Preliminary Results for the year to 30 April 2018

RNS Number : 8109U
Gateley (Holdings) PLC
17 July 2018
 

For Immediate Release

17 July 2018

 

Gateley (Holdings) Plc

 

("Gateley" the "Group" or the "Company")

 

Preliminary Results for the year ended 30 April 2018

 

"Continuing to build momentum and resilience into our business model"

 

Gateley (AIM:GTLY), the law-led professional services group is pleased to report its audited preliminary results for the year ended 30 April 2018.

 

Financial Highlights

·      Revenue increased 11.0% to £86.1m (2017: £77.6m)

·      Adjusted EBITDA* increased 10.6% to £16.5m (2017: £14.9m)

·      Profit before tax increased 11.7% to £14.6m (2017: £13.1m)

·      Basic EPS increased 17.0% to 11.03p (2017: 9.43p)

·      Proposed final dividend of 4.8p (2017: 4.4p) representing a full year dividend of 7.0p (2017: 6.6p)

·      Strengthening balance sheet with net assets increasing to £23.0m (2017: £17.4m)

·      Strong cash generation and continued investment for future growth

* Adjusted EBITDA excludes share based payment charges and exceptional items

Operational Highlights

·      Strategic acquisition of housebuilder specialists GCL Solicitors acquired May 2018, adding 80 new staff

·      Further acquisition of complementary non-legal Human Capital consultancy business, Kiddy & Partners, acquired July 2018

·      Strong investment in fee earning staff with average fee earning staff numbers up 11.4% from 457 at 30 April 2017 to 509 at 30 April 2018. Total staff numbers up 8.8% from 696 at 30 April 2017 to 757 at 30 April 2018

·      All three established share schemes now well placed to enhance equity ownership (including all staff SAYE share scheme, CSOP and Stock Appreciation Rights Schemes)

·      Successful expansion of shareholder base with free float now up to 39.9%

 

 

Michael Ward, CEO of Gateley, commented:

"We are delighted with the performance of the business this year, a year in which we have grown our revenues, increased our profit, enhanced our returns to shareholders and invested in the future through additional staff hires and two complementary acquisitions. As the first UK commercial law-led professional services group to be admitted to AIM, we are justifiably very proud of our team who continue to support our journey and help drive the business forward with such strong momentum."

"The Board strongly believe that the time remains right for providing greater choice for our clients and investors and we therefore remain focussed on further enhancing the breadth of our offering for the benefit of all our stakeholders. At the same time we continue to build resilience into our business model and feel confident that the business we have grown profitably over many decades is now strengthened further by the blend of professionals that we continue to attract."

 

Enquiries:

 

Gateley (Holdings) Plc

Neil Smith, Finance Director

 

Tel: +44 (0) 121 234 0196

Nick Smith, Acquisitions Director and Head of Investor Relations

Tel: +44 (0) 20 7653 1665

Cara Zachariou, Head of Communications

Tel: +44 (0) 121 234 0074 or
+44 7703 684 946

 

Cantor Fitzgerald Europe - Nominated adviser and broker

 

David Foreman, Marc Milmo, Michael Boot (Corporate Finance)

Tel: +44 (0) 20 7894 7000

Caspar Shand Kydd (Sales), Alex Pollen

 

 

 

Arden Partners - Broker

 

John Llewellyn-Lloyd, Benjamin Cryer (Corporate Finance)

Tel: +44 (0) 20 7614 5900

James Reed-Daunter (Corporate Broking)

 

 

 

IFC Advisory - Financial PR Adviser

Tel: +44 (0) 20 3934  6630

Tim Metcalfe, Miles Nolan

 

 

 

 

Chairman's Statement

 

I am delighted with the performance of the business in the twelve months to 30 April 2018. Following on from our two previous successful years on AIM, we have seen revenues rise by 11.0% this year to £86.1m and earnings per share rise by 17.0% from 9.43p to 11.03p. What is particularly pleasing is that this strong growth has been achieved whilst maintaining a healthy balance of continuing to support and enhance our customer offering and seeking new opportunities for future investment. The scale, breadth and depth of our business continues to expand and our strong focus of leveraging our service offering for the benefit of our customers has been, and will continue to be, at the forefront of our strategic thinking and operational focus. 

Since we became a public company, we have seen an increase in the interest that staff have in this new structure for a law firm. I'm pleased to say that our ability to attract quality staff, who are interested in benefiting from the opportunities provided by our plc structure, continues to strengthen.  During the year we have increased our average employee numbers by 8.8% from 696 to 757.  The next important phase of our incentivisation journey commenced shortly after our year end with the delivery of greater equity participation and rewards through our initial Stock Appreciation Rights Scheme that was awarded to partners present at the IPO.  Alongside our all staff share scheme and CSOPs, employees from all parts of the Group continue to benefit as shareholders. The majority of Group employees now have some form of equity in the business.

After a period of integration following our first two acquisitions in 2016, we have been working hard this year in seeking the right next steps for our acquisition strategy that deliver both high quality output as well as complementing our existing service lines. This has resulted in the two recent strategic acquisitions of GCL Solicitors and Kiddy & Partners. These two very different businesses have excellent reputations of long term client retention, high levels of service delivery and the Board is delighted to welcome them to the Group. Without our Plc status, I do not believe that we would have appealed to either business in the same way.

The opportunity that Gateley pioneered by being the first UK commercial law firm to IPO three years ago has now ignited increased interest across our changing sector and several more law businesses have followed us onto the AIM market. As a Board, we very much welcome the creation of a broader, larger sector for stakeholders to consider. As an established investment choice, I continue to remain confident that Gateley has the right strategy for the profitable growth of the Group and to deliver enhanced value for all our stakeholders. Our management team remain steadfast in its vision to succeed with their stated aims to differentiate (through our comprehensive service offering and service ethic), to diversify (through organic growth and acquisition of additional complementary non-legal businesses) and to incentivise (offering wider and earlier equity participation to staff).

The Board remains confident that the business is well placed to deliver another year of growth, whilst at the same time continuing to seek complementary service lines to further enhance our customer offering. Accordingly, the Board looks to the future with confidence and is pleased to propose an increased final dividend, subject to shareholder approval at the Annual General Meeting on 26 September 2018, of 4.8 pence per share, making a total dividend of 7.0 pence per share for the year, and representing a 6.1% increase on the prior year.

Finally, and certainly not least, I would like to pass on my thanks to our Chief Executive, Michael Ward, as well as to the Board, to the management team and to all of the staff at Gateley for their hard work, support and fantastic contribution this year in delivering a strong set of results and making considerable further strategic progress.

 

Nigel Payne

Chairman

16 July 2018

 

 

 

Chief Executive Officer's Review

Introduction

Our entire team have worked tirelessly this year in delivering another set of financial results in line with our original IPO strategy and current market expectations.  It has been a very busy year with numerous opportunities opening up for us as a result of our different service offerings.  Our steadfast dedication towards client service continues to ensure we deliver the services clients want time and again.  The passion of our staff shines through in the work they perform and I'm proud to lead them through these exciting times.  As we grow, we continue to deliver on our promises to clients, employees and investors.

We have demonstrated strong cash generation, achieved record revenues and profits, whilst expanding our network and service lines, through further strategic investment and recruitment, that I am sure will deliver long term, sustainable, growth.

Three years on from our IPO our vision for a professional services Group continues as we diversify through our acquisitions strategy, and incentivise our staff.  Our stated commitment to staff incentivisation is about to materialise as our initial Stock Appreciation Rights Scheme issue vested on 8 June 2018.  This option scheme is for the benefit of partner level employees.  Their share awards will ensure they remain aligned with the long-term success of the Group.

Financial Results

Our financial performance continues to demonstrate growth in revenue and profits in line with market expectations together with strong cash generation.  Our diverse revenue streams have grown by 11.0% whilst profit before tax has grown at a similar rate of 11.7%.  Growth in EPS and dividend returns to all investors is good news for all.  Investment in new people helps us meet growing client demand and also ensures we deliver our promises to the management teams of our acquired complementary businesses.  Gateley Hamer has branched out into London and Gateley Capitus has added new experts to deliver additional benefit to clients in Research and Development tax credits.  We continue to build our teams with a national and strategic focus to ensure we can meet demand.

The strength in depth of our core legal business presents appealing opportunities across many business types and sectors.  Whilst transactional activity levels across Corporate, Banking and Property segments remain significant, our long-established expertise in Business Services such as litigation and dispute resolution work has produced significant returns once again.  The strength of our connections across national board rooms, and our reputation for quality teams with a focus on client service, result in continuing instructions across many sectors, including private equity and housebuilding.

