RNS Number : 1057S

Knights Group Holdings PLC

12 July 2022

Knights Group Holdings plc

("Knights" or the "Group")

Full Year Results

Robust financial performance with strategy execution driving growth

Knights today announces its full year results for the year ended 30 April 2022.

Financial highlights

· Revenue increased by 22% to £125.6m (2021: £103.2m)

o Organic growth¹ of 2%, held back by Omicron in the typically important fourth quarter

o 20% revenue growth from acquisitions; a £14.8m increase in contribution from prior year acquisitions and £5.8m from in year acquisitions

· Gross margins increased to 49.3% (2021: 48.9%)

· Underlying PBT² fell by 2% to £18.1m (2021: £18.4m), representing an underlying PBT margin of 14.4% (2021: 17.8%)

· Underlying EPS decreased to 17.23p (2021: 18.30p). Basic EPS - loss of 3.02p (2021: profit of 4.14p)

· Strong cash conversion³ of 109% (2021: 96%)

· Lock up⁴ was 86 days (2021: 89 days excluding acquisitions), with continued improvement driven by strong culture and discipline of day-to-day cash collection across the Group

· Net debt, excluding leases, of £28.9m (30 April 2021: £21.1m) after paying £18.0m of initial and deferred cash consideration for acquisitions

· Proposed final dividend of 2.04p, giving a total dividend of 3.50p (FY 21: nil, FY 20: 1.10p)

Strategic and operational highlights

· Continued to expand geographic presence, with acquisition strategy gaining momentum

o Three acquisitions completed during the period, providing platforms for future organic growth

§ Keebles strengthened Knights' Yorkshire presence, complementing existing offices in Nottingham and Leeds

§ Archers provided entry into the North East, one of the largest markets for legal and professional services in the UK

§ Langleys established Knights as the leading firm in York and expanded its operations in the East of England, with entry into Lincoln

§ Acquisition pipeline remains strong, with acquisition of Coffin Mew completed post-period end adding four offices in the South of England, providing a new presence in Portsmouth, Southampton, Brighton and Newbury

o Integration of newly acquired businesses is progressing well with performance in line with expectations, overseen by the growing Client Services Executive

· Strong employee retention and continued recruitment driven by unique culture, increased scale and national reputation

o Remains an attractive location for talent with over 1000 fee earners at the year end

o Strong net promoter scores, driven by strong culture (Client NPS +72, Employee NPS +24)

o Workforce remains stable with very low churn⁵ of 9% (excluding anticipated churn in acquisitions), which continues to improve. Average length of service of partners of over 9 years

· Expanded Client Services Director team working more closely with Operational Directors

o Added four new Client Services Directors ("CSDs"), through recruitment and internal promotion

o New lines of reporting allowing CSDs and Operational Directors to work more closely with each other, reporting directly to CEO and CFO

· Continued progress with ESG, with new targets being developed

o Increasing momentum in the 4 our community programme with colleagues doing more activities together to support local communities

o Continued focus on the health and wellbeing of colleagues, a key theme at a successful annual conference on 10th June 2022 with over 1,000 colleagues socialising together, giving feedback and being encouraged to work with our retained psychologist on mindset

o Greater investment in local office social events encouraging colleagues to have fun and get to know each other better to promote well-being and to accelerate the return to office-based working

o New targets being developed for 2022, having surpassed performance targets for our greenhouse gas emissions, and paper consumption set in 2019

o Maintained good gender balance in senior positions, with five of the 12 CSDs and 60% of the Board being female

o Expanded ESG governance to include climate change, adopting TCFD guidance

· Current trading and outlook

o A positive start to the new year with prior year acquisitions integrating and performing well and as planned

o Continuing to attract high calibre professionals, with strong client followings

o Acquisition pipeline growing in quality and quantity, aided by the return to normality following the pandemic and accelerated by the uncertain economic environment

o While uncertainty around economic conditions persists, the Board considers that the business is highly resilient, with a significant market opportunity, the right strategy and team in place to deliver on it, giving confidence in its medium-term outlook

David Beech, CEO of Knights, commented:

"We have delivered another robust financial performance despite the short-term challenges experienced in the fourth quarter, with a positive start to the new financial year supported by the acquisitions completed in prior years.

"I am extremely grateful to the support our people have given to me and the business in recent weeks and we have a great culture and high morale which will enable us to continue to make good progress in the current year.

"Our ability to attract and retain top industry talent remains strong, while our pipeline of high quality acquisition targets continues to grow.

"I'm very pleased not only with the level of growth we have delivered over the last ten years since we corporatised, growing from two offices and £9m of revenue to a Top 50 law firm with 22 offices, and revenue of over £125m but also with our continued discipline to deliver market leading working capital days and cash generation.

"We continue to execute our strategy and remain confident in our outlook, as we leverage our enhanced scale and national reputation to realise our ambition to be the leading legal and professional services firm outside London."

A presentation of the full year results will be made to analysts via a webinar at 9am today. To register interest in attending, please contact Christian Hart at MHP Communications on 020 3128 8147 or email knights@mhpc.com.

Enquiries

Knights
David Beech, CEO	Via MHP Communications
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank	020 7260 1000
MHP Communications (Media enquiries)
Andrew Jaques, Katie Hunt, Eleni Menikou, Robert Collett-Creedy	020 3128 8100 07736 464749 knights@mhpc.com

Notes to Editors

Knights is a fast-growing, legal and professional services business, ranked within the UK's top 50 largest law firms by revenue. Knights was one of the first law firms in the UK to move from the traditional partnership model to a corporate structure in 2012 and has since grown rapidly. Knights has specialists in all key areas of corporate and commercial law so that it can offer end-to-end support to businesses of all sizes and in all sectors. It is focussed on key UK markets outside London and currently operates from 22 offices located in Birmingham, Brighton, Cheltenham, Chester, Crawley, Exeter, Leeds, Leicester, Lincoln, Maidstone, Manchester, Newbury, Nottingham, Oxford, Portsmouth, Sheffield, Southampton, Stoke, Teesside, Weybridge, Wilmslow and York.

Footnotes:

¹Organic growth excludes revenue growth from acquisitions in the year of their acquisition, and for the first full financial year following acquisition, based on the fees generated by the individuals joining the Group from the acquired entity. Recruitment of individuals into the acquired offices post acquisition is treated as part of the organic growth of the business.

²Underlying PBT is before amortisation of acquired intangibles, one off transaction costs relating to acquisitions made during the year, restructuring costs, disposals of acquired assets and recognition of onerous leases. It also excludes one off share-based payment charges along with contingent consideration payments required to be reflected through the Statement of Comprehensive Income as remuneration under IFRS accounting conventions. Underlying EPS excludes these items and the tax related to these items. The Board believes that these underlying figures provide a more meaningful measure of the Group's underlying performance.

³Cash conversion is calculated as the total of net cash from operations, tax paid and payments of lease interest and lease finance liabilities under IFRS 16, divided by the underlying profit after tax, which is calculated from profit after tax by adding back amortisation of acquired intangibles, the effect of the change in the tax rate, non-underlying operating costs relating to acquisitions, non-recurring finance, restructuring costs in the reporting period, and non-underlying share-based payments and the tax in respect of these costs.

⁴Lock up excludes the impact of acquisitions in the last quarter of the financial year as well as clinical negligence, insolvency, highways and ground rents work in progress as these matters operate mainly on a conditional fee arrangement and a different profile to the rest of the business.

⁵Employee churn is calculated based on the number of qualified fee earners who have been employed by the Group for more than one year, excluding expected churn from acquisitions.

A more detailed explanation of the Group's alternative performance measures used in this report have been included in the glossary.

Chairman's Statement

Knights delivered a robust financial performance this year, with revenue of £125.6m, up c.22% compared to the prior year. This growth in the year principally reflects acquisitions, with in-year acquisition contributing c.£5.8m and the full year impact of prior year acquisitions delivering an additional £14.8m, giving total revenue growth from acquisitions of £20.6m (20%). This acquisition-led growth was complemented by our COVID affected organic growth of 2% in the period, 4% disregarding the impact of closing down volume debt recovery and conveyancing, and further enhancing the Group's position in its market.

Throughout the year we continued to realise our vision of building the UK's leading legal and professional services business outside London. We expanded our geographic footprint, strengthening our presence in Yorkshire and entering the North East and East of England as we welcomed more high quality businesses and people into our Group. As we entered the new financial year, we extended our presence in the South East, meaning that as Knights celebrates a decade since its corporatisation, we are now a diversified business of truly national scale, operating from offices across the UK. As we grow the business, the Board continually reviews Knights' corporate structure, operational infrastructure, and processes to ensure they will support the continued scaling up of the business.

During the year, we faced unusual challenges, including the emergence of the Omicron variant of the COVID-19 virus, leading to disruption within the business due to increased employee sickness and absence during what is historically our most significant trading period in the fourth quarter of the financial year. Despite this, the Group delivered underlying profit before tax of c.£18.1m, reflecting the resilience of our business model and agility of our management team. I am proud of how our people met these challenges and have bounced back quickly, demonstrating the benefits of our strong and unique culture. I would like to express my thanks, on behalf of the whole Board, for their dedication, and tireless hard work. I would also like to thank our exceptional management team, who continue to successfully drive the business forward, despite such unpredictable headwinds.

Increasingly well positioned to execute our acquisition strategy

Our strategy is delivering tangible results. Knights' differentiated corporate structure is increasingly understood and a heightened awareness of its strong culture and reputation is helping to drive continued growth. Within a large, highly fragmented market, Knights is well-positioned to continue to seize opportunities that align with our strategy and goals.

This year, we built on our exemplary track record of deriving value from acquisitions and continued to roll out our targeted expansion, executing our strategy. This growth has increased our ability to attract high-quality acquisition targets that are a strong strategic and cultural fit for our business, bringing a significant number of talented new professionals into our Group. Our reach now spans a large proportion of the UK.

Strong recruitment momentum as we continue to scale the business

We continue to attract the highest calibre people and I am pleased to say that this year we recruited from leading law firms across the country as quality lawyers, typically with a strong client following, continue to favour our model over equity partnership. As importantly, I am delighted to say that employee churn, at 9%, remains low across all experience levels.

During the year, we have continued to attract new clients who recognise the unique combination of expertise, excellent service and value that we offer, adding to our already strong client base. We have also broadened Knights' portfolio of specialisms, adding a complementary debt advisory service offering to the Group. This is performing well, providing opportunities for cross-selling, and has attracted experienced accountants and corporate bankers from respected institutions, further demonstrating the strong positioning of the Knights brand.

Our strong culture, which is recognised across the industry, and enhanced reputation, are key draws for talented professionals. The cultural integration of our newly acquired businesses is overseen by our growing Client Services Executive team, which we expanded during the year. This team and our Operational Directors, report directly into David Beech and Kate Lewis (CEO and CFO), ensuring that this deeply experienced group continues to work together to support the growth and scaling up of the business.

The adoption of a hybrid working model has allowed our people to work flexibly and maintain a healthy work-life balance, whilst continuing to benefit from our strong team culture. We continued to invest in our systems, building on the technological improvements we implemented during the pandemic, to facilitate a more seamless flow between home and office. This, together with the depth and breadth of our resources, has further accelerated the integration of new businesses and joiners into our Group during the year.

Board and ESG

We continue to be mindful of the impact of our business on the world around us. Throughout the year we proactively managed this through improving energy efficiency by moving from older office buildings to grade A space, maximising space by consolidating into fewer, larger offices and building on the habits adopted by our professionals to digitise the way in which they work. I am pleased with our performance against targets, having surpassed those we set in 2019, successfully reducing our greenhouse gas emissions, paper consumption and office usage. We are in the process of agreeing new targets for 2022 and beyond. During the year we expanded the scope of our ESG governance to include Climate Change, adopting TCFD guidance. Following a strategic review to assess risk under various climate change scenarios, we see no material risk or opportunity for the business.

Our volunteering programme also continues, with colleagues supporting their local communities through our 4 Our Community programme. Our partnership with Mind is also yielding positive results.

In terms of gender balance at a senior level, we are making significant progress. Of our 12 Client Services Directors, 5 are female as is 60% of our Board. We are extremely proud of these figures but recognise there is more we can do in this area. We are also proud of the diversity across the business, with 72% of all fee earning professionals being female.

In acknowledgement of the challenges Knights has faced during the period, it was agreed that no bonuses would be paid to the executive directors, even though some of the non-financial measures had been achieved, with no increase in salary for the CEO and only an inflationary pay rise for the CFO for FY23.

In acknowledgement of the difficulties that may be faced by our people in light of the cost-of-living crisis, we undertook a detailed salary review, increasing salaries across the business which, along with other initiatives, has had a positive impact on employee morale at all levels.

Shortly after the period end, we announced that Richard King would step down from his role as Chief Operating Officer, and from the Knights Board, to pursue other opportunities. Richard was instrumental in establishing the strong operational infrastructure which has enabled the Group to achieve critical mass and will support the continued scaling up of the business. Richard leaves Knights with our gratitude and on behalf of the Board I offer him our best wishes for the future.

Dividend

The Group's progressive dividend policy balances the retention of profits to fund our long-term growth strategy of providing shareholders with a return, as that growth strategy delivers strong results. In line with that policy, the Board is proposing a final dividend of 2.04p Together with the interim dividend of 1.46p per share, this gives a total dividend for the year of 3.50p. The dividend will be payable on 30 September 2022 to shareholders on the register at 2 September 2022, subject to shareholder approval at the Group's AGM.

