DWF Group plc

("DWF" or "the Company" or "Group")

 

LEI: 213800O9QREOHTOGQ266

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

21 July 2022

Full-year results for the year ended 30 April 2022

Sustainable profitable growth, working capital improvement and increased operating efficiency

DWF, the global legal business, today announces its full-year results for the year ended 30 April 2022. The Board is delighted with another performance in line with market expectations, and reflecting significant progress towards medium term targets.

 

GROUP FINANCIAL SUMMARY

 

	FY22 Full year
£m (unless otherwise stated)	FY2021/22	FY2020/21	Change
Revenue	416.1	400.9	3.8 %
Net revenue1	350.2	338.1	3.6 %
Gross profit	180.9	171.8	5.3 %
Gross profit margin2	51.7%	50.8%	0.9 ppts
Cost to income ratio1	38.4%	39.2%	(0.8) ppts
Operating profit / (loss)	27.7	(25.6)
Adjusted profit before tax ('Adjusted PBT')1	41.4	34.2	21.1 %
Profit / (loss) before tax ('PBT')	22.3	(30.6)
Adjusted diluted EPS (pence)1	10.7	7.4	3.3p
Diluted EPS (pence)	6.5	(11.9)	18.4p
Dividend per share (pence)	4.75	4.50	0.25
Lock-up days1	179 days	184 days	(5) days
Free cash flow1	12.9	32.1	(59.8) %
Net debt1	71.8	60.2	11.6
Leverage1	1.08x	1.04x	0.04x

 

FY2021/22 HIGHLIGHTS

·    Group net revenue growth of 4% (7% like-for-like)³ to £350m. Reported revenue growth of 4% to £416.1m.

·    Gross margin improvement to 51.7% (FY21 50.8%) reflecting delivery efficiency and pricing.

·    Cost to income ratio improved by 0.8ppts versus FY21 to 38.4%, now just 0.4 percentage points higher than the medium term guidance issued in July 21, targeting 38%.

·    Adjusted PBT up 21% to £41.4m, reflecting the sustainability of top line growth, gross margin improvement and cost control demonstrated over the previous three reporting periods.

·    Adjusted PBT margin of 11.8%, an increase of 1.7 percentage points on FY21 and 6.7 percentage points ahead of FY20.

·    Reported PBT of £22.3m (FY21 loss of £30.6m), which differs to Adjusted PBT due to adjusting items of £19.1m (FY21 £64.8m).

·    Adjusted diluted EPS of 10.7p (FY21 7.4p) a 44.6% increase on prior year and 0.7p (7%) ahead of expectations.

·    £12.9m free cash flow generated (FY21 £32.1m) after repayment of all remaining COVID-19 VAT deferrals of £10.7m. Adjusting for timing would give an underlying FY22 position of £23.6m. This compares to free cash flow of £32.1m in FY21 which was a period that benefitted from cash inflows from a significant lock-up day decrease of 20 days.

·    Net debt of £71.8m is £11.6m higher than FY21 due to repayment of COVID-19 VAT deferrals and acquisition related payments, and has reduced from HY22 by £5.4m, highlighting the Group's cash generation. Leverage is broadly flat at 1.08 x EBIDTA (FY21 1.04).

·    Balance sheet liabilities relating to deferred consideration and COVID-19 deferrals are £0.9m (FY21 £16m) reflecting a robust year-end balance sheet position.

·    A 5-day (3%) reduction in lock-up days versus FY21 reflects continued progress on Group-wide initiatives to improve working capital efficiency.

·    Net revenue per partner¹ increased by 6% to £975k.

 

STRATEGIC HIGHLIGHTS

·    New 3-division operating structure fully embedded to provide a platform for sustainable, profitable growth.

·    Two acquisitions in Connected Services have bolstered an already very strong organic trajectory and there is a significant pipeline of M&A opportunities to explore.

·    Property strategy under review with an estimated 1/3^rd of global office space considered as potentially surplus to requirements post-COVID, representing a c£7m recurring annualised saving opportunity in the medium term.

·    Client stratification and pricing initiative launched to ensure key client requirements are fully understood and priced appropriately.

