Full Year Results

RNS Number : 4189F

Knights Group Holdings PLC

10 July 2023

Knights Group Holdings plc

("Knights" or the "Group")

Full Year Results

A resilient performance against a challenging backdrop; foundations to drive organic growth established

Knights, a fast-growing legal and professional services business in the UK, today announces its full year results for the year ended 30 April 2023

Financial highlights

· Revenue increased by 13.1% to £142.1m (FY22: £125.6m)

· Gross margin of 48.5% (FY22: 49.3%)

· Underlying PBT ⁽¹⁾up 19.1% to £21.6m (FY22: £18.1m); underlying PBT margin increased to 15.2% (FY22: 14.4%)

· Reported PBT increased to £11.5m (FY22: £1.1m)

· Underlying EPS increased to 20.20p (FY22: 17.23p). Basic EPS 9.28p (FY22: loss of 3.02p)

· Lock up⁽²⁾ was 87 days (FY22: 86), with debtor days at 30 (FY22: 31)

· Cash conversion ⁽³⁾ of 117% (FY22: 109%)

· Net debt⁽⁴⁾ of £29.2m (30 April 22: £28.9m), in line with the Board's expectations

· Final dividend of 2.50p recommended (FY22: 2.04p), giving a 15% increase in the total dividend to 4.03p (FY22: 3.50p)

Strategic and operational highlights

Resilient performance and bolstered position as one of the UK's largest regional commercial law firms

· Delivered profitable, cash generative growth from a diversified service offering and expanded client base with a noticeable increase in the interest income earned on client monies, net of interest paid out to clients which we expect to continue with interest rates having reverted to higher historic norms. Should interest rates soften, we expect this to stimulate higher levels of activity in the transactional parts of our business, such as M&A and residential property

· Continued to scale the business, strengthening our presence in key markets across the UK and our position as one of the largest legal and professional services businesses outside London

· Continued to attract top-tier professionals. Average number of full time equivalent fee earners employed during the period was 1,077 (FY22: 1,015)

Significantly expanded regional footprint, providing a strong platform for organic growth

· Successfully integrated prior year acquisitions, Keebles, Archers Law and Langleys, which are performing well

· Acquired two well reputed law firms, Coffin Mew and Meade King, in the South of England, expanding our reach and adding c.100 fee earners. Both are integrating and performing well

· Acquisitions of Baines Wilson and St James' Law post period end provide entry into important growth markets in the North of England, significantly strengthening our reputation in the region

Current trading and Outlook

· Solid start to the current year as we navigate continuing macroeconomic uncertainty and rising interest rates, with growth in less cyclical areas, new client wins and an increase in recruitment activity

· Confident of a return to organic growth in FY24 as we realise the benefits of:

· our pricing strategy, with rate increases from 1 May 2023

· recruitment momentum, with eight partners hired already in FY24 (total for FY23: 13)

· recent client wins including EuroFinance, World Rugby, Marie Curie and TTI Inc., demonstrating the success of our large, and international, corporate client initiatives

· good early organic recruitment into recently acquired locations, particularly Bristol, Newcastle and Brighton

· strong momentum in non-cyclical services such as private wealth and clinical negligence

· A more favourable market for attracting professionals as well as acquisition opportunities and valuations

· Confident of an unchanged outlook for the current financial year with recent recruitment expected to drive second half weighting

David Beech, CEO of Knights, commented:

"This has been an important year for Knights, during which we placed a particular focus on strengthening our management team and developing our operating model to support the execution of our strategy and accelerate growth. "

"Given the sharp rises in interest rates as we started the current financial year, we are seeing a softening of work in some transactional and debt-reliant activity such as Residential Property, M&A, and our volume re-mortgage business, Integrar. However, this is being mitigated by a combination of growth in other areas which are less cyclical, such as Private Wealth and CL Medilaw (our specialist clinical negligence team), new client wins and our pricing strategy."

"As we move through the year, we expect to benefit incrementally from recent positive recruitment momentum, a heightened focus on growth and business development and the strengthening of our operational management."

"We will continue carefully to consider acquisition opportunities which will consolidate or expand our existing footprint and provide a strong platform for future organic growth."

"Our outlook for the current financial year is therefore unchanged, with recent recruitment expected to drive a second half weighting, and we remain confident in our strategy and our ability to deliver profitable, cash generative growth. We will continue to leverage our position as one of the largest commercial law firms located outside London, to grow our client and fee earner base organically and to drive operational improvements, complemented by acquisitive growth."

Enquiries

Knights
David Beech, CEO	Via MHP
Numis (Nomad and Broker)
Stuart Skinner, Kevin Cruickshank	020 7260 1000
MHP (Media enquiries)
Katie Hunt, Eleni Menikou, Rob Collett-Creedy	020 3128 8100 +44 (0)7736 464749 knights@mhpgroup.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 25 offices located in Birmingham, Brighton, Bristol, Carlisle, Cheltenham, Chester, Crawley, Exeter, KingsHill, Lancaster, Leeds, Leicester, Lincoln, Manchester, Newcastle, Newbury, Nottingham, Oxford, Portsmouth, Sheffield, Stoke, Teesside, Weybridge, Wilmslow and York.

¹ Underlying PBT is before amortisation of acquired intangibles, non-underlying costs relating to acquisitions, non-recurring finance costs, restructuring costs in the reporting period, and non-underlying share based payments. Underlying EPS excludes these items and the tax related to these items. The Board believes that these underlying figures provide a more meaningful measure of the Group's underlying performance

² Lock up is calculated as the combined debtor and WIP days as at a point in time. Debtor days are calculated on a count back basis using the gross debtors at the period end and compared with total fees raised over prior months. WIP days are calculated based on the gross work in progress (excluding that relating to clinical negligence claims, insolvency, and ground rents, as these matters operate mainly on a conditional fee arrangement and a different profile to the rest of the business) and calculating how many days billing this relates to, based on average fees (again excluding clinical negligence claims, insolvency, and ground rents fees) per month for the last 3 months

Lock up days excludes the impact of acquisitions in the last quarter of the reporting period

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

⁴ Net debt excludes lease liabilities

⁵ Largest firm by revenues outside London. Source: The Lawyer's Top 100 report, October 2022

These footnotes apply throughout the RNS

Chair's statement

I am pleased to introduce Knights' 2023 Annual Results.

Since Knights moved to a corporate structure in 2012, we have expanded the business considerably, growing from two offices to become a business with a national presence. During that time, our organic growth has been complemented by over 20 acquisitions of quality independent legal and professional services businesses, which have expanded Knights' geographical reach and range of services and expertise, cementing our position as a leading provider across the country.

Knights' unique model was born of recognition of the fact that regional professionals can provide 'City' calibre services without relocating to London to do so, bringing benefits to our clients, people and communities. We have continued to support and develop this model by investing in technology systems and capability, facilitating more seamless integration, collaboration and greater efficiency.

A highly commercial approach, established early on, is now deeply embedded across the Group, instated and maintained across our offices by our highly effective and experienced Client Services Directors, many of whom have now been with the business for a number of years. This team, which has expanded during the year, focuses on delivering operational improvements and productivity, creating the base for future organic growth the benefits of which are expected to be realised incrementally in the current financial year.

Knights has grown to become one of the largest fully collaborative legal and professional services businesses in the UK⁽⁵⁾, employing 1,464 colleagues, including 1,165 fee earning professionals at the end of the financial year. This journey has not been without its challenges and I am proud of what we have achieved, which is testament to the hard work of all our people. Knights' strategy, reputation, unique model based on a 'one-team' culture across all our offices, together with the tireless drive and focus of an experienced and talented management team, have underpinned this growth.

Against an unsettled backdrop in FY23, which was characterised by the residual challenges of the pandemic, followed by the macroeconomic uncertainty and steeply rising interest rates prompted by the mini-budget weighing on broader business sentiment, the Group delivered a solid performance. Revenue was up 13% on the prior year to £142.1m, driven by contributions from acquisitions completed in the financial year and the full year effect of prior year acquisitions.

The ever-increasing calibre of our national, and now international, client base includes names such as Marie Curie and World Rugby, both of which became clients during the year following our strategic focus on attracting such companies. This continued evolution of our client base reflects Knights' strong market positioning, quality offering and reputation among large corporate clients alongside our core regional client base.

Strategy

Knights' strategy has provided good resilience in challenging economic conditions, due to its increasingly diverse service offering and ever-widening range of clients. I am confident that the Group has the right approach and vision in place to deliver results for its stakeholders. Our growth has further enhanced our ability to attract high quality professionals, both from leading law firms and other professions. Additionally, in the uncertainty currently prevailing, our unique model is increasingly attractive for many compared with higher risk equity based businesses, encouraging more individuals to choose a career with Knights.

This year, we continued to scale the business in a considered way. While we remain focussed on optimising and building our Group to deliver organic growth, acquisitions remain a key component of Knights' overall growth strategy. We added two high quality firms during the year, Coffin Mew LLP and Meade King LLP, both of which are closely aligned culturally and strategically with our goals, taking us into new key regional locations. We also successfully integrated prior year acquisitions, strengthening our presence in regions where we already operate. These acquisitions provide a platform for future organic growth and complement the existing business, in terms of culture, service offering and geographical coverage.

While the macroeconomic outlook is expected to remain uncertain into FY24, we believe that, as well as supporting recruitment momentum, this will also present further acquisition opportunities for the Group.

ESG

Over the year, we have maintained our focus on ESG priorities, and it is pleasing to report that we not only continue to make good progress against our commitments but have also added new objectives, including targeting net-zero in our own operations and across our entire value chain by 2050. We go to great lengths to ensure we remain respectful of the world around us, and that our business has a positive impact - on the environment, and also within the communities in which we operate.

We continue to make our offices, and the way in which they operate, more energy efficient as part of the ongoing optimisation of our real estate portfolio, focusing on modernisation, right-sizing and off-loading excess space. We are pleased to be announcing a new set of targets focused on reducing energy usage and increasing support to our local communities through our 4 Our Community programme.

We have a good gender balance across the business. Our Board is 60% female, and 43% of our Partners are female. Looking at the business more broadly, 66% of our fee earning professionals are female.

Dividend

The Group's progressive dividend policy seeks to maintain a balance between retaining profits to execute our strategy, and delivering value for shareholders as our strategy yields positive performances.

The Board is this year proposing a final dividend of 2.50p, which, together with the interim dividend of 1.53p per share gives a total dividend for the year of 4.03p (FY22:3.5p), an increase of 15%. The dividend will be payable on 29 September 2023 to shareholders on the register at 1 September 2023, subject to shareholder approval at the Group's AGM.

Summary

I am proud of what has been achieved by the business. Driven by a passionate and experienced management team and guided by a sound strategy, the resilience of our unique model has enabled the Group successfully to navigate recent challenges while continuing to develop its strong platform. This year has been no exception, with clear progress being delivered against our strategy and positioning the Group well to deliver organic revenue growth in the current financial year.