Summary and medium-term outlook

I am encouraged by our clear strategic and operational progress during the year, which was achieved despite considerable external challenges in the final quarter.

There is good momentum in the business going into the new financial year and our outlook is positive, with a healthy pipeline of acquisition opportunities of quality firms and high calibre recruits, all with a strong cultural fit, and which will provide entry into new markets or additional capabilities or scale in our existing office locations.

We have a significant market opportunity, with the right strategy and team in place to deliver on it and we look forward to continuing to make strong progress in achieving our goals.

Bal Johal

Non Executive Chairman

Chief Executive's Review

2022 marks ten years since Knights was corporatised. As I reflect on our remarkable journey over the past decade, I am exceptionally proud of what we have achieved.

Over ten years, Knights has grown from a firm with two offices and revenues of £9m to an industry-leading legal and professional services group, now ranked among the UK's Top 50 law firms with 18 offices delivering over £125m in revenues as at 30 April 2022 and now 22 offices following our most recent acquisition in the South East. We are a well-balanced business, increasingly recognised for our strong culture. We have forged a solid reputation as a premium service provider across the UK, with a diversified, full service legal offering complemented by specialist planning, tax and debt advisory services, among others.

In recent years, our steady pace of selected acquisitions across the UK has enabled us to achieve critical mass. Knights now has the credibility, market positioning and scale to attract the highest calibre talent. We are recruiting from Top 40 law firms and well-reputed professional services firms, and crucially, are attracting and retaining key professionals who favour our forward-thinking corporate model over partnership and see how Knights are well positioned to support them and their strong client following.

Today, in line with the vision set out in 2012, our Group is consistently sought out by clients seeking high-quality legal expertise, deep sector knowledge, a broad range of specialisms and bespoke advice.

Robust performance despite short term challenges

During the year, we delivered pre tax profitable, cash generative growth albeit this was held back by short term challenges in the last quarter, a period which has typically seen strong revenues convert to a significant contribution to annual profits. This year, the emergence of the Omicron variant of the COVID-19 virus and the resulting employee sickness levels, alongside some softening of business confidence as a result of macroeconomic pressures, slowed growth to a greater extent than anticipated during this important trading period. As we have started a new financial year we have been pleased to see a growing appetite to work together in our offices with less disruption to our team business model and culture.

Our appetite for commercially and strategically sound acquisitions with a clear cultural fit remains strong, and our acquisition strategy gained further momentum during the year. We successfully integrated prior acquisitions and acquired two additional well-established and respected independent law firms. In doing so, we expanded our geographical reach and added over 100 professional colleagues to the Group.

As a result of our increased credibility and the heightened awareness of Knights, we saw several significant additions to our client base during the year, including the Teesside Regional Development Corporation, Warner Media, Barratt Homes, Aesop and Durham Cathedral. We also saw our income from our Top 50 clients by revenue increase by 33% to £20.5m. Our ability to service clients of this calibre across an increased number of service lines reflects the strength of Knights' positioning in key regions for legal and professional services, driving organic growth across the business.

Despite this considerable growth, we maintained our industry leading levels of lock-up days* at 86 days, reflecting our strong culture and discipline of day-to-day cash collection across the Group. We continued to be cash generative, and our strong cash position and credit facilities mean we remain well-positioned to continue to execute our ambitious growth plans.

Continuing to put people and culture first

Knights is a people-centric business. We fully understand that our success depends on the quality of talent across the Group and our ability to attract and retain the best people. To support this, we strengthened our operational infrastructure during the year, and bolstered our team of Client Services Directors (CSDs), increasing this group to 12. Our CSDs not only oversee day-to-day management of the Group's offices, but also lead on the integration of new professionals and acquired businesses, ensuring Knights' 'one team' ethos and commercially driven approach is deeply embedded across the business.

We continued to actively minimise churn, which remained at low levels across the Group at 9%. I am particularly pleased that we also maintained low levels of attrition at a senior level. While attrition among our most experienced partners has always been low, we are maintaining low churn comparative to large City firms due to the market leading positions that we tend to occupy in regional towns and cities. This is testament to both our business model and our approach to integration, and also reflects our 'one team' collaborative culture, something we believe is a strong differentiator, of which we are immensely proud. We saw a powerful example of building on the Group's culture at our recent full company event in June which focussed on listening to and communicating with our incredible talent and continuing to evolve how we look after employee health and wellbeing and support them in building their careers.

We undertook a salary review across the business which took effect on 1 May 2022. This followed a comprehensive body of work to ensure our pricing reflects the levels of service and the value that we deliver to clients. This enabled us to deliver positive uplifts to our colleagues across the Group. We are confident that the salaries we offer at all levels are competitive and generally higher than independent regional firms. We have also made 109 promotions during the year, testament to how we continue to nurture and develop our talent.

We expect that all of the increased costs from salary increases will be offset by price increases which we implemented at the commencement of FY23.

Throughout the pandemic and beyond, we have seen a migration of talented lawyers and other professionals away from London. We believe this represents a structural change, and one which has provided us with a recruitment pipeline of increasingly high quality in other areas of the UK.

As a result of our ongoing investment in cutting-edge IT infrastructure, our hybrid working model and our expanded presence across the UK, we have been able to take advantage of and better leverage this reshaped talent map. While we continue to embrace new ways of working, it is also pleasing to see more colleagues transitioning back to offices, allowing the full benefits of our strong team-based culture to be realised.

Acquisition strategy gaining momentum

In line with the Group's strategy to accelerate organic growth through carefully targeted regional acquisitions, we acquired two high-quality law firms during the year, extending the Group's presence into the North East and taking us into a new regional market in the East of England. The acquisition after our year end of Coffin Mew further expanded the Group's presence in the South East.

Strengthening the Group's presence in Yorkshire

In addition to the two acquisitions announced in the financial year, we also completed the acquisition of Keebles LLP in June 2021 (exchanged at the end of FY21), a firm established in Sheffield over a century ago with a strong corporate and real estate offering. This was a significant acquisition for the Group, complementing Knights' existing presence in Nottingham and Leeds with a leading position in South Yorkshire. This business is now fully integrated into our business, making a positive contribution to revenue and profit.

New presence in one of the UK's largest legal and professional services markets in the North East

In November 2021, the Group welcomed Archers Law LLP, a leading independent firm based in Teesside in the North East. This region, which is currently receiving significant public and private investment, represents one of the UK's largest markets for legal and professional services outside London. This acquisition has provided us with a platform for future organic growth in the region. It has integrated well, with the business performing in line with our expectations, underscoring the strong cultural fit and well-aligned service offering we had identified.

Strategic advance into the East of England

In March 2022, we successfully completed the acquisition of Langleys, a leading independent law firm. This established Knights as the leading law firm in York while also providing a new presence for us in Lincoln. This strategic acquisition expands the Group's operations in the East of England, an attractive growth market for our services. The integration of this business so far has been very successful. Of the two elements of the business identified at acquisition as not fully aligning to the Group strategy we have transferred the Child Law business, amounting to circa £1m of acquired revenues, for asset value. The HPL part of the business, a separate subsidiary focused on high volume conveyancing, is held for resale. As planned, we have exchanged contracts on 5 July 2022 to sell the HPL subsidiary focused on high volume conveyancing and non core to our strategy.

Momentum maintained in the current financial year

Post period end, in July 2022, we completed the acquisition of Coffin Mew, a leading independent law firm, which will provide us with entry into new markets, including Portsmouth, Southampton, Brighton and Newbury. The acquisition brings circa 100 new professionals to Knights, significantly expanding the Group's presence in the South of England.

Current trading and outlook

Since the year end, we have been encouraged by the Group's positive trading momentum, as we continue to realise the benefits of prior acquisitions. We have continued to strengthen the business through diversification and are confident of our resilience for the year ahead.

We see significant opportunities for further high-quality acquisitions, as seen with the acquisition of Coffin Mew since the beginning of the new financial year. We are strongly placed for further organic growth, as we increasingly attract high calibre professionals with client followings and as we further extend our complementary services which align within our current offerings.

While we acknowledge that uncertainty around economic conditions persists, we strongly believe that Knights remains well-positioned to meet any associated challenges with more resilience than ever. We remain confident in our ability to continue to execute our growth plans, further enhancing the Group's already strong position in key legal services markets outside London.

David Beech

Chief Executive Officer

Chief Financial Officer Review

I am pleased to report that, despite challenging conditions in the last two trading months of the year, during which we typically record our strongest trading of the financial year, we have delivered good revenue growth, with underlying profits in line with the previous year.

Our continued focus on cash flow has resulted in excellent cash conversion* of 109% for the year and a lower than expected net debt figure. This positions the Group well to continue to deliver on its strategy to grow the business both organically and acquisitively, through carefully selected strategic acquisitions.

Financial results

	2022 £'000	2021 £'000
Revenue	125,604	103,201
Staff costs	(76,863)	(62,707)
Other underlying costs and charges	(30,610)	(22,075)
Underlying profit before tax	18,131	18,419
Amortisation of acquisition related intangibles	(3,815)	(2,622)
One-off costs on acquisitions *	(13,260)	(10,288)
Profit before tax	1,056	5,509
Basic EPS	(3.02p)	4.14p
Basic Underlying EPS	17.23p	18.30p

Revenue

Reported revenue for the period was £125.6m compared with £103.2m in FY21, representing a 21.7% increase.

Of this increase 25%, or £5.8m, was from acquisitions made during the financial year and £16.9m was contributed by acquisitions made in FY21, an increase of £14.8m from the revenue relating to those acquisitions recognised in FY21.

The Group achieved organic growth of 1.8% overall for FY22, with organic growth in the first half of the year amounting to £4.3m (9.3%). However, this was offset by a £2.5m (4.6%) reduction in organic revenues in the second half of the year compared to the same period the previous year. This decline was due to the impact of unusually high levels of employee sickness and disruption caused by the Omicron variant and a slight softening in business confidence as a result of macroeconomic pressures in the last quarter of the year, typically the most significant trading period of the financial year.

Our strategic focus is to deliver premium services to a high-quality client base and as such, it is necessary in some instances to restructure certain areas of the business to ensure our focus is on executing our overall strategy. During the financial year, both our organic growth and our income from acquisitions was impacted by the restructuring of some less profitable and strategically misaligned teams.

The cessation of volume debt recovery and volume conveyancing business during the last 12 months has impacted organic revenues by c.£2m. Excluding the impact of this restructuring, organic growth for FY22 would be c.4%.

In relation to acquisition income, for the Keebles acquisition, approximately £0.9m of revenue relating to legal aid matters and other non-strategically aligned areas was transferred to third parties for asset value.

Given the full year impact of acquisitions made during the year, as at 30 April 2022 the run rate revenue for the Group was c.£132m.

.* see glossary

Staff costs

Total staff costs represented 61.2% of revenue during the financial year compared with 60.8% in 2021. Fee earner staff costs have decreased, from 51.1% to 50.7% of revenue, reflecting our ongoing efforts to control costs whilst continuing to invest in high quality senior recruits who bring a client following. During the year 19 partners joined the Group as part of our active recruitment process. Each new recruited partner typically requires a period of three to six months minimum before achieving their full expected fee earning run rate.

Support staff costs increased slightly to 10.5% of revenue in the year, compared to 9.7% in the prior year, driven by the full year cost of investment made in our operational infrastructure in FY21, including additional office services employees required to manage the move to an increased level of office-based working.

Staff costs leverage was impacted during the year due to trading headwinds adversely affecting revenue at the end of the financial year. Management continues to focus on ensuring staffing costs are leveraged sufficiently, balancing this with ensuring the business is fully invested in and supported ahead of planned future growth.

Underlying profit before tax (PBT)

To reflect the impact of the Omicron variant and softening of business confidence due to the macro-economic environment in the last two months of the financial year, headline figures for the year have been analysed as a half year period in the table below to facilitate a view of the Group's trading performance.

	H1 FY22 £'000	H2 FY22 £'000	FY22 £'000	H1 FY21 £'000	H2 FY21 £'000	FY21 £'000
Revenue	59,730	65,874	125,604	46,237	56,964	103,201
Other operating income	449	821	1,270	539	771	1,310
Staff costs	(37,849)	(39,014)	(76,863)	(29,635)	(33,072)	(62,707)
Depreciation and amortisation charges	(5,226)	(5,552)	(10,778)	(3,367)	(4,363)	(7,730)
Impairment of trade receivables and contract assets	(309)	(189)	(498)	(105)	(118)	(223)
Other operating charges	(10,087)	(11,990)	(22,077)	(7,909)	(8,264)	(16,173)
Non-underlying costs	(4,804)	(8,456)	(13,260)	(6,007)	(4,281)	(10,288)
Operating profit/(loss)	1,904	1,494	3,398	(247)	7,637	7,390
Finance costs	(1,059)	(1,305)	(2,364)	(890)	(991)	(1,881)
Finance income	3	19	22	-	-	-
Profit/(loss) before tax	848	208	1,056	(1,137)	6,646	5,509

Underlying Profit Before Tax	7,551	10,580	18,131	5,993	12,426	18,419
Underlying PBT margin	12.6%	16.1%	14.4%	13.0%	21.8%	17.8%
Underlying Profit After Tax			14,422			15,040
Basic EPS (pence)			(3.02)			4.14
Underlying basic earnings per share (pence)			17.23			18.30

Underlying profit before tax excludes amortisation of acquired intangibles, transaction and onerous lease costs in relation to acquisitions, disposals of acquired assets, restructuring costs as a result of the streamlining of the support function in acquisitions and restructuring undertaken in response to the COVID-19 pandemic in FY21.