Our transition from LLP to Plc is now complete and in addition we have now repaid half of the term loans advanced at the time of the IPO.  We are pleased to once again propose a dividend to shareholders in line with expectations.  EPS, both basic and diluted, is attractive to future shareholders.

Operational Review

We remain focused on investing in the right people to join the Gateley team.  This remains our largest challenge in an ever-changing economic environment.  Our Plc status provides an attractive alternative across all generations of staff.  Average total staff numbers grew by 8.8% from 696 to 757 including 11.4% growth in professional staff and 3.8% growth in business support services.  The lateral hiring of other law firm partners is typically longer-term in nature but strategically important for business development.  We are pleased to see healthy interest in traineeships of professionals across the Group and congratulate all those staff, both professional and support that were promoted to higher roles this year.

 

 

Operational Review (continued)

Our three established Group share option schemes are starting to reward staff with their share awards.  This is an important element of our strategy to ensure alignment with share performance and long-term investment in the business.  The Group's Stock Appreciation Rights Scheme (SARS), which is aimed at partner level staff, will vest shortly after the year end with a healthy return to all option holders that have been with the Group since IPO.  A third year's SARS award was issued in October 2017 to those partners currently driving the Group's performance. Also, around the same time the Group issued its second issue of its CSOP and SAYE schemes.  Being able to offer something different as an employer has helped us not only retain staff since the IPO but also attract a wide pool of new talent.  55% of all staff below partner level have participated in our SAYE schemes whilst all associates, senior associates, legal directors and the equivalent levels within our support services team received further CSOP awards.

With the recent acquisition of GCL Solicitors on 23 May 2018 that helped establish our new Guildford office, we have now established a trio of southern offices from which to create a strong, coherent base to attract the significant number of existing opportunities to the Group.  Our Reading office has continued to establish wider connections and obtain greater local recognition culminating in being named Law Firm of the Year at the Thames Valley Business Awards this year.  Our existing London base provides niche services lines, creates opportunities for synergies, such as with Kiddy & Partners and remains a gateway for our international connections.

Acquisitions

Our acquisition strategy focuses on niche businesses which can supplement our core legal services offering.  Our Plc status and established reputation attracts first class professionals to enhance our core legal services.  As our wide and diverse client base benefits from the added value services provided by Gateley Capitus and Gateley Hamer, we have this year focused on adding to one of our key strengths in the house building sector which resulted in the acquisition of GCL Solicitors.

I am delighted to welcome GCL to the Group. The acquisition will further strengthen our leading position in the Residential Development sector nationally and provide us with a substantial presence in the Southern market, which we see as critical in developing a full service offering for our clients.

There is a structural under supply of new housing in the UK and we see this as a market that will remain strong. The South East in particular will continue to be a significant engine for housing growth for the foreseeable future.

The acquisition allows us to offer a greater depth of specialism and expertise in all aspects of the residential development market. We can now match our national office network to our Residential Development clients' networks with seven Residential Development teams operating across the country. There are also many opportunities across the Group from this strategic acquisition, not least for Gateley Hamer and Gateley Capitus.

On 6 July 2018, we further expanded our suite of niche businesses with the acquisition of Kiddy & Partners.  Kiddy significantly broadens and strengthens our Employment and People Services offering.  There will be clear opportunities for us to collaborate and deliver integrated advice and services to a broader set of large-scale employers across a wide range of industries.  Kiddy represents our first acquisition in the Human Capital sector, which when put alongside Global Mobility and our Entrust pension trustee operation, moves our business further forward, offering employers a range of legal and consultancy services.  This acquisition is in line with our stated plan and follows behind similar progress made in our Property group noted above where high-value, niche, chartered surveying services now sit-alongside and complement our core legal offering.

All of our businesses complement each other in service delivery and enhance our go to market proposition.

 

 

Board Composition

 

At our 2017 AGM we welcomed Suzanne Thompson to the Board.  Suzanne has settled in well as we look to benefit from her marketing, advertising and communications expertise in the next stage of our differentiation objective.

 

Current trading and outlook

We are pleased with our performance after three years as an AIM quoted Group and welcome the recent activity and interest in other law related businesses joining AIM.  As the first UK commercial law-led professional services group we feel proud of our team who continue to support our journey.  The Board strongly believes the time remains right for greater choice for our clients and investors.  We therefore strive to further enhance our offering for the benefit of all stakeholders.

At the same time, we aim to continue to build resilience into our business model and feel confident that the business we have built over many decades is now better placed to address market opportunities.

 

 

 

 

Michael Ward

CEO

16 July 2018

 

 

 

Finance Director's Review

Financial Highlights

The Group delivered another strong performance in 2018 with record revenue generation accompanied by increased profitability.  Total reported revenues for the year increased by 11.0% to £86.1m (2017: £77.6m).  Revenue from core legal services grew organically by 9.5% after adjusting for revenues from acquisitions since IPO of £3.3m (2017: £2.0m).  The Group continues to demonstrate consistent levels of annual revenue and profit growth whilst actively seeking opportunities for the strategic expansion of our national teams.  Headcount has once again increased to meet client demand but credit for the Group's performance should go first and foremost to our established national teams.  As our post IPO structure attracts senior (work winning) recruitment opportunities we have maintained a sensible balance of the management of cost and future investment.  The strength of our client relationships and the consistent delivery of the highest levels of commercial professional advice serve the Group well.  EBITDA margins are performing as expected as we grow our teams within our already invested locations.

Group revenue was well spread across a growing number of clients from many varied sectors.  Our strong performance in transactional led disciplines such as M&A and Real Estate is complemented by exceptional growth in our less established service lines.  With a focus on cross selling, the performance of all of our UK business lines is to be commended as they have all demonstrated growth this year.  The well-balanced nature of our services provides a natural workflow hedge, and balancing transactional assignments against large specialist litigation service continues to provide resilience against many economic challenges facing clients.  Our Corporate group generated revenue growth of 14% whilst our Property Group grew revenue by 18%.  The UK's construction, property development and housing markets continue to need the specialist legal support that Gateley can offer at both a regional and national level.  Our housebuilding sector expertise demonstrates how our focus on strategically key sectors and commercially focused nationally capable teams help maintain long standing client relationships and trust.  Our post year end acquisition of the business and assets of GCL Solicitors LLP, who specialise in legal advice for land and property clients, will further enhance our presence across Southern England out of its existing Guildford location.  The Guildford office provides a good strategic fit with our established Reading and London offices.

Revenue and profits continue to grow across our professional complementary service lines of Gateley Capitus and Gateley Hamer.  We have expanded our service lines in both businesses and created a new London team within Gateley Hamer.  Our Global Mobility consultancy continues to develop opportunities whilst we seek other Human Capital work type acquisitions.  Fees in our Dubai office reduced slightly on the previous year as the office contracted in activity and headcount in line with locally reduced demand.  The office has broken even this year following last year's loss.

Operating expenses rose by 10.7% to £71.6m (2017: £64.7m).  This growth in operating costs has been driven mainly by the continued expansion of staff levels to meet client demand.  Average numbers of legal and professional staff rose by 11.4% to 509 (2017: 457).  Personnel costs, including increased share based payment charges, rose as a result by 15.5% from £45.6m to £52.6m, thereby increasing this cost to 61.1% of revenue from 58.7% in 2017. 

As a result of the expansion of new staff numbers, overall utilisation of staff performing chargeable work decreased to 85% (2017: 86%) but remained within acceptable levels without affecting  profit margins.

Other operating expenses decreased by 2.2% to £17.5m (2017: £17.9m).  Other operating expenses (before exceptional items) increased by 0.9% to £18.0m from £17.9m.  This increase was predominately due to increased volumes of activity and expenditure on information technology.

 

 

 

Finance Director's Review (continued)

 

Extract of UK statement of comprehensive income

2018

2017

 

£'000

£'000

 

 

 

Revenue

86,090

77,587

Operating profit

14,825

13,312

Operating profit margin (%)

17.22%

17.16%

 

 

 

Reconciliation to alternative performance measure:  Adjusted EBITDA:

 

 

Operating profit

14,825

13,312

 

 

 

Depreciation

970

819

 

 

 

Non-underlying items

 

 

Share based payment charge

719

325

Amortisation

547

472

 

 

 

Exceptional items

 

 

Release of lease incentive

(182)

-

Release of contingent consideration

(362)

-

 

 

 

Adjusted EBITDA

16,517

14,928

Adjusted EBITDA margin (%)

19.19%

19.24%

Adjusted EBITDA of £16.5m is up by 10.6% from £14.9m reflecting an adjusted EBITDA margin of 19.2% (2017: 19.2%).  Operating profit before tax was up 11.7% to £14.6m (2017: £13.1m).