CEO Statement

It has been an important year of solid progress for Knights, during which we placed a particular focus on strengthening our management team and developing our operating model to support the execution of our strategy and accelerate the future growth of our business.

By continuing to scale the business, establishing and bolstering our presence in key markets across the UK, we have now become one of the largest, fully collaborative legal and professional services groups in the country⁽⁵⁾. The evolution of, and investment in, our organisational structure, reflected in the continued expansion of our team of Client Services Directors, is driving operational and productivity improvements across the Group, the benefits of which are expected to be realised in the new financial year and beyond.

Recognition of our size and ever-growing reputation as a premium provider of professional services, together with our unique collaborative culture, has underpinned our ability to recruit and retain high quality professionals, including senior executives responsible for driving and implementing operational excellence.

The execution of our strategy means that, with further acquisitions made in the current year, Knights now spans the country. It has a broad client base which continues to grow and now includes, not only blue-chip clients in the UK, but also an increasing number of significant international companies, all of which value the Group's extensive capabilities, collaborative ethos and high-quality service.

A resilient performance against a challenging backdrop

During the year, challenges associated with the COVID-19 pandemic gave way to those associated with macroeconomic uncertainty, rising interest rates, and the subsequent impact on business confidence. Despite this backdrop, we delivered profitable, cash generative growth, with total revenue up 13% to £142.1m, as the legal services market outside London, and our diversified services offering and client base, provided a good level of resilience complemented by contributions from recent acquisitions. From a flat organic growth rate in FY23, we have put in place the building blocks for organic growth to improve incrementally as we move through the current financial year, through a combination of pricing, productivity, net recruitment and client wins.

In the year, an additional two Client Services Directors joined an already strong and established team, a role which is instrumental in driving strategic progress, embedding our 'one team' culture, and delivering performance across the Group through highly engaged and present leadership in each of our offices. Our Client Services Directors have now been with us for an average tenure of more than three years, with six having been with the Group for over five years, meaning that we have real strength in the depth of their collective experience in the business. An example of the success of this team in embedding Knights' commercially driven approach and focus on cash management is in the Group's market-leading working capital performance, with debtor days of just 30 in FY23 (FY22: 31 days), significantly fewer than the industry average of 66 days (Source: PWC Law Firms Survey 2022). They have also been instrumental in driving the larger new business wins we have secured in recent months.

Andrew Pilkington, previously Group Client Services Director, has now been appointed as COO, a natural step up which reflects his strong track record in delivering progress. His appointment also enables us to bring our operational and client service teams, who will all work closely with Andrew, closer together creating greater alignment and supporting enhanced performance across the business. Building on his experience of identifying, delivering and integrating acquisitions to date, James Sheridan has become our Group M&A Director, overseeing the execution of our acquisition strategy, including the early introduction of Knights' working practices to maximise the organic growth we can achieve from newly acquired businesses.

Knights is committed to talent acquisition and retention and we recognise fully the value of our people as the bedrock of the Group. We had an average of 1,077 full time equivalent fee earning professionals during the year (FY22: 1,015). As previously announced, during the year, we experienced higher churn than expected in one of the Group's 2020 acquisitions. In addition, the recruitment market was particularly competitive during calendar year 2022 following the re-opening of the market post-COVID, a period that became widely known as the 'great resignation' across many sectors, including our own. We are pleased that this higher level of churn has now moderated in the office in question and we are now seeing good future growth opportunities both in that office and across the business.

Furthermore, we have seen a significant uplift in the hiring of high calibre professionals since the start of calendar year 2023, with eight partners already hired in FY24 (compared to 13 for the whole of FY23), reflecting the attractiveness of our secure corporate model in a macro environment where people have become more alert to the financial risk associated with partnership-based models. We have also been delighted to welcome back 17 people who have returned to Knights since the beginning of the last financial year, following a period at other firms, many of whom have wanted to be part of a team with a greater office presence.

Most of our people have now returned to working in our network of offices. Knights' presence across the UK means that many of our people live within a short commute of a Knights office, supporting a healthier work-life balance. Our culture and collaborative way of working are most powerful when our people are together, exchanging ideas and supporting each other, which in turn drives more opportunity for our people, and better outcomes for our clients.

We remain committed to making carefully considered acquisitions which align with our strategy and culture and which provide a platform from which to build future organic growth. During the year, we acquired two high quality, independent and well-established regional law firms, Coffin Mew LLP and Meade King LLP, both of which are integrating and performing well, further expanding our reach in the South and South West and adding c.100 fee earning professionals to the Group. The acquisitions demonstrate the Group's attractiveness to businesses and professionals seeking to be part of a larger Group with national scale and a premium reputation, without the financial risk of equity partnerships.

The Group's enhanced size, capability and reputation for delivering high quality work has also resulted in some clear success with our new large corporate client focus, such that we have won a number of significant new UK, European and US clients including World Rugby, Marie Curie, EuroFinance and TTI, a Berkshire Hathaway company, which we expect will aid the Group's organic growth as we move through the current financial year. These wins resulted from a number of dedicated initiatives, including raising awareness of the quality and breadth of our service offering, combined with the cost benefits of a regional base, through European roadshows. The range and level of services we deliver to our existing large corporate clients also continues to increase.

In addition, we are benefitting from the resilience afforded by the Group's diversity of services, with momentum building in non-cyclical offerings including private wealth and clinical negligence. Our continued focus on, and commitment to, being the premium provider of legal and professional services in all of our sectors and locations continues to build momentum and underpins our confidence in pricing appropriately for the quality of service and value we deliver.

A considered approach to acquisitions

The regional legal services market remains fragmented, and Knights has a strong track record of unlocking value from the acquisition of high-quality regional firms constrained by their ownership model and other barriers to growth. As economic challenges in the UK persist, many legal professionals and firms are looking for an alternative to the higher-risk traditional equity partnership model and to be part of a larger, more diversified, Group.

We know it is important to integrate such businesses properly and quickly, so remain considered in our approach to acquisitions, seeking businesses which share a similar culture with Knights and which have clear potential to facilitate future organic growth. We are well-placed to capitalise on our exciting pipeline of acquisition opportunities and compelling valuations as they arise, given the significant headroom available in our revolving credit facility.

Enhanced presence in Yorkshire, the North East and the East of England

During the year, we successfully integrated and developed the businesses we acquired the previous year, Keebles LLP, Archers Law LLP and Langleys LLP, resulting in an enhanced presence in Yorkshire, the North East (one of the largest markets for legal and professional services in the UK⁽⁵⁾) and the East of England. All are performing as anticipated, with no unexpected attrition of people or clients.

New entry into key markets in the South and South West

We strengthened our presence in the South of England, an attractive growth market for our services, with the acquisition of Coffin Mew LLP and Meade King LLP.

The acquisition of Coffin Mew provided entry into Portsmouth, Southampton, Brighton and Newbury, significantly expanding Knights' presence in the South. Meade King facilitated our entry into Bristol, the regional financial centre of the South West, complementing Knights' existing Exeter office. Both acquisitions are integrating well.

Continued momentum with acquisitions strengthening our presence in the North

This momentum continued into the current financial year, with two further acquisitions announced post year end. St James' Square brings to the Group an independent full service commercial law firm based in Newcastle, and Baines Wilson LLP brings one of the leading independent law firms in the North West, offering Corporate, Real Estate, Dispute Resolution and Employment services. The acquisitions demonstrate our ability to identify opportunities to welcome new businesses to the Group at attractive valuations in the current environment.

Both acquisitions align with Knights' strategy to bolster its future organic growth through selective, considered acquisitions. They provide access to new important regional markets and platforms for further growth through the recruitment of local professionals and potential further bolt-on acquisitions. Following these acquisitions, Knights now has five offices in the North West and two offices in the North East of England which, alongside Knights' three existing offices in Yorkshire, significantly strengthens the Group's presence and brand reputation across the region.

ESG

Throughout the year we continued to evolve our ESG strategy focused on building a responsible and sustainable business for all our stakeholders, continuously reviewing and developing our commitments and targets. Highlights include investment in our Employee Value Proposition, an important and valuable exercise in capturing our purpose, values and culture following our rapid growth, and the continued success of our '4 Our Community' scheme, which sits at the heart of our various national and local community-based initiatives. Although we are a low impact, low carbon intensive business, we are committed to reducing emissions and ensuring efficient use of all our resources.

Current trading and outlook

There has been a solid start to the current year as we navigate the continuing macroeconomic uncertainty and rising interest rates, with growth in less cyclical areas, new client wins and an increase in recruitment activity.

We are confident of a return to organic growth in FY24 as we realise the benefits of:

· our pricing strategy, with rate increases from 1 May 2023

· recruitment momentum, with eight partners hired already in FY24 (total for FY23: 13)

· recent client wins including EuroFinance, World Rugby, Marie Curie and TTI Inc., demonstrating the success of our large, and international, corporate client initiatives

· good early organic recruitment into recently acquired locations, particularly Bristol, Newcastle and Brighton

· strong momentum in non-cyclical services such as private wealth and clinical negligence

We are also seeing a more favourable market for attracting professionals as well as acquisition opportunities and valuations.

Given the sharp rises in interest rates as we started the current financial year, we are seeing a softening of work in some transactional and debt-reliant activity such as Residential Property, M&A, and our volume re-mortgage business, Integrar. However, this is being mitigated by a combination of growth in other areas which are less cyclical, such as Private Wealth and CL Medilaw (our specialist clinical negligence team) new client wins and our pricing strategy.

As we move through the year, we expect to benefit incrementally from recent positive recruitment momentum, a heightened focus on growth and business development and the strengthening of our operational management.

We will continue carefully to consider acquisition opportunities which will consolidate or expand our existing footprint and provide a strong platform for future organic growth.

Our outlook for the current financial year is therefore unchanged, with recent recruitment expected to drive a second half weighting, and we remain confident in our strategy and our ability to deliver profitable, cash generative growth. We will continue to leverage our position as one of the largest commercial law firms located outside London, to grow our client and fee earner base organically and to drive operational improvements, complemented by acquisitive growth.

CFO Statement

I am pleased to report a year of profitable, cash generative growth. Despite challenges relating to current macroeconomic uncertainty, the subsequent impact on business confidence and the impact of slightly higher fee earner attrition than expected, we have delivered strong growth in revenues and underlying profits.

Two complementary acquisitions during the year, and good development and growth within certain service lines, increased the diversification of the Group's revenue. We continued to invest in our business to provide a sustainable base for continued revenue growth, and have managed our costs and treasury resources to deliver increased profitability in the year.

During the year, the Group completed the disposal of Home Property Lawyers Limited (HPL) which was acquired as part of the Langleys acquisition in FY22 but was non-core.

We continue to deliver excellent cash conversion⁽³⁾, which has resulted in a strong Balance Sheet and significant headroom within our banking facilities to fund organic growth and acquisitions.