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

Underlying profit before tax decreased slightly compared with the same period last year, by 1.6% to £18.1m (2021: £18.4m), representing a margin of 14.4% for the full year, compared with 17.8% in the prior year. This decrease in margin is due to the direct impact on profit of the lower than anticipated revenue in the last two trading months of the financial year, as previously explained. The cost base of the business was at a level that budgeted for anticipated revenue of circa £131m. If this revenue budget of £131m had been achieved, the additional £5m of revenue would have supported profitability and delivered an underlying PBT margin of circa 17.7%, in line with prior years.

Reported profit before tax (PBT)

Reported profit before tax for the year has decreased to £1.1m (2021: £5.5m), reflecting the net impact of the £0.3m decrease in underlying profit before tax, a £1.2m increase in amortisation of acquired intangibles and a £3.0m increase in non-underlying costs.

Non-underlying costs increased from £10.3m in FY21 to £13.3m principally due to the following increases in costs compared to prior year: £1.4m relating to the impairment of right of use assets, a £0.7m loss on disposal of tangible assets acquired in a business combination, £0.6m in redundancy and reorganisation costs on acquisitions completed during the year, and £0.3m in respect of the contingent consideration element of the purchase cost of acquisitions being recognised in the Statement of Comprehensive Income in accordance with IFRS accounting conventions.

(Loss)/Earnings per share (EPS)

The weighted average number of shares in the year to 30 April 2022 was 83,717,952 (2021: 82,189,113) which gives a basic loss per share (Basic EPS) for the year of (3.02p) (2021: profit of 4.14p). Due to the loss in the year, the options are not dilutive; diluted EPS in 2021 was 4.09p.

In order to compare the EPS year on year, underlying EPS has been calculated showing 17.23p in the year to 30 April 2022 compared with 18.30p in the prior year. This measure eliminates the effect of any non-recurring and non-underlying costs on the EPS calculation. The decrease in the underlying EPS of 6% compared to the prior year is due to an increase in both the tax rate and the average number of shares in issue in FY22 compared to the prior year.

Corporation tax

The Group's tax charge for the year is £3.6m (2021: £2.1m), made up of a current corporation tax charge of £1.5m (2021: £2.6m) and a deferred tax charge of £2.1m (2021: deferred tax credit of £0.5m).

As corporation tax will increase from 19% to 25% from 1 April 2023 the effect of the new rate on the Group's deferred tax charge has been applied in the year and amounts to £1.7m which is included within the deferred tax charge.

The total effective rate of tax is 340% (2021: 38%) based on reported profit before tax. This has been adversely affected by the change in the rate of deferred tax applied in the year as noted above. The effective rate of tax on the underlying profit of the business is 21% (2021: 18%) (see note 17 of the financial statements).

Dividend

As previously outlined, the Board did not declare a dividend during the COVID pandemic. The Board has decided to resume paying dividends in respect of the year ended 30 April 2022 in accordance with the previous dividend policy, being a total dividend payable of c.20% of profits after tax.

Subject to approval at the AGM in September 2022, the Board is pleased to announce a final dividend for the year of 2.04p per share. This, together with the interim dividend of 1.46p per shares brings the total dividend in respect of FY22 to 3.50p per share.

Balance sheet	30 April 22 £'000	30 April 21 £'000
Goodwill and intangible assets	82,172	79,523
Right of use assets	40,663	40,406
Working capital	44,302	36,929
Accrued consideration	-	(8,310)
Other net liabilities	(3,028)	(991)
Lease liabilities	(46,528)	(42,640)
Assets held for resale (net of cash included below)	635	-
	118,216	104,917
Cash and cash equivalents	4,227	4,783
Overdraft	-	(1,852)
Borrowings	(33,153)	(24,064)
Net debt *	(28,926)	(21,133)
Deferred consideration	(3,631)	(1,095)
Net assets	85,659	82,689

* Net debt excludes lease liabilities.

The Group's net assets as at 30 April 2022 increased by £3.0m from the prior year reflecting equity consideration on acquisitions in the year and the net result for the year.

Goodwill and intangible assets

Included within intangible assets and goodwill is £30.1m of intangible assets identified on current and prior year acquisitions. This relates to customer relationships, values attached to restrictive covenants and brand. £0.3m relates to computer software, with the remaining balance of £51.8m relating to goodwill from acquisitions.

The Board carries out an impairment review of goodwill each year to ensure the carrying value is supportable. The value in use of the goodwill was calculated using a number of different scenarios, some of which assumed a considerably more negative outcome than is anticipated by the Directors. In all instances, the future trading of the business was more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2022, the Board is satisfied that the goodwill was not impaired.

Working capital

The Group manages its working capital requirements closely, with impact on working capital a key consideration in all business decisions. The management of working capital has always been a key performance indicator, with strong controls and systems in place to monitor the level of debtors and work in progress in the business. Number of lock up days is the primary metric used by the Group to measure the length of time it takes to convert work recorded into cash received.

The reported working capital balance has been impacted by the year end corporation tax position. Tax installments in the first half of the year were based on a higher level of year end profitability, resulting in an overpayment of £1.8m. The net impact of the corporation tax asset in FY22, compared to the liability as at FY21 resulted in a reported increase in working capital of £2.5m. Excluding corporation tax balances at each year end working capital has increased from £37.7m at 30 April 2021 to £42.5m at 30 April 2022, an increase of 13% which is in line with the increase in the run rate level of revenue at each year end taking into account the full year impact of acquisitions during the year. As at 30 April 2022 run rate revenue is c.£132m being £126m reported plus c.£6m for the full year impact of FY22 acquisitions.

Due to the strong controls already in place the Group did not experience any significant change in its working capital cycle throughout the year as a result of the pandemic. Bad debts have increased slightly but remain at a very low level at 0.4% of turnover.

Management is satisfied with the level of working capital at the year end and the management of working capital over the period.

Right of use and lease liabilities

The right of use assets capitalised in the Statement of Financial Position represent the present value of property, equipment and vehicle leases. The increase in right of use assets during the year from £40.4m in FY21 to £40.7m in FY22 was the result of new leases acquired as part of the acquisitions completed during the year and new leases entered into by the Group during the period less depreciation of £4.8m.

The lease liabilities represent the present value of the total liabilities recognised for right of use assets and the increase during the year to £46.5m (FY21: £42.6m) again reflects the leases in acquired entities and new leases entered into during the period, less repayments in the period.

During the year the Group entered into a lease for new premises in Maidstone and completed on a lease in York. Under IFRS16 these are accounted for as right of use assets and accordingly £2.3m has been capitalised within non-current assets in the Consolidated Statement of Financial Position.

During the year, in order to minimise the cost of some unoccupied property space, the Group agreed to lease one floor of an existing office to a third party. This has resulted in the Group recognising total lease receivables of £1.2m in the Statement of Financial Position during the period (FY21:£nil), representing the total present value of amounts receivable under the sub lease.

Net debt, financing and leverage

Strong cash conversion in the period has resulted in net debt of £28.9m at the year end. This figure represents an increase in net debt from £21.1m as at 30 April 2021 due to an aggregate cash outlay of £18.0m relating to consideration for acquisitions completed during the period, deferred consideration paid in relation to acquisitions in prior years, repayment of debt on acquisitions, and contingent consideration charged as remuneration.

The Group's RCF facility was extended to £60m during the period, giving significant headroom to continue to support the growth strategy into 2023 through organic recruitment and strategic acquisitions.

Cash conversion

	2022 £'000	2021 £'000
Net cash generated from underlying operating activities*	25,060	20,378
Tax paid	(4,095)	(2,125)
Cash outflow for IFRS 16 leases (rental payments excluded from operating activity cash flows under IFRS 16)	(5,302)	(3,741)
Free cash flow	15,663	14,512
Underlying profit after tax*	14,422	15,040
Cash conversion	109%	96%

*See glossary

The cash conversion percentage measures the Group's conversion of its underlying profit after tax into free cash flow. Due to a continued focus on management of working capital and lock up, the Group has again delivered strong cash conversion of 109% (2021:96%) demonstrating strong cash controls.

Capital expenditure

Capital expenditure during the year was £2.5m (FY21: £4.3m).

During the year the Group continued to invest in its systems and premises to expand capacity and ensure staff continue to benefit from a high quality working environment, with consistent systems across the Group to aid integration of acquisitions and support its 'one team' culture. This includes refurbishment of offices that were part of acquisitions of c.£1.0m and system / equipment upgrades for acquisitions of £0.5m.

Capital budgets for FY23 include the normal level of expected investment in general IT, communications, and infrastructure to ensure we continue to have the capacity required for a growing business. Due to the acquisitions completed during FY22 and early FY23, and some potential relocation of offices due to expiring leases, we expect some one-off refurbishment costs amounting to c.£2.5m in the current financial year.

Acquisitions

During the year we signed and completed two acquisitions and finalised the integration of the Keebles acquisition for which contracts were exchanged at the end of FY21. The table below summarises the net impact of acquisitions on cashflows during the year and in future years. This shows the impact of consideration payable net of any cash in the acquired businesses.

For completeness, the table also shows the cash impact of the acquisition post year end of Coffin Mew that completed on 8 July 2022.

Financial year ended	Cash impact from acquisitions in the year £m	Repayment of debt on acquisitions £m	Cash impact from prior year acquisitions £m	Total cash impact from acquisitions £m	Cash impact of post year end acquisitions £m
2022	6.8	4.7	6.5	18.0	-
2023	2.6	-	2.5	5.1	5.5
2024	2.6	-	1.4	4.0	2.0
2025	2.6	-	-	2.6	2.0
2026	-	-	-	-	2.0

The above includes estimated contingent consideration charged as remuneration in the Consolidated Statement of Comprehensive Income.

Tax - Cash flow impact

Corporation tax
Corporation tax of £4.1m (FY21: £2.1m) was paid during the year. This included an overpayment of c.£1.8m due to the quarterly payment scheme calculations. Cash payments due for 2023 will be reduced by this amount.

In summary

Given the unexpected trading headwinds at the end of the financial year, the Board is pleased to deliver in line with its revised expectations, continuing to drive good levels of revenue growth and cash conversion. The lower than anticipated levels of net debt as at the end of the year are the result of the Group's continued excellent cash management policy. The Group is in a strong position to invest in growing the business both organically and through strategic acquisition opportunities with headroom within its current RCF facility of over £30m.

Kate Lewis

Chief Financial Officer

1. Consolidated Statement of Comprehensive Income

For the year ended 30 April 2022

	Note	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Revenue	5	125,604	103,201
Other operating income	7	1,270	1,310
Staff costs	8	(76,863)	(62,707)
Depreciation and amortisation charges	11	(10,778)	(7,730)
Impairment of trade receivables and contract assets		(498)	(223)
Other operating charges	12	(22,077)	(16,173)
Operating profit before non-underlying charges		16,658	17,678
Non-underlying operating costs	13	(13,260)	(10,288)
Operating profit		3,398	7,390
Finance costs	14	(2,364)	(1,881)
Finance income	15	22	-
Profit before tax		1,056	5,509
Taxation	17	(1,840)	(2,107)
Impact of change in tax rate on deferred tax charge	17	(1,747)	-
(Loss)/ profit and total comprehensive income for the year attributable to equity owners of the parent		(2,531)	3,402
Earnings per share		Pence	Pence
Basic earnings per share	18	(3.02)	4.14
Diluted earnings per share	18	(3.02)	4.09

2. Consolidated Statement of Financial Position

As at 30 April 2022

	Note	30 April 2022 £'000	30 April 2021 £'000
Assets
Non-current assets
Intangible assets and goodwill	20	82,172	79,523
Property, plant and equipment	22	10,240	9,538
Right-of-use assets	22	40,663	40,406
Finance lease receivables	26	1,091	-
		134,166	129,467
Current assets

Contract assets	23	31,777	28,530
Trade and other receivables	24	32,309	31,521
Finance lease receivables	26	76	-
Corporation tax asset		1,815	-
Cash and cash equivalents		4,097	4,783
Assets held for sale	27	1,195	-
		71,269	64,834
Total assets		205,435	194,301

Equity and liabilities
Equity
Share capital	25	169	165
Share premium		74,264	68,369
Merger reserve		(3,536)	(3,536)
Retained earnings		14,762	17,691
Equity attributable to owners of the parent		85,659	82,689

Non-current liabilities
Lease liabilities	28	41,183	39,020
Borrowings	29	32,798	23,650
Deferred consideration	30	2,421	-
Deferred tax	31	8,332	5,655
Provisions	33	4,331	2,998
		89,065	71,323

Current liabilities
Lease liabilities	28	5,345	3,620
Borrowings	29	355	414
Trade and other payables	32	21,362	32,303
Deferred consideration	30	1,210	1,095
Contract liabilities	23	237	216
Corporation tax liability		-	765
Provisions	33	1,772	1,876
Liabilities held for sale	27	430	-
		30,711	40,289
Total liabilities		119,776	111,612
Total equity and liabilities		205,435	194,301

3. Consolidated Statement of Changes in Equity

For the year ended 30 April 2022

	Note	Share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
As at 1 May 2020		164	66,252	(3,536)	13,070	75,950
Profit for the period and total comprehensive income		-	-	-	3,402	3,402
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments	9	-	-	-	1,219	1,219
Issue of shares	25	1	2,117	-	-	2,118
Balance at 30 April 2021		165	68,369	(3,536)	17,691	82,689
Loss for the period and total comprehensive income		-	-	-	(2,531)	(2,531)
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments	9	-	-	-	835	835
Issue of shares	25	4	5,895	-	-	5,899
Dividends	19	-	-	-	(1,233)	(1,233)
Balance at 30 April 2022		169	74,264	(3,536)	14,762	85,659