Earnings per share

Basic earnings per share increased to 11.03p (2017: 9.43p).  Basic earnings per share after non-underlying items increased to 10.62p (2017: 9.43p).  Diluted earnings per share was 10.64p (2017 9.35p).

Dividend

The Board has adopted a dividend policy which reflects the strong long-term earning cash flow and earnings potential of the Group, distributing up to 70% of profits after tax each year to shareholders.  Following the announcement of our interim dividend of 2.2p (2017: 2.2p) per share that was paid in March 2018, the Board proposes to approve a full year final dividend at its Annual General Meeting on 26 September 2018 of 4.8p (2017: 4.4p) per share, which if approved, will be paid in early October 2018 to shareholders on the register at the close of business on 14 September 2018.  The shares will go ex-dividend on 13 September 2018.

Cash resources, borrowings and liquidity

Cash generated during the year from operations was £12.2m (2017: £7.7m) which represents 103.7% (2017: 76.3%) of profit after taxation.  Financing outflows totalled £9.7m (2017: £13.1m) which included dividends paid totalling £7.0m (2017: £6.3m) and term loan repayments of £2.0m (2017: £2.0m).  The final balance of loans due to former partners of £0.55m was repaid in June 2017.  Capital expenditure decreased to £0.79m (2017: £1.49m) due to their being no significant office or IT outlays during the year compared to 2017.  Group cash at bank increased to £4.3m (2017: £2.7m) during the year.  The Group's net debt position as at the year end therefore finished at £0.7m (2017: £4.8m).

Net assets

Net assets at the year end, before declaration of final dividend, were £23.0m (2017: £17.4m).

 

 

 

 

Neil Smith

Finance Director

16 July 2018

 

Consolidated statement of profit and loss and other comprehensive income

for the year ended 30 April 2018

 

 

Note

2018

2017

 

 

£'000

£'000

 

 

 

 

Revenue

2

86,090

77,587

 

 

 

 

Other operating income

3

357

445

Personnel costs

5

(52,621)

(45,558)

Depreciation and amortisation

 

(1,517)

(1,291)

Other operating expenses

 

(17,484)

(17,871)

 

 

 

 

Operating profit

4

14,825

13,312

 

 

 

 

Adjusted EBITDA

4

16,517

14,928

 

 

 

 

Depreciation

4

(970)

(819)

 

 

 

 

Non-underlying items

 

 

 

Share-based payment charges

5

(719)

(325)

Amortisation

4

(547)

(472)

 

 

 

 

 Exceptional items

 

 

 

 Release of lease incentive

4

182

-

Release of contingent consideration

4

362

-

 

 

 

 

Net financing expense

6

(179)

(199)

 

 

 

 

Profit before tax

 

14,646

13,113

 

 

 

 

Taxation

7

(2,853)

(3,058)

 

 

 

 

Profit for the year after tax attributable to equity holders of the parent

 

11,793

10,055

 

 

 

 

Other comprehensive income

 

 

 

Items that are or may be reclassified subsequently to profit or loss

 

 

 

Foreign exchange translation differences

 

 

 

- Exchange differences on foreign branch

 

(58)

81

Profit for the financial year and total comprehensive income all attributable to equity holders of the parent

 

11,735

10,136

 

Statutory Earnings per share

 

 

 

Basic

8

11.03p

9.43p

Diluted

8

10.64p

9.35p

 

The results for the periods presented above are derived from continuing operations. 

 

 

 

 

Consolidated statement of financial position

at 30 April 2018

 

Note

2018  

£'000

2017

£'000

Non-current assets

 

 

 

Property, plant and equipment

10

1,935

2,160

Investment property

 

164

164

Intangible assets & goodwill

11

3,295

3,842

Other intangible assets

12

39

-

Other investments

 

85

85

 

 

 

 

 

 

5,518

6,251

 

 

 

 

Current assets

 

 

 

Trade and other receivables

13

41,417

39,086

Cash and cash equivalents

 

4,301

2,696

 

 

 

 

Total current assets

 

45,718

41,782

 

 

 

 

Total assets

 

51,236

48,033

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Other interest-bearing loans and borrowings

14

(2,982)

(4,958)

Other payables

15

(121)

-

Deferred tax liability

16

(128)

(239)

Provisions

17

(405)

(381)

 

 

 

 

Total non-current liabilities

 

(3,636)

(5,578)

 

 

 

 

Current liabilities

 

 

 

Other interest-bearing loans and borrowings

14

(1,977)

(2,531)

Trade and other payables

15

(20,978)

(20,619)

Provisions

17

(200)

(210)

Current tax liabilities

 

(1,457)

(1,665)

 

 

 

 

Total current liabilities

 

(24,612)

(25,025)

 

 

 

 

Total liabilities

 

(28,248)

(30,603)

 

 

 

 

NET ASSETS

 

22,988

17,430

 

 

 

 

EQUITY

 

 

 

 

 

 

 

 Share capital

19

10,688

10,688

 Share premium

 

4,576

4,332

 Merger reserve

 

(9,950)

(9,950)

 Other reserve

 

1,547

1,547

 Treasury reserve

 

(15)

(132)

 Translation reserve

 

23

81

 Retained earnings

 

16,119

10,864

TOTAL EQUITY

 

22,988

17,430

 

 

 

Consolidated statement of changes in equity

 

 

Share

capital

Share

premium

Merger

reserve

Other

reserve

Treasury reserve

Retained

earnings

Foreign currency translation reserve

Total

equity

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

At 1 May 2016

10,640

4,332

(9,950)

1,013

(27)

6,716

-

12,724

 

Comprehensive income:

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

10,055

-

10,055

Exchange rate difference

-

-

-

-

-

-

81

81

Total comprehensive income

10,640

4,332

(9,950)

1,013

(27)

10,055

81

10,136

 

Transactions with owners

recognised directly in equity:

 

 

 

 

 

 

 

 

Purchase of treasury shares

-

-

-

-

(164)

-

-

(164)

Cash gain into employee benefit trust from lock in arrangements

-

-

-

-

-

110

-

110

Sale of treasury shares

-

-

-

-

59

-

-

59

Issue of shares

48

-

-

534

-

-

-

582

Dividend paid

-

-

-

-

-

(6,342)

-

(6,342)

Share based payment transactions

-

-

-

325

325

Total equity at 30 April 2017

10,688

4,332

(9,950)

1,547

(132)

10,864

81

17,430

 

 

 

 

 

 

 

 

 

At 1 May 2017

10,688

4,332

(9,950)

1,547

(132)

10,864

81

17,430

 

Comprehensive income:

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

11,793

-

11,793

Exchange rate differences

-

-

-

-

(58)

Total comprehensive income

-

-

-

-

-

11,793

(58)

11,735

 

Transactions with owners

recognised directly in equity:

 

 

 

 

 

 

 

 

Purchase of treasury shares

-

-

-

-

(38)

-

-

(38)

EBT reserves adjustment

-

-

-

-

-

29

-

29

Reclassification of gain on own shares

-

244

-

-

-

(244)

-

-

Sale of treasury shares

-

-

-

-

155

-

-

155

Dividend paid

-

-

-

-

-

(7,042)

-

(7,042)

Share based payment transactions

-

-

-

719

719

Total equity at 30

April 2018

10,688

4,576

(9,950)

1,547

(15)

16,119

23

22,988

 

 

 

 

 

 

 

 

 

 

 

The following describes the nature and purpose of each reserve within equity:

 

Share premium - Amount subscribed for share capital in excess of nominal value together with gains on the sale of own shares.

Merger reserve - Represents the difference between the nominal value of shares acquired by the Company in the share for share exchange with the former Gateley Heritage LLP members and the nominal value of shares issued to acquire them.

Other reserve - Represents the difference between the actual and nominal value of shares issued by the Company in the acquisition of subsidiaries.

Treasury reserve - Represents the repurchase of shares for future distribution by Group's Employee Benefit Trust.

Retained earnings - All other net gains and losses and transactions with owners not recognised anywhere else.

Foreign currency translation reserve - Represents the movement in exchange rates back to the Group's functional currency of profits and losses generated in foreign currencies.

.

