled by the vendors from the consideration they received on completion, with the remaining £1 million to be paid by the Group, and included as deferred consideration in the fair value of consideration payable, over a period of up to three years.

BrookStreet des Roches contributed £542,000 of revenue to the Group's Statement of Comprehensive Income for the period 1 April 2019 to 30 April 2019.  The profit contributed is not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services Limited from 1 April 2019.

 

21.    Property, plant and equipment

	Expenditure on short leasehold property £'000	Office equipment £'000	Furniture and fittings £'000	Motor vehicles £'000	Total £'000
Cost
As at 1 May 2017	790	946	444	5	2,185
Additions	770	227	284	-	1,281
Transfers	(148)	19	129	-	-
Disposals	(11)	-	(32)	-	(43)
As at 30 April 2018	1,401	1,192	825	5	3,423
Acquisitions of subsidiaries	9	155	210	-	374
Additions	603	585	26	-	1,214
Disposals	(7)	-	(12)	-	(19)
As at 30 April 2019	2,006	1,932	1,049	5	4,992
Depreciation and impairment
As at 1 May 2017	85	400	91	5	581
Depreciation charge	87	243	76	-	406
Eliminated on disposal	(3)	-	(9)	-	(12)
As at 30 April 2018	169	643	158	5	975
Depreciation charge	238	307	157	-	702
Eliminated on disposal	(1)	-	(3)	-	(4)
As at 30 April 2019	406	950	312	5	1,673
Carrying amount
At 30 April 2019	1,600	982	737	-	3,319
At 30 April 2018	1,232	549	667	-	2,448
At 1 May 2017	705	546	353	-	1,604

 

22.    Contract assets and liabilities

	Contract assets £'000	Trade receivables £'000	Contract liabilities £'000
As at 30 April 2019	11,112	10,720	(120)
As at 30 April 2018	7,447	5,732	(102)
As at 1 May 2017	5,908	5,843	(110)

 

Contract assets
Contract assets consist of unbilled revenue in respect of legal and professional services performed to date.

Contract assets in respect of fee-for-service and fixed fee arrangements are billed at appropriate intervals, normally on a monthly basis, in line with the performance of the services. Where such matters remain unbilled at the period end the asset is valued on a contract-by-contract basis at its expected recoverable amount.

The Group undertakes some matters based on contingent fee arrangements.  These matters are billed when the claim is successfully settled.  For matters ongoing at the period end, each matter is valued based on its specific circumstances.   If the matter has agreed funding arrangements in place, then it is valued based on the estimated amount recoverable from the funding depending on the stage of completion of the matter. 

If the matter has been admitted and performance obligations satisfied, such that it is no longer contingent, these matters are valued based on the expected recoverable amount.  Due to the complex nature of these matters, they can take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter not billed until a later financial period.  The amount of contingent fee work in progress at 30 April 2019 was £2,201,000 (2018: £1,612,000)

If the performance obligations for contingent matters have not been satisfied at the reporting date, these assets are valued on a contract-by-contract basis taking into account the expected recoverable amount and the likelihood of success. Where the likelihood of success of a contingent fee arrangement is less than highly probable, the amount recognised in contract assets is limited to the costs incurred which are expected to be recoverable.

During the year, contract assets of £1,877,000 (2018:£nil) were acquired in business combinations.

An impairment loss of £57,000 has been recognised in prepayments (relating to contract assets)  in the year (2018: £nil). This is based on the historical credit loss experience of these types of assets.  The contract asset loss is estimated at 0.55% of the balance.

Trade receivables
Trade receivables are recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.  Trade receivables also includes disbursements.

Bills are payable within thirty days unless otherwise agreed with the client.

Contract liabilities
When matters are billed in advance or on the basis of a monthly retainer, this is recognised in contract liabilities and released over time when the services are performed.

 

23.    Trade and other receivables

	30 April 2019 £'000	30 April 2018 £'000
Trade receivables	10,960	5,806
Impairment provision - Trade receivables	(240)	(74)
Prepayments and other receivables	3,008	1,545
Impairment provision - Prepayments and other receivables	(57)	-
	13,671	7,277

 

Trade receivables

The average credit period taken on sales is 38 days as at 30 April 2019. No interest is charged on trade receivables.

 

The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses ('ECL'). The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. As the Group's historical credit loss experience does not show significantly different loss patterns for different client segments, the provision for loss allowance is based on past due status.