4. Consolidated Statement of Cash Flows

For the year ended 30 April 2022

	Note	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Operating activities
Cash generated from operations	35	25,060	20,378
Non-underlying operating costs paid	13	(3,691)	(4,268)
Interest received		274	461
Tax paid		(4,095)	(2,125)
Contingent acquisition payments		(5,383)	(5,597)
Net cash from operating activities		12,165	8,849

Investing activities
Acquisition of subsidiaries (net of cash acquired)	21	(6,801)	(1,195)
Purchase of intangible fixed assets	20	(62)	(196)
Purchase of property, plant and equipment	22	(2,526)	(4,356)
Proceeds from sale of property, plant and equipment		-	6
Proceeds from lease receivables		30	-
Landlord capital contribution		146	2,265
Associated lease costs		(23)	(289)
Payment of deferred and contingent consideration		(1,095)	(3,171)
Net cash used in investing activities		(10,331)	(6,936)

Financing activities
Proceeds of borrowings		47,350	19,000
Repayment of borrowings		(38,600)	(24,000)
Proceeds from exercise of share options		798	-
Repayment of debt acquired with subsidiaries	21	(2,903)	(2,387)
Repayment of lease liabilities		(3,890)	(2,564)
Interest and other finance costs paid		(2,060)	(1,772)
Dividends paid		(1,233)	-
Net cash used in financing activities		(538)	(11,723)
Net increase/(decrease) in cash and cash equivalents		1,296	(9,810)
Cash and cash equivalents at the beginning of the period (net of overdraft £nil (2021:£1,852,000))		2,931	12,741
Cash - continuing operations		4,097	2,931
Cash - assets held for disposal (note 27)		130	-
Total Cash and cash equivalents at end of period (net of overdraft £nil (2021: £1,852,000))		4,227	2,931

5. Notes to the Consolidated Financial Statements

For the year ended 30 April 2022

1. General Information

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

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

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

The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW

Preliminary announcement

The preliminary results for the year ended 30 April 2022 were approved by the Board of Directors on 11 July 2022.

The preliminary announcement set out above does not constitute Knights Group Holdings plc's statutory financial statements for the years ended 30 April 2022 or 30 April 2021 within the meaning of section 434 of the Companies Act 2006 but is derived from those audited financial statements.

The auditor's report on the consolidated financial statements for the years ended 30 April 2022 and 30 April 2021 is unqualified and does not contain statements under s498(2) or (3) of the Companies Act 2006.

The accounting policies used for the year ended 30 April 2022 are unchanged from those used for the statutory Financial Statements for the year ended 30 April 2021. The 30 April 2022 statutory accounts will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

Compliance with accounting standards

While the financial information included in this preliminary announcement has been computed in accordance with the measurement principles of UK-adopted international accounting standards, this announcement does not itself contain sufficient information to comply with these accounting standards.

2. Accounting policies

2.1 Basis of preparation

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

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

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

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

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

2.2 Going concern

The accounts are prepared on a going concern basis as, at the time of approving the financial statements, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Group was cash generative for FY22 and is forecast to continue to be so. The group has banking facilities of £60,000,000 available until October 2024. The Group's forecasts show sufficient cash generation and headroom in banking facilities and covenants by comparison to anticipated future requirements to support the Directors' conclusion that the assumption of the going concern basis of accounting in preparing the financial statements is appropriate.

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

2.3 Basis of consolidation

The consolidated financial statements incorporate the results of Knights Group Holdings plc and all of its subsidiaries. Subsidiaries results are consolidated in the financial statements from the date of exchange of the sale and purchase agreement, at which time control is obtained until the date that control ceases.

Subsidiaries

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

Transactions eliminated on consolidation

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

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

Audit exemption of subsidiaries

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

Name	Registered number
BrookStreet Des Roches LLP	OC317863
Dakeyne Emms Gilmore Liberson Limited	06850969
ERT Law Limited	09182964
Shulmans LLP	OC348166
ASB Law LLP	OC351354
ASB Aspire Limited Liability Partnership	OC327667
OTB Eveling LLP	OC371214
Mundays LLP	OC313856
K & S Trust Corporation Limited	02885753
Keebles LLP	OC351421
Archers Law Limited Liability Partnership	OC306705
Langleys Solicitors LLP	OC361149
Langleys Law Firm Limited	07500419
Home Property Lawyers Limited	09356408

The outstanding liabilities at 30 April 2022 of the above named subsidiaries have been guaranteed by the Company pursuant to s479A to s479C of the Act. In the opinion of the directors, the possibility of the guarantee being called upon is remote since the trade, assets and majority of liabilities of these subsidiaries were transferred to Knights Professional Services Limited before 30 April 2022.

2.4 Business combinations

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

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

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

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

Contingent consideration is classified as a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.

2.5 Revenue

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.6 Taxation

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

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

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

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

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

2.7 Intangible assets - Goodwill

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

2.8 Intangible assets - Other than goodwill

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

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

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

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

Purchased computer software	-	4 years
Customer relationships	-	4-25 years
Restrictive covenants	-	remaining length of covenant
Brand	-	100 years

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

Customer relationships are amortised over a period of 4-25 years being the average length of relationship with key clients for acquired entities.

Restrictive covenants are amortised over the remaining length of covenant.

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

2.9 Property, plant and equipment

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

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

Expenditure on short leasehold property	-	10% on cost
Office equipment	-	25% on cost
Furniture and fittings	-	10% on cost
Right-of-use assets	-	useful life of the lease (between 1 and 25 years)

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

2.10 Impairment of non-current assets

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

Shortfalls between the carrying value of non-current assets and their recoverable amounts, being the higher of fair value less costs to sell and value in use, are recognised as impairment losses. All impairment losses are recognised in the Consolidated 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 Consolidated Statement of Comprehensive Income. On reversal of an impairment loss, the depreciation or amortisation is adjusted to allocate the asset's revised carrying amount (less any residual value) over its remaining useful life.

2.11 Professional indemnity provisions

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

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

2.12 Leases

Group as lessee

The Group leases offices, equipment and vehicles. Rental contracts are for periods of between 1 and 25 years. Lease terms are negotiated on a lease by lease basis and contain a variety of terms and conditions.

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

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

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

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

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

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

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

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

Lease payments of both principal and interest are included in financing activities in the cash flow.

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

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

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

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

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

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

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

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

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

Group as lessor

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

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

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

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

2.13 Retirement benefits

2.13a Defined contribution scheme

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

2.13b Defined benefit pension scheme

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

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

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

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

2.14 Share Based Payments

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

2.15 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 and other receivables

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

Impairment of financial assets

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

Derecognition of financial assets and liabilities

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

3. Accounting developments

New and amended IFRSs that are effective for the future

At the date of these financial statements, there were new standards and amendments to IFRSs which were in issue but which were not yet effective and which have not been applied. The principal ones were:

Revised IFRS	Effective date
Amendments to IFRS3 Business Combinations; IAS16 Property, Plant and Equipment, IAS37 Provisions, Contingent Liabilities and Contingent Assets and Annual Improvements on IFRS1, IFRS9, IAS41 and IFRS16	1 January 2022
IFRS17 : Insurance contracts	1 January 2023
Amendments to IAS 1, Practice statement 2 and IAS 8	1 January 2023
Amendment to IAS 12 - deferred tax related to assets and liabilities arising from a single transaction	1 January 2023
Amendments to IAS1 Presentation of Financial Statements: Classification of Liabilities as Current and Non- current and Classification of Liabilities as Current or Non-current	1 January 2024

The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods.

4. Critical accounting judgements and key sources of estimation uncertainty

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

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

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

Amounts recoverable on contracts - contingent fee arrangements

A level of judgement is required to determine the likelihood of success of a given matter for contingent fee arrangements. This is determined on a contract-by-contract basis after considering the relevant facts and circumstances surrounding each matter. The valuation exercise is conducted by experienced professionals with detailed understanding of the individual matters. The carrying value of contingent fee arrangements at 30 April 2022 was £7,804,000 (2021: £5,781,000).

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

Business combinations
Management make judgements regarding the date of control of an acquisition in accordance with IFRS10. The judgement considers the individual legal agreements on each transaction and the date at which the Group starts to exercise control over the activities of the subsidiary, usually the date of exchange of contracts. Financial performance of the acquisitions is included in the consolidated group from the deemed date of control.

Alternative performance measures (AMP's)

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

Key sources of estimation uncertainty

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

IFRS 16

The Group makes estimates of the cost of restoring leased assets to their original condition when required to do so under the terms and conditions of the lease. Those estimates are based on the current condition of the leased assets and past experience of restoration costs. As at 30 April 2022 the Group had total provisions of £4,462,000 (2021: £3,999,000) (see note 33).

Amounts recoverable on contract assets- recoverable amounts

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

This percentage represents management's best estimate of future value following a line by line review of the matters by professionals. The estimation process takes into account the progress of the case at the reporting date, the estimated eventual fee payable by the client and the amount of time which will be incurred in bringing the matter to a successful conclusion. The amount recognised in AROC at the year end was £31,777,000 (2021: £28,530,000), a 3% change in the estimated recovery of all matters would impact the profit for the period by approximately £1,245,000 (2021: £982,000).

Accounting for business combinations and valuation of acquired intangibles

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

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

The total carrying value of acquired intangibles (excluding brands) is £25,122,000 (2021: £26,544,000). In order to assess the impact of the key assumptions on the values disclosed in the Financial Statements the Directors have applied the following sensitivities to the acquisitions in the current year:

Key assumption	Rate applied in the financial statements	Sensitivity tested	Annual profit impact £'000	Value of intangible assets £'000
Long term growth rate	2%	0%	5	(6)
WACC and IRR	10.0% - 10.3% (1)	Increase by 5%	61	(59)
Length of customer relationships	3.5 - 7 years	Increase of 5 years	(175)	345

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

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

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

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

Intangible Assets - carrying amount of goodwill - impairment review

The Directors undertake an annual impairment review of goodwill to assess whether the carrying value of £51.8 million is still supported by using a discounted cash flow model to derive the value in use of the cash generating unit ('CGU'). Cash flow forecasts are derived from the most recent financial budgets approved by management for the next three years and extrapolated using a terminal value calculation.

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

Revenue growth over the three years of the forecast period reflects, for FY23, the current run rate of revenue from the Group's existing business and a full year of revenue from acquisitions made during the year ended 30 April 2022, with an element of organic growth in FY24 and FY25. The long term growth rate of 2% (2021: 2%) is based on UK economic growth forecasts for the legal services market.

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

5. Revenue

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

The transaction price allocated to unsatisfied performance obligations of contracts at 30 April 2022 is not required to be disclosed because it is comprised of contracts that are expected to have a duration of one year or less.

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

6. Segmental reporting

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

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

7. Other operating income

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Other income	996	912
Bank interest	274	398
	1,270	1,310

8. Staff costs

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

	Year ended 30 April 2022 Number	Year ended 30 April 2021 Number
Fee earners	1,080	933
Other employees	268	230
	1,348	1,163

Their aggregate remuneration comprised:

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Wages and salaries	67,923	54,927
Social security costs	7,123	5,603
Other pension costs	2,324	1,848
Share based payment charge	835	1,219
Other employment costs	1,159	1,169
Aggregate remuneration of employees	79,364	64,766
Redundancy costs and share based payment charges analysed as non-underlying costs (note 13)	(2,501)	(2,059)
Underlying staff costs in Statement of Comprehensive Income	76,863	62,707

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 2022 £'000	Year ended 30 April 2021 £'000
Salaries, fees, bonuses and benefits in kind	892	729
Gains on exercise of options	913	-
Money purchase pension contributions	14	10
	1,819	739

The number of directors to whom benefits are accruing under money purchase pension schemes is 2 (2021: 2).

The remuneration of the highest paid director was:	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Salaries, fees, bonuses, benefits in kind and share based payment gains on exercise of options	1,140	212

9. Share-based payments

The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of £835,000 (2021: £1,219,000) relating to equity-settled share-based payment transactions in the year. £414,000 (2021: £619,000) is recognised within staff costs and £421,000 (2021: £600,000) in non-underlying costs.

Any charges relating to schemes introduced as one-off schemes as part of the listing on AIM in 2018 are included in non-underlying costs because the directors view these schemes as a reward to employees for their past performance prior to the IPO and on acquisitions. Additionally, in the current year there has been £260,000 of charges in respect of employees leaving a share scheme but remaining with the business. One off accelerated charges required under IFRS 2 due to employees leaving the scheme, as a result of COVID or the reduction in share price following the trading announcement, are also excluded from underlying charges as once an individual has left the scheme this charge is an accounting convention only and is not an alternative form of remuneration for the employee. All charges relating to other recurring LTIP or SAYE schemes are included as a normal operating expense.

The following schemes were in place during the period:

Omnibus Plan

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

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

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

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

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

	Restricted stock awards		Performance share awards
	Number	Weighted average exercise price Pence	Number	Weighted average exercise price Pence

Outstanding at 1 May 2020	575,398	0.2	206,214	0.2
Granted during the period	85,322	0.2	77,410	0.2
Forfeited during the period	(15,278)	0.2	(39,814)	-
Exercised during the period	(59,119)	0.2	-	-
Outstanding at 30 April 2021	586,323	0.2	243,810	0.2
Exercisable at 30 April 2021	69,934	0.2	-	-
Granted during the period	265,300	0.2	100,228	0.2
Dividend equivalents awarded	2,137	0.2	-	-
Forfeited during the period	(37,395)	0.2	-	-
Exercised during the period	(354,954)	0.2	-	-
Outstanding at 30 April 2022	461,411	0.2	344,038	0.2
Exercisable at 30 April 2022	166,652	0.2	-	-

The options outstanding at 30 April 2022 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 1.52 years. The average share price for options exercised during the year was 382.4p.