·    An increasing number of our clients now receive services from two or more of Legal Advisory, Connected and Mindcrest, representing a proof point for the Integrated Legal Management Strategy.

·    Wins in FY22 include the UK central government legal services panel, NHS Resolution, Allianz and LV=.

 

OUTLOOK AND CURRENT TRADING 

·    The first two months of trading for FY23 have been strong, showing continued momentum in line with Q4 of FY22.

·    Whilst the Board is mindful of inflationary pressures and the wider economic backdrop, DWF has resilient revenues, a countercyclical litigation focus, and recurring revenues in insurance providing a natural hedge against economic headwinds. We remain well placed to continue delivering on our growth strategy and confident in our medium-term guidance.

·    Execution of the property strategy is expected to make a material contribution towards cost control for FY23 and FY24, with other back office initiatives offering potential for further operating efficiencies.

·    For FY2021/22, the Board has declared a final dividend of 3.25p per share, taking the total dividend for the year to 4.75p, reflecting a pay-out ratio of 44% of adjusted profit after tax. This pay-out ratio reflects a progressive dividend in absolute terms, but retains a proportion of FY2021/22 profits to invest in near-term growth opportunities.

 

Sir Nigel Knowles, Chief Executive Officer, commented:

"We are delighted with the progress we have made this year. We have achieved a record set of results with net revenue growth taking us to £350m in scale, adjusted profit before tax up by 21% to £41m and lock-up days continuing to fall, down to 179. Our adjusted diluted earnings per share are up by 45% to 10.7p with our diluted earnings per share increasing to 6.5p, our strongest results since IPO.

"These results have been made possible through the continued transformation of our business, not least the successful implementation of our new global operating model which was introduced on 1 May last year. As anticipated, this has resulted in the greater integration and alignment of our colleagues and services, for the benefit of our clients. It has also supported our integrated legal management approach, our key differentiator which is helping us to gain share of wallet against both traditional and new competitors.

"Despite the prospect of challenging macro-economic conditions, we remain confident in our medium-term guidance. This confidence is supported by the defensive nature of the Group's revenue being weighted towards litigation and the recurring revenue base in Insurance, which has always protected the Group both from artificial peaks in growth and hedges against a slowdown in transactional activity. Similarly, we are confident that our balanced approach of competitive reward, including our unique ability to offer share awards, combined with a more progressive working environment will position us favourably in the 'war for talent'."

 

The person responsible for making this announcement on behalf of the Company is Chris Stefani, Group Chief Financial Officer.

 

 

For further information DWF Group plc James Igoe - Head of Communications

+44 (0)7971 783533

 

Maitland / AMO Sam Turvey		+44(0)20 7379 5151
Sam Cartwright

 

About DWF

DWF is a global provider of integrated legal and business services provided through its three offerings of Legal Advisory, Mindcrest and Connected Services. It has offices and associations located across the globe. The Company became the first Main Market Premium Listed legal business on the London Stock Exchange in March 2019. DWF recorded Revenue of £416m and Net Revenue of £350.2 million in the year ended 30 April 2022. For more information visit: dwfgroup.com

 

Effective from 1 May 2021, the Group transitioned to a new internal operating structure which supports its aim of becoming the leading global provider of integrated legal and business services. DWF has moved from its previous five divisions (Commercial Services, Insurance Services, International, Connected Services and Managed Services) into three more streamlined and efficient global divisions of Legal Advisory, Mindcrest and Connected Services.

 

Together, the three divisions support DWF's single Integrated Legal Management approach through which the Group can seamlessly combine any number of these services to deliver bespoke solutions to its clients with greater efficiency, price certainty and transparency. This approach enables DWF to offer clients solutions that combine traditional law firm services with new, modern legal and business services relevant to today's companies and the challenges and opportunities they face.

 

Forward looking statements

This announcement contains certain forward-looking statements with respect to the Company's current targets, expectations and projections about future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect" and words of similar meaning, include all matters that are not historical facts and reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement.

 

¹ Described in the glossary to the financial statements

² Gross profit margin is defined as gross profit divided by net revenue.