 

Consolidated cash flow statement

for the year ended 30 April 2018

 

 

 

Note

2018

2017

 

 

£'000

£'000

Cash flows from operating activities

 

 

 

Profit for the year after tax

 

11,793

10,055

Adjustments for:

 

 

 

Depreciation and amortisation

10/13

1,517

1,291

Financial income

6

(233)

(237)

Financial expense

6

412

436

Release of contingent consideration

 

(362)

-

Equity settled share based payments

 

719

325

Profit on disposal of property, plant and equipment

 

-

2

Tax expense

7

2,853

3,058

 

 

16,699

14,930

  Increase in trade and other receivables

 

(2,330)

(5,041)

  Increase in trade and other payables

 

851

636

  Decrease/(increase) in provisions

 

14

(5)

Cash generated from operations

 

15,234

10,520

Tax paid

 

(3,051)

(2,844)

Net cash flows from operating activities

 

12,183

7,676

Investing activities

 

 

 

 

 

 

 

Acquisition of property, plant and equipment

10

(745)

(1,485)

Acquisition of other intangible assets

13

(46)

-

Deferred consideration paid - acquisition of subsidiary

15

(179)

(508)

Cash received on acquisition of subsidiary

 

-

280

 

 

 

 

Net cash used in investing activities

 

(970)

(1,713)

Financing activities

 

 

 

Interest receivable

6

233

237

Interest and other financial income paid

6

(412)

(420)

Repayment of term bank loans

14

(1,980)

(1,980)

Repayment of loans from former members of Gateley Heritage LLP

14

(551)

(4,552)

Cash received from lock in arrangements

 

-

159

Proceeds from sale of own shares

 

361

-

Acquisition of own shares

 

(217)

(164)

Dividends paid

9

(7,042)

(6,342)

 

 

 

 

Net cash used in financing activities

 

(9,608)

(13,062)

 

 

 

 

Net increase in cash and cash equivalents

 

1,605

(7,099)

Cash and cash equivalents at beginning of year

 

2,696

9,795

 

 

 

 

Cash and cash equivalents at end of year

18

4,301

2,696

 

Gateley (Holdings) Plc

Notes

For the year ended 30 April 2018

 

1              Corporate information and legal status

Gateley (Holdings) Plc ("the Company") was incorporated in England and Wales on 13 November 2014. On 29 May 2015 the Company acquired 100 per cent of the issued share capital of Gateley Plc which had, on the same day, acquired the business assets and liabilities of Gateley Heritage LLP, formerly the partnership of Gateley LLP.  Following this Group reorganisation, the financial statements have been prepared on a merger accounting basis as though this Group structure had always been in place and a full twelve month set of results (for both the current and prior year) is therefore presented.  The first day of trading of the Group included in this statement was 1 May 2015.

On 8 June 2015, Gateley (Holdings) Plc was admitted to the Alternative Investment Market ("AIM") of London Stock Exchange Plc.

 

1.1        Basis of preparation and significant accounting policies

The financial information set out in this financial results announcement does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The consolidated statement of comprehensive profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of change in equity, consolidated statement of cashflows and the associated notes have been extracted from the group's financial statements for the year ended 30 April 2018, upon which the auditor's opinion is unqualified and does not include any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 30 April 2018 will be delivered to the Registrar of Companies following the Annual General Meeting.

These condensed preliminary financial statements for the year ended 30 April 2018 have been prepared on the basis of the accounting policies adopted by the Group upon admission to AIM.  These are in accordance with the Group's accounting policies as set out in the historical financial information included in the AIM Admission Document.

The recognition and measurement requirements of all International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied.

1.2        Going concern

The Group financial statements are prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  The Group remains cash generative, with a positive ongoing trading performance.  The Group is funded through two unsecured term loans for £5m each repayable quarterly over five years commencing in December 2015 together with unsecured overdraft facilities of up to £8m (2017: £5m). All of the Group's overdraft facilities are 12 months in duration.  The Group's forecasts and projections show that the new facility provides adequate headroom for its current and future anticipated cash requirements.

1.3        Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements have been prepared in accordance with the AIM Rules.

1.4        Cautionary statement

This document contains certain forward-looking statements with respect of the financial condition, results, operations and business of the Group.  Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.  There are a number of factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.  Nothing in this document should be construed as a profit forecast.

 

1.5        Financial Assets

The Group's financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument.

i)        Investments

Other investments such as debt securities and equity securities held by the Group are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss being recognised directly in equity (in the fair value reserve), except for any dividend income, impairment losses and, in the case of monetary items such as debt securities, foreign exchange gains and losses which are recognised in the profit and loss account. When these investments are derecognised, the cumulative gain or loss previously recognised directly in equity is recognised in profit or loss. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss.

ii)       Trade and other receivables

Trade and other receivables (except unbilled amounts for client work) are recognised and carried at original invoice amount less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Group may not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is determined as the difference between the asset's carrying amount and the present value of estimated future cash flows, and is recognised in the statement of profit and loss in other operating expenses.

iii)      Unbilled amounts for client work (unbilled revenue)

Services provided to clients, which at the year-end date have not been billed, are recognised as unbilled revenue and included in trade and other receivables.

Unbilled revenue is valued at selling price less provision for any foreseeable under recovery when the outcome of the matter can be assessed with reasonable certainty. In respect of conditional or contingent fee engagements unbilled revenue is only recognised once the conditional or contingent event occurs.

iv)      Cash and cash equivalents

Cash and cash equivalents includes cash in hand and deposits held at call with banks. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank overdrafts in addition to the definition above.

v)       Treasury shares

The Group operates an Employee Benefit Trust ("EBT") under which ordinary shares have been issued and are held by the EBT.  These are treated as treasury shares and are added to the Treasury Share Reserve.

 

1.6        Financial Liabilities

Financial liabilities and equity instruments are classified 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.

The Group's financial liabilities comprise trade and other payables, borrowings, members' capital and amounts due to members. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

i)        Bank borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method

Financial expenses comprise interest expense on borrowings.

ii)       Trade and other payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

iii)      Loans from former members

Loans from former members, measured at amortised cost, comprise of undrawn surplus profits and tax provisions owed to former members of Gateley Heritage LLP which were converted into unsecured loans upon admission to the AIM market.  Interest is chargeable at 0.5% over Bank of England base rate.  The business has full discretion over the timing of repayment of such loans.

1.7        Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under leases, the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses.

Depreciation is charged to the consolidated statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

Leasehold improvements            over the term of the lease

Equipment                                 33.3% straight line

Fixtures and fittings                    20% straight line

Depreciation methods, useful lives and residual values are reviewed at each statement of financial position date.

 

1.8        Business combinations

Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

Acquisitions on or after 1 January 2010

·      For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as:

·      the fair value of the consideration transferred; plus

·      the recognised amount of any non-controlling interests in the acquiree; plus

·      the fair value of the existing equity interest in the acquiree; less

·      the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

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

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss.

On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date.

1.9        Intangible assets and goodwill

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee.

Other intangible assets

Other intangible assets, including software licences, expenditure on internally generated goodwill and brands, customer contracts and relationships are capitalised at cost and amortised on a straight-line basis over their estimated useful economic lives through operating expenses.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.

 

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

Amortisation 

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each statement of financial position date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

Customer lists                                                   3 years

Computer software                                             3 years

1.10      Investment property

Investment properties are properties which are held either to earn rental income or for capital appreciation or for both.  Investment properties are stated at fair value.  Any gain or loss arising from a change in fair value is recognised in profit or loss.

1.11      Impairment excluding investment properties

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Intangibles and property, plant and equipment

The carrying amount of the Group's assets including property, plant and equipment and intangibles other than goodwill is reviewed at each year end date to determine whether there is any indication of impairment.  If any such indication exists, the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.  Impairment losses are recognised in profit or loss.  Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years.  A reversal of an impairment loss is recognised in profit or loss where it relates to an amount charged to profit or loss.

Goodwill

Goodwill is capitalised as an intangible asset and is not amortised but tested for impairment annually and when there are any indications that its carrying value is not recoverable. As such, goodwill is stated at cost less any provision for impairment in value. For impairment testing purposes, goodwill is allocated to cash-generating units. If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in determining the profit or loss on sale.

 

1.12      Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the Company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of profit and loss in the periods during which services are rendered by employees.

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share-based payment transactions

The Group operates an equity settled share based compensation plan.

The grant date fair value of share-based payment awards made to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted.

Share-based payment transactions (continued)

The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date, measured at the grant date fair value of the award.

At each reporting date, the group revises its estimates of the number of share incentives which are expected to vest. The impact of the revision of original estimates is recognised in the income statement with a corresponding adjustment to equity.

1.13      Own shares held by EBT trust (treasury reserve)

Transactions of the group-sponsored EBT trust are included in the group financial statements.  In particular, the trust's purchases and sales of shares in the Company are debited and credited directly to equity.

 

 

1.14      Professional indemnity provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation.  Where material, the impact of the time value of money is taken into account by discounting the expected future cash flow at a pre-tax rate, which reflects risks specific to the liability.

Insurance cover is maintained in respect of professional negligence claims.  This cover is principally written through insurance companies with a coverage of up to £150 million for each claim.  Premiums are expensed as they fall due with prepayments or accruals being recognised accordingly.

In the event the insurance companies cannot settle the full liability, the liability will revert to the Group.