During the year 265,300 options were granted as restricted stock awards. In addition, 100,228 of performance share awards were granted. The maximum term of any award is three years.

The aggregate of the estimated fair values of the options granted on these dates is £1,574,000. The model used is based on intrinsic values and the inputs are as follows:

Date Granted	Number of Shares	Fair Value	Share Price	Exercise Price	Expected Life	Type of award
5 July 2021	50,000	205,900	412p	0.2p	2.8 years	Restricted stock
13 July 2021	145,000	644,960	445p	0.2p	3.0 years	Restricted stock
1 September 2021	18,292	74,778	409p	0.2p	1.0 years	Restricted stock
21 September 2021	4,722	20,295	430p	0.2p	1.0 years	Restricted stock
15 October 2021	10,000	42,380	424p	0.2p	2.8 years	Restricted stock
1 November 2021	12,428	48,444	390p	0.2p	1.0 years	Restricted stock
1 November 2021	12,429	48,448	390p	0.2p	2.0 years	Restricted stock
1 November 2021	12,429	48,448	390p	0.2p	3.0 years	Restricted stock
19 July 2021	100,228	440,803	440p	0.2p	3.0 years	Performance share

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 two free matching shares for each partnership share purchased. The matching shares are forfeited if the employee leaves within three years of the grant date.

	Partnership Shares Number	Matching Shares Number

Outstanding at 1 May 2020	181,524	363,049
Withdrawn during the period	(16,485)	-
Forfeited during the period	-	(32,970)
Outstanding at 30 April 2021	165,039	330,079
Unrestricted at 30 April 2021	-	-
Withdrawn during the period	(40,694)	-
Forfeited during the period	-	(81,388)
Outstanding at 30 April 2022	124,345	248,691
Unrestricted at 30 April 2022	124,345	248,691

Sharesave Scheme ('SAYE')

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

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

	SAYE options
	Number	Weighted average exercise price Pence

Outstanding at 1 May 2020	1,360,189	251
Forfeited during the period	(104,557)	350
Exercised during the period	(16,678)	164
Outstanding at 30 April 2021	1,238,954	244
Exercisable at 30 April 2021	-	-
Granted during the period	1,430,251	296
Forfeited during the period	(311,248)	342
Exercised during the period	(491,530)	161
Outstanding at 30 April 2022	1,866,427	289
Exercisable at 30 April 2022	209,829	162

The options outstanding at 30 April 2022 had a weighted average exercise price of 289p and a weighted average remaining contractual life of 2.41 years. The average share price for options exercised during the year was 370.4p.

November 2018 scheme

The aggregate of the estimated fair values of the options granted in November 2018 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%

The November 2018 scheme matured on 1 February 2022, the number of shares exercised in respect of this scheme as at 30 April 2022 is 489,037. There are 209,829 shares which remain exercisable.

February 2020 scheme

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

Exercise price	361p
Expected volatility	34.3%
Expected life	3.1 years
Risk-free rate	1.1%
Expected dividend yield	0.7%

March 2022 Scheme

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

Exercise price	296p
Weighted average share price	148p
Expected volatility	53.7%
Expected life	3.1 years
Risk-free rate	5.9%
Expected dividend yield	3.0%

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

10. Retirement benefit schemes

The Group operates a defined contribution pension scheme for employees. The total cost charged to income of £2,324,000 (2021: £1,848,000) represents contributions payable to the scheme by the Group. As at 30 April 2022, contributions of £892,000 (2021: £439,000) due in respect of the reporting period had not been paid over to the schemes.

The defined benefit impact is discussed in note 39. There were no charges against income in the year ended 30 April 2022.

11. Depreciation and amortisation charges

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Depreciation	2,027	1,309
Depreciation on right-of-use assets	4,799	3,684
Amortisation	3,936	2,704
Loss on disposal of property, plant and equipment	16	33
	10,778	7,730

Depreciation of £nil (2021: £43,000) is included in non-underlying operating costs.

12. Other operating charges

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Establishment costs	5,633	4,140
Short term and low value lease costs	187	291
Other overhead expenses	16,257	11,742
	22,077	16,173

13. Non-underlying operating costs

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Redundancy and reorganisation costs	2,080	1,459
Transaction costs	988	1,245
Onerous short life asset leases	472	132
Impairment of right-of-use assets	2,065	635
Loss on disposal of intangible assets and property, plant and equipment	967	284
Share based payment charges	421	600
Contingent consideration treated as remuneration	6,267	5,933
	13,260	10,288

Non-underlying costs cash movement

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Non-underlying operating costs	13,260	10,288
Adjustments for:
Contingent consideration shown separately	(6,267)	(5,933)
Non cash movements:
Share based payment charge	(421)	(600)
Impairment of right of use assets	(2,065)	-
Loss on disposal of property, plant and equipment	(967)	(284)
Onerous leases	(97)	(302)
Accrual	248	1,099
	3,691	4,268

Non-underlying costs relate to redundancy costs to streamline the support function of the Group following acquisitions, transaction costs in respect of acquisitions, onerous lease costs in respect of acquisitions, disposals of acquired assets and share based payment charges relating to one off share schemes offered to employees as part of the IPO and on acquisitions. Any one off accelerated charges required under IFRS 2 due to employees leaving the scheme, as a result of COVID or the reduction in share price following the trading announcement in March 2022, are also excluded from underlying charges as once an individual has left the scheme this charge is an accounting requirement only and is not an alternative form of remuneration for the employee. FY21 also included some costs relating to reorganisation actions taken in response to the impact of COVID-19.

Contingent consideration is included in non-underlying costs as it represents payments which are contingent on the continued employment of those individuals with the Group, agreed under the terms of the sale and purchase agreements with vendors of certain businesses acquired. The payments extend over periods of one to three years and are designed to preserve the value of goodwill and customer relationships acquired in the business combinations. IFRS requires such arrangements to be treated as remuneration and charged to the 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 2022 £'000	Year ended 30 April 2021 £'000
Interest on borrowings	952	704
Interest on leases	1,412	1,177
	2,364	1,881

15. Finance income

Year ended
30 April 2022

£'000

Year ended
30 April 2021

£'000

Lease interest receivable

16. Auditor's remuneration

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Fees payable to the parent company's auditor and their associates for the audit of the parent company's annual accounts	36	29
Fees payable to the auditor and their associates for other services to the Group:
- The audit of the Company's subsidiaries	126	113
Total audit fees	162	142

- Audit-related assurance services	19	16
Total non-audit fees	19	16

17. Taxation

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Corporation tax:
Current year	1,574	2,852
Adjustments in respect of prior years	(96)	(247)
	1,478	2,605
Deferred tax:
Origination and reversal of temporary differences	362	(498)
Effect of change in tax rates	1,747	-
	2,109	(498)

Tax expense for the year	3,587	2,107

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

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000

Profit before tax	1,056	5,509
Tax at the UK corporation tax rate of 19% (2021: 19%)	201	1,047
Expenses that are not deductible in determining taxable profit	2,296	1,748
Accelerated capital allowances	(561)	(441)
Effect of change in tax rates	1,747	-
Adjustment in respect of prior years	(96)	(247)
Tax expense for the year	3,587	2,107
Consisting of:
Underlying tax charge	1,840	2,107
Non-underlying tax charge	1,747	-

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

	Year ended 30 April 2022			Year ended 30 April 2021
	Total £'000	Underlying £'000	Non-Underlying £'000	Total £'000	Underlying £'000	Non-Underlying £'000

Profit before tax	1,056	18,131	(17,075)	5,509	18,419	(12,910)
Tax expense	1,840	3,709	(1,869)	2,107	3,379	(1,272)
Effective rate of tax	174%	20%	11%	38%	18%	10%

Change in tax rate	1,747	136	1,611	-	-	-
Effective rate of tax (post change in tax rate)	340%	21%	2%	38%	18%	10%

On 24 May 2021, the increase in corporation tax from 19% to 25% from 1 April 2023 was substantively enacted for tax accounting purposes. At the reporting date, the effect of the new rate on the Group's tax charge has been applied to the deferred tax assets and liabilities where the differences will not reverse until after 1 April 2023. The impact of changing the tax rate from 19% to 25% on the associated assets and liabilities is outlined in the below table:

	Year ended 30 April 2022 £'000
Tax Charge at 19%	(1,840)
Tax Charge at 25%	(3,587)
Impact of change in tax rate	(1,747)

The impact of the change in tax rate has been classified as a non-underlying cost.

18. Earnings per share

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

	Year ended 30 April 2022 Number	Year ended 30 April 2021 Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	83,717,952	82,189,113
Effect of dilutive potential ordinary shares:
Share options	409,640	1,021,132
Weighted average number of ordinary shares for the purposes of diluted earnings per share	84,127,592	83,210,245
	£'000	£'000
(Loss)/profit after tax	(2,531)	3,402
Earnings per share	Pence	Pence
Basic earnings per share	(3.02)	4.14
Diluted earnings per share	(3.02)	4.09

As the Group has incurred a loss after tax for the year, the options are non-dilutive and basic and diluted earnings per share are the same.

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

19. Dividends

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 30 April 2022 of 1.46p per share (2021: 0p per share)	1,233	-
	1,233	-

For the year ended 30 April 2022 the Board have proposed a final dividend of 2.04p per share (2021: 0p per share). The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The proposed dividend is payable to all shareholders on the register of members on 2 September 2022. The payment of this dividend will not have any tax consequences for the Group.

20. Intangible assets and goodwill

	Goodwill £'000	Brand £'000	Customer relationships and restrictive covenants £'000	Purchased computer software £'000	Total £'000
Cost
As at 1 May 2020	39,678	5,401	26,475	372	71,926
Acquisitions of subsidiaries	7,435	-	3,702	-	11,137
Measurement period adjustments in respect of 2020 acquisitions	544	-	118	9	671
Additions	-	-	1,097	196	1,293
As at 30 April 2021	47,657	5,401	31,392	577	85,027
Acquisitions of subsidiaries	5,771	-	2,386	527	8,684
Adjustments	(1,666)	-	(47)	-	(1,713)
Additions	-	-	-	62	62
Disposals	-	-	-	(449)	(449)
Reclassification of assets held for sale	-	-	-	(114)	(114)
As at 30 April 2022	51,762	5,401	33,731	603	91,497

Amortisation and impairment
As at 1 May 2020	-	270	2,280	241	2,791
Adjustments	-	-	-	9	9
Amortisation charge	-	54	2,568	82	2,704
As at 30 April 2021	-	324	4,848	332	5,504
Amortisation charge	-	54	3,761	121	3,936
Eliminated on disposal	-	-	-	(112)	(112)
Reclassification of assets held for sale	-	-	-	(3)	(3)
As at 30 April 2022	-	378	8,609	338	9,325

Carrying amount
At 30 April 2022	51,762	5,023	25,122	265	82,172
At 30 April 2021	47,657	5,077	26,544	245	79,523
At 30 April 2020	39,678	5,131	24,195	131	69,135

As noted in the prior year accounts, the initial accounting for the business combination which occurred at the end of the prior year was not complete. During the current year further information has come to light about estimated provisions and debt items which existed at the acquisition date.

On settling debt items on completion, it became apparent that we had accounted for some items as both an acquired liability and consideration payable to the vendors. In addition, an estimated provision was subsequently identified as being overstated once the actual costs were incurred. Both items resulted in goodwill being overstated by £1.6m and the error has now been corrected. The error is not considered to be qualitatively material, as it has no impact on reported profits or cash flows and is c 2% of intangible assets. It is not, therefore, considered to be a prior period adjustment.

The carrying amount of goodwill of £51,762,000 (2021: £47,657,000) has been allocated to the single cash generating unit (CGU) present in the business, which is the provision of legal and professional services.

The recoverable amount of the Group's goodwill has been determined by a value in use calculation using a discounted cash flow model. The Group has prepared cash flow forecasts derived from the most recent financial budgets approved by management for the next three years after which cash flows are extrapolated using a terminal value calculation based on an estimated growth rate of 2% (2021: 2%). This rate does not exceed the expected average long-term growth rate for the UK legal services market.

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

The rate used to discount the forecast cash flows is based on a pre tax estimated weighted average cost of capital of 12.4% (2021: 15.1%).

Revenue growth over the three years of the forecast period reflects, for FY23, the current run rate of revenue from the Group's existing business and a full year of revenue from acquisitions made during the year ended 30 April 2022, and an element of organic growth in FY24 and FY25 through continued recruitment and increases in chargeable hours and recovered rates. The long-term growth rate is based on UK economic growth forecasts for the legal services market.

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

21. Acquisitions

Acquisitions summary

During the year the Group has completed three acquisitions (Langleys Solicitors LLP and Home Property Lawyers Limited being in the same acquired group) and also completed the acquisition of Keebles LLP (which was accounted for in the year ended 30 April 2021). The table below summarises the consideration paid and the net cash flow arising on all acquisitions in the period:

	Total £'000
Total identifiable assets less liabilities acquired	4,652
Goodwill	5,771
Total consideration	10,423

Satisfied by:
Cash	5,192
Equity instruments (395,060 ordinary shares of Knights Group Holdings plc)	1,600
Deferred consideration arrangement	3,631
Total consideration transferred	10,423

Net cash outflows arising on acquisition:
Cash consideration net of cash acquired	4,071
Net investing cash outflow arising on acquisition	4,071

Repayment of debt acquired	2,454
Net financing cash outflow arising on acquisition	2,454

Details for the individual acquisitions are included on the following pages.