With interest rates reverting to historic norms, we have seen a noticeable increase in the interest income earned on client monies, net of interest paid out to clients which we expect to continue. Should interest rates soften, we expect this to stimulate higher levels of activity in the transactional parts of our business, such as M&A and residential property.

Financial results

Total Group
Year ended 30 April 2023

£'000

Total Group

Year ended 30 April 2022

£'000

% change

Revenue

142,080

125,604

13.1%

Other operating income

6,718

1,270

429.0%

Staff costs

(88,412)

(76,863)

(15.0%)

Other operating charges

(26,539)

(22,077)

(20.2%)

Impairment of trade receivables and contract assets

(468)

(498)

6.0%

Underlying EBITDA

33,379

27,436

21.7%

Underlying EBITDA %

23.5%

21.8%

Depreciation and amortisation charges (excluding amortisation on acquired intangibles)

(8,175)

(6,963)

(17.4%)

Underlying finance charges

(3,661)

(2,364)

(54.9%)

Underlying finance income

136.4%

Underlying profit before tax

21,595

18,131

19.1%

Underlying profit before tax margin

15.2%

14.4%

Underlying tax charge (excluding impact of non-recurring deferred tax)

(4,304)

(3,709)

(16.0%)

Underlying profit after tax

17,291

14,422

19.9%

Basic underlying EPS (pence)

20.20p

17.23p

17.2%

Revenue

Reported revenue for the year is £142.1m compared to £125.6m in FY22, an increase of 13.1%.

Of this increase, £8.8m was from acquisitions made during the financial year and £8.3m represents the full year impact of acquisitions made part way through FY22. The disposal of HPL in July 2022, which was part of the Langleys acquisition in FY22 has resulted in a decrease in revenues of £0.4m year on year, with the balance of this movement being due to organic revenue decline of £0.2m (0.1%).

Organic revenues

The challenges associated with the COVID-19 pandemic during FY22 were followed in FY23 by political and economic uncertainty, as well as higher interest rates, which have impacted business confidence in certain areas. The diversity and resilience of our business has meant that despite a reduction in instructions in some transactional areas of the business such as Residential Property and M&A, there has been growth in other areas, less impacted by the macro-economic environment, such as Private Wealth and CL Medilaw (our specialist clinical negligence team). In addition our volume re-mortgage business, Integrar, also performed strongly in FY23, expanding its client base following investment in delivery capability. Together these factors resulted in broadly flat overall organic growth for the Group.

Our organic growth for the year was also impacted by the strategic decision to exit the volume debt recovery business in FY22 and higher-than-expected staff churn in an acquisition completed in FY20. The effect of these factors, which negatively impacted organic growth by circa 4.4%, has now worked through, and the Group is well placed to deliver good organic growth in the future.

Revenue from acquisitions

Acquisitions completed during FY22

The acquisitions of Keebles LLP, Archers Law LLP and Langleys LLP completed during FY22. These acquisitions are performing ahead of expectations with combined revenues of £23.1m in FY23. We typically budget to retain 80% of acquired revenues, whereas these acquisitions have delivered 98% of acquired revenues in the financial year (after adjusting for the strategic sale of the HPL business from Langleys and £2.5m of non-core Legal Aid, Personal Injury, volume debt and conveyancing work from Keebles).

Acquisitions completed during FY23

During the year, the Group acquired Coffin Mew LLP, Globe Consultants Limited, and Meade King LLP. These acquisitions have contributed £8.8m of revenue in the period, as anticipated and initial integration has gone well. The New Homes business within the Coffin Mew acquisition has been impacted by the macro-economic environment and a slowdown in mortgage approvals meaning this acquisition is currently delivering c 70% of acquired revenue, slightly lower than the 80% we would typically assume. However, the business is well-integrated, and it is anticipated that revenues will return to expected levels as the housing market improves. The Meade King acquisition in Bristol is performing particularly well with current run-rate revenue being marginally above acquired revenue.

As well as driving acquisition revenues, these acquisitions are also proving to be an excellent platform for future organic growth across the business with several new partner hires already made into the acquired offices.

Staff costs

Total staff costs as a percentage of revenue were 62.2% for the year (FY22: 61.2%) reflecting the impact that the challenging economic environment has had on revenue in some areas and the continual investment in management and support staff to create a sustainable base for growth going forward.

Direct staff costs

Fee earning staff costs have increased to 51.5% of revenue (FY22 50.7%), reflecting our continuing investment in high quality senior recruits who bring client relationships and networks. This has been impacted by some challenges associated with a softening in productivity due to macroeconomic conditions. This also includes investment in 17 partner and senior associate recruits in the second half of the financial year, which although a net cost to the business in FY23, are expected to generate organic growth in the next financial year due to the typical lag in achieving full run rate revenues.

Support staff costs

Support staff costs increased marginally to 10.7% of revenue in the year, compared to 10.5% in the prior year reflecting our investment in two additional Client Services Directors to manage the growing business.

Our return to office-based working has also required investment in our team of Office Hosts and administrators to manage the offices. As we continue to develop our IT infrastructure further to maximise opportunities and efficiencies in the business, we have also invested in additional in-house IT capability.

Other operating charges

Overall, other operating charges have increased to 18.7% of revenue (FY22: 17.6%) as more colleagues returned to work in our offices and the easing of COVID-related restrictions has allowed increased networking and collaboration across our 23 offices, including our first, in person, all staff annual conference since the pandemic. As we continue to invest in the future growth of the business, there has also been renewed focus on business development activity, including attendance at overseas events for the first time in a number of years. The cost base is now considered to be at a normalised post-COVID run rate.

Depreciation and amortisation charges

Depreciation and amortisation charges (excluding amortisation on acquired intangibles) increased marginally to 5.8% of revenue (FY22: 5.5%) reflecting increased depreciation due to capital expenditure in FY22 and the expanded office network as a result of acquisitions, increasing the depreciation on right of use (ROU) assets. FY23 has been a year of consolidation. During the year, and post year-end we have identified several opportunities to reduce our office capacity by subletting excess space. This will allow us to 'right-size' parts of our property portfolio and leverage the portfolio as we grow to enable the Group to benefit from some margin improvement in FY24, with the full benefits being achieved in FY25.

Other operating income

Other operating income has increased to £6.7m from £1.3m, primarily due to increased interest income earned on client monies held as a result of higher interest rates, net of interest paid out to clients.

Underlying profit before tax (PBT)⁽¹⁾

Underlying profit before tax excludes amortisation of acquired intangibles, transaction and onerous lease costs in relation to acquisitions, disposals of acquired assets, one off restructuring and professional costs incurred mainly as a result of the streamlining of the support function in acquisitions or strategic reorganisations.

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

	FY23	FY22
	£'000	£'000
Profit before tax	11,529	1,056
Amortisation (excluding computer software)	3,441	3,815
Non-underlying costs (net of gain on disposals and finance costs)	6,625	13,260
Underlying profit before tax	21,595	18,131

Total Group underlying profit before tax has increased 19.1% to £21.6 million (FY22: £18.1m).

The underlying profit before tax⁽¹⁾ margin increased to 15.2% from 14.4% last year, benefitting from an increase in other operating income as a result of increased interest income earned on client monies held, due to higher interest rates. This increase in interest receivable more than offsets the increase in interest charges on Group borrowings which has increased our finance charges by £1.3m (54.9%) compared to the prior year.

Reported profit before tax (PBT)

Reported profit before tax for the year has increased to £11.5m (FY22: £1.1m) reflecting increased profit in the underlying business and reduction in non-underlying costs from £13.3m to £6.6m in the period. Of the £6.6m of non-underlying costs, £4.4m (FY22: £6.3m) relates to the contingent consideration element of the purchase cost of acquisitions recognised in the Statement of Comprehensive Income in accordance with IFRS accounting conventions, with the balance relating to one-off redundancy, transaction and other costs offset by the gain of £0.3m from the sale of HPL.

Earnings per share (EPS)

Basic EPS in the year increased to 9.28p from a loss of 3.02p in FY22. To aid comparison of EPS on a like for like basis, underlying EPS has also been calculated based on underlying PAT. The underlying EPS has increased by 17.2% to 20.20p in FY23 (FY22: 17.23p). The weighted average number of shares used to calculate the undiluted EPS in the year to 30 April 2023 was 85,597,833 (FY22: 83,717,952).

Considering the dilutive impact of potential share options, the basic Diluted EPS for FY23 is 9.19p (FY22: loss of 3.02p). Underlying Diluted EPS has increased by 16.7% to 20.00p (FY22: 17.14p).

Corporation tax

The Group's tax charge for the year is £3.6m (2022: £3.6m), made up of a current corporation tax charge of £4.1m (2022: £1.5m), partially offset by a deferred tax credit of £0.5m (2022: deferred tax charge of £2.1m). The increase in the current tax charge relates mainly to the increase in pre-tax profits in the year and also the increase in the corporation tax rate to 25% (from 19%) in April 2023.

The deferred tax credit principally arises due to: the unwinding of the benefit of significant capital allowances claimed in FY22 due to the higher level of capital expenditure in FY22, and the availability of the capital allowance super-deduction and the annual investment allowance; a one-off credit in relation to deferred tax on acquisitions; offset by the deferred tax impact on lapsed share schemes and an IFRS16 tax adjustment.

The total effective rate of tax is 31% (FY22:340%) based on reported profit before tax. The effective tax rate in FY22 was adversely affected by the impact of increasing the rate used to calculate the deferred tax to 25% from 19%. The effective rate of tax on the underlying profit of the business is 20% (FY22: 21%). As the basic corporation tax rate has increased from 19% to 25% from April 2023, we expect Group underlying tax rates to increase by a similar percentage in FY24.

The net deferred taxation liability increased to £8.4m (FY22: £8.3m) with the deferred tax credits highlighted above offsetting increases in provisions from acquisitions and IFRS 16 leases.

Dividend

The Board continues to adopt a progressive dividend policy, balanced with its commitment to continue to reinvest the profits of the Group to fund future strategic growth plans.

Subject to approval at the Annual General Meeting in September 2023, the Board proposes a final dividend for the year of 2.50p per share representing a dividend of circa 20% of post-tax profits for the year. This, together with the interim dividend of 1.53p per share brings the total dividend in respect of FY23 to 4.03p per share (FY22:3.50p), an increase of 15%.

Balance sheet	30 April 23 £'000	30 April 22 £'000
Goodwill and intangible assets	88,021	82,172
Right of use assets	38,200	40,663
Working capital	48,404	44,302
Other net liabilities	(2,833)	(3,028)
Lease liabilities	(44,916)	(46,528)
Assets held for resale	-	635
	126,876	118,216
Cash and cash equivalents	4,045	4,227
Borrowings	(33,265)	(33,153)
Net debt⁽⁴⁾	(29,220)	(28,926)
Deferred consideration	(4,849)	(3,631)
Net assets	92,807	85,659

The Group's net assets as at 30 April 2023 increased by £7.1m (FY22: £3.0m) to £92.8m reflecting new equity issued for acquisitions and the profit for the year, net of dividends paid in the period. The key movements in the Balance Sheet are discussed in more detail below.