³Like‐for‐like ('L4L') net revenue growth removes both the impact of acquisitions and restructured operations (closures and scale-backs)

 

CONCERT PARTY UPDATE

Following consultation with The Takeover Panel ("the Panel"), the Panel has agreed that the concert party, originally agreed with the Panel at the time of the IPO of DWF Group plc ("DWF") in March 2019, will be amended to reflect changes in circumstances and the passage of time.

At the time of the IPO, DWF agreed with the Panel that the following persons were acting in concert in respect of DWF:

(a)  the partners of the Group's legal businesses (current or promoted or appointed in the future) who become shareholders of the Company; and

(b)  the two Employee Benefit Trusts.

DWF has now agreed with the Panel that the persons who now form a concert party in relation to DWF pursuant to The Takeover Code comprise the following persons, together with their respective connected persons:

Sir Nigel Knowles	Chief Executive Officer
Chris Stefani	Chief Financial Officer
Matthew Doughty	Group Chief Operating Officer
Jason Ford	CEO - Connected Services
Helen Hill	Chief People Officer
Zelinda Bennett	Chief Marketing Officer
Daniel Pollick	Chief Information Officer
Glyn Jones	Global Head of Insurance
Stefan Paciorek	Global Head of Dispute Resolution
Mollie Stoker	Former Group General Counsel & Company Secretary

As at the date of this announcement, the concert party members hold 3.97 per cent. of the Company's voting share capital in aggregate.

 

CHAIR'S STATEMENT

I am delighted to welcome you to our Annual Report and Accounts for the year ended 30 April 2022. We have experienced another year of global volatility, with the economic recovery from COVID-19 impacted by inflationary pressures and the terrible events in Ukraine. Throughout this period, DWF has focused on living its purpose as we seek to deliver positive outcomes with our colleagues, clients and communities.

This focus on purpose is central to the culture of our business and a critical reason why we have performed well. I would like to offer my thanks, and the thanks of the whole Board, to all of our colleagues across the Group for their continued commitment, dedication and high-quality delivery throughout the year.

Group performance

In my statement in last year's Annual Report, I said that our FY2020/21 performance had provided the Group with a platform to deliver sustainable profitable growth. That has certainly proven the case this year, with both revenue and statutory profit growth and a further reduction in lock-up days, reflecting continued progress in improving our operational efficiency.

Our like-for-like net revenue growth rate of 7% is strong and sustainable (reported revenue growth is 4%). We have good momentum from the final quarter of FY2021/22 which has continued into this new financial year and so we look forward with optimism.

Our new global operating structure, which came into effect on 1 May 2021, is delivering the benefits of greater integration and alignment of our colleagues and services for the benefit of our clients. We see the impact of this with more of our largest clients interested in our ability to offer a global, Integrated Legal Management approach. We have secured a number of important client wins including the UK central government legal services panel, NHS Resolution, Allianz and LV=. We also saw a sharp rise in our Net Promoter Score, which Sir Nigel talks more about in his Q&A.

Leadership

It has been a year of stability, with no changes to the Board. I would like to thank all of our Board members for their time and focus throughout this year. I would particularly like to thank Seema Bains and Michele Cicchetti for their invaluable contributions and diversity of thought and experience as Partner Directors on the Board.

Culture

Our vision is to create a culture and working environment where all colleagues can contribute authentically at their highest level to create long-term value aligned to our purpose and vision. This means a sustainable business where everyone is included, engaged, valued and equipped with skills for today and the future.

We know from our colleague engagement survey, which saw an increase in respondents as compared with the last survey, that 89% feel treated with respect by their colleagues and 87% feel they can be themselves at work. For the first time, we asked colleagues if they feel supported to adopt a hybrid model of working. We were pleased to find that 83% do feel supported, which reflects the focus given to this topic as more and more of our colleagues work in this way.

Our overall colleague engagement score of 76 has remained consistent despite significant periods of change over the past two to three years, both in the business and in the general global economic and working environment.

We are proud that our main colleague recognition programme, The Rubie Awards, saw a record number of submissions this year. More than 800 colleagues took the time to nominate one of their peers for an award, whilst there were around 15,000 instant recognitions through our Achievers platform. This focus on colleague recognition is an important element of the culture we wish to create, ensuring everyone feels recognised, respected and thanked properly for their contribution to the overall success of the Group.