The acquisition date in each case is the date of exchange of the sale and purchase agreement, being the date on which control passes and the Group is exposed to variable returns.

The Group exchanged contracts to acquire Keebles on 30 April 2021, by purchasing the controlling membership interests of the entity. Economic benefit was obtained from 30 April 2021. This acquisition completed on 11 June 2021. As a result the cashflow timings for payment of initial consideration and repayment of debt in relation to the Keebles acquisition occurred in the current year.

The table below provides a reconciliation to the cashflow statement for cashflows relating to acquisitions

£'000	Acquisition in the year ended 30 April 2022	Keebles cashflows on completion	Total acquisitions cashflows in the year ended 30 April 2022

Net cash outflows arising on acquisition:
Cash consideration net of cash acquired	4,071	2,730	6,801
Net investing cash outflow arising on acquisition	4,071	2,730	6,801

Repayment of debt acquired on acquisition	2,454	-	2,454
Repayment of debt acquired post acquisition	35	414	449
Net financing cash outflow arising on acquisition	2,489	414	2,903

Archers Law Limited Liability Partnership ('Archers')

On 1 November 2021, the Group exchanged contracts to acquire Archers by purchasing the controlling membership interests of the entity. This acquisition completed on 29 November 2021. Archers is a law firm which will strengthen Knights' presence in the North East region.

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	-	671	671
Property, plant and equipment	108	-	108
Right-of-use assets	-	1,065	1,065
Contract assets	588	-	588
Trade and other receivables (net of £228,000 loss allowance provision)	377	(3)	374
Cash and cash equivalents	912	-	912
Liabilities
Trade and other payables	(420)	(20)	(440)
Lease liabilities	-	(1,065)	(1,065)
Borrowings	(247)	(2)	(249)
Provisions	-	(250)	(250)
Deferred tax	-	(127)	(127)
Total identifiable assets and liabilities	1,318	269	1,587
Goodwill			2,349
Total consideration			3,936


Satisfied by:
Cash			2,336
Equity instruments (395,060 Ordinary Shares of Knights Group Holdings plc)			1,600
Total consideration transferred			3,936

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			1,424
Repayment of debt			218
Net cash outflow arising on acquisition			1,642

The goodwill of £2,349,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume weighted average share price for the five 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 Consolidated Statement of Comprehensive Income on a straight-line basis over the three year post acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £1,500,000 and is payable in equal instalments on the first, second and third anniversary of completion.

Archers contributed £2,180,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 1 November 2021 to 30 April 2022. 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 29 November 2021.

If the acquisition occurred at the beginning of the year Archers would have contributed £4,272,000 of revenue to the Group. Profit is not separately identifiable due to the full integration on hive up.

Langleys Solicitors LLP ('Langleys')

On 31 January 2022, the Group exchanged contracts to acquire Langleys by purchasing the controlling membership interests of the entity. This acquisition completed on 25 March 2022. Langleys is a law firm which will strengthen Knights' presence in York and provide access into the Lincoln 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	1,104	847	1,951
Property, plant and equipment	741	-	741
Right-of-use assets	-	4,159	4,159
Contract assets	2,651	-	2,651
Trade and other receivables (net of £199,000 loss allowance provision)	1,818	-	1,818
Cash and cash equivalents	37	-	37
Liabilities
Trade and other payables	(2,324)	432	(1,892)
Lease liabilities	-	(3,630)	(3,630)
Borrowings	(2,415)	(575)	(2,990)
Provisions	-	(409)	(409)
Deferred tax	-	(293)	(293)
Total identifiable assets and liabilities	1,612	531	2,143
Goodwill			3,344
Total consideration			5,487


Satisfied by:
Cash			1,856
Deferred consideration arrangement			3,631
Total consideration transferred			5,487

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			1,819
Repayment of debt			2,236
Net cash outflow arising on acquisition			4,055

The goodwill of £3,344,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

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 Consolidated Statement of Comprehensive Income on a straight-line basis over the three year post acquisition period. The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £2,619,000 and is payable in equal instalments on the first, second and third anniversary of completion.

There are also deferred consideration payments totalling £3,631,000 outstanding. This is payable in installments on the first, second and third anniversaries of completion.

Langleys contributed £2,546,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 1 February 2022 to 30 April 2022. 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 25 March 2022.

If the acquisition occurred at the beginning of the year Langleys would have contributed £9,444,000 of revenue to the Group. Profit is not separately identifiable due to the full integration on hive up.

Home Property Lawyers Limited ('HPL')

On 31 January 2022, the Group exchanged contracts to acquire HPL, through the agreement to purchase the shares of the entity. This acquisition completed on 25 March 2022. HPL was purchased as part of the Langleys acquisition, this entity provides volume conveyancing services.

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	114	177	291
Contract assets	492	-	492
Trade and other receivables (net of £12,000 loss allowance provision)	446	(94)	352
Cash and cash equivalents	172	-	172
Liabilities
Trade and other payables	(363)	68	(295)
Provisions	-	(19)	(19)
Corporation tax	(100)	63	(37)
Deferred tax	-	(34)	(34)
Total identifiable assets and liabilities	761	161	922
Goodwill			78
Total consideration			1,000


Satisfied by:
Cash			1,000
Total consideration transferred			1,000

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			828
Repayment of debt			-
Net cash outflow arising on acquisition			828

The goodwill of £78,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes.

HPL contributed £1,111,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 1 February 2022 to 30 April 2022. HPL contributed £57,000 profit to the Group in the period 31 January 2022 to 30 April 2022.

If the acquisition occurred at the beginning of the year HPL would have contributed £4,489,000 of revenue to the Group. Profit is not separately identifiable due to a lack of management information available.

22. Property, plant and equipment

	Expenditure on short leasehold property £'000	Office equipment £'000	Furniture and fittings £'000	Right-of-use assets £'000	Total £'000
Cost
As at 1 May 2020	3,501	3,430	995	25,744	33,670
Acquisitions of subsidiaries	566	493	183	4,615	5,857
Additions	3,350	1,005	1	16,385	20,741
Disposals	(160)	(20)	(149)	(154)	(483)
Impairment	-	-	-	(739)	(739)
Alignment	618	(452)	11	-	177
As at 30 April 2021	7,875	4,456	1,041	45,851	59,223
Acquisitions of subsidiaries	543	224	82	5,224	6,073
Additions	1,292	1,176	58	3,144	5,670
Disposals	(1,358)	(216)	(113)	(1,482)	(3,169)
Alignment	5	53	4	-	62
As at 30 April 2022	8,357	5,693	1,072	52,737	67,859

Depreciation and impairment
As at 1 May 2020	656	1,440	268	1,995	4,359
Depreciation charge	446	761	102	3,727	5,036
Eliminated on disposal	(25)	(3)	(24)	(84)	(136)
Impairment	-	-	-	(193)	(193)
Alignment	616	(416)	13	-	213
As at 30 April 2021	1,693	1,782	359	5,445	9,279
Depreciation charge	787	1,132	108	4,799	6,826
Impairment	-	-	-	2,065	2,065
Eliminated on disposal	(860)	(155)	(24)	(235)	(1,274)
Alignment	(1)	60	1	-	60
As at 30 April 2022	1,619	2,819	444	12,074	16,956

Carrying amount
At 30 April 2022	6,738	2,874	628	40,663	50,903
At 30 April 2021	6,182	2,674	682	40,406	49,944
At 30 April 2020	2,845	1,990	727	23,749	29,311

Depreciation of £nil (2021: £43,000) and net impairment of £2,065,000 (2021: £546,000) due to leases being classified as onerous is included in non-underlying operating costs.

See note 28 for further details of right of use assets.

23. Contract assets and liabilities

	Contract assets £'000	Trade receivables £'000	Contract liabilities £'000

As at 30 April 2022	31,777	26,643	(237)
As at 30 April 2021	28,530	25,951	(216)
As at 1 May 2020	21,507	22,450	(177)

The movement during the year is not separately identifiable.

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

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

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

If the liability of a matter has been admitted and performance obligations satisfied, such that it is no longer contingent, these matters are valued based on the expected recoverable amount. Due to the complex nature of these matters, they can take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter not billed until a later financial period. The amount of contingent fee work in progress at 30 April 2022 was £7,804,445 (2021: £5,781,000).

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

During the year, contract assets of £3,731,000 (2021: £4,196,000) were acquired in business combinations.

An impairment loss of £41,000 has been recognised in relation to contract assets in the year (2021: £30,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The contract asset loss is estimated at 0.2% (2021: 0.2%) of the balance.

Trade receivables

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

Bills are payable within thirty days of date of issue 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 as the services are performed.

24. Trade and other receivables

	30 April 2022 £'000	30 April 2021 £'000
Trade receivables	27,908	26,953
Impairment provision - trade receivables	(1,265)	(1,002)
Prepayments and other receivables	5,666	5,570
	32,309	31,521

Trade receivables

The average credit period taken on sales is 31 days as at 30 April 2022 (2021: 36 days). No interest is charged on trade receivables. The Group uses appropriate methods to recover all balances once overdue. Once the expectation of recovery is deemed remote a debt may be written off.

The Group measures the loss allowance for trade receivables at an amount equal to 12 months 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 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 2022		2022					2021
	Gross carrying amount	Expected credit losses	Expected credit loss rate		Gross carrying amount		Expected credit losses	Expected credit loss rate
	£'000	£'000	%		£'000		£'000	%
Not past due	14,553	52		0.36		12,925	27	0.21
31-60 days past due	3,077	14		0.45		3,958	9	0.22
61-90 days past due	1,231	4		0.34		1,362	3	0.24
91-120 days past due	496	11		2.29		827	10	1.17
>120 days past due	2,861	854		29.88		2,696	625	23.20
12 month ECL £'000	22,218	935		4.21		21,768	674	3.1

In addition to the above on trade receivables a further £330,000 (2021: £328,000) impairment loss has been recognised against disbursement balances. This is based on 100% impairment against all disbursements with no activity on the matter for over 12 months and 0.2% against the remainder of the balance based upon the expected credit loss of this type of asset.

The movement in the allowance for impairment in respect of trade receivables and contract assets during the year was as follows:


	2022	2021
	£'000	£'000
Balance at 1 May	1,002	553
Increase in loss allowance recognised in profit of loss during the year	1,200	1,165
Receivables written off during the year as uncollectable	(937)	(716)
Balance at 30 April	1,265	1,002

25. Share capital

	Ordinary shares
	Number	£'000

As at 1 May 2020	82,076,332	164
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options	75,798	-
Ordinary shares of 0.2p each issued in respect of exercised share options equivalent to dividend entitlement	418	-
Ordinary shares of 0.2p each issued as consideration in the purchase of subsidiaries	454,244	1
At 30 April 2021 (allotted, called up and fully paid)	82,606,792	165
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options	844,347	2
Ordinary shares of 0.2p each issued in respect of exercised share options equivalent to dividend entitlement	2,137	-
Ordinary shares of 0.2p each issued as consideration in the purchase of subsidiaries	1,187,050	2
At 30 April 2022 (allotted, called up and fully paid)	84,640,326	169

Included in the consideration is the purchase of subsidiaries is 791,990 shares in respect of the purchase of Keebles LLP. The remaining amount is for the purchase of Archers Law LLP (see note 21).

26. Finance lease receivable

The group sub-leases a floor in an office building that was an acquired lease in previous periods. The group has classified the sub-lease as a finance lease because the sub-lease is for the whole of the remaining term of the head lease.

Finance lease receivable	30 April 2022 £'000	30 April 2021 £'000
> 1 year	1,091	-
< 1 year	76	-
	1,167	-

The following table sets out a maturity analysis of lease receivables, showing the undiscounted lease payments to be received after the reporting date.

	30 April 2022 £'000	30 April 2021 £'000

Less than one year	137	-
One to five years	986	-
More than five years	164	-
Unearned finance income	(120)
	1,167	-

Total lease payments received for the year ended 30 April 2022 was £30,000 (2021:£nil)

27. Disposal of subsidiary - held for sale

On 25 March 2022 the Group completed the acquisition of HPL, an entity that provides volume conveyancing services. At the time of acquisition, it was noted that the strategic options for this subsidiary were under review.

Following a period of internal review, in April 2022, management committed to a plan to sell HPL. Accordingly, all assets and liabilities are presented as a disposal of subsidary held for sale. Efforts to sell HPL have started and on 5 July 2022, the Group exchanged contracts to dispose of HPL, subject to regulatory approval. Completion is expected later in July 2022.

No fair value gains or losses have been recognised on reclassification as fair values of assets and liabilities are deemed to be equal to the carrying value at the period end.

At 30 April 2022, HPL was stated at fair value less cost to sell and comprised the following assets and liabilities.

	30 April 2022 £'000

Intangible assets	111
Contract assets	526
Trade and other receivables	428
Cash and cash equivalents	130
Assets held for sale	1,195

Trade and other payables	430
Liabilities held for sale	430

Assets held for sale do not include £69,765 due from other Group entities which have been eliminated on consolidation.

28. Lease liabilities

Incremental borrowing rates applied to individual leases ranged between 1.68% and 6.30%.