 

The following table details the risk profile of trade receivables (excluding disbursements) based on the Group's provision matrix.

30 April 2019	Not past due	31-60 days past due		61-90 days past due		91-120 days past due	>120 days past due	Total
Expected credit loss rate	0.66%	0.66%	2.30%		1.60%		17.36%	2.05%
Estimated total gross carrying amount £'000	5,412	2,584	826		250		720	9,792
Lifetime ECL £'000	36	17	19		4		125	201

 

 

In addition to the above on trade receivables a further £39,000 (2018: £nil) impairment loss has been recognised against disbursement balances.  This is based on 100% impairment against all disbursements with no activity on the matter for over 12 months and 0.8% against the remainder of the balance based upon the historical credit loss experience of this type of asset. 

An impairment loss of £57,000 has recognised on contract assets in the year (2018: £nil).  This is based on the historical credit loss experience of these types of assets.  The contract asset loss is estimated at 0.55%

Other receivables

As at 30 April 2019 other receivables includes £513,000 (2018: £nil) of consideration paid in advance relating to the acquisition of Cummins Solicitors Limited which is contingent on continued employment over a two year period. This is being released to the Statement of Comprehensive Income over the two year period. 

 

24.    Share capital

	Ordinary shares
	Number	£'000
As at 1 May 2017 Changes during the period	100,000 -	100 -
As at 30 April 2018	100,000	100
Changes during the period
Ordinary shares of £1 each issued in respect of the share-for-share acquisition of Knights 1759 Limited (see note below)	-	-
Subdivision of 100,000 ordinary shares of £1 each into 50,000,000 ordinary shares of 0.2p each	49,900,000	-
Ordinary shares of 0.2p each issued at Initial Public Offering	20,689,656	41
Ordinary shares of 0.2p each issued in respect of the Share Incentive Plan (see note 9)	657,732	2
Ordinary shares of 0.2p each issued as consideration in the purchase of subsidiaries	1,978,031	4
At 30 April 2019	73,325,419	147

 

The comparative figure in the Statement of Financial Position relates to the 100,000 shares issued by the Group in exchange for the entire issued share capital of Knights 1759 Limited in accordance with the merger accounting policy explained in note 2. 

25.    Share premium

	£'000
As at 1 May 2017 and 30 April 2018	-
Premium arising on issue of equity shares	34,327
Expenses of issue of equity shares	(1,841)
At 30 April 2019	32,486

26.    Reserves

										Merger reserve £'000	Retained earnings £'000
At 1 May 2017										(3,536)	3,015
Profit for the period and total comprehensive income										-	3,219
Balance at 30 April 2018										(3,536)	6,234
Profit for the period and total comprehensive income										-	4,001
Credit to equity for equity-settled share based payments										-	356
Dividends										-	(433)
Balance at 30 April 2019										(3,536)	10,158

The merger reserve of £3,536,000 arose on the share for share exchange by Knights 1759 Limited and Knights Professional Services Limited. The reserve is the difference between the nominal value of Knights 1759 Limited share capital and amounts paid to the shareholders as part of the Group reorganisation in October 2016 and the share capital, share premium value and capital redemption of the shares acquired in Knights Professional Services Limited.

Retained Earnings represents cumulative profits and losses of the Group net of distributions to members.

27.    Borrowings

	30 April 2019 £'000	30 April 2018 £'000
Secured borrowings at amortised cost:
Bank loans	19,000	5,750
Other loan	-	22,693
Total borrowings	19,000	28,443
Amount due for settlement within 12 months	-	-
Amount due for settlement after 12 months	19,000	28,443

 

All of the Group's borrowings are denominated in sterling.

 

The Group has a credit facility of £27,000,000 in total (2018: £10,000,000) compromising term debt and revolving credit facilities. The current facility was initially taken out on 25 June 2018 and amended on 27 March 2019. The revolving credit facility is renewed each month and is due for final repayment on 25 June 2023.  The term debt is due for repayment on 25 June 2023 or earlier if the agreed covenants are breached.  The facility is secured by a fixed and floating charge over the Group's assets. The facility carries an interest margin above LIBOR of between 1.85% and 2.45% depending on the leverage level.  A commitment fee of 35% of the applicable margin is payable on the undrawn amounts.