Culture is also at the heart of our workplace strategy. As we prepared for COVID-19 restrictions to ease across our locations, we consulted regularly with colleagues through surveys and workshops to ask them how, where and when they want to work. Their views and preferences have been reflected and now more of our colleagues than ever are benefiting from our hybrid working model, which continues to develop through our workplace strategy. 

Our role in society

ESG has been one of the core areas of focus for the Board this year, with Kirsty Rogers, Group Head of ESG, joining us at our Board meetings on a regular basis to discuss progress in the formulation and delivery of our first global ESG Strategy. I am delighted that this strategy was published in December, with Shareholders provided with an opportunity to hear about it at our half-year presentation.

Through this strategy, we have committed to ambitious science-based targets to drive climate action and to stretch targets to further improve Diversity & Inclusion and social mobility.

Early actions taken since publication of our strategy include launching our ESG Client Policy and establishing our Risk & Sanctions Committee. We have also introduced D&I objectives for all people managers, secured approval of our climate targets from the Science-Based Targets initiative and achieved Bronze Standard from the Carbon Literacy Project.

We have also developed a programme of activities and resources to support colleagues' physical and mental health, led by the Group's Wellbeing Committee.

Stakeholders across the sector are holding legal services providers to account for their actions on ESG. Employees, clients, communities and regulators, expect firms to lead with purpose and to have a clear strategy for improving performance on ESG matters. DWF's own research has found that companies risk losing clients and talent if they have weak ESG performance.

ESG is a critical business issue, which is why we focus on it so closely.

I talk more about our purpose, values and culture in the Governance introduction. You can read more detail on our priorities and actions in our separate Sustainability Report. These will be reported in our Annual Report and Accounts.

Dividend

The Group's capital allocation policy prioritises having sufficient capital to fund ongoing operating requirements, and to invest in the Group's long-term growth. Taking this into account, the Board targets a pay-out ratio of up to 70% of adjusted profit after tax. For FY2021/22, the Board has proposed a final dividend of 3.25 pence per share, representing an increase of 8% on the final dividend paid last year and, taking the total dividend for the year to 4.75 pence, reflecting a pay-out ratio of 44%. This pay-out ratio reflects a progressive dividend in absolute terms, but retains a proportion of FY2021/22 profits to invest in near-term growth opportunities. If approved by Shareholders at the forthcoming Annual General Meeting, the final dividend will be paid on 7 October 2022 to all Shareholders on the register on 9 September 2022. Details of our dividend policy will be reported in our Annual Report and Accounts.

Remuneration Policy

Our Remuneration Policy is being put before Shareholders for approval at our forthcoming Annual General Meeting. The Remuneration Policy was reviewed by the Remuneration Committee to ensure it continues to support delivery of our business strategy. Following that review, some minor amendments are proposed in order to provide greater clarity and to add limited additional flexibility in specific areas. More information is available in the Remuneration Report, which will be reported in our Annual Report and Accounts.

Annual General Meeting 2022

The Annual General Meeting will be held on 28 September 2022.

Looking ahead

The first two months of trading for FY2022/23 have been strong, showing continued momentum in line with Q4 of FY2021/22. As we progress through FY2022/23, we will continue to execute effectively against our strategy to drive profitable growth through our Integrated Legal Management proposition. Despite the prospect of challenging macro-economic conditions, we remain confident in our medium-term guidance.

 

Jonathan Bloomer

Chair

20 July 2022

 

CHIEF EXECUTIVE OFFICER'S Q&A

How did the Group perform this year?

We are pleased with the progress we have made this year. FY2020/21 was a transformational year for our business and, in FY2021/22, we have continued to transform, not least through the successful implementation of our new global operating model. We have also embedded our working capital and client programme initiatives introduced in the prior year and are benefiting from the impact of various office restructures. Together, these actions have contributed to a year of sustained profitable growth. Adjusted profit before tax increasing by 21% against a strong prior year is a result we are proud of and has been achieved thanks to margin improvement across each of our three divisions combined with ongoing rigour in our control of costs. This has also led to a return to a statutory profit before tax for the year of £22.3m (FY2020/21: loss of £30.6m).