 

1.15 Revenue recognition

Revenue

Revenue represents the fair value of the consideration receivable in respect of professional services provided during the year, inclusive of recoverable expenses incurred on client assignments but excluding value added tax. Where the outcome of a transaction can be estimated reliably, revenue associated with the transaction is recognised in the income statement by reference to the stage of completion at the year end, provided that a right to consideration has been obtained through performance. Consideration accrues as contract activity progresses by reference to the value of work performed.

Where the outcome of a transaction cannot be estimated reliably, revenue is recognised only to the extent that the costs of providing the service are recoverable. No revenue is recognised where there are significant uncertainties regarding recovery of the consideration due or where the right to receive payment is contingent on events outside the control of the group.  Amounts deemed to be recoverable on the engagement (on the basis above) are recognised in unbilled revenue and form part of Trade and other receivables.

Recoverable expenses and disbursements represent charges from other professional service firms, sub-contractors and out of pocket expenses incurred in respect of assignments and expected to be recovered from clients.

Rental income is recognised on a straight line basis over the lease term.

1.16      Operating lease payments

Payments made under operating leases are recognised in the statement of profit and loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in the statement of profit and loss over the term of the lease as an integral part of the total lease expense.  

1.17      Financial income and expenses

Financial expenses comprise interest payable and exchange losses that are recognised in the statement of profit and loss. Financial income comprises interest receivable on funds invested and exchange gains.

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.

1.18      Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates and laws enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the statement of financial position date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

 

1.19      Non-underlying and exceptional items

Non-underlying items

 

Non-underlying items are non-trading and or non-cash items disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of non-underlying items:

 

·      Share based payment charges.

·      Amortisation and Impairment charges in respect of intangible fixed assets.

The tax effect of the above is also included if considered significant.

 

Exceptional items

 

Exceptional items are one off transactions, unrelated to the underlying trading performance of the Group disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group.

 

The following are included by the Group in its assessment of exceptional items:

 

·      Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations.

·      Expenses associated with acquisitions.

·      Impairment charges in respect of tangible or intangible fixed assets.

·      Costs incurred as part of significant refinancing activities.

The tax effect of the above is also included if considered significant.

Details in respect of the non-underlying items recognised in the current and prior year are set out in note 4 to the Financial Statements.

1.20      Ordinary dividends

Dividends are recognised as a liability in the period in which they are approved by the Company's shareholders.

1.21      Adopted IFRS not yet applied

The following Adopted IFRSs have been issued and endorsed by the EU but have not been applied by the Group in these financial statements. Their adoption is not expected to have a material effect on the financial statements (other than IFRS 15 and IFRS 16):

Endorsed:

●  IFRS 15 - Revenue from contracts with customer (effective from 1 January 2018)

●  IFRS 9 - Financial instruments

●  IFRS 16 - Leases

 

●  Amendments to IFRS2 - Classification and measurement of share-based payment transactions

●  Amendments to IAS 40 - Transfer of investment property

●  IFRIC Interpretation 22 - Foreign currency transactions and advance considerations

 

 

 

 

New standards and interpretations not yet applied

 

IFRS 15 'Revenue from Contracts with Customers'

 

On 1 January 2018, IFRS 15 replaces the existing revenue recognition accounting standards - IAS 18 Revenue' and IAS 11 'Construction Contracts'.  This standard introduces a new revenue recognition model that recognises revenue either at a point in time or over time.  The model features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is recognised; this includes the matching of stand-alone prices for services provided to the satisfaction of performance obligations.  The model is not expected to change the timing of revenue recognition for the activities of the Group as management currently recognise and assess the key aspects of the new standard in their existing assessment of revenue recognition, however management continue to monitor its application and impact carefully as part of their ongoing assessment which will be completed by 31 October 2018.  Under IFRS 15, revenue must be accounted for at the individual contract level.  Therefore, the contracts will be disaggregated and the assessment of revenue will depend on the performance obligations within the contract.

 

The Group considers that there are typically two revenue contract types used in performing professional services advice, being non-contingent and contingent contract types.  Non-contingent work is typically recognised at a fixed value or based upon the value of time incurred to complete the work.  It is recognised over the duration of the contract.  Contingent work is typically recognised once pre agreed stages of the contracts performance are reached or concluded as a result of an event linked to each work type performance.  Contingent work can contain a profit premium mark up as a result of the risks associated with offering this type of contractual arrangement to clients.  Management believe that the performance of the Group's legal and complementary services can be categorised within these two category types.

 

Under IAS 18 and IAS 11, revenue was recognised in respect of contracts where there was also a probable recovery of cash in order to settle the value of advice provided.  This assessment has always been part of management's assessment of whether to recognise revenue and will continue to be the case under the new standard.

 

IFRS 15 includes a choice on the transitional adjustments on initial application. Management believe should they discover an adjustment to be made through application of the new standard they will choose 'modified retrospective adoption', which is to retrospectively apply the standard with the cumulative effect of applying IFRS 15 to the opening balance of retained earnings on 1 May 2018.  Implementation will therefore not result in restatement of comparative period results using this approach.

 

IFRS 16 'Leases'

 

IFRS 16 replaces the existing leasing accounting guidance, which includes IAS 17 'Leases' and IFRIC 4 'Determining Whether an Arrangement Contains a Lease'. The standard is effective for periods beginning on or after 1 January 2019.

 

The standard requires lessees to account for most contracts using an on-balance sheet model, with the distinction between operating and finance leases being removed. There is no change to the revenue recognition methodology for lessor operating leases.

 

The standard provides certain exemptions from recognising leases on the balance sheet, including where the asset is of low value or the lease term is twelve months or less. In addition, the standard makes changes to the definition of a lease to focus on, amongst other things, which party has the right to direct the use of the asset.

 

Under the new standard, the Group will be required to recognise right of use lease assets and lease liabilities on the balance sheet. The right of use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any re-measurement of the lease liability. Liabilities are measured based on the present value of future lease payments over the lease term. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others.

 

The recognition of the depreciation of right of use lease assets and interest on lease liabilities over the lease term will have no overall impact on profit before tax over the life of the lease; however, the result in any individual year will be impacted and the change in presentation of costs will likely be material to the Group's key financial metrics. Under IAS 17, the charge is booked in full to operating profit. Metrics which will therefore be affected will include operating profit and operating margin, interest and interest cover, EBITDA and operating cash flow.

 

Furthermore, the principal amount of cash paid and interest in the cash flow statement will be presented separately as a financing activity.  Operating lease payments under IAS 17 would have been presented as operating cash flows.  There will be no overall net cash flow impact.

 

The Group has commenced work to understand the impact of the new standard and the project will complete during 2018.  Work will include a detailed review of all lease contracts to establish lease classification, assessment of transition options, the quantification of financial impacts, design of future processes and the related systems changes, the assessment of the related impacts on the Group's regulatory and commercial reporting requirements, and the impact on the Group's long-term incentive schemes.  The review is currently ongoing and will be disclosed in full in next year's financial statements.

 

Information on the undiscounted amount of the Group's operating lease commitments under IAS 17 'Leases', the current leasing standard, is disclosed in the Group's annual financial statements. The leases substantially relate to property leases used to perform professional activities as an operating lease lessor.

 

Other new standards and amendments

 

IFRS 9 'Financial Instruments' specifies how an entity should classify and measure financial assets, including some hybrid contracts. The Group is expected to apply this standard for the Group's 30 April 2019 financial statements and work is ongoing to assess its impact which will be disclosed in full in next year's Group financial statements.

 

A number of other standards have been modified. These include Disclosure Initiative (Amendments to IAS 7), Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) and Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2). None of these amendments are expected to have a material effect on the Group's financial statements.

 

 

2          Operating segments

The Chief Operating Decision Maker ("CODM") is the Strategic Board. The Group have the following five strategic divisions, which are its reportable segments.  These divisions offer different products and services and are managed separately because they report different specialisms from the legal teams in those divisions.

The following summary describes the operations of each reportable segment:

Reportable segment                              Operations

Banking and Financial Services           Provision of legal advice in respect of asset finance, banking and restructuring services

Corporate                                                Provision of legal advice in respect of corporate, family, private client and taxation services

Business Services                                   Provision of legal advice in respect of commercial, commercial dispute resolution, litigation, regulatory, shipping, transport and insurance services

Employees, Pensions and Benefits           Provision of legal advice in respect of employment and pension services, including Entrust Pension Limited's trustee services and global mobility consultancy.

Property                                               Provision of legal advice in respect of construction, planning, real estate and residential development services.  Also includes Gateley Capitus Limited's property related tax incentive services together with Gateley Hamer Limited's easement and wayleave and compulsory purchase order services.