Assets held for resale

The assets held for resale as at 30 April 2022 related to the HPL business which was sold during the year.

Goodwill and intangible assets

Goodwill and intangible assets included £28.1m of intangible assets relating to brand and customer relationships for current and prior year acquisitions. Purchased computer software accounted for £0.2m with the remaining balance of £59.7m relating to goodwill from acquisitions.

The Board carries out an impairment review of goodwill each year to ensure the carrying value in the financial statements is supportable. The value in use of the goodwill was calculated using a number of different scenarios, some of which assumed a considerably more negative outcome than is anticipated by the Directors. In all instances, the future trading of the business was more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2023, the Board is satisfied that the goodwill was not impaired.

Working capital

Working capital is calculated as follows:

	30 April 2023 £'000	30 April 2022 £'000
Current assets
Contract assets	38,215	31,777
Trade and other receivables`	31,087	32,309
Corporation tax receivable	152	1,815
Total current assets	69,454	65,901

Trade and other payables	20,832	21,362
Contract liabilities	218	237
Total current liabilities	21,050	21,599
Net working capital	48,404	44,302

Net working capital has increased to £48.4m at 30 April 2023 (April 22: £44.3m), an increase of £4.1m (c.9%). Based on run-rate revenues for FY23 of £146m and £132m for FY22 (taking account of the full year impact of acquisitions) working capital represents 33.1% of revenue in FY23 compared to 33.5% in FY22.

Although net working capital has reduced as a percentage of revenue, the value of contract assets in the year has increased to 26.2% of run rate revenue (FY22: 24.1%). The reason for this increase is mainly due to the growth of our CL Medilaw business. Due to the time taken to convert these matters given the nature of such cases and ongoing delays in the court system, this has resulted in an increase in total work in progress in this area to £17m (FY22: £13m). For the remainder of the business, work in progress remains a comparable percentage of revenue as last year.

The management of working capital is a key performance indicator for the Group, with strong controls and systems in place to monitor the level of receivables and work in progress across the business. The number of lock up days⁽²⁾ (the time taken to convert a unit of time incurred into cash) continues to be a key focus for the Board, Client Services Directors and wider management team. As at 30 April 2023 lock up⁽²⁾ was 87 days (April 22: 86 days) broken down as 30 debtor days and 57 WIP days (April 22: 31 and 55 days).

The bad debt charge for the year has decreased slightly to 0.3% of turnover (FY22: 0.4%) reflecting the strong controls over debt collection in place across the Group.

Right of use assets 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 decrease in right of use assets during the year to £38.2m (FY22: £40.7m) was the net result of an increase in assets of £4.2m relating to new leases acquired through acquisitions, less disposals of leases with a value of £1.0m and depreciation of £5.7m for the year.

The lease disposal predominantly relates to the sublease of part of one office related to the sale of the HPL business.

The lease liabilities represented the present value of the total liabilities recognised in respect of the right of use assets. The decrease in lease liabilities during the year to £44.9m (FY22: £46.5m) reflected lease liabilities acquired with acquisitions offset by the disposals of leases and repayments made in the period.

The sublease mentioned above has also resulted in the Group recognising a lease receivable of £1.0m in the Statement of Financial Position, representing the total present value of amounts receivable under the sub-lease.

Cash conversion⁽³⁾, net debt⁽⁴⁾, financing and leverage

Cash generation continues to be a key focus for management. The Group measures cash conversion⁽³⁾ by comparing the free cash flow from operations as a percentage of its underlying profit after tax. Due to a continued focus on management of working capital and lock up⁽²⁾, the Group has delivered strong cash conversion⁽³⁾ of 117% (2022:109%) demonstrating robust cash controls. Cash generation in FY23 benefited from the corporation tax receivable of £1.8m at the end of FY22. Excluding this, cash conversion⁽³⁾ for the year would be 107%.

Cash Flow

	FY23 £'000	FY22 £'000


Underlying profit before tax	21,595	18,131
Depreciation and amortisation	8,175	6,963
Change in working capital	(4,458)	(2,985)
Net finance charges	3,609	2,068
Cash outflow for IFRS 16 leases	(6,728)	(5,302)
Movement in provisions and other sundry items	510	883
Cash generated from underlying operations pre-tax (note 37)	22,703	19,758
Tax paid	(2,424)	(4,095)
Net cash generated from underlying operating activities	20,279	15,663
Underlying profit after tax	17,291	14,422
Underlying cash conversion (note 37)	117%	109%

This strong cash generation in the year has resulted in net debt⁽⁴⁾ of £29.2m at the year-end (30 April 22: £28.9m) despite a cash outlay of £11.4m relating to consideration for acquisitions in the year along with deferred and contingent consideration paid in relation to acquisitions in prior years. A further cash outlay of £0.4m for debt repaid from acquisitions in prior years, results in a total cash outflow in relation to acquisitions of £11.8m (net debt impact £11.4m).

The table below shows a reconciliation of the key cash flows impacting the movement in net debt⁽⁴⁾.

	£m
Net debt⁽⁴⁾ as at 30 April 2022	28.9
Deferred and contingent consideration paid	5.1
Consideration paid for acquisitions in the year (including acquired debt and cash)	6.3
Receipt from disposal of subsidiary (HPL)	(1.1)
Non-underlying costs paid	3.1
Interest on borrowings	2.1
Capital expenditure	1.9
Dividends paid	3.1
Other net cash (inflows) from underlying operating activities	(20.2)
Net debt⁽⁴⁾ as at 30 April 2023	29.2

The Group has a revolving credit facility (RCF) of £60m committed until October 2024. Interest is payable on the loan at a margin of between 1.65% and 2.40% above SONIA dependent on the current level of leverage. For banking purposes our leverage at the year-end was 1.18 against a covenant of up to 2.5. At this low level of leverage our interest margin is 1.85% above SONIA and we have headroom of over £30m in our RCF facility giving significant headroom to continue to support the growth strategy into 2024 through organic recruitment and strategic acquisitions. Due to the net inflow of interest earned on client monies held, any future increases in interest rates would result in increased profits and cashflows based on current arrangements in place.

Capital Expenditure

Capital expenditure during the year was £1.9m (FY22: £2.5m) excluding right of use assets as 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. The main investment during the year was in IT equipment and systems with c. £0.2m of this relating specifically to acquisitions completed in the year.

Acquisitions

During the year we signed and completed three acquisitions. The table below summarises the net impact of these 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.

The table also shows the net cash impact of the two acquisitions post year end of Baines Wilson LLP which completed on 2 June 2023, and St James' Square which completed on 16 June 2023.

Financial year ended	Acquisition of subsids (net of acquired cash) £m	Repayment of debt acquired with subsids £m	Contingent & deferred acq'n payments £m	Net cash impact of acquisitions pre year end £m	Net cash impact of acquisitions post year end £m
2023	6.0	0.7	5.1	11.8	-
2024	-	0.2	6.2	6.4	2.9
2025	-	0.1	4.7	4.8	1.0
2026	-	0.1	1.2	1.3	0.9
2027	-	-	-	-	0.3

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

Summary

Results for the year to 30 April 2023 reflect a year of acquisitive growth, consolidation and building on our core business platform. Although overall organic growth was flat, normalisation after one-off factors such as strategic exits from non-core service lines and higher than expected churn, together with strong organic growth in certain areas of the business and investment in recruitment and business development, place the Group in a strong position to leverage costs as the business continues to grow. We have maintained a strong Balance Sheet and have significant headroom within our existing banking facilities to fund further growth both organically and through acquisitions.

Kate Lewis
Chief Financial Officer

1. Consolidated Statement of Comprehensive Income

For the year ended 30 April 2023

	Note	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Revenue	5	142,080	125,604
Other operating income	7	6,718	1,270
Staff costs	8	(88,412)	(76,863)
Depreciation and amortisation charges	11	(11,616)	(10,778)
Impairment of trade receivables and contract assets		(468)	(498)
Other operating charges	12	(26,539)	(22,077)
Operating profit before non-underlying charges		21,763	16,658
Non-underlying operating costs	13	(6,791)	(13,260)
Non-underlying gains on disposals	13	318	-
Operating profit		15,290	3,398
Finance costs	14	(3,661)	(2,364)
Finance income	15	52	22
Non recurring finance costs	13	(152)	-
Profit before tax		11,529	1,056
Taxation	17	(3,175)	(1,840)
Non-underlying tax charge	17	(410)	(1,747)
Profit/(loss) and total comprehensive income for the year attributable to equity owners of the parent		7,944	(2,531)
Earnings per share		Pence	Pence
Basic earnings per share	18	9.28	(3.02)
Diluted earnings per share	18	9.19	(3.02)

The above results were derived from the Group's continuing operations. Options are not dilutive in prior periods in view of the loss incurred in that period.

Consolidated Statement of Financial Position

As at 30 April 2023

	Note	30 April 2023 £'000	30 April 2022 £'000
Assets
Non-current assets
Intangible assets and goodwill	20	88,021	82,172
Property, plant and equipment	22	10,004	10,240
Right-of-use assets	22	38,200	40,663
Finance lease receivables	26	1,671	1,091
		137,896	134,166
Current assets

Contract assets	23	38,215	31,777
Trade and other receivables	24	31,087	32,309
Finance lease receivables	26	315	76
Corporation tax asset		152	1,815
Cash and cash equivalents		4,045	4,097
Assets held for sale	27	-	1,195
		73,814	71,269
Total assets		211,710	205,435

Equity and liabilities
Equity
Share capital	25	171	169
Share premium		75,262	74,264
Merger reserve		(3,506)	(3,536)
Retained earnings		20,880	14,762
Equity attributable to owners of the parent		92,807	85,659

Non-current liabilities
Lease liabilities	28	38,585	41,183
Borrowings	29	33,076	32,798
Deferred consideration	30	2,482	2,421
Deferred tax	31	8,388	8,332
Provisions	33	4,090	4,331
		86,621	89,065

Current liabilities
Lease liabilities	28	6,331	5,345
Borrowings	29	189	355
Trade and other payables	32	20,832	21,362
Deferred consideration	30	2,367	1,210
Contract liabilities	23	218	237
Provisions	33	2,345	1,772
Liabilities held for sale	27	-	430
		32,282	30,711
Total liabilities		118,903	119,776
Total equity and liabilities		211,710	205,435

The financial statements were approved by the board and authorised for issue on 7 July 2023 and are signed on its behalf by:

Kate Lewis

Director Registered No. 11290101

Consolidated Statement of Changes in Equity

For the year ended 30 April 2023

	Note	Share capital £'000	Share premium £'000	Merger reserve £'000	Retained earnings £'000	Total £'000
As at 1 May 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
Profit for the period and total comprehensive income		-	-	-	7,944	7,944
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments	9	-	-	-	1,265	1,265
Issue of shares	25	2	998	-	-	1,000
Transfer		-	-	30	(30)	-
Dividends	19	-	-	-	(3,061)	(3,061)
Balance at 30 April 2023		171	75,262	(3,506)	20,880	92,807