Our performance this year is evidence of the increasing maturity of our business, the appeal of our offering to clients and our confidence in the medium-term targets we have outlined to Shareholders. With like-for-like growth of 7%, we have demonstrated that we are on track to deliver the top-line performance implied in our guidance. Some of our transactional practices had outstanding double-digit growth, but we also have the bedrock of Insurance in our business which, whilst it tends to grow at a slower rate, helps to protect the business from the volatility that can be seen in more transactionally focused businesses.

 

How are clients responding to DWF's Integrated Legal Management approach?

In short, very well. We continue to see an evolution in the legal services market, with changing buyer behaviours and an increasing demand for alternative legal services and related business services. Our differentiated proposition leaves us really well placed in this regard and we have seen a growing number of our key clients taking services from more than one division.

We work with Deep-Insight, a research company with more than 20 years' experience with large B2B organisations, to carry out regular independent customer relationship quality assessments, including calculation of our net promoter score.

We were delighted that our ability to provide an integrated solution to our clients' challenges, in more markets than ever, was a factor in the strong net promoter score of +63 in our census of more than 500 clients.

This year we commissioned independent research from Thomson Reuters, the findings of which support our confidence in our business model. Their analysis shows that the legal services market overall continues to grow, but with the strongest growth in the ALSP market. They also found that traditional law firms are evolving but are failing to adapt quickly enough to respond to new competitors, or to differentiate their services by offering alternative approaches.

Our highly differentiated proposition and stellar client base leaves us well placed to compete effectively against traditional and new legal services providers. As we talk to our largest and fastest-growing clients about the benefits of our proposition, we are already beginning to capitalise on these shifting market dynamics.

 

How has 'The Great Resignation' and the 'war for talent' affected DWF this year?

There is no doubt that this has been one of the biggest issues facing the legal sector and other professional services over the past 12 months. Similar to other professional services firms, we have seen attrition levels increase and it will remain a challenge for our business in the year ahead, but we are confident in our balanced approach, which responds to external market factors whilst also offering a more progressive working environment and seeking to capitalise on our ability to use share incentives as part of our reward strategy.

As I commented during this financial year, offering more and more money to young people is only a sticking plaster. It is not a sincere, sustainable or healthy solution for anyone. Of course we must ensure pay is competitive, attractive and a fair reward, but we believe there must be more than this one-dimensional offering.

We have emphasised our purpose-led approach, delivering positive outcomes with colleagues, clients and communities. We have committed to clear and ambitious targets on climate, diversity and inclusion through our ESG strategy, offering all colleagues the opportunity to get involved and drive progress. We have delivered a true hybrid working model through which our offices are just one environment in which colleagues and clients work and collaborate. Shortly after this financial year-end, we appointed advisors to work with us on improving the design of our offices to ensure they are fit for these new ways of working.

Furthermore, we have reviewed our reward offering, including a comprehensive pay review, share awards to more than 650 colleagues and reducing the vest period for colleagues to receive such awards in future. In the UK, we have also significantly improved our family friendly policies, demonstrating to existing and potential colleagues that we put them first when events in their lives naturally take priority over their work commitments. Working with our country leadership we will look to roll out many of these policies globally moving forward.

 

In FY2021/22, you extended your capabilities through new offices, associations and M&A in Saudi Arabia, Portugal, Spain and Canada. Why those markets, and where next?

We have a client-led approach to our global expansion. In late FY2019/20 and early FY2020/21 we conducted a global review to identify those markets where we felt we needed a presence, either through a DWF office or via a local association. This work helped us to identify priority markets and we are pleased with the progress made in the past 12 months.

We returned to M&A early in FY2021/22 through two bolt-on acquisitions in the UK and Canada within Connected Services. We also have a strong pipeline of M&A opportunities and anticipate having more to report in the short to medium term.