The revenue and operating profit are attributable to the principal activities of the Group.  A geographical analysis of revenue is given below:

 

2018

2017

 

£'000

£'000

 

 

 

United Kingdom

80,515

73,711

Europe

3,149

1,870

Middle East

670

712

North and South America

1,258

372

Asia

138

416

Other

360

506

 

86,090

77,587

 

 

 

The Group's assets and costs are predominately located in the UK save for those assets and costs located in the United Arab Emirates (UAE) via its Dubai branch.  Net assets of £0.46m (2017: £0.40m) together with costs of £0.8m (2017: £1.6m) are located in the Group's Dubai branch.  Revenue generated by the Group's Dubai branch to customers in the UAE totalled £0.9m (2017: £0.7m) as disclosed above as due to the customers in the Middle East.

The Group has no individual customers that represent more than 10% of revenue in either the 2018 or 2017 financial year.

 

 

2018

 

Banking and
Financial
 Services

Corporate

Business
Services

Employee

Pensions and

Benefits

Property
 

Total
segments

Other expenses

 And movement

 in unbilled

 revenue

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

 

Segment revenue

 

 

15,489

 

16,019

 

12,225

 

7,516

 

33,694

 

84,943

 

1,147

 

86,090

Segment contribution

(as reported internally)

5,755

4,338

5,062

2,819

15,769

33,743

1,147

34,890

Costs not allocated to segments

 

 

 

 

 

 

 

 

  Other operating income

 

 

 

357

  Personnel costs

 

 

 

 

(5,209)

  Depreciation and  amortisation
 

 

 

 

(1,517)

  Other operating expenses
 

 

 

 

(13,696)

Net financial expense

 

 

 

 

 

 

 

(179)

Profit for the financial year before taxation

 

 

 

 

14,646

2017

 

Banking and
Financial
 Services

Corporate

Business
Services

Employee

Pensions and

Benefits

Property
 

Total
segments

Other expense

and movement

in unbilled

 revenue

Total

 

£000

£000

£000

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

 

 

Segment revenue

15,146

14,074

10,946

7,130

28,562

75,858

1,729

77,587

Segment contribution

(as reported internally)

6,306

4,082

4,542

2,645

12,978

30,553

1,729

32,282

Costs not allocated o segments:

 

 

 

 

 

 

 

  Other operating income

 

 

 

 

 

 

 

445

  Personnel costs

 

 

 

 

 

 

 

(5,391)

  Depreciation and amortisation

 

 

 

 

 

 

(1,282)

  Other operating expenses

 

 

 

 

 

 

(12,742)

Net financial expense

 

 

 

 

 

 

 

(199)

Profit for the financial year before taxation

 

 

 

 

13,113

 

No other financial information has been disclosed as it is not provided to the CODM on a regular basis.

 

 

3          Other operating income

 

2018

2017

 

£'000

£'000

 

 

 

Rental and service charge income

357

396

Other investment income

-

49

 

357

445

4          Expenses and auditor's remuneration

Included in profit are the following:

 

2018

2017

 

£'000

£'000

 

 

 

Depreciation on tangible assets

970

819

Amortisation of intangible assets

547

472

Operating lease costs

132

230

Operating lease costs on property

2,981

3,094

Other operating income - rent received

(295)

(275)

Foreign exchange losses/(gains)

66

(43)

Loss on sale of fixed assets

-

2

 

 

 

Exceptional items

 

2018

2017

 

£'000

£'000

 

 

 

Release of lease incentive

182

-

Release of contingent consideration

362

-

 

544

-

Exceptional items represent the release of over accrued contingent consideration calculated within the earn-out clause of the acquisition of Gateley Hamer Limited and the release of an incentive as a result of terminating a property lease

Auditor's remuneration

 

2018

2017

 

£'000

£'000

 

 

 

Audit of these financial statements

52

55

 

 

 

Amounts receivable by the Company's auditor and its associates in respect of:

 

 

  Audit of financial statements of subsidiaries of the Company

19

19

  Other assurance services

27

26

  Tax compliance services

11

11

 

 

 
 

 

5          Employees

The average number of persons employed by the Group during the year, analysed by category, was as follows:

 

           Number of employees

 

2018

2017

 

 

 

Legal and professional staff

509

457

Administrative staff

248

239

 

757

696

The aggregate payroll costs of these persons were as follows:

 

2018

2017

 

£'000

£'000

 

 

 

Wages and salaries

45,825

40,458

Share based payment expense

719

325

Social security costs

5,283

4,075

Pension costs

794

700

 

52,621

45,558

6          Financial income and expense

Recognised in profit and loss

 

2018

2017

 

£'000

£'000

Financial income

 

 

Interest income

233

237

Total finance income

233

237

 

 

 

Financial expense

 

 

Interest expense on bank borrowings measured at amortised cost

(412)

(436)

Total financial expense

(412)

(436)

 

 

 

Net financial expense

(179)

(199)

7              Taxation

 

2018

2017

 

£'000

£'000

 

 

 

Current tax expense

 

 

Current tax on profits for the year

2,926

3,069

Under provision of taxation in previous period

38

84

Total current tax

2,964

3,153

 

 

 

Deferred tax expense

 

 

Origination and reversal of temporary differences

(111)

(95)

Total tax expense

2,853

3,058

 

 

 

 

 

 

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:

 

2018

2017

 

£'000

£'000

 

 

 

 Profit for the year (subject to corporation tax)

14,646

13,113

 

 

 

 Tax using the Company's domestic tax rate of 19% (2017 - 20%)

2,783

2,623

 Expenses not deductible for tax purposes

32

351

Under provision of taxation in previous period

38

84

 Total tax expense

2,853

3,058

 

Reductions in the UK corporation tax rate to 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013.  Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015.  The deferred tax liability at 30 April 2018 has been calculated based on these rates.  An additional reduction to 17% (effective from 1 April 2020) was announced in the Budget on 16 March 2016. This will reduce the Company's future current tax charge accordingly.

8              Earnings per share

Statutory earnings per share

 

 

 

2018

2017

 

Number

Number

 

 

 

Weighted average number of ordinary shares in issue, being weighted average number of shares for calculating basic earnings per share

106,881,953

106,663,150

Shares deemed to be issued for no consideration in respect of share based payments

3,948,441

759,599

 

 

 

Weighted average number of ordinary shares for calculating diluted earnings per share

110,830,394

107,422,749

 

 

 

 

2018

2017

 

£'000

£'000

 

 

 

Profit for the year and basic earnings attributable to ordinary equity shareholders

11,793

10,055

 

 

 

Exceptional items (see note 4)

 

 

Operating expenses and finance costs

(544)

-

Tax on non-underlying items

103

-

Underlying earnings before non-underlying items

11,352

10,055

 

 

 

 

Earnings per share is calculated as follows:

 

 

 

2018

2017

 

Pence

Pence

 

 

 

Basic earnings per ordinary share

11.03

9.43

Diluted earnings per ordinary share

10.64

9.35

 

 

 

Basic earnings per ordinary share after non-underlying items

10.62

9.43

Diluted earnings per ordinary share after non-underlying items

10.24

9.35

 

 

 

9              Dividends

 

2018

2017

 

£'000

£'000

Equity shares:

 

 

Final dividend in respect of 2016 (3.746p per share) - 28 September 2016

-

3,996

Interim dividend in respect of 2017 (2.2p per share) - 3 March 2017

-

2,346

Final dividend in respect of 2017 (4.4p per share) - 4 October 2017

4,691

-

Interim dividend in respect of 2018 (2.2p per share) - 16 March 2017

2,351

-

 

 

 

 

7,042

6,342

The Board proposes to recommend a final dividend of 4.8p (2017: 4.4p) per share at the AGM.  If approved, this dividend will be paid in early October 2018 to shareholders on the register at the close of business on 14 September 2018.  The shares will go ex-dividend on 13 September 2018.  This dividend has not been recognised as a liability in these final statements.