 

The other loan of £22,693,000 held at 30 April 2018 was due for repayment on 6 October 2023. Cash interest was payable on the other loan in quarterly instalments at a rate of 5% above LIBOR.  Payment in kind interest accrued at a rate of 1.9% annually.  If not paid quarterly, the payment in kind interest was capitalised and due for repayment on 6 October 2023. This loan was secured by a fixed and floating charge over the assets of the Group. This loan was repaid in the year ended 30 April 2019.

28.    Deferred consideration

	30 April 2019 £'000	30 April 2018 £'000
Non-current liabilities
Deferred consideration	1,611	-
	1,611	-
Current liabilities
Deferred consideration	1,628	250
	1,628	250

 

The deferred consideration balance of £250,000 at 30 April 2018 related to the Group restructure and refinancing exercise completed in October 2016. This was settled during the year ended 30 April 2019.

 

Deferred consideration as at 30 April 2019 relates to the acquisition of Turner Parkinson LLP and is not contingent.  The total deferred consideration was £4,000,000 of which £875,000 was paid during the year ended 30 April 2019.

 

In addition the Group has £146,000 of contingent consideration accrued and included within trade and other payables relating to the acquisition of Spearing Waite LLP.  This is contingent based upon continued employment and is being accrued on a monthly basis in the Statement of Comprehensive Income in accordance with the terms of the agreement.

 

29.    Deferred tax

The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during the current and prior reporting period.

	Accelerated capital allowances £'000	Intangible assets £'000	Share-based payments £'000	Total £'000
As at 1 May 2017	79	1,305	-	1,384
Charge/(credit) for the year	30	(30)	-	-
As at 30 April 2018	109	1,275	-	1,384
Acquisitions of subsidiaries	-	2,190	-	2,190
Charge/(credit) for the year	92	(118)	(60)	(86)
As at 30 April 2019	201	3,347	(60)	3,488

 

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances after offset for financial reporting purposes:

	30 April 2019 £'000	30 April 2018 £'000
Deferred tax assets	(60)	-
Deferred tax liabilities	3,548	1,384
	3,488	1,384

 

30.    Trade and other payables

	30 April 2019 £'000	30 April 2018 £'000
Trade payables	1,442	985
Other taxation and social security	3,511	1,531
Other payables	1,868	1,153
Accruals	5,284	1,853
	12,105	5,522

 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 26 days. No interest is charged on the trade payables.

 

The directors consider that the carrying amount of trade payables approximates to their fair value.

 

31.    Provisions

		Dilapidation provision £'000	Onerous contract provision £'000	Provisional Indemnity provision £'000	Total £'000
As at 1 May 2017		151	-	-	151
Additional provision in the year		10	-	-	10
As at 30 April 2018		161	-	-	161
1 May 2019 - Transferred in from accruals		-	-	284	284
Acquisitions of subsidiaries		231	272	-	503
Additional provision in the year		81	202	284	567
Utilisation of provision		-	(39)	(29)	(68)
As at 30 April 2019		473	435	539	1,447

The dilapidations provision relates to the potential rectification of leasehold sites upon expiration of the leases. This has been based on a surveyor's valuation of the schedule of works included in the lease, or in absence of a surveyor's estimate, is based on the directors' estimate of potential liabilities.

The onerous contract provision relates to vacant offices where the Group is the lessee.  The Group is actively marketing these leases for reassignment. The provision represents the directors' estimate of the future lease payments to be paid by the Group prior to reassignment of the leases.  The onerous contracts provision also includes contracts acquired via acquisition that are non-cancellable.  The provision represents the remaining payments under the terms of the lease. Future lease payments are offset against the provision.

The professional indemnity provision (transferred from accrued expenses on 1 May 2018), relates to a number of disputes in the ordinary course of business for all claims where costs are likely to be incurred and represents the cost of defending and concluding claims and any excess that may become payable.  The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

32.    Financial instruments

Categories of financial instruments

	30 April 2019 £'000	30 April 2018 £'000
Financial assets
Amortised cost
Contract assets	11,112	7,447
Trade and other receivables (excluding prepayments)	11,706	5,732
Cash and cash equivalents	4,904	2,118
Financial liabilities
Amortised cost
Borrowings	19,000	28,443
Deferred consideration	3,239	250
Trade and other payables	8,448	3,991
Fair value Trade and other payables	146	-

  

Financial risk management objectives

 

The Group's finance function monitors and manages the financial risks relating to the operations of the Group. These risks include market risk (interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.

Market risk

The Group's activities expose it primarily to the financial risks of changes in interest rates (see below). Market risk exposures are measured using sensitivity analysis.