Our Saudi business is performing well and has won a number of instructions, including with Engineer Holding Group and its subsidiary, the Saudi Media Company. We are also pleased with our new association relationships, including our affiliation with Hauzen LLP in Hong Kong which we announced in May this year. We now have association relationships in eight markets, including our first Connected Services association with RTS Group in Iberia and Latin America.

 

What is the outlook for the year ahead?

The first two months of trading for FY2022/23 have been strong, showing continued momentum in line with Q4 of FY2021/22. Despite the prospect of challenging macro-economic conditions, we remain confident in our medium-term guidance. This confidence is supported by the defensive nature of the Group's revenue being weighted towards litigation and the recurring revenues in Insurance, which has always protected the Group from artificial peaks and hedges against a slowdown in transactional activity.

 

Sir Nigel Knowles

Group Chief Executive Officer

20 July 2022

 

FINANCIAL REVIEW

Profitable growth, working capital improvement and strong balance sheet

A record year of profitable growth

The Group has delivered another year of record results with FY2021/22 being the first full year under new leadership. These results include reported revenue growth of 4% to £416m (PY: £401m), net revenue growth of 4% to £350m (PY: £338m), a 21% increase in adjusted profit before tax to £41m (PY: £34m) and a return to statutory profit before tax of £22m (PY: loss of £31m).

Diluted EPS has increased to 6.5p (PY: loss per share of 11.9p) and Adjusted Diluted EPS has increased to 10.7p (PY: 7.4p), a 45% increase and a record since IPO. The Group has also reported lock-up days of 179 (PY: 184 days), the lowest level for six years even with revenue growth of 88% over the same time period. The Board has declared a final dividend of 3.25p per share, taking the total dividend for the year to 4.75p (PY: 4.5p). This reflects a progressive dividend in absolute terms, but retains a proportion of FY2021/22 profits to invest in near-term growth opportunities.

Strong activity levels have led to like for like¹ net revenue growth of 7%, despite having experienced high levels of COVID related absence in Q4 as UK COVID cases peaked due to the spread of the Omicron variant. Gross margin has increased by 0.9% to 51.7% despite ongoing inflationary pressures including the continued investment into reward through the annual salary and benefits review. The Group's cost-to-income ratio has improved to 38.4% from 39.2% in FY2020/21. This is another record for the Group since IPO and is a result of the continued focus on cost control and operating discipline under the new leadership team.

In FY2021/22, the German operations have been scaled-back as a result of the ongoing focus on profitable growth. The Berlin office has been closed and a small number of people have departed the business in other locations within Germany. This is consistent with similar actions taken elsewhere in the past two years, most notably in Dubai and Australia, which have seen significantly improved performance since restructuring. Costs associated with the scale-back of German operations have been offset by a reversal of a provision relating to the Australia scale-back as vacant properties have been subsequently sublet. This has resulted in a credit of £0.2m in the year for office closures and scale-backs which has been recognised as non-underlying administrative expenses in the income statement. 

The Group has returned to M&A in the year with the acquisition of Zing 365 Holdings Limited ("Zing") and Barnescraig & Associates ("BCA") which have been complementary acquisitions for the Connected division. The Group also has a healthy pipeline of M&A targets as we enter FY2022/23. As well as the return to M&A, the Group continues to grow internationally through an expansion of its associations, in particular Al-Ohaly & Partners in the Kingdom of Saudi Arabia, Nobre Guedes & Associados (NGA) in Portugal and RTS Group (RTS) based in Spain. Since the year end the Group has also announced a new association with Hauzen LLP based in Hong Kong.

The Group has produced a statutory profit before tax of £22m (FY2020/21: loss before tax of £31m) with the prior year loss being driven by significant adjusting items totalling £64.8m, the majority of which related to expenses which formed part of the purchase price of the RCD acquisition. On an adjusted basis, the Group achieved adjusted profit before tax of £41m (FY2020/21: adjusted profit before tax of £34m), an increase of 21% on the prior year.

As well as achieving strong profitable growth in the year, the Group has also continued to strengthen its balance sheet with net assets increasing by £16m, which includes a £32m increase in net current assets. Net debt has increased by £12m to £72m (FY2020/21: £60m) but this is principally down to the payment of COVID-19 VAT deferrals and acquisition related payments totalling £14m. The remaining deferred liabilities on the balance sheet are just £0.9m, compared to £28m at the end of FY20.