10        Property, plant and equipment

 

 

Leasehold

improvements

Equipment

Fixtures and

fittings

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

Balance at 1 May 2016

151

2,956

3,583

6,690

Arising on acquisition

-

39

-

39

Additions

75

807

603

1,485

Disposals and write offs

-

(4)

-

(4)

Balance at 30 April 2017

226

3,798

4,186

8,210

 

 

 

 

 

Balance at 1 May 2017

226

3,798

4,186

8,210

Additions

-

634

111

745

Balance at 30 April 2018

226

4,432

4,297

8,955

 

 

 

 

 

Depreciation and impairment

 

 

 

 

Balance at 1 May 2016

37

2,359

2,816

5,212

Arising on acquisition

-

21

-

21

Depreciation charge for the year

22

464

333

819

Disposals

-

(2)

-

(2)

Balance at 30 April 2017

59

2,842

3,149

6,050

 

 

 

 

 

Balance at 1 May 2017

59

2,842

3,149

6,050

Depreciation charge for the year

23

596

351

970

Balance at 30 April 2018

82

3,438

3,500

7,020

 

 

 

 

 

Net book value

 

 

 

 

At 30 April 2017

167

956

1,037

2,160

 

 

 

 

 

At 30 April 2018

144

994

797

1,935

11           Intangible assets and goodwill

 

Goodwill

Customer

lists

Total

 

£'000

£'000

£'000

Deemed cost

 

 

 

At 1 May 2016

1,515

1,000

2,515

Acquisitions through business combinations

1,161

638

1,799

At 30 April 2017 and at 30 April 2018

2,676

1,638

4,314

 

 

 

 

Amortisation

 

 

 

At 1 May 2016

-

-

-

Charge for the year

-

472

472

At 30 April 2017

-

472

472

Charge for the year

-

547

547

At 30 April 2018

-

1,019

1,019

 

Carrying amounts

 

 

 

At 30 April 2017

2,676

1,166

3,842

At 30 April 2018

2,676

619

3,295

Impairment testing

The Group tests goodwill annually for impairment. The impairment test involves determining the recoverable amount of the cash generating unit to which the goodwill has been allocated.  The directors believe that each operating segment represents a cash generating unit for the business and as a result, impairment is tested for each segment, and all the assets of each segment are considered. All of the goodwill is allocated to the property cash generating unit.  The recoverable amount is based on the present value of expected future cash flows (value in use) which was determined to be higher than the carrying amount of goodwill so no impairment loss was recognised. Value in use was determined by discounting the future cash flows generated from the continuing operation of the Group and was based on the following key assumptions:

·      A pre-tax discount rate of 15% was applied in determining the recoverable amount. The discount rate is based on the average weighted cost of capital

·      The values assigned to the key assumptions represent management's estimate of expected future trends and are based on both external (industry experience, historic market performance) and internal sources (existing management knowledge, track record and an in-depth understanding of the work types being performed). 

o  Growth rates of between 10-20% are based on management's understanding of the market opportunities for services provided pertaining to the industry concerned. 

o  Increases in costs are based on current inflation rates and expected levels of recruitment needed to generate predicted turnover growth.

o  Attrition rates are based on the expected level of fees from existing clients as a percentage of total forecast fees

o  Cash flows have been assessed over a five year period which management consider to be the correct average life of clients' relationships

·      The review demonstrated significant headroom such that the estimated carrying value is not sensitive to changes in assumptions. Having reviewed the key assumptions used, the Directors do not believe that there is a reasonably possible change in any of the key assumptions that require further disclosure

 

 

12        Other intangible assets

 

Computer

software
£'000

 

Cost

 

 

Balance at 1 May 2016 and 30 April 2017

-

 

Additions

46

 

At 30 April 2018

46

 

 

 

 

Amortisation

 

 

Balance at 1 May 2016 and 30 April 2017

-

 

Charge for the year

7

 

At 30 April 2018

7

 

 

 

 

Net book amount at 30 April 2017

-

 

Net book amount at 30 April 2018

39

 

13        Trade and other receivables

 

 

 

 

2018

2017

 

£'000 

£'000

 

 

 

Trade receivables

28,512

26,132

Unbilled revenue

10,672

10,487

Prepayments

2,233

2,467

 

 

 

 

41,417

39,086

All trade receivables are repayable within one year.

Movement in the allowance for doubtful receivables

 

2018

2017

 

£'000

£'000

 

 

 

Brought forward provision

(2,011)

(1,792)

Provision utilised

264

302

Charged to income

(1,296)

(815)

Provisions released

831

294

 

 

 

 

(2,212)

(2,011)

Receivables not impaired, past due

 

2018

2017

 

£'000

£'000

 

 

 

Not past due

18,220

18,464

Past due 0-30 days

3,246

1,864

Past due 31-120 days

4,363

3,212

Past due greater than 120 days

4,895

4,603

 

 

 

 

30,724

28,143

The carrying amount of financial assets recorded in the financial statements, which is net of any impairment losses, represents the Group's maximum exposure to credit risk.  Financial assets include client and other receivables and cash.  The Group does not hold collateral over these balances.

All of the group's trade and other receivables have been reviewed for indicators of impairment.  The impaired trade receivables are mostly due from customers experiencing financial difficulties.

14        Other interest-bearing loans and borrowings

The contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost are described below. For more information about the Group's exposure to interest rate and foreign currency risk, see note 20.

 

2018

 

2017

 

 

Fair

value

Carrying
amount

Fair

value

Carrying
amount

 

£'000

£'000

£'000

£'000

Non-Current liabilities

 

 

 

 

Unsecured bank loan

2,982

2,982

4,958

4,958

 

 

 

 

 

Current liabilities

 

 

 

 

Unsecured bank loan

1,977

1,977

1,980

1,980

Loans from former members

-

-

551

551

 

1,977

1,977

2,531

2,531

The unsecured overdraft facilities totalling £5m are repayable on demand.

On 8 June 2015, Gateley Plc entered into two new loan agreements of £5m each.  The total £10m of term loans are repayable quarterly over five years commencing on 8 November 2015.  Interest is chargeable at 2.25% over LIBOR.

On the 8 June 2015 all amounts relating to individual members capital classified as a liability together with amounts due to members were converted into Loans from former members.  Loans were repayable quarterly over a period of not less than two years subject to adequate working capital facilities, in the opinion of the board of directors, within the Group being available to accommodate such payments.  Repayment of the remaining liabilities are forecast to be made quarterly from May 2016 with the final payment arising in quarter one of the year ended 30 April 2018.  Interest was chargeable at 0.5% over Bank of England base rate. 

15        Trade and other payables

 

 

 

 

2018

2017

 

£'000

£'000

Current

 

 

Trade payables

5,204

5,204

Other taxation and social security payable

6,355

4,671

Other payables

658

1,395

Accruals

8,761

9,359

 

 

 

 

20,978

20,629

 

 

 

Non-current

 

 

Other payables

121

-

Current other payables include £0.47m (2017: £1.012m) in respect of contingent consideration due to vendors of Gateley Capitus Limited and Gateley Hamer Limited.  During the year £0.055m was paid to Gateley Capitus Limited and £0.125m to Gateley Hamer Limited in accordance with the terms of those acquisitions.  A further £362k of contingent consideration was released as no longer due and payable to Gateley Hamer Limited.

Post year end  contingent consideration that was paid on 18 June 2018 in respect of the acquisition of Gateley Hamer Limited.  £0.235m of the £0.47m was settled by way of 10p ordinary shares with the balance payable in cash.  Contingent consideration is calculated in line with the Business and Asset purchase agreement based on the value of revenue earned by Gateley Hamer Limited over the two years period to 31 March 2018.

 

 

16           Deferred tax liability

 

Customer lists

 

Total

 

£'000

£'000

 

 

 

At 1 May 2016

200

200

Acquisitions through business combinations - Gateley Hamer

Limited

134

134

Credited during the year in the Consolidated income statement

(95)

(95)

At 30 April 2017

239

239

Credited during the year in the Consolidated income statement

(111)

(111)

At 30 April 2018

128

128

17        Provisions

Professional indemnity

 

 

 

 

2018

2017

 

£'000

£'000

 

 

 

Brought forward

591

596

Provisions made during the year

210

270

Provisions used during the year

4

(91)

Provisions reversed during the year

(200)

(184)

At end of year

605

591

 

 

 

Non-current

405

381

Current

200

210

 

605

591

The professional indemnity provision represents amounts equal to the insurance excesses payable on outstanding claims against the Group which are covered by the Company's professional indemnity insurance policy.  The amount or timing of amounts payable in these cases are uncertain as the resolution of the cases are unknown at the year end.

18        Net debt

 

2018

2017

 

£'000

£'000

Current assets

 

 

Cash and cash equivalents

4,301

2,696

 

 

 

Current liabilities

 

 

Unsecured bank loan

(1,977)

(1,980)

Loans from former members

-

(551)

Non-current liabilities

 

 

Unsecured bank loan

(2,982)

(4,958)

Net borrowings

(4,959)

(7,489)

 

 

 

Net debt

(658)

(4,793)
 

 

19           Share capital

Authorised, issued and fully paid

 

2018

2018

2017

2017

 

Number

£

Number

£

Ordinary shares of 10p each

 

 

 

 

Brought forward

106,881,953

10,688,195

106,396,912

10,639,691

Issued on acquisition of Gateley Hamer

Limited

-

-

388,029

38,803

Issued as part of deferred consideration of

Gateley Hamer Limited

-

-

97,012

9,701

At 30 April 2018

106,881,953

10,688,195

106,881,953

10,688,195

 

 

 

 

 

On 15 September 2016 the Group acquired the entire issued share capital of Gateley Hamer Limited (formerly Hamer Associates Limited) in part for the issue of 388,029 10p ordinary shares.  This was followed by a further issue in respect of 97,012 10p ordinary shares in line with deferred consideration conditions of the acquisition.