Consolidated Statement of Cash Flows

For the year ended 30 April 2023

Note

Year ended 30 April 2023

£'000

Year ended 30 April 2022

£'000

Operating activities

Cash generated from operations

29,431

25,060

Non-underlying operating costs paid

(3,142)

(3,691)

Interest received

274

Tax paid

(2,424)

(4,095)

Contingent acquisition payments

(3,870)

(5,383)

Net cash from operating activities

19,995

12,165

Investing activities

Acquisition of subsidiaries (net of cash acquired)

(6,018)

(6,801)

Purchase of intangible fixed assets

(71)

(62)

Purchase of property, plant and equipment

(1,853)

(2,526)

Proceeds from lease receivables

237

Disposal of subsidiaries (net of cash disposed)

1,068

Landlord capital contribution

146

Associated lease costs

(23)

Payment of deferred consideration

(1,210)

(1,095)

Net cash used in investing activities

(7,847)

(10,331)

Financing activities

Proceeds of borrowings

34,425

47,350

Repayment of borrowings

(33,900)

(38,600)

Proceeds from exercise of share options

798

Repayment of debt acquired with current year subsidiaries

(256)

(2,903)

Repayment of debt acquired with prior year subsidiaries

(438)

Repayment of lease liabilities

(5,439)

(3,890)

Interest and other finance costs paid

(3,661)

(2,060)

Dividends paid

(3,061)

(1,233)

Net cash used in financing activities

(12,330)

(538)

Net (decrease)/increase in cash and cash equivalents

(182)

1,296

Cash and cash equivalents at the beginning of the period

4,227

2,931

Cash - continuing operations

4,045

4,097

Cash - assets held for disposal (note 27)

130

Total cash and cash equivalents at end of period

4,045

4,227

2. Notes to the Consolidated Financial Statements

For the year ended 30 April 2023

1. General Information

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

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

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

The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW

2. Accounting policies

2.1 Basis of preparation

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

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

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

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

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

2.2 Going concern

The accounts are prepared on a going concern basis as, at the time of approving the financial statements, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Group has a strong trading performance, generates strong operational cashflows and 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 and cash generation at an operating cashflow level has remained strong and in line with expectation. In order to satisfy the validity of the going concern assumption, a number of different trading scenarios including a reduction in revenues and costs and an increase in interest rate and lockup 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

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
Shulmans LLP	OC348166
ASB Law LLP	OC351354
ASB Aspire Limited Liability Partnership	OC327667
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
SLS Trust Corporation Limited.	12122733
Coffin Mew LLP	OC323868
Coffin Mew Trust Corporation Limited	11247326
Meade King LLP	OC349796

The outstanding liabilities at 30 April 2023 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 2023.

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.

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

2.5 Revenue

The Group earns revenue from the provision of legal and professional services. Revenue for these services is recognised over time in the accounting period 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 Interest received on client deposits

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

2.7 Taxation

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

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

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

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

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

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

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

2.8 Intangible assets - Goodwill

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

2.9 Intangible assets - Other than goodwill

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

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

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

- 3-25 years

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 3-25 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.

2.10 Property, plant and equipment

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

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

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

2.11 Impairment of non-financial assets

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

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

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

2.12 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.

2.13 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.

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

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

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

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

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

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

asset) whenever:

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

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

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

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

Group as lessor

The Group enters into lease agreements as a lessor with respect to two 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.

2.14 Retirement benefits

2.14a 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.

2.14b 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 liability has been recognised in the current or prior period (asset) 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.

2.15 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.

2.16 Financial instruments

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

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

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses ('ECL') on contract assets and trade and other receivables. The expected credit losses on trade receivables includes specific provisions against known receivables and an estimate using a provision matrix by reference to past experience, adjusted for forward looking considerations, and an analysis of the debtor's current financial position on the remaining balance. The expected credit losses on contract assets and other receivables is assessed based on 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 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 2023 was £9,488,000 (2022: £7,804,000).

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 (APM'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 2023 the Group had total provisions of £4,827,000 (2022: £4,462,000) (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 £38,215,000 (2022: £31,777,000), a 3% change in the estimated recovery of all matters would impact the profit for the period by approximately £1,407,000 (2022: £1,245,000).

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 £23,158,000 (2022: £25,122,000). 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%	3	(6)
WACC and IRR	8.3% - 10.1% (1)	Increase by 5%	48	(84)
Length of customer relationships	4 - 7.6 years	Increase of 5 years	(12)	248

(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 £59.7 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 FY24, 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 2023, with an element of organic growth in FY25 and FY26. The long-term growth rate of 2% (2022: 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 2023 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 2023 £'000	Year ended 30 April 2022 £'000
Other income	1,033	996
Bank interest on client monies	5,685	274
	6,718	1,270

8. Staff costs

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

	Year ended 30 April 2023 Number	Year ended 30 April 2022 Number
Fee earners	1,154	1,080
Other employees	288	268
	1,442	1,348

Their aggregate remuneration comprised:

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Wages and salaries	76,392	67,923
Social security costs	8,675	7,123
Other pension costs	2,520	2,324
Share based payment charge	1,265	835
Other employment costs	936	1,159
Aggregate remuneration of employees	89,788	79,364
Redundancy costs and share based payment charges analysed as non-underlying costs (note 13)	(1,376)	(2,501)
Underlying staff costs in Statement of Comprehensive Income	88,412	76,863

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 2023 £'000	Year ended 30 April 2022 £'000
Salaries, fees, bonuses and benefits in kind	838	892
Gains on exercise of options	-	913
Money purchase pension contributions	7	14
	845	1,819

The number of directors to whom benefits are accruing under money purchase pension schemes is 2 (2022: 2).

The remuneration of the highest paid director was:	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Salaries, fees, bonuses, benefits in kind and gains on exercise of options	300	1,133
Money purchase pension contributions	-	7
	300	1,140

9. Share-based payments

The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses of £1,265,000 (2022: £835,000) relating to equity-settled share-based payment transactions in the year. £1,248,000 (2022: £414,000) is recognised within staff costs and £17,000 (2022: £421,000) 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. 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 2021	586,323	0.2	243,810	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	-	-
Granted during the period	2,663,854	0.2	167,476	0.2
Dividend equivalents awarded	94,844	0.2	19,374	0.2
Forfeited during the period	(27,883)	0.2	(163,824)	0.2
Exercised during the period	(21,572)	0.2	-	-
Outstanding at 30 April 2023	3,170,654	0.2	367,064	0.2
Exercisable at 30 April 2023	222,929	0.2	-	-

The options outstanding at 30 April 2023 had a weighted average exercise price of 0.2p and a weighted average remaining contractual life of 1.62 years. The average share price for options exercised during the year was 135.98p.

During the year 2,663,854 options were granted as restricted stock awards. In addition, 167,476 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 during the year £2,230,000. 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
13 July 2022	337,679	428,177	127.00	0.2p	2.9 years	Restricted stock
13 July 2022	167,476	212,360	127.00	0.2p	3.0 years	Performance share
29 July 2022	509	686	135.00	0.2p	0.0 years	Restricted stock
12 September 2022	33,654	34,933	103.80	0.2p	2.0 years	Restricted stock
20 September 2022	19,832	19,792	99.80	0.2p	1.0 years	Restricted stock
20 September 2022	19,831	19,791	99.80	0.2p	2.0 years	Restricted stock
20 September 2022	19,831	19,791	99.80	0.2p	3.0 years	Restricted stock
21 September 2022	20,000	20,330	101.65	0.2p	1.0 years	Restricted stock
4 November 2022	727,802	481,805	66.20	0.2p	1.0 years	Restricted stock
4 November 2022	727,802	481,805	66.20	0.2p	2.0 years	Restricted stock
4 November 2022	363,901	240,902	66.20	0.2p	3.0 years	Restricted stock
4 November 2022	363,901	240,902	66.20	0.2p	4.0 years	Restricted stock
6 December 2022	29,112	29,054	99.80	0.2p	3.0 years	Restricted stock

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 2021	165,039	330,079
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
Withdrawn during the period	(6,149)	-
Forfeited during the period	-	(12,298)
Outstanding at 30 April 2023	118,196	236,393
Unrestricted at 30 April 2023	118,196	236,393

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 2021	1,238,954	244
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
Forfeited during the period	(996,259)	274
Outstanding at 30 April 2023	870,168	306
Exercisable at 30 April 2023	133,334	361

The options outstanding at 30 April 2023 had a weighted average exercise price of 306p and a weighted average remaining contractual life of 2.00 years.

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 share options exercised in respect of this scheme as at 30 April 2023 is 505,533. There are no share options 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%

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

March 2022 Scheme

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

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 £2,520,000 (2022: £2,324,000) represents contributions payable to the scheme by the Group. As at 30 April 2023, total contributions of £515,000 (2022: £892,000) 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 2023.

11. Depreciation and amortisation charges

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Depreciation	2,364	2,027
Depreciation on right-of-use assets	5,706	4,799
Amortisation	3,544	3,936
Loss on disposal of property, plant and equipment	2	16
	11,616	10,778

12. Other operating charges

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Establishment costs	6,888	5,633
Short term and low value lease costs	302	187
Other overhead expenses	19,349	16,257
	26,539	22,077

13. Non-underlying operating costs

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Redundancy and reorganisation staff costs	1,359	2,080
Transaction costs	953	988
Onerous short life asset leases	-	472
Impairment of right-of-use assets	38	2,065
(Profit)/loss on disposal of intangible assets and property, plant and equipment	(12)	967
Share based payment charges	17	421
Contingent consideration treated as remuneration	4,436	6,267
	6,791	13,260
Non underlying gains on disposal	(318)	-
	6,473	13,260
Non underlying finance costs	152	-
	6,625	13,260

Non-underlying costs cash movement

Year ended 30 April 2023

£'000

Year ended 30 April 2022

£'000

Non-underlying operating costs

6,625

13,260

Adjustments for:

Contingent consideration shown separately

(4,436)

(6,267)

Non cash movements:

Share based payment charge

(17)

(421)

Impairment of right of use assets

(38)

(2,065)

Profit/(loss) on disposal of property, plant and equipment

(967)

Onerous leases

(97)

Accrual

218

248

Non underlying gains on disposal

318

Non-underlying finance costs

(152)

Additional cash movements:

Rental payments on onerous leases

543

Service charge payments on onerous leases

Receipt for sale of HPL fixed assets

(24)

3,141

3,691

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. On 5 July 2022 the group disposed of Home Property Lawyers Limited, a former subsidiary of the Group, this was sold for a total consideration of £1,276,000 with a profit on disposal of £318,000. The profit on disposal has been recognised within non-underlying costs.