The table below sets out the Consolidated Statement of Financial Position as at 30 April 2022 and 30 April 2021:

	30 April 2022 £'000	30 April 2021 £'000
Right-of-use assets
Property	39,691	39,420
Equipment	972	986
	40,663	40,406
Lease liability
> 1 year	41,183	39,020
< 1 year	5,345	3,620
	46,528	42,640

Right of use assets include additions of £7,452,000 (2021: £20,768,000) for property and £916,000 (2021: £232,000) for equipment. There is also depreciation of £4,397,000 (2021: £3,398,000) for property and £402,000 (2021: £329,000) for equipment.

The table below shows lease liabilities maturity analysis - contractual undiscounted cash flows at 30 April 2022:

	30 April 2022			30 April 2021
	Property £'000	Equipment £'000	Total £'000	Property £'000	Equipment £'000	Total £'000

Less than one year	6,213	496	6,709	4,594	349	4,943
One to five years	21,313	506	21,819	18,313	709	19,022
More than five years	22,701	1	22,702	24,834	-	24,834
	50,227	1,003	51,230	47,741	1,058	48,799
Less unaccrued future interest	(4,663)	(39)	(4,702)	(6,025)	(134)	(6,159)
	45,564	964	46,528	41,716	924	42,640

The table below shows amounts recognised in the Consolidated Statement of Comprehensive Income for short term and low value leases as at 30 April 2022:

	30 April 2022			30 April 2021
	Property £'000	Equipment £'000	Total £'000	Property £'000	Equipment £'000	Total £'000
Expenses relating to short - term leases	146	41	187	244	47	291

For right-of-use asset depreciation and lease interest charges on leases see note 11 and 14. Total lease payments, including for short term and low value leases, for the year ended 30 April 2022 were £5,488,000 (2021: £4,340,000).

29. Borrowings

	30 April 2022 £'000	30 April 2021 £'000
Secured borrowings at amortised cost:
Bank loans	32,400	24,064
Other loans	753	-
Total borrowings	33,153	24,064
Amount due for settlement within 12 months	355	414
Amount due for settlement after 12 months	32,798	23,650

The above excludes lease liabilities.

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

The Group has a credit facility of £60,000,000 in total (2021: £40,000,000). The facility remains available until 29 October 2024.

The facility is a revolving credit facility and has the ability to roll on a monthly or quarterly basis and is due for final repayment in October 2024. The facility is secured by a fixed and floating charge over the Group's assets. The facility carries an interest margin above SONIA of between 1.65% and 2.40% depending on the leverage level. A commitment fee of one third of the applicable margin is payable on the undrawn amounts.

30. Deferred consideration

	30 April 2022 £'000	30 April 2021 £'000
Non-current liabilities
Deferred consideration	2,421	-

Current liabilities
Deferred consideration	1,210	1,095

Deferred consideration as at 30 April 2022 relates to the acquisition of Langleys Solicitors LLP and is not contingent.

In addition, the Group has accrued contingent consideration relating to acquisitions within trade and other payables. This is contingent based upon continued employment and is being accrued on a monthly basis in the Consolidated Statement of Comprehensive Income in accordance with the terms of the agreements. It is expected that employment will continue for the terms of the agreements and, therefore, the contingent consideration will be payable in full.

31. 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	IFRS 16 £'000	Total £'000
As at 1 May 2020	396	5,547	(207)	(307)	5,429
Acquisitions of subsidiaries	-	704	-	-	704
Charge/(credit) for the year	148	(411)	(242)	27	(478)
As at 30 April 2021	544	5,840	(449)	(280)	5,655
Acquisitions of subsidiaries	-	454	-	-	454
Adjustments	125	(11)			114
Effect of change in tax rate	244	1,611	(37)	(71)	1,747
Charge/(credit) for the year	479	(112)	(33)	28	362
As at 30 April 2022	1,392	7,782	(519)	(323)	8,332

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 2022 £'000	30 April 2021 £'000
Deferred tax assets	(842)	(729)
Deferred tax liabilities	9,174	6,384
	8,332	5,655

32. Trade and other payables

	30 April 2022 £'000	30 April 2021 £'000
Bank overdraft	-	1,852
Trade payables	4,664	3,715
Other taxation and social security	7,370	6,564
Other payables	1,978	2,293
Accrued consideration	-	8,310
Accruals	7,350	9,569
	21,362	32,303

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 (2021: 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.

Accrued consideration at 30 April 2021 relates the acquisition of Keebles LLP where contracts were exchanged as at 30 April 2021 but did not formally complete until 11 June 2021.

The bank overdraft is secured by a debenture over all of the assets of Keebles LLP. The debenture was released on 14 June 2021 and the overdraft was fully repaid.

33. Provisions

	Dilapidation provision £'000	Onerous contract provision £'000	Professional indemnity provision £'000	Total £'000
As at 1 May 2020	1,548	-	598	2,146
Acquisitions of subsidiaries	768	-	296	1,064
Additional provision in the year	1,828	133	195	2,156
Utilisation of provision	(145)	(127)	(220)	(492)
As at 30 April 2021	3,999	6	869	4,874
Acquisitions of subsidiaries	507	-	171	678
Additional provision in the year	289	448	550	1,287
Utilisation of provision	(333)	(28)	(375)	(736)
As at 30 April 2022	4,462	426	1,215	6,103

Consisting of:
Non-current liabilities	3,998	333	-	4,331
Current liabilities	464	93	1,215	1,772

The dilapidations provision relates to the potential rectification of leasehold sites upon expiration of the leases. This has been based on internal estimates of the schedule of works included in the lease.

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

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

34. Financial instruments

Categories of financial instruments

	30 April 2022 £'000	30 April 2021 £'000
Financial assets
Amortised cost
Contract assets	31,777	28,530
Trade and other receivables (excluding prepayments)	26,919	26,421
Lease receivable	1,167	-
Cash and cash equivalents	4,097	4,783
Financial liabilities
Amortised cost
Borrowings	33,153	24,064
Bank overdraft	-	1,852
Deferred consideration	3,631	1,095
Trade and other payables	13,992	23,887
Leases	46,528	42,640

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 2022 would decrease/increase by £166,000 (2021: decrease/increase by £120,000). This is attributable to the Group's exposure to interest rates on its variable rate borrowings.

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

Credit risk management

Note 24 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 meeting 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, monthly and daily 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. In addition, during the year the Group extended its facility to £60,000,000.

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

Contractual maturities of financial liabilities

30 April 2022	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	355	-	32,798	33,153
Deferred consideration	1,210	1,210	1,211	3,631
Trade and other payables	13,992	-	-	13,992

30 April 2021	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	414	-	23,650	24,064
Deferred consideration	1,095	-	-	1,095
Bank overdraft	1,852	-	-	1,852
Trade and other payables	23,887	-	-	23,887

The Group has met its covenant tests during the year.

For lease maturity see note 28.

Capital management

The capital structure of the Group consists of borrowings (as disclosed in note 29) and equity of the Group (comprising issued capital, reserves, and retained earnings as disclosed in the Statement of Changes in Equity).

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

Gearing ratio

The gearing ratio at the year end is as follows:

	30 April 2022 £'000	30 April 2021 £'000
Borrowings (note 29)	33,153	24,064
Cash and cash equivalents	(4,097)	(4,783)
Asset held for sale (note 27)	(130)	-
Bank overdraft	-	1,852
Net debt	28,926	21,133
Equity	85,659	82,689
	%	%
Net debt to equity ratio	34	26

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.

35. Reconciliation of profit before taxation to net cash generated from operations

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Profit before taxation	1,056	5,509
Adjustments for:
Amortisation	3,936	2,704
Depreciation - property, plant and equipment	2,027	1,309
Depreciation - right-of-use assets (net of £nil (2021: £43,000) included in non-underlying costs)	4,799	3,684
Loss on disposal (net of £967,000 (2021: £284,000) included in non-underlying costs)	16	33
Contingent consideration expense	6,267	5,933
Non-underlying operating costs	6,572	3,755
Share based payments	835	1,387
Interest income	(296)	(398)
Interest expense	2,364	1,881
Operating cash flows before movements in working capital	27,576	25,797
Decrease/(increase) in contract assets	628	(2,827)
Decrease/(increase) in trade and other receivables	570	(135)
Increase/(decrease) in provisions	469	(263)
Increase in contract liabilities	21	39
Decrease in trade and other payables	(4,204)	(2,233)
Cash generated from operations	25,060	20,378

36. 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	Leases £'000
As at 1 May 2020	28,650	23,844
New borrowings and leases	19,000	16,763
Acquired	2,801	4,657
Interest charged (net of £22,000 included in non-underlying)	704	1,177
Interest paid	(573)	(1,199)
Non-cash movement	(131)	22
Disposals	-	(60)
Repayments (net of £308,000 included in non-underlying)	(26,387)	(2,564)
As at 1 May 2021	24,064	42,640
New borrowings/leases	47,350	3,083
Acquired borrowings/leases	3,239	4,695
Interest charged (net of £25,000 included in non-underlying)	952	1,412
Interest paid	(648)	(1,412)
Non-cash movement	(301)	-
Repayments (net of £296,000 included in non-underlying)	(41,503)	(3,890)
As at 30 April 2022	33,153	46,528

37. 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 UK-adopted International Financial Reporting Standards ('IFRS') 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 2022 £'000	Year ended 30 April 2021 £'000
Operating profit	3,398	7,390
Depreciation and amortisation charges (note 11)	10,778	7,730
Non-underlying costs (note 13)	13,260	10,288
Underlying EBITDA	27,436	25,408

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 2022 £'000	Year ended 30 April 2021 £'000
Profit before tax	1,056	5,509
Amortisation (adjusted for amortisation on computer software)	3,815	2,622
Non-underlying costs (note 13)	13,260	10,288
Underlying profit before tax	18,131	18,419

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

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

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
(Loss)/profit after tax	(2,531)	3,402
Effect of change in deferred tax rate	1,747	-
Amortisation (adjusted for amortisation on computer software)	3,815	2,622
Non-underlying operating costs (note 13)	13,260	10,288
Tax in respect of the above	(1,869)	(1,272)
Underlying profit after tax	14,422	15,040
Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	17.23	18.30
Diluted underlying earnings per share	17.14	18.07

Tax has been calculated at the corporation tax rate of 19% (2021:19%) and deferred tax rate of 25% (2021:19%)

d) Free cash flow and cash conversion %

Free cash flow measures the Group's underlying cash generation. Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities after adjusting for tax paid and the impact of IFRS 16. Cash conversion % is calculated by dividing free cash flow by underlying PAT, which is reconciled to profit after tax above.

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Cash generated from operations (note 35)	25,060	20,378
Tax paid	(4,095)	(2,125)
Total cash outflow for IFRS16 leases	(5,302)	(3,741)
Free cashflow	15,663	14,512
Underlying profit after tax	14,422	15,040
Cash conversion (%)	109%	96%

(e) Net debt

Net debt is presented as an alternative performance measure to show the net position of the Group after taking account of bank borrowings and cash at bank and in hand.

	30 April 2022 £'000	30 April 2021 £'000
Borrowings (note 29)	33,153	24,064
Cash and cash equivalents	(4,097)	(4,783)
Asset held for sale (note 27)	(130)	-
Bank overdraft	-	1,852
Net debt	28,926	21,133

38. Capital commitments

As at 30 April 2022 there is a capital commitment of £72,000 (2021: £71,000) in relation to an ongoing office refurbishment.

39. Defined benefit pension schemes

The Stonehams Pension Scheme

The Group operates a defined benefit pension arrangement, the Stonehams Pension Scheme (the "Scheme"). The Scheme provides benefits based on salary and length of service on retirement, leaving service, or death. The following disclosures exclude any allowance for any other pension schemes operated by the Group.

The Scheme was acquired as part of the acquisition of ASB Law where contracts were exchanged on 5 March 2020. Therefore, the disclosures below represent the period of ownership from 5 March 2020 to 30 April 2022. The scheme is closed and provides benefits for 43 legacy employees (now pensioners and deferred members).

The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least once every three years to determine whether the Statutory Funding Objective is met. As part of the process the Group must agree with the Trustees of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding Objective.

The most recent comprehensive actuarial valuation of the Scheme was carried out as at 31 December 2018. The results of that valuation were updated to 30 April 2022 allowing for cashflows in and out of the Scheme and changes to assumptions over the period. An actuarial valuation as at 31 December 2021 is currently underway, but has not been finalised as at the date of these accounts.

From January 2020 the Employer started to make annual contributions of £35,000 per annum towards administration expenses. No change in this is expected for the next financial year. Administration expenses from 1 November 2017 to 31 December 2019 have been met directly from the assets of the Scheme. The Group will separately meet the cost of the PPF levy.

The Scheme typically exposes the Group to actuarial risks such as: investment risk, interest rate risk and longevity risk.

Investment risk

The present value of the defined benefit plan liability is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan assets is below this rate, it will create a plan deficit.

Currently assets are invested in a variety of funds, which will reduce volatility. The investment approach is reviewed every three years as part of the valuation process.

Interest risk

There is some hedging in the asset portfolio, but at a low level.

A decrease in the bond interest rate will increase the plan liability but this will be partially offset by an increase in the return on the plan's debt investments.

Longevity risk

The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plan's liability.

The average duration of the Scheme's obligations is 16 years.