Lock-up days have again reduced due to ongoing operational initiatives and stand at 179 days, a 5 day reduction from April 21.

The Board is pleased to see further progress towards medium term targets which were communicated in July 21. The Group continues to focus on profitable growth, which moves the adjusted PBT into benchmark range with the remaining listed legal business and some comparators in the broader professional services space. Working capital has also improved with a further reduction in lockup days. Whilst there are widely reported upward pressures on staff costs in the sector and broader inflationary pressures, the Group believes it is well placed to retain key talent and to mitigate other cost pressures through specific cost reduction initiatives such as the premises strategy.

____________________________________

¹Like for like net revenue growth excludes the impact of acquisitions in the current and preceding year as well as the impact of scale-backs and closures

Revenue

Revenue for the year is £416m (FY2020/21: £401m) representing growth of 4%. However, the Group focusses revenue measurement on net revenue as revenue is distorted by the level of recoverable expenses incurred on delivery of client matters where such expenses do not necessarily reflect the activity levels of the projects or the business.

Net revenue for the Group was £350m (FY2020/21: £338m) representing like for like growth of 7% which excludes the impact of the acquisitions of Zing and BCA as well as the scale back of operations in Australia and Germany. DWF's biggest market, the UK, has seen net revenue growth of 7%.

Divisional performance

Effective from 1 May 2021, divisional performance has been reported to the PLC Board under the new global operating structure that comprises the three divisions of Legal Advisory, Connected Services and Mindcrest. The implementation of this new structure has resulted in greater integration and alignment of our people and our services and supports the continued execution of the Group's strategy.

Highlights of the performance by division are set out below:

Legal Advisory (83% of Group Net revenue / 85% of Group Gross profit)

£m	FY2021/22	FY2020/21	Change (%)
Revenue	355.1	345.6	+2.8%
Net revenue	292.0	285.3	+2.3%
Direct costs	(138.7)	(137.5)	+0.9%
Gross profit	153.2	147.8	+3.6%
Gross margin (%) / ppts	52.5%	51.8%	+0.7ppts

 

Newly formed in FY2021/22, the Legal Advisory division has delivered like-for-like net revenue growth of 7%. This growth has been accomplished whilst holding overall direct costs in line with prior year despite inflationary cost pressure, resulting in a 1 percentage point improvement in gross margin to 53%.

Within Legal Advisory, the Insurance business has delivered growth of 3%. This has arisen from new contracts secured (for example with LV=/Allianz and NHS Resolution), continued expansion of our specialist London Market practice and international presence, and an increase in claim volumes following the easing of COVID-related restrictions. This has offset the slower post-pandemic recovery of claims volumes in other isolated sectors of Insurance and the non-recurrence of one-off additional COVID-related work in FY2020/21 that arose from the FCA business interruption litigation.

UK Corporate, Finance and Restructuring, and Real Estate businesses have collectively grown by 17%, with a strong rebound in transactional areas following the easing of lockdown and conclusion of Brexit.

The Dispute Resolution practice area has continued to attract a healthy pipeline of work during FY2021/22, which has resulted in like for like growth of 8% across all geographies.

A number of international locations, across Europe and the Middle East, have seen particularly positive results (including revenue growth of 41% in Italy and 9% in Spain), with increased collaboration as a result of the revised Group structure enhancing the division's performance.

A year on from establishing the new divisional structure, the outlook for FY2022/23 is positive, with a strong pipeline of work in place and greater efficiencies being delivered through innovative ways of working, both between practice areas and with our clients. Plans are already underway to continue the development of key locations (in the UK and further afield) and expand into new locations which, alongside continued investment in our people, will support future growth.