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 2023 £'000	Year ended 30 April 2022 £'000
Interest on borrowings	2,135	952
Interest on leases	1,526	1,412
	3,661	2,364

15. Finance income

Year ended 30 April 2023

£'000

Year ended 30 April 2022

£'000

Lease interest receivable

16. Auditor's remuneration

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Fees payable to the parent company's auditor and their associates for the audit of the parent company's annual accounts	43	36
Fees payable to the auditor and their associates for other services to the Group:
- The audit of the Company's subsidiaries	150	126
Total audit fees	193	162

- Audit-related assurance services	22	19
Total non-audit fees	22	19

17. Taxation

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Corporation tax:
Current year	4,208	1,574
Adjustments in respect of prior years - non-underlying	(161)	-
Adjustments in respect of prior years	39	(96)
	4,086	1,478
Deferred tax:
Origination and reversal of temporary differences	(1,072)	362
Effect of change in tax rates	122	1,747
Adjustment in respect of prior years	449	-
	(501)	2,109

Tax expense for the year	3,585	3,587

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

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000

Profit before tax	11,529	1,056
Tax at the UK corporation tax rate of 19.5% (2022: 19%)	2,248	201
Expenses that are not deductible in determining taxable profit	679	1,735
Partnership tax paid on acquired subsidiaries	209	-
Effect of change in tax rates	122	1,747
Adjustment in respect of prior years - non-underlying	289	-
Adjustment in respect of prior years	38	(96)
Tax expense for the year	3,585	3,587
Consisting of:
Taxation	3,175	1,840
Non-underlying tax charge	410	1,747

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

	Year ended 30 April 2023			Year ended 30 April 2022
	Total £'000	Underlying £'000	Non-Underlying £'000	Total £'000	Underlying £'000	Non-Underlying £'000

Profit before tax	11,529	21,595	(10,066)	1,056	18,131	(17,075)
Tax expense	3,175	4,304	(1,129)	1,840	3,709	(1,869)
Effective rate of tax	28%	20%	11%	174%	20%	11%

Change in tax rate	122	-	122	1,747	136	1,611
Other non-underlying tax credits	288	-	288	-	-	-
	410	-	410	1,747	136	1,611

Total tax charge	3,585	4,304	(719)	3,587	3,845	(258)
Effective rate of tax (post effect of non-underlying)	31%	20%	7%	340%	21%	2%

On 1 April 2023, the UK corporation tax rate increased from 19% to 25%.The effect of the new rate on the Group's tax charge has been applied to the financial statements. 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 2023 £'000	Year ended 30 April 2022 £'000
Tax Charge at 19%	3,463	(1,840)
Tax Charge at 25%	3,585	(3,587)
Impact of change in tax rate	(122)	(1,747)

The impact of the change in tax rate on deferred tax 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 2023 Number	Year ended 30 April 2022 Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	85,597,833	83,717,952
Effect of dilutive potential ordinary shares:
Share options	878,031	409,640
Weighted average number of ordinary shares for the purposes of diluted earnings per share	86,475,864	84,127,592
	£'000	£'000
Profit/(loss) after tax	7,944	(2,531)
Earnings per share	Pence	Pence
Basic earnings per share	9.28	(3.02)
Diluted earnings per share	9.19	(3.02)

As the Group incurred a loss after tax for the year ended 30 April 2022, the options were non-dilutive and basic and diluted earnings per share were the same in the prior year.

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

19. Dividends

	Year ended 30 April 2023 £'000	Year ended 30 April 2022 £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 30 April 2022 of 2.04p per share (2021: 0p)	1,749	-
Interim dividend for the year ended 30 April 2023 of 1.53p per share (2022: 1.46p per share)	1,312	1,233
	3,061	1,233

For the year ended 30 April 2023 the Board have proposed a final dividend of 2.50p per share (2022: 2.04p 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 1 September 2023. 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 £'000	Purchased computer software £'000	Total £'000
Cost
As at 1 May 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
Acquisitions of subsidiaries	7,764	-	1,609	-	9,373
Adjustments	213	-	(29)	(10)	174
Additions	-	-	-	71	71
Disposals	(78)	-	(177)	(169)	(424)
As at 30 April 2023	59,661	5,401	35,134	495	100,691

Amortisation and impairment
As at 1 May 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
Adjustments	-	-	(3)	(10)	(13)
Amortisation charge	-	54	3,387	103	3,544
Eliminated on disposal	-	-	(17)	(169)	(186)
As at 30 April 2023	-	432	11,976	262	12,670

Carrying amount
At 30 April 2023	59,661	4,969	23,158	233	88,021
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

During the year ended 30 April 2022, the initial accounting for the business combination which occurred at the end of the prior year was not complete and further information came to light about estimated provisions and debt items which existed at the acquisition date.

On settling debt items on completion, it became apparent that some items had been accounted 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 was corrected. The error was not considered to be qualitatively material, as it has no impact on reported profits or cash flows and was c 2% of intangible assets. It was not, therefore, considered to be a prior period adjustment.

The carrying amount of goodwill of £59,661,000 (2022: £51,762,000) 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% (2022: 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 11.1% (2022: 12.4%).

Revenue growth over the three years of the forecast period reflects, for FY24, 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 2023, and an element of organic growth in FY25 and FY26 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 Coffin Mew LLP, Meade King LLP and Globe Consultants Limited. 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	4,888
Goodwill	7,764
Total consideration	12,652

Satisfied by:
Cash	9,292
Equity instruments (1,152,078 ordinary shares of Knights Group Holdings plc)	1,000
Deferred consideration arrangement	2,360
Total consideration transferred	12,652

Net cash outflows arising on acquisition:
Cash consideration net of cash acquired	6,018
Net investing cash outflow arising on acquisition	6,018

Repayment of debt acquired	256
Net financing cash outflow arising on acquisition	256

The allocation of fair values is incomplete at the period end and values are provisional. 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.

Coffin Mew LLP ('Coffin Mew')

On 18 May 2022, the Group exchanged contracts to acquire Coffin Mew by purchasing 100% of the membership interests of the entity. This acquisition completed on 8 July 2022. Coffin Mew is a law firm which will strengthen Knights' existing offering and presence in the South of England and provides entry into a number of new locations with offices in Portsmouth, Southampton, Brighton and Newbury.

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below. These figures are provisional as the purchase accounting is not yet finalised:

	Carrying amount £'000	Fair value adjustment £'000	Total £'000
Identifiable assets
Identifiable intangible assets relating to customer relationships	-	1,377	1,377
Property, plant and equipment	225	-	225
Right-of-use assets	-	4,015	4,015
Contract assets	2,110	(350)	1,760
Trade and other receivables (net of £353,000 loss allowance provision)	1,661	-	1,661
Cash and cash equivalents	2,667	-	2,667
Liabilities
Trade and other payables	(2,785)	591	(2,194)
Lease liabilities	-	(4,015)	(4,015)
Borrowings	-	(35)	(35)
Provisions	(1,063)	-	(1,063)
Deferred tax	-	(503)	(503)
Total identifiable assets and liabilities	2,815	1,080	3,895
Goodwill			7,236
Total consideration			11,131


Satisfied by:
Cash			7,771
Deferred consideration			2,360
Equity instruments (1,152,078 Ordinary Shares of Knights Group Holdings plc)			1,000
Total consideration transferred			11,131

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			5,104
Repayment of debt			35
Net cash outflow arising on acquisition			5,139

Intangibles relating to customer relationships of £1,377,000 has been arrived at using the excess earnings method. The goodwill of £7,236,000 represents the assembled workforce, with the acquisition bringing a number of new fee earners and expected synergies. None of the goodwill is expected to be deductible for income tax purposes.

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

The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £2,500,000 which is payable in equal instalments on the first, second and third anniversary of completion.

There are also undiscounted deferred consideration payments totalling £2,500,000 outstanding. This is payable in instalments on the first, second and third anniversaries of completion.

Coffin Mew contributed £7,566,000 of revenue to the Group's Statement of Comprehensive Income for the period from 18 May 2022 to 30 April 2023. 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 8 July 2022.

If the acquisition occurred at the beginning of the year Coffin Mew would have contributed £7,856,000 of revenue to the Group. Profit is not separately identifiable due to the full integration on hive up.

Globe Consultants Limited

On 9 May 2022, the group acquired the entire share capital of Globe Consultants Limited (Globe), a planning business with 5 employees. Total consideration transferred was £122,000.

Globe contributed £224,000 of revenue to the Group's Statement of Comprehensive Income for the period from 11 May 2022 to 30 April 2023. 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 11 May 2022.

If the acquisition occurred at the beginning of the year Globe would have contributed £229,000 of revenue to the Group. Profit is not separately identifiable due to the full integration on hive up.

Meade King LLP

On 13 January 2023, the Group exchanged contracts to acquire Meade King LLP, through the agreement to purchase the interests of the equity partners. This acquisition completed on 17 February 2023. Meade King is a law firm based in Bristol, which will strengthen Knights existing offering and presence in the South West region by adding a second office.

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 relating to customer relationships	-	155	155
Property, plant and equipment	79	-	79
Right-of-use assets	-	197	197
Contract assets	747	(50)	697
Trade and other receivables (net of £48,000 loss allowance provision)	234	-	234
Cash and cash equivalents	515	-	515
Liabilities
Trade and other payables	(380)	(53)	(433)
Lease liabilities	-	(197)	(197)
Borrowings	(221)	-	(221)
Provisions	-	(115)	(115)
Deferred tax	-	(39)	(39)
Total identifiable assets and liabilities	974	(102)	872
Goodwill			527
Total consideration			1,399


Satisfied by:
Cash			1,399
Total consideration transferred			1,399

Net cash outflow arising on acquisition:
Cash consideration (net of cash acquired)			884
Repayment of debt			221
Net cash outflow arising on acquisition			1,105

Intangibles relating to customer relationships of £155,000 has been arrived at using the excess earnings method. Goodwill of £527,000 represents the assembled workforce, with the acquisition bringing a number of new fee earners and expected synergies. 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 as a remuneration expense over the 3 year post acquisition period. This is recognised within non-underlying operating costs.
The maximum undiscounted amount of all potential future payments under the contingent consideration arrangement is £624,000 and is payable in equal instalments on the first, second and third anniversary of completion.

Meade King contributed £974,000 of revenue to the Group's Consolidated Statement of Comprehensive Income for the period from 13 January 2023 to 30 April 2023. 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 17 February 2023.

If the acquisition occurred at the beginning of the year Meade King would have contributed £3,073,000 of revenue to the Group. Profit is not separately identifiable due to the full integration on hive up.