Actuarial assumptions

Principal actuarial assumptions

	30 April 2022 %	30 April 2021 %
Discount rate	3.05	1.83
Retail Prices Index ("RPI") Inflation	4.00	3.53
Consumer Price Index ("CPI") Inflation	3.30	2.83
Pension increase (LPI 5%) Pension increase (LPI 2.5%)	3.72 2.34	3.36 2.24
Post retirement mortality	90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of 7.5) using a long-term improvement rate of 1.0% pa	90%/100% (m/f) S2PA CMI_2020 projections (with standard smoothing parameter of 7.5) using a long-term improvement rate of 1.0% pa
Commutation	80% of members are assumed to take the maximum tax free cash possible using current commutation factors	80% of members are assumed to take the maximum tax free cash possible using current commutation factors

Life expectancy at age 65 of male aged 45	22.6	22.6
Life expectancy at age 65 of male aged 65	24.2	24.1
Life expectancy at age 65 of female aged 45	23.6	23.5
Life expectancy at age 65 of female aged 65	25.3	25.3

The average duration of the Scheme's obligations is 16 years.

The current asset split is as follows
	Asset allocation at 30 April 2022	Asset allocation at 30 April 2021
Equities and growth assets	70%	78%
Bonds, LDI and cash	30%	22%

	Value as at 30 April 2022 £'000	Value as at 30 April 2021 £'000
Fair value of assets	3,047	3,255
Present value of funded obligations	(2,355)	(2,791)
Surplus in scheme	692	464
Deferred tax	-	-
Net defined benefit surplus after deferred tax	692	464

The fair value of the assets can be analysed as follows:
	Value as at 30 April 2022 £'000	Value as at 30 April 2021 £'000
Low risk investment funds	625	720
Credit Investment funds	1,513	1,673
Matching funds	-	691
Cash	909	171
Fair value of assets	3,047	3,255

	30 April 2022 £'000	30 April 2021 £'000
Administration costs	28	29
Net interest on liabilities	(8)	(10)
Total charge to the Statement of Comprehensive Income	20	19

Remeasurements over the period since acquisition
	30 April 2022 £'000	30 April 2021 £'000
Loss on assets in excess of interest	(115)	(17)
Gain/ (loss) on scheme obligation from assumptions and experience	361	(157)
Gain on scheme obligations due to scheme experience	2	5
Total remeasurements	248	(169)

The change in value of assets
	30 April 2022 £'000	30 April 2021 £'000
Fair value of assets brought forward	3,255	3,384
Interest on assets	58	50
Benefits paid	(123)	(133)
Administration costs	(28)	(29)
Loss on assets in excess of interest	(115)	(17)
Fair value of assets carried forward	3,047	3,255

Actual return on assets	(57)	33

Change in value of liabilities
	30 April 2022 £'000	30 April 2021 £'000
Value of liabilities brought forward	2,791	2,732
Interest cost	50	40
Benefits paid	(123)	(133)
Actuarial gain	(363)	152
Value of liabilities carried forward	2,355	2,791
Sensitivity of the value placed on the liabilities
Approximate effect on liability
	30 April 2022 £'000	30 April 2021 £'000
Discount rate
Minus 0.50%	191	229
Inflation
Plus 0.50%	139	164
Life Expectancy
Plus 1.0 years	102	113

Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, inflation rate and mortality. The sensitivity analysis above has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

The With Profits Section of the Cheviot pension

Allocation of liabilities between employers

The With Profits Section was acquired as part of the acquisition of ASB Law where contracts were exchanged on 5 March 2020 and the transaction completed on 17April 2020.

The Trustee has discretion under the contribution rule on how the cost of providing the benefits of the With Profits Section is allocated between employers. The contribution rule applies until the earlier of the discharge of the employer by the Trustee and the termination of the With Profits Section. The Trustee's current policy is not to discharge employers. Employers therefore remain liable under the contribution rule even if their last member dies or transfers out.

The Trustee has been considering how best to ensure all employers bear an appropriate share of the With Profits Section's obligations whilst ensuring fairness between employers and a practical and transparent methodology for the future.

As discussed at the Employers' Meeting on 5 July 2017, the Trustee has decided to fix the allocation between employers on the basis of the promised benefits just before the Section was re-classified in 2014 (the valuation as at 31 December 2013). The allocation to each employer will be expressed as a percentage of the total Scheme liabilities. The intention is to apply this percentage to any funding, buyout or IFRS deficit in the future to calculate any contribution that may be due or any accounting liability.

The estimated percentage in relation to Knights Professional Services Limited is 0.790%.

This approach enables each employer to calculate the extent of their obligation to the Section on the basis of the funding level at any time. Cheviot will publish funding updates on the website: quarterly, on the scheme funding basis, which includes an allowance for future investment returns; and annually, on an estimated buyout basis, which looks at the position should all benefits be secured with an external provider.

Estimated funding position as at 30 April:

	Scheme funding basis
	30 April 2022	30 April 2021
	£'000	£'000
Total assets	80,100	92,200
Total liabilities excluding expenses	(78,500)	(88,600)
Surplus	1,600	3,600
Funding level	102%	104%

Allocation to the Group

The estimated share of the Scheme liabilities is 0.790%.

Over the year to 30 April 2022, the Section's funding position remained as a small surplus.

	30 April 2022	30 April 2021
	£'000	£'000
Estimated cost of providing benefits	(620)	(700)
Value of assets	633	728
Resulting surplus	13	28
Funding level	102%	104%

The surplus has not been recognised as management consider this to be temporary and not material.

The Trustee continues to monitor the funding position.

The Trustee reserves the right to withdraw, replace or amend the policy for the allocation between employers in the future.

40. Related party transactions

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Group and its other related parties are disclosed below.

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

The Group leases a property from KPV Propco Ltd. During the year rents of £376,000 (2021: £376,000) were charged by KPV Propco Ltd to the Group. A FRI lease of The Brampton, Newcastle-under-Lyme was granted for a term of 25 years from and including 24 July 2017 to 24 July 2039 at a current rent of £376,000 per annum (excluding VAT).

The Group received a contribution for repair work in the year from KPV Propco Ltd of £nil (2021: £26,000). These repairs relate to the building and site and were therefore paid by KPV Propco Ltd.

During the year Knights Professional Services Limited charged KPV Propco Ltd for professional services totalling £1,000 (2021: £126,000).

At 30 April 2022, there was an amount of £55,000 owed by the Group to KPV Propco Ltd (2021: £3,000 owed to KPV Propco Ltd by the Group).

During the year Knights Professional Services Limited provided legal services to the Directors in an individual capacity of £77,000 (2021: £154,000). At 30 April 2022, there was an amount of £nil (2021: £1,000) owed to the Group from the Directors.

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 2022 £'000	Year ended 30 April 2021 £'000
Short-term employee benefits and social security costs	1,424	1,193
Gains on exercise of options	913	-
Pension costs	25	22
Share-based payments	(132)	209
	2,230	1,424

Key management personnel includes Board members and directors of the Group and the main trading company Knights Professional Services Limited.

Transactions with directors

Dividends totalling £250,000 (2021: £nil) were paid in the year in respect of ordinary shares held by the Company's directors.

41. Post balance sheet events

On 19 May 2022 the Group exchanged contracts to acquire 100% of the voting rights of Coffin Mew LLP, an independent law firm based primarily in Portsmouth with offices in Southampton, Brighton and Newbury. Total consideration payable is £11.5million subject to working capital adjustments at the time of completion. This comprises £5.5 in cash, £1m of new ordinary shares in the Group, along with deferred cash consideration of £5m to be paid on over three years. The acquisition of Coffin Mew, provides Knights with entry into new markets and provides scale to the Group's existing service offerings. The transaction completed on 8 July 2022 and the assets and liabilities of Coffin Mew LLP were hived up into Knights Professional Services Limited.

Initial accounting for the business combination is not yet complete and the fair value of net assets acquired has not yet been determined; accordingly, details of the assets acquired and liabilities assumed, and goodwill arising on the acquisition, cannot be given.

In its unaudited accounts for the year ended 31 March 2022, Coffin Mew reported revenue of £11.3m with a corporatised PBT margin of circa 8%. Following full integration and realisation of all synergies, the Board expect Coffin Mew to contribute a PBT margin of circa 16% which, combined with a typical level of revenue churn post-acquisition, means the acquisition is expected to be immediately earnings enhancing.

On 5 July 2022, contracts were exchanged in relation to the sale of HPL. The sale is expected to complete later in July 2022, subject to regulatory approval.

Glossary of Terms

Financial Performance Measure

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

Underlying EBITDA

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Operating profit	3,398	7,390
Depreciation and amortisation charges	10,778	7,730
Non-underlying costs (note 13)	13,260	10,288
Underlying EBITDA	27,436	25,408

Underlying Profit Before Tax (PBT)

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

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Profit before tax	1,056	5,509
Amortisation of acquired intangibles	3,815	2,622
Non-underlying costs (note 13)	13,260	10,288
Underlying profit before tax	18,131	18,419

Underlying Operating profit to Underlying Profit Before Tax (PBT)

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Operating profit before non-underlying charges	16,658	17,678
Less: Finance costs	(2,364)	(1,881)
Add: Amortisation of acquired intangibles	3,815	2,622
Add: Finance income	22	-
Underlying profit before tax	18,131	18,419

Underlying Profit After Tax (PAT) and Underlying Earnings per Share (EPS)

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

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
(Loss)/Profit after tax	(2,531)	3,402
Effect of change in deferred tax rate	1,747	-
Amortisation of acquired intangibles	3,815	2,622
Non-underlying operating costs (note 13)	13,260	10,288
Tax in respect of the above	(1,869)	(1,272)
Underlying profit after tax	14,422	15,040

Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	17.23	18.30
Diluted underlying earnings per share	17.14	18.07

Free Cash Flow and Cash Conversion %

Free cash flow measures the Group's underlying cash generation.

Cash conversion % measures the Group's conversion of its underlying PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities, tax paid and cash outflows for IFRS 16 leases. Cash conversion % is calculated by dividing free cash flow by underlying PAT, which is reconciled to profit after tax above.

	Year ended 30 April 2022 £'000	Year ended 30 April 2021 £'000
Cash generated from operations (note 35)	25,060	20,378
Tax paid	(4,095)	(2,125)
Total cash outflow for IFRS16 leases	(5,302)	(3,741)
Free cashflow	15,663	14,512
Underlying profit after tax	14,422	15,040
Cash conversion (%)	109%	96%

Net debt

Net debt is presented as an alternative performance measure to show the net position of the Group after taking account of bank borrowings and cash at bank and in hand.

	30 April 2022 £'000	30 April 2021 £'000

Borrowings (note 29)	33,153	24,064
Cash and cash equivalents	(4,097)	(4,783)
Asset held for sale (note 27)	(130)	-
Bank overdraft	-	1,852
Net debt	28,926	21,133

Working Capital

Working capital is calculated as:

	30 April 2022 £'000	30 April 2021 £'000
Current assets
Contract assets	31,777	28,530
Trade and other receivables	32,309	31,521
Corporation tax receivable	1,815	-
Total current assets	65,901	60,051

Current liabilities
Trade and other payables	21,362	32,303
Overdraft included in payables	-	(1,852)
Less accrued consideration included within trade and other payables	-	(8,310)
Contract liabilities	237	216
Corporation tax liability	-	765
Total current liabilities	21,599	23,122
Net working capital	44,302	36,929

Other Definitions

Colleague/Talent Retention/Employee Turnover

Churn is calculated based on the number of qualified fee earners who had been employed by the Group for more than one year. Churn is calculated taking the number of leavers in the above group over the financial year as a percentage of the average number of colleagues for the year. Retention is 100% less the churn rate.

Fee Earner Concentration

This is calculated taking the largest fees allocated to an individual fee earner as a percentage of the total turnover for the year and demonstrates the Group's reliance on the fee earning potential of an individual fee earner.

Client Concentration

On an individual basis this is calculated as the percentage of total turnover for the financial year that arises from fees of the largest client. For the top 10 client concentration calculation this takes the fee income from the 10 largest clients for the year as a percentage of the total turnover for the year.

Client Satisfaction

Net Promoter Score (NPS) measures the loyalty of a client to a company and can be used to gauge client satisfaction. NPS scores are measured with a single question survey and reported with a number from -100 to +100, the higher the score, the higher the client loyalty/satisfaction.

Colleague Satisfaction

Employee Net Promoter Score (ENPS) measures the loyalty of employees to a company and how likely they are to recommend their employer as a place to work, which can also be used to gauge employee satisfaction. ENPS scores are measured with a single question survey and reported with a number from -100 to +100, the higher the score the higher the employee loyalty.

Fee Earners

When referring to the number of fee earners in the Group we include all individuals working in the Group on a mainly fee earning basis. This includes professionals (legal and non-legal) of all levels including paralegals, trainees and legal assistants. When referring to the number of fee earners in the business this will refer to the absolute number of individuals working in the Group. When using the number of fee earners to calculate the average fees or profit per fee earner or the ratio of fee earners to support staff these calculations are based on the number of full-time equivalent (FTE) individuals to reflect that a number of individuals choose to work on a part-time basis.

Non-Fee Earners/Support Staff

This includes all employees that are not fee earning.

Recurring Revenue

This is calculated based on the amount of revenue in a year that reoccurs in the following year from the same clients.

Lock Up

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

Lock up days excludes the impact of acquisitions in the last quarter of the financial year.

Organic growth

Organic growth excludes revenue growth from acquisitions in the year of their acquisition, and for the first full financial year following acquisition, based on the fees generated by the individuals joining the Group from the acquired entity. Recruitment of individuals into the acquired offices post acquisition is treated as part of the organic growth of the business.

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