There has been no change to the Group's exposure to market risks or the manner in which these risks are managed and measured.

 

Interest rate risk management

The Group is exposed to interest rate risk because the Group borrows funds at floating interest rates. The risk is managed by the Group by keeping the level of borrowings at a manageable level.

 

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for financial instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.

 

If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit for the year ended 30 April 2019 would decrease/increase by £95,000 (2018: decrease/increase by £146,000). This is attributable to the Group's exposure to interest rates on its variable rate borrowings.

 

The Group's sensitivity to interest rates has decreased during the current year mainly due to the reduction in the borrowings of the Group.

 

Credit risk management

Note 23 details the Group's maximum exposure to credit risk and the measurement bases used to determine expected credit losses.

The risk of bad debts is mitigated by the Group having a policy of performing credit checks or receiving payments on account for new clients when practical and ensuring that the Group's exposure to any individual client is tightly controlled, through credit control policies and procedures.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the financial charges on its debt instruments and repayments of principal. There is a risk that the Group will encounter difficulty in meetings its financial obligations as they fall due or not meet its required covenants.  The Group manages this risk and its cash flow requirements through detailed annual and monthly cash flow forecasts.  These forecasts are reviewed regularly to ensure that the Group has sufficient working capital to enable it to meet all of its short term and long-term cash flow needs.

The tables below analyse the company's financial liabilities into relevant maturity groupings based on their contractual maturities.  The amounts disclosed in the table are the contractual undiscounted cash flows.
 

Contractual maturities of financial liabilities
 

30 April 2019	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	-	-	19,000	19,000
Deferred consideration	1,628	1,611	-	3,239
Trade and other payables	8,594	-	-	8,594

 

 

30 April 2018	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	-	-	28,443	28,443
Deferred consideration	250	-	-	250
Trade and other payables	3,991	-	-	3,991

 

The Group has met its covenant tests during the year.

Capital management

The capital structure of the Group consists of borrowings (as disclosed in note 27) and equity of the Group (comprising issued capital, reserves, and retained earnings as disclosed in the Statement of Changes in Equity).

 In managing its capital, the Group's primary object is to provide a return for its equity shareholders through capital growth and future dividend income.  The Group seeks to maintain a gearing ratio that balances risk and returns at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs and objectives.

Gearing ratio

The gearing ratio at the year end is as follows:

 

	30 April 2019 £'000	30 April 2018 £'000
Borrowings (note 27)	19,000	28,443
Cash and cash equivalents	(4,904)	(2,118)
Net debt	14,096	26,325
Equity	39,255	2,798
	%	%
Net debt to equity ratio	36	941

 

 

Significant accounting policies

Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial liability and equity instrument are disclosed in note 2.

 

33.  Capital commitments

As at 30 April 2019 there is a capital commitment of £425,000 (2018: £278,000) in relation to an ongoing office refurbishment.

 

34.    Reconciliation of profit to net cash generated from operations

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit before taxation	5,241	4,166
Adjustments for:
Amortisation	757	199
Depreciation	702	406
Loss on disposal of equipment	14	30
Contingent consideration not payable	(30)	-
Contingent consideration expense	233	-
Non-underlying operating costs	1,314	453
Share based payments	356	-
Interest income	(162)	(121)
Interest expense	2,776	2,228
Operating cash flows before movements in working capital	11,201	7,361
Increase in contract assets	(1,788)	(1,539)
(Increase)/decrease in trade and other receivables	(1,171)	325
Increase in provisions	782	9
Increase/(decrease) in contract liabilities	18	(8)
Increase in trade and other payables	2,664	375
Cash generated from operations	11,706	6,523

 

35.    Changes in liabilities arising from financing activities

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's Consolidated Statement of Cash Flows as cash flows from financing activities.

	Borrowings £'000
As at 1 May 2018	28,443
Repayment of borrowings	(24,940)
New loans taken out	14,750
Non-cash changes:
Release of arrangement fee	747
As at 30 April 2019	19,000

 

36.    Alternative performance measures

This Annual Report contains both statutory measures and alternative performance measures.  In management's view the underlying performance of the business provides a more meaningful comparison of how the Group's business is managed and measured on a day-to-day basis.

 

The Group's alternative performance measures and key performance indicators are aligned to the Group's strategy and together are used to measure the performance of the business.