22. Property, plant and equipment

	Expenditure on short leasehold property £'000	Office equipment £'000	Furniture and fittings £'000	Motor Vehicles £'000	Right-of-use assets £'000	Total £'000
Cost
As at 1 May 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
Acquisitions of subsidiaries	117	151	41	-	4,212	4,521
Additions	229	1,328	206	90	47	1,900
Disposals	(3)	(716)	(1)	-	(1,509)	(2,229)
Alignment	(10)	(4)	(1)	-	-	(15)
As at 30 April 2023	8,690	6,452	1,317	90	55,487	72,036

Depreciation and impairment
As at 1 May 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
Depreciation charge	857	1,369	127	11	5,706	8,070
Eliminated on disposal	(3)	(684)	1	-	(531)	(1,217)
Impairment					38	38
Alignment	(8)	(3)	(4)	-	-	(15)
As at 30 April 2023	2,465	3,501	568	11	17,287	23,832

Carrying amount
At 30 April 2023	6,225	2,951	749	79	38,200	48,204
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

Net impairment of £38,125 (2022: £2,065,000) 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 2023	38,215	23,610	(218)
As at 30 April 2022	31,777	26,643	(237)
As at 1 May 2021	28,530	25,951	(216)

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 2023 was £9,488,000 (2022: £7,804,000).

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 £2,457,000 (2022: £3,731,000) were acquired in business combinations.

An impairment loss of £41,000 has been recognised in relation to contract assets in the year (2022: £41,000). 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% (2022: 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 2023 £'000	30 April 2022 £'000
Trade receivables	24,524	27,908
Impairment provision - trade receivables	(914)	(1,265)
Prepayments and other receivables	7,477	5,666
	31,087	32,309

Trade receivables

The average credit period taken on sales is 30 days as at 30 April 2023 (2022: 31 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 a provision matrix when measuring 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 2023		2023					2022
	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	13,108	40		0.31		14,553	52	0.36
31-60 days past due	2,961	16		0.55		3,077	14	0.45
61-90 days past due	1,099	10		0.85		1,231	4	0.34
91-120 days past due	187	4		2.01		496	11	2.29
>120 days past due	2,548	738		28.96		2,861	854	29.88
12 month ECL £'000	19,903	808		4.06		22,218	935	4.21

In addition to the above on trade receivables a further £106,000 (2022: £330,000) 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:


	2023	2022
	£'000	£'000
Balance at 1 May	1,265	1,002
Increase in loss allowance recognised in profit of loss during the year	468	498
Acquired provisions	401	212
Receivables written off during the year as uncollectable	(1,220)	(447)
Balance at 30 April	914	1,265

25. Share capital

	Ordinary shares
	Number	£'000

As at 1 May 2021	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
Changes during the period
Ordinary shares of 0.2p each issued in respect of exercised share options	21,488	-
Ordinary shares of 0.2p each issued in respect of exercised share options equivalent to dividend entitlement	84	-
Ordinary shares of 0.2p each issued as consideration in the purchase of subsidiaries	1,152,078	2
At 30 April 2023 (allotted, called up and fully paid)	85,813,976	171

Included in the consideration for the purchase of subsidiaries is 1,152,078 shares in respect of the purchase of Coffin Mew LLP (see note 21).

26. Finance lease receivable

The Group sub-leases floors in two office buildings on head leases that were acquired in previous periods. The Group has classified the sub-leases as finance leases because the sub-leases are for the whole of the remaining term of the head leases.

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 2023 £'000	30 April 2022 £'000
Less than one year	375	222
One to two years	375	222
Two to three years	375	222
Three to four years	375	222
Four to five years	375	222
More than five years	435	388
	2,310	1,498
Less: unearned finance income	(324)	(331)
	1,986	1,167

Finance lease receivable	30 April 2023	30 April 2022
	£'000	£'000

> 1 year	1,671	1,091
< 1 year	315	76
	1,986	1,167

Total lease payments received for the year ended 30 April 2023 was £237,000 (2022: £30,000)

During the year, the Group sublet a floor in the Lincoln office. The present value of this investment was £1,003,000 and the right-of-use asset derecognised had a carrying value of £938,000. The profit of £65,000 has been recognised in non-underlying operating costs.

The Group's finance lease arrangements do not include variable payments.

The directors of the Group estimate the loss allowance on finance lease receivables at the end of the reporting period at an amount equal to lifetime ECL. None of the finance lease receivables at the end of the reporting period is past due, and considering the historical default experience and the future prospects of the sectors in which the lessees operate, the directors of the Group consider that no finance lease receivable is impaired.

27. Disposal of subsidiary

On 25 March 2022 the Group completed the acquisition of Home Property Lawyers Limited (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 were presented as a disposal of subsidiary held for sale as at 30 April 2022.

On 5 July 2022 the Group exchanged contracts to dispose of HPL. This was sold for a total consideration of £1,276,000 with a profit on disposal of £318,000. The profit on disposal has been recognised within non-underlying costs in the Consolidated Statement of Comprehensive Income.

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 did not include £69,765 due from other Group entities which were eliminated on consolidation.

28. Lease liabilities

Incremental borrowing rates applied to individual leases ranged between 1.68% and 6.51%.

The table below sets out the Consolidated Statement of Financial Position as at 30 April 2023 and 30 April 2022:

	30 April 2023 £'000	30 April 2022 £'000
Right-of-use assets
Property	37,693	39,691
Equipment	507	972
	38,200	40,663
Lease liability
> 1 year	38,585	41,183
< 1 year	6,331	5,345
	44,916	46,528

Right of use assets include additions and acquired assets of £4,212,000 (2022: £7,452,000) for property and £47,000 (2022: £916,000) for equipment. There is also depreciation of £5,234,000 (2022: £4,397,000) for property and £472,000 (2022: £402,000) for equipment.

The table below shows lease liabilities maturity analysis - contractual undiscounted cash flows at 30 April 2023:

	30 April 2023			30 April 2022
	Property	Equipment	Total	Property	Equipment	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Less than one year	7,312	426	7,738	6,213	496	6,709
One to five years	23,473	86	23,559	21,313	506	21,819
More than five years	22,491	-	22,491	22,701	1	22,702
	53,276	512	53,788	50,227	1,003	51,230
Less unaccrued future interest	(8,849)	(23)	(8,872)	(4,663)	(39)	(4,702)
	44,427	489	44,916	45,564	964	46,528

The table below shows amounts recognised in the Consolidated Statement of Comprehensive Income for short term and low value leases as at 30 April 2023:

	30 April 2023			30 April 2022
	Property £'000	Equipment £'000	Total £'000	Property £'000	Equipment £'000		Total £'000
Expenses relating to short - term and low value leases	271	31	302	146	41	187

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 2023 were £7,810,000 (2022: £5,488,000).

29. Borrowings

	30 April 2023 £'000	30 April 2022 £'000
Secured borrowings at amortised cost:
Bank loans	32,925	32,400
Other loans	340	753
Total borrowings	33,265	33,153
Amount due for settlement within 12 months	189	355
Amount due for settlement after 12 months	33,076	32,798

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 (2022: £60,000,000). The facility remains available until 29 October 2024.

The facility is a revolving credit facility and has the ability to roll on a monthly, quarterly, half yearly basis or any other period at the Groups option 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 2023 £'000	30 April 2022 £'000
Non-current liabilities
Deferred consideration	2,482	2,421

Current liabilities
Deferred consideration	2,367	1,210

Deferred consideration as at 30 April 2023 relates to the acquisition of Langleys Solicitors LLP and Coffin Mew LLP and is not contingent.

In addition, the Group has accrued contingent consideration relating to acquisitions included within trade and other payables. This is contingent based upon the continued employment of certain individuals 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 2021	544	5,840	(449)	(280)	5,655
Acquisitions of subsidiaries	-	454	-	-	454
Adjustments	125	(11)	-	-	114
Effect for 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
Acquisitions of subsidiaries	-	403	-	159	562
Adjustments	-	(5)	-	-	(5)
Effect of change in tax rate	87	77	(73)	31	122
Non-underlying charge/(credit) for the year	-	(445)	296	598	449
Credit for the year	(103)	(780)	(163)	(26)	(1,072)
As at 30 April 2023	1,376	7,032	(459)	439	8,388

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 2023 £'000	30 April 2022 £'000
Deferred tax assets	(459)	(842)
Deferred tax liabilities	8,847	9,174
	8,388	8,332

32. Trade and other payables

	30 April 2023 £'000	30 April 2022 £'000
Trade payables	5,531	4,664
Other taxation and social security	7,350	7,370
Other payables	2,410	1,978
Accruals	5,541	7,350
	20,832	21,362

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 25 days (2022: 26 days). No interest is payable on the trade payables.

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

33. Provisions

	Dilapidation provision £'000	Onerous contract provision £'000	Professional indemnity provision £'000	Total £'000
As at 1 May 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
Acquisitions of subsidiaries	777	-	425	1,202
Additional provision in the year	44	8	500	552
Utilisation of provision	(456)	(152)	(814)	(1,422)
As at 30 April 2023	4,827	282	1,326	6,435

Consisting of:
Non-current liabilities	3,888	202	-	4,090
Current liabilities	939	80	1,326	2,345

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 no longer utilised but 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 2023 £'000	30 April 2022 £'000
Financial assets
Amortised cost
Contract assets	38,215	31,777
Trade and other receivables (excluding prepayments)	24,715	26,919
Lease receivable	1,986	1,167
Cash and cash equivalents	4,045	4,097
Financial liabilities
Amortised cost
Borrowings	33,265	33,153
Deferred consideration	4,849	3,631
Trade and other payables	11,077	13,992
Leases	44,916	46,528

Financial risk management objectives

The Group's Executive board and 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 2023 would decrease/increase by £166,000 (2022: decrease/increase by £166,000). 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 slightly during the current year due to the increase in interest rates.

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.

Measurement of fair values

Financial assets and liabilities are measured in accordance with the fair value hierarchy and assessed as Level 1, 2 or 3 based on the following criteria:

· Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

· Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

Contingent consideration, held at fair value through profit or loss, is a Level 3 financial liability. The remaining financial instruments are measured at amortised cost. The carrying values of the Group's financial assets and liabilities approximate their fair values.

The 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 2023	< 1 year £'000	1-2 years £'000	2-5 years £'000	Total £'000
Borrowings	189	33,028	48	33,265
Deferred consideration	2,367	2,328	154	4,849
Trade and other payables	13,482	-	-	13,482

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

Trade and other payables above exclude other taxation and social security costs.