 

20        Operating leases

Future minimum lease payments regarding non-cancellable operating lease rentals are payable as follows:

 

Land and
buildings

Other

Land and
buildings

Other

 

2018

2018

2017

2017

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Less than one year

3,290

127

2,967

132

Between one and five years

11,541

329

10,954

456

More than five years

13,637

-

13,950

-

 

28,468

456

27,871

588

 

 

 

21           Share based payments

Group

At year end the Group has three share based payment scheme in operation.

Stock Appreciation Rights Scheme ('SARS')

This SARS is a discretionary executive reward plan which allows the Group to grant conditional share awards or nil cost options to selected executives at the discretion of the Remuneration Committee. 

The awards vest after a three year performance period.  On exercise, participants will receive the growth in value of the share options between the date of grant and the date of exercise in excess of the hurdle rate.  The hurdle rate is currently set at 115.765% of the market value of the underlying shares on the date of grant.

Save As You Earn scheme ('SAYE')

The Group operates a HMRC approved SAYE scheme for all staff.  Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years.  Upon vesting, each option allows the holder to purchase the allocated ordinary shares at a discount of 20% of the market price determined at the grant date.

Company Share Option Plan ('CSOP')

The Group operates an HMRC approved CSOP scheme for associates, senior associates, legal directors, equivalent positions in Gateley Group subsidiary companies and senior management positions in our support teams.  Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years.  Upon vesting, each option allows the holder to purchase the allocated ordinary shares at the price on the date of grant.

The annual awards granted under the scheme are summarised below:

 

 

Weighted average remaining contractual life

 

 

 

 

SARS

 

 

 

 

 

 

 

 

SARS 15/16 - 8 June 2015

SARS 16/17 - 7 October 2016

SARS 17/18 - 3 October 2017

 

 

 

SAYE

 

 

 

 

 

 

 

 

SAYE 16/17- 1 September 2016

SAYE 17/18- 15 September 2017

 

 

 

 

 

 

 

 

 

 

 

 

CSOPS

 

 

 

 

 

 

 

 

CSOPS 16/17 - 20 December 2016

CSOPS 17/18 - 3 October 2017

 

 

 

 

 

 

Fair value calculations

The award is accounted for as equity-settled under IFRS 2.  The fair value of awards which are subject to non-market based performance conditions is calculated using the Black Scholes option pricing model.  This model has been used as an approximation of the binomial model for valuing the SARS granted, the directors consider the difference to be immaterial. The inputs to this model for awards granted during the financial year are detailed below:

 

 

CSOP

CSOP

SAYE

SAYE

SARS

SARS

SARS

 

 

 

 

 

 

 

 

Grant date

15/9/17

20/12/16

3/10/17

1/10/16

3/10/17

7/10/16

8/6/15

Share price at date of grant

£1.65p

£1.305p

£1.66p

£0.95p

£1.58p

£1.20p

£0.95p

Exercise price

£1.65p

£1.305p

£.133p

£0.95p

£1.83p

£1.39p

£1.10p

Volatility

24%

24%

24%

24%

24%

24%

24%

Expected life (years)

3.3

3.3

3.3

3.3

3.3

3.3

3.3

Risk free rate

1%

1%

1%

1%

1%

1%

1%

Dividend yield

4%

4%

4%

4%

4%

4%

6%

 

 

 

 

 

 

 

 

Fair value per share

 

 

 

 

 

 

 

Market based performance condition

£0.19p

£0.15p

£0.33p

£0.25p

£0.12p

£0.06p

£0.05p

Non-market based performance

condition/no performance condition

-

-

-

-

-

-

-

 

As the Group had only limited share price history at the date of grant, expected volatility was based on a proxy volatility determined from the median volatility of a group of appropriate comparator companies. For the same reason, a similar approach was followed to derive the dividend yield. Expected life has been taken to be between the minimum and maximum exercise period of three and three and a half years, respectively.

The total charge to the income statement for all schemes now in place, included within personnel costs, is £719,000 (2017: £325,000).

22           Accounting estimates and judgements

The preparation of consolidated financial statements under IFRS requires management to make estimates and assumptions which affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities.  If in the future such estimates and assumptions, which are based on management's best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.  The key areas where a higher degree of judgement or complexity arises, or where estimates and assumptions are significant to the consolidated financial statements are discussed below. 

Impairment of goodwill (note 11)

The value of goodwill is calculated on the acquisition of any new businesses. The value of goodwill is assessed at each year end to ensure that the carrying value is still reflective of the underlying values calculated on day one.

 

 

Impairment assessment of trade receivables (note 13)

The total carrying amount of trade receivables on client assignment is held net of impairment losses after consideration is given to the clients' willingness to pay those amounts accrued.  The valuation of amounts recoverable and not recoverable on trade receivables involves significant judgement.  The estimation of provisions is established based on interactions between finance, the legal staff member and clients, mindful of the specific circumstances of clients and individual matters and invoices.  Historic performance of client's ability to settle past debts and their current financial position play a significant part in management's assessment of whether a provision in full or in part may be necessary.

Unbilled revenue on client assignments (note 13)

The valuation of unbilled revenue involves significant judgement, and affects the amount of revenue recognised.  The valuation is based on an estimate of the amount expected to be recoverable from clients on unbilled items based on such factors as time spent, the expertise and skills provided and the stage of completion of the assignment.  Provision is made for such factors as historical recoverability rates, contingencies, agreements with clients, external expert's opinion and the potential credit risks, following interactions between legal staff, finance and clients.  In assessing whether unbilled time is recognised as unbilled revenue, management are required to make judgements in determining the point at which the contingency is resolved and when the fair value of consideration can be measured reliability.  Where a case is contingent at the statement of financial position date, no revenue is recognised.  Where entitlement to income is certain it is recognised at selling price.

Professional indemnity provisions (note 17)

The Group occasionally receives claims in respect of professional service matters.  The possibility of future exposure to the Group of any such claims involves significant judgement by Management and the Group's insurance providers.  The Group defends such claims where appropriate but makes a provision for possible amounts considered likely to be payable, up to the deductible amount under the Group's related insurance arrangements.  These provisions are estimates, capped at the negotiated excess in place during the year each claim is reported.  The actual amount settled upon, if at all, of future claims are dependent on future events.  Management reviews these provisions at each reporting date with its insurers.

Valuation of intangibles (note 11)

Measurement of intangible assets relating to acquisitions:  In attributing value to intangible assets arising on acquisition, management has made certain assumptions in terms of cash flows attributable to intellectual property and customer relationships.  The key assumptions relate to the trading performance of the acquired business and discount rates applied to calculate the present value of future cash flows.  The directors consider the resulting valuations to be reasonable approximations as to the value of the intangibles acquired.

Share based payment (note 21)

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted.  The estimate of fair value is measured using the Black-Scholes model.  The use of a valuation model such as this involves making certain assumptions around the inputs into the model.  There is also uncertainty around the number of shares likely to vest and the model therefore takes into account management's best estimate of this.

 

 

 

23        Subsequent events

Since the year end the Group has acquired two complementary businesses:

On 23 May 2018, Gateley Plc completed the acquisition of the business and assets of GCL Solicitors LLP for a total consideration of £4,150,000. The total consideration was split £2,282,500 paid in cash and £1,867,500 through the issuance of 1,164,276 new ordinary shares of 10 pence each in Gateley ('Ordinary Shares') at an average price over the past 5 days of £1.604.  The cash consideration is being funded by the extension of existing Group bank facilities repayable over the three years from completion.  In addition, £1,320,000 of liabilities owed to the former members of GCL will be converted into loans of the same amount, repayable by Gateley over the next two years following completion. GCL specialises in legal advice for land and property clients.

On 6 July 2018, Gateley (Holdings) Plc acquired the business and assets of Kiddy & Partners LLP into a new 100% subsidiary of the Company Kiddy & Partners Limited (formerly Ensco 1289 Limited).  The initial consideration payable on completion was £851,844 settled 50% in cash and 50% by the issuance of 251,207 Ordinary Shares of 10 pence each in Gateley ('Ordinary Shares').  Contingent consideration of up to approximately £2.15m may be payable annually in respect of the post-completion period up to and including 30 April 2021.  Contingent consideration will also be settled 50% in cash and 50% in Ordinary Shares.  The maximum consideration payable cannot exceed £3m.  The acquisition was made on a net working capital neutral basis.

 

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

- Ends -


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