 

Connected Services (10% of Group Net revenue / 8% of Group Gross profit)

£m	FY2021/22	FY2020/21	Change (%)
Revenue	34.2	28.8	+18.9%
Net revenue	33.9	28.4	+19.1%
Direct costs	(18.8)	(16.2)	+16.0%
Gross profit	15.0	12.2	+23.2%
Gross margin (%) / ppts	44.4%	42.9%	+1.5ppts

 

The Group's Connected Services division continues to deliver strong profitable revenue growth delivering net revenue growth of 19% to £33.9m, or 10% on a like-for-like basis which excludes the growth brought by the acquisitions of BCA and Zing365 in May 2021. The cultural integration of both acquisitions has been successful and they are both working closely with colleagues across Connected Services and the rest of the Group to share clients and enhance their pipeline.

We are particularly pleased that all service lines have grown compared to the prior year. Our Claims Management and Adjusting business (with presence in Australia, Canada, France, Ireland, Italy, UK and USA) has grown by 32%, or 17% on a like-for-like basis, due to significant new client wins in the UK and USA, an increase in claims volumes as COVID-19 restrictions eased and the continued receipt of business interruption claims. This is despite the disruption in Australia due to extended local lockdowns.

The launch of the Global Entity Management proposition has been a success, with seven new clients secured and an operating system developed in collaboration with our software team '360'. Investment in a sales and marketing team, with an initial focus on 360, has resulted in net revenue growth of 19% and the development of a strong pipeline as we enter the new financial year.

One of our larger businesses, Ges-Start (DWF Spain's Connected Service which offers Accounting, Tax and Labour consulting), has grown net revenue by 16% and gross profit margin by 6 percentage points due to their recurring client base being complemented by a number of large new projects and a focus on cost control.

As the division continues to mature, profitability has improved with gross profit margin increasing to 44%, 2 percentage points ahead of the prior year. Although net revenue has grown by 19%, direct costs have only increased by 16% as the division invests in technology solutions to deliver work more efficiently and effectively.

Connected Services also plays an ever increasing role in providing integrated solutions for clients and provided record fee referrals to Legal Advisory in excess of £8m (PY: £7m), as the benefits of the new operating structure start to be realised.

Management continues to look to the future with confidence, assisted by a strong pipeline of activity across all businesses and a focus on exploring more innovative ways to provide integrated solutions to meet our clients' needs.

 

Mindcrest (7% of Group Net revenue / 7% of Group Gross profit)

£m	FY2021/22	FY2020/21	Change (%)
Revenue	26.8	26.6	+0.6%
Net revenue	24.4	24.4	+0.2%
Direct costs	(11.8)	(12.6)	-6.8%
Gross profit	12.7	11.7	+7.8%
Gross margin (%) / ppts	51.8%	48.2%	+3.6ppts

 

COVID-19 challenges combined with Insurance Law Reform hampered US external sales and UK Motor Volume growth respectively (the two largest Practice Areas within the Division). However, this disappointing performance was offset by significant growth (240%) of eDiscovery and much improved integration growth (57%) with Group key accounts, to deliver revenue consistent with the prior year.

COVID-19 has also impacted the speed of transition of certain legal workflows and legal support from the Legal Advisory division into Mindcrest. The stabilisation of COVID-19 in India will see a return to office working with various Group and Divisional initiatives underway to maximise the opportunity of transitioning work and optimising and standardising certain legal workflows.

Enhancing US presence, deleveraging key client concentration, investment into Legal Consulting and continued promotion of Service Transformation (which will mitigate current inflationary pressures) are key strategic objectives for FY2022/23. UK macro-economic inflation also provides growth opportunities to capitalise on market-leading propositions in UK volume litigation (Lender Services and Recoveries) as clients seek to control costs. It is with this backdrop that management can look forward to an improved year for the division in FY2022/23 focussed on unlocking significant benefits for both the division and the wider Group through this differentiating offering.

 

Direct costs

Direct costs, which reflect the salary costs of fee-earning partners and staff, have increased by £3m, or 2%, to £169m. The acquisitions of Zing and BCA accounted for £1m of year-on-year cost increases, so the underlying trend on direct costs was an increase of £2m. This increase reflects a combination of tight cost and recruitment control combined with investment in salary costs and selective hiring into growth areas of the business.

Gross profit

The combination of strong net revenue growth and strict control of costs has delivered a gross profit of £181m, representing a £9m, or 5%, increase vs. FY2020/21. This reflects a gross margin % of net revenue of 