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 2023 £'000	30 April 2022 £'000
Borrowings (note 29)	33,265	33,153
Cash and cash equivalents	(4,045)	(4,097)
Asset held for sale (note 28)	-	(130)
Net debt	29,220	28,926
Equity	92,807	85,659
	%	%
Net debt to equity ratio	31	34

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 2023 £'000	Year ended 30 April 2022 £'000
Profit before taxation	11,529	1,056
Adjustments for:
Amortisation	3,544	3,936
Depreciation - property, plant and equipment	2,364	2,027
Depreciation - right-of-use assets	5,706	4,799
Loss on disposal (net of £12,000 profit) (2022: £967,000) included in non-underlying costs)	2	16
Contingent consideration expense	4,436	6,267
Non-underlying operating costs	2,338	6,572
Non-underlying finance costs	152	-
Non-underlying gain on disposal	(318)	-
Non-underlying share based payments	17	161
Share based payments	1,248	674
Interest income	(52)	(296)
Interest expense	3,661	2,364
Operating cash flows before movements in working capital	34,627	27,576
(Increase)/decrease in contract assets	(3,924)	628
Decrease in trade and other receivables	3,346	570
(Decrease)/increase in provisions	(738)	469
(Decrease)/Increase in contract liabilities	(19)	21
Decrease in trade and other payables	(3,861)	(4,204)
Cash generated from operations	29,431	25,060

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 2021

24,064

42,640

New borrowings and leases

47,350

3,083

Acquired borrowings and 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 1 May 2022

33,153

46,528

New borrowings and leases

34,425

Acquired borrowings and leases

256

4,212

Interest charged

2,135

1,526

Interest paid

(2,135)

(1,526)

Non-cash movement

Repayment of debt acquired with prior year subsidiaries

(438)

Repayments

(34,156)

(5,439)

Amounts included in operating activities

(388)

As at 30 April 2023

33,265

44,916

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 measure and year on year 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 2023 £'000	Year ended 30 April 2022 £'000
Operating profit	15,290	3,398
Depreciation and amortisation charges (note 11)	11,616	10,778
Non-underlying costs (note 13)	6,791	13,260
Non-underlying gains on disposal (note 13)	(318)	-
Underlying EBITDA	33,379	27,436

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 2023 £'000	Year ended 30 April 2022 £'000
Profit before tax	11,529	1,056
Amortisation (adjusted for amortisation on computer software)	3,441	3,815
Non-underlying costs (note 13)	6,791	13,260
Non-underlying gains on disposal (note 13)	(318)	-
Non-underlying finance costs (note 13)	152	-
Underlying profit before tax	21,595	18,131

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 2023 £'000	Year ended 30 April 2022 £'000

Profit/(Loss) after tax	7,944	(2,531)
Non-underlying tax charge (note 17)	410	1,747
Amortisation (adjusted for amortisation on computer software)	3,441	3,815
Non-underlying operating costs (note 13)	6,625	13,260
Tax in respect of the above (note 17)	(1,129)	(1,869)
Underlying profit after tax	17,291	14,422
Underlying earnings per share	Pence	Pence
Basic underlying earnings per share	20.20	17.23
Diluted underlying earnings per share	20.00	17.14

Tax has been calculated at the corporation tax rate of 19.5% (2022:19%) and deferred tax rate of 25% (2022:25%)

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 2023 £'000	Year ended 30 April 2022 £'000
Cash generated from operations (note 35)	29,431	25,060
Tax paid	(2,424)	(4,095)
Net cash outflow for IFRS16 leases	(6,728)	(5,302)
Free cashflow	20,279	15,663
Underlying profit after tax	17,291	14,422
Cash conversion (%)	117%	109%

(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 2023	30 April 2022
	£'000	£'000
Borrowings (note 29)	33,265	33,153
Cash and cash equivalents	(4,045)	(4,097)
Asset held for sale (note 27)	-	(130)
Net debt	29,220	28,926

38. Capital commitments

As at 30 April 2023 there is a capital commitment of £nil (2022: £72,000).

39. Defined benefit pension schemes

The Stonehams Pension Scheme

The Group operates a legacy 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 2023. The scheme is closed and provides benefits for 40 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 2021. The results of that valuation were updated to 30 April 2023 allowing for cashflows in and out of the Scheme and changes to assumptions over the period.

From January 2022 it was agreed that Employer contributions towards administration expenses would be deferred until January 2025. Administration expenses are to be 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 12 years.

Actuarial assumptions

Principal actuarial assumptions

	30 April 2023 %	30 April 2022 %
Discount rate	4.66	3.05
Retail Prices Index ("RPI") Inflation	3.28	4.00
Consumer Price Index ("CPI") Inflation	2.38	3.30
Pension increase (LPI 5%) Pension increase (LPI 2.5%)	3.16 2.17	3.72 2.34
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	24.2
Life expectancy at age 65 of female aged 45	23.6	23.6
Life expectancy at age 65 of female aged 65	25.4	25.3

The weighted average duration of the Scheme's obligations is 12 years.


The current asset split is as follows
	Asset allocation at 30 April 2023	Asset allocation at 30 April 2022

Equities and growth assets	50%	70%
Bonds, LDI and cash	50%	30%


	Value as at 30 April 2023 £'000	Value as at 30 April 2022 £'000
Fair value of assets	2,314	3,047
Present value of funded obligations	(1,736)	(2,355)
Surplus in scheme	578	692
Deferred tax	-	-
Net defined benefit surplus after deferred tax	578	692

The fair value of the assets can be analysed as follows:
	Value as at 30 April 2023 £'000	Value as at 30 April 2022 £'000
Low risk investment funds	1,156	625
Credit Investment funds	696	1,513
Cash	462	909
Fair value of assets	2,314	3,047


	30 April 2023 £'000	30 April 2022 £'000
Administration costs	39	28
Net interest on liabilities	(21)	(8)
Total charge to the Statement of Comprehensive Income	18	20

Remeasurements over the period since acquisition
	30 April 2023 £'000	30 April 2022 £'000
Loss on assets in excess of interest	(694)	(115)
Gain on scheme obligation from assumptions and experience	675	361
Loss on scheme obligations due to scheme experience	(77)	-
Gain on scheme obligations from demographic assumptions	-	2
Total remeasurements	(96)	248


The change in value of assets
	30 April 2023 £'000	30 April 2022 £'000
Fair value of assets brought forward	3,047	3,255
Interest on assets	91	58
Benefits paid	(91)	(123)
Administration costs	(39)	(28)
Loss on assets in excess of interest	(694)	(115)
Fair value of assets carried forward	2,314	3,047

Actual return on assets	(603)	(57)


Change in value of liabilities
	30 April 2023 £'000	30 April 2022 £'000
Value of liabilities brought forward	2,355	2,791
Interest cost	70	50
Benefits paid	(91)	(123)
Actuarial gain	(598)	(363)
Value of liabilities carried forward	1,736	2,355


Sensitivity of the value placed on the liabilities
Approximate effect on liability
	30 April 2023 £'000	30 April 2022 £'000
Discount rate
Minus 0.50%	110	191
Inflation
Plus 0.50%	89	139
Life Expectancy
Plus 1.0 years	52	102

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 the transaction completed on 17 April 2020.

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

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

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

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

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

Estimated funding position as at 30 April:

	Scheme funding basis
	30 April 2023	30 April 2022
	£'000	£'000
Total assets	64,200	80,100
Total liabilities excluding expenses	(68,500)	(78,500)
(Deficit)/Surplus	(4,300)	1,600
Funding level	94%	102%

Information provided for 30 April 2023 is as at 31 March 2023, the latest information available. This is not expected to be materially different from the 30 April 2023 position.

Allocation to the Group

The estimated share of the Scheme liabilities is 0.790%.

Over the year to 30 April 2023, the Section's funding position is a small deficit.

	30 April 2023	30 April 2022
	£'000	£'000
Estimated cost of providing benefits	(541)	(620)
Value of assets	507	633
Resulting (deficit)/surplus	(34)	13
Funding level	94%	102%

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

The Trustee continues to monitor the funding position.

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

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 (2022: £376,000) were charged by KPV Propco Ltd to the Group. A 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).

During the year Knights Professional Services Limited charged KPV Propco Ltd for professional services totalling £nil (2022: £1,000) and a management fee of £20,000 (2022: £20,000)

At 30 April 2023, there was an amount of £16,000 owed by KPV Propco Ltd to the Group (2022: £55,000 owed by the Group to KPV Propco Ltd).

During the year Knights Professional Services Limited provided legal services to the Directors in an individual capacity of £32,000 (2022: £77,000). At 30 April 2023, there was an amount of £nil (2022: £nil) 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 2023 £'000	Year ended 30 April 2022 £'000
Short-term employee benefits and social security costs	1,422	1,424
Gains on exercise of options	-	913
Pension costs	20	25
Share-based payments	50	(132)
	1,492	2,230

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 £664,000 (2022: £250,000) were paid in the year in respect of ordinary shares held by the Company's directors.

41. Contingent liability

Included within other creditors is a contingent consideration liability, this arises on acquisition and the liability is contingent on employees completing a specified length of service. The value of the contingent liability is £4,795,000 (2022: £6,204,000).

42. Post balance sheet events

On 1 May 2023 the Group exchanged contracts to acquire 100% of the voting rights of Baines Wilson LLP, a leading commercial law firm in the North West of England with offices in Carlisle and Lancaster.

Total consideration payable is £3.37 million. This comprises an initial cash consideration of £2.35m, with deferred cash consideration of £1.02m to be paid as £0.34m on the first, second and third anniversaries following completion in each case subject to the satisfaction of certain conditions. Completion took place on 2 June 2023.

In its unaudited accounts for the year ended 31 March 2023, Baines Wilson reported revenue of £3.2m and a corporatised PBT margin of circa 20%. Accounting for a typical 20% revenue churn post-acquisition, the Board expects the acquisition to be immediately earnings enhancing, with Baines Wilson expected to contribute an adjusted PBT margin of circa 25% post synergy savings.

On 1 May 2023 the Group exchanged contracts to acquire 100% of the share capital of St James' Law Limited (trading as St James' Square), an independent full service commercial law firm located in Newcastle, the financial centre of the North East of England.

Under the terms of the acquisition, Knights will acquire St James' Square from its four existing owner-managers, two employees and an investor on a debt free, cash free basis, for a total consideration of £1.75m. This comprises an initial cash consideration of £0.5m, with deferred payments of £1.25m to be paid as £0.7m on the first and £0.55m on the second anniversary following completion in each case subject to the satisfaction of certain conditions. Completion took place on 16 June 2023.

In its unaudited accounts for the year ended 31 December 2022, St James' Square reported revenue of £2.4m and a corporatised PBT margin, excluding the debt recovery business, of circa 5%. Accounting for a typical 20% revenue churn post-acquisition, the Board expects the acquisition to be immediately earnings enhancing, with St James' Square expected to contribute an adjusted PBT margin of circa 15% post synergy savings.

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 acquisitions, cannot be given.

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.

Working Capital

Working capital is calculated as:

	30 April 2023 £'000	30 April 2022 £'000
Current assets
Contract assets	38,215	31,777
Trade and other receivables	31,087	32,309
Corporation tax receivable	152	1,815
Total current assets	69,454	65,901

Current liabilities
Trade and other payables	20,832	21,362
Contract liabilities	218	237
Total current liabilities	21,050	21,599
Net working capital	48,404	44,302

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. Churn excludes expected churn from acquisitions and restructuring redundancies.

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.

Top 50 clients

Based on fee income from the 50 largest clients for the year, excluding CL Medilaw and one off transactions.

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.

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