 

Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and provide supplementary information to assist with the understanding of the Group's financial results and with the evaluation of operating performance for all the periods presented. Alternative performance measures, however, are not a measure of financial performance under International Financial Reporting Standards ('IFRS') as adopted by the European Union and should not be considered as a substitute for measures determined in accordance with IFRS. As the Group's alternative performance measures are not defined terms under IFRS they may therefore not be comparable with similarly titled measures reported by other companies.

 

Reconciliations of alternative performance measures to the most directly comparable measures reported in accordance with IFRS are provided below.

 

a) Underlying EBITDA

Underlying EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding the effects of depreciation, amortisation and non-underlying items.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Operating profit	8,017	6,394
Depreciation and amortisation charges	1,473	635
Non-underlying costs (note 13)	1,847	453
Underlying EBITDA	11,337	7,482

b) Underlying profit before tax (PBT)

Underlying PBT is presented as an alternative performance measure to show the underlying performance of the Group excluding the effects of amortisation of intangible assets and non-underlying items.

 

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit before tax	5,241	4,166
Amortisation (adjusted for amortisation on computer software)	693	199
Non-underlying costs (note 13)	1,847	453
Non-recurring finance costs	2,038	-
Underlying profit before tax	9,819	4,818

Non-recurring finance costs relate to exit fees and arrangement fees expensed due to the refinancing of the Group during the year and accrued interest on deferred consideration.

c) Underlying profit after tax (PAT) and underlying earnings per share (EPS)

Underlying PAT and EPS are presented as alternative performance measures to show the underlying performance of the Group excluding the effects of amortisation of intangible assets, and non-underlying items.

		Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit after tax		4,001	3,219
Amortisation (adjusted for amortisation on computer software)		693	199
Non-underlying operating costs		1,847	453
Non-recurring finance costs		2,038	-
Tax in respect of the above		(438)	(29)
Underlying profit after tax		8,141	3,842
Underlying earnings per share		Pence	Pence
Basic underlying earnings per share		11.88	7.68
Diluted underlying earnings per share		11.83	7.68

 

Tax has been calculated at the corporation tax of 19% or deferred tax rate of 17% on the relevant adjusting items.

 

d) Free cash flow and cash conversion %

Free cash flow measures the Group's underlying cash generation. Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities, interest paid and net cash flows on capital expenditure after excluding cash flows in respect of non-underlying costs. Cash conversion % is calculated by dividing free cash flow by underlying profit after tax, which is reconciled to profit after tax above.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Cash generated from operations (note 34)	11,706	6,523
Adjustment for contingent earn out consideration paid in advance	600	-
Interest received	142	112
Tax paid	(1,076)	(733)
Net cash from underlying operating activities	11,372	5,902
Interest paid	(745)	(1,806)
Net capital expenditure	(1,303)	(1,381)
Free cash flow	9,324	2,715
Underlying profit after tax	8,141	3,842
Cash conversion (%)	115%	71%

 

37.    Operating lease arrangements

The Group as lessee

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Lease payments under operating leases recognised as an expense in the year	2,104	1,172

 

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

	30 April 2019 £'000	30 April 2018 £'000
Within one year	2,302	1,627
In the second to fifth year inclusive	9,408	5,683
After five years	14,530	13,855
	26,240	21,165

 

Operating lease payments represent rentals payable by the Group for office properties, motor vehicles and office equipment.

 

38.    Related party transactions

Transactions between the Group and its related parties are disclosed below.

KPV Propco Ltd is a Company controlled by Mr DA Beech, a person with significant influence over the Group and a member of key management personnel.

The Group leases a property from KPV Propco Ltd. During the year rents of £343,000 (2018: £343,000) were charged by KPV Propco Ltd to the Group.

The Group received a contribution for repair work in the year from KPV Propco Ltd of £nil (2018: £86,000).

During the year, the Group received cash of £nil (2018: £616,000) from KPV Propco Ltd At 30 April 2019, there was an amount of £229,000 (2018: £128,000) owed to KPV Propco Ltd by the Group.

Remuneration of key management personnel

The remuneration of the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Short-term employee benefits	829	244
Pension costs	14	21
Share-based payments	106	-
	949	265

Key management personnel includes board members and directors.

Transactions with directors

Dividends totalling £202,000 (2018: £nil) were paid in the year in respect of ordinary shares held by the Group's directors.

Glossary of terms

 

Alternative Financial Performance Measure

This document contains certain financial measures that are not defined or separately recognised under IFRS.  These measures are used by the board and other users of the accounts to evaluate the Group's underlying trading performance excluding the impact of any non-recurring items and items that do not reflect the underlying day to day trading of the Group.  These measures are not audited and are not standard measures of financial performance under IFRS.  There are no generally accepted principles governing the calculation of these measures and the criteria upon which these measures are based can vary from company to company. Accordingly these measures should be viewed as supplemental to, not as a substitute for, the financial measures calculated under IFRS.

 

Underlying EBITDA

Underlying EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding the effects of depreciation, amortisation, and non-underlying items.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Operating profit	8,017	6,394
Depreciation and amortisation charges	1,473	635
Non-underlying costs (note13)	1,847	453
Underlying EBITDA	11,337	7,482

 
Underlying profit before tax (PBT)

Underlying PBT is presented as an alternative performance measure to show the underlying performance of the Group excluding the effects of amortisation of intangible assets, and non-underlying items.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit before tax	5,241	4,166
Amortisation	693	199
Non-underlying costs (note 13)	1,847	453
Non-recurring finance costs (note 14)	1,924	-
Effective interest on deferred consideration (note 14)	114	-
Underlying profit before tax	9,819	4,818

 

 

Underlying profit after tax (PAT) and underlying earnings per share (EPS)

Underlying PAT and EPS are presented as alternative performance measures to show the underlying performance of the Group excluding the effects of amortisation of intangible assets and non-underlying items.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Profit after tax	4,001	3,219
Amortisation on acquisition related intangibles	693	199
Non-underlying operating costs	1,847	453
Non-recurring finance costs	1,924	-
Effective interest on deferred consideration	114	-
Tax in respect of the above	(438)	(29)
Underlying profit after tax	8,141	3,842
Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	11.88	7.68
Diluted underlying earnings per share	11.83	7.68

 

Non-recurring finance costs

Non-recurring finance costs relate to the exit fees and release of arrangement fees arising on the repayment of debt at the IPO and interest on deferred consideration payable as part of the consideration on acquisitions.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Exit fees and release of arrangement fees	1,924	-
Interest on deferred consideration	114	-
Non-recurring finance costs	2,038	-

 

Free cash flow and cash conversion %

Free cash flow measures the Group's underlying cash generation. Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities, interest paid and net cash flows on capital expenditure after excluding cash flows in respect of non-underlying costs. Cash conversion % is calculated by dividing free cash flow by underlying profit after tax, which is reconciled to profit after tax above.

	Year ended 30 April 2019 £'000	Year ended 30 April 2018 £'000
Cash generated from operations	11,706	6,523
Adjustment for contingent earn out consideration paid in advance	600	-
Interest received	142	112
Tax paid	(1,076)	(733)
Net cash from underlying operating activities	11,372	5,902
Interest paid	(745)	(1,806)
Net capital expenditure	(1,303)	(1,381)
Free cash flow	9,324	2,715
Underlying profit after tax	8,141	3,842
Cash conversion (%)	115%	71%

 

Working capital

Year ended 30 April 2019 £'000

Year ended 30 April 2018 £'000

 

Current assets
Contract assets		11,112	7,447
Trade and other receivables		13,671	7,277
		24,783	14,724
Current liabilities
Trade and other payables		12,105	5,522
Contract liabilities		120	102
Corporation tax liability		796	494
		13,021	6,118
Working capital		11,762	8,606

                                                                          

Other definitions

Fee earners

When referring to the number of fee earners in the Group we include all individuals working in the Group on a mainly fee earning basis.  This includes professionals (legal and non -legal) of all levels including paralegals, trainees and legal assistants.

When referring to the number of fee earners in the business this will refer to the absolute number of individuals working in the Group.

When using the number of fee earners to calculate the average fees or profit per fee earner or the ratio of fee earners to support staff these calculations are based on the number of full time equivalent (FTE) individuals to reflect that a number of individuals choose to work on a part time basis.

 

Non fee earners / support staff

This includes all employees that are not fee earning.

 

Lock up

This is calculated as the combined debtor and WIP days as at a point in time.

Debtor days are calculated on a count back basis using the gross debtors at the period end and compared to the total fees raised over prior months.

WIP (work in progress) days are calculated based on the gross work in progress (excluding that relating to clinical negligence claims) and calculating how many days billing this relates to based on average fees (again excluding clinical negligence fees) per month for the last 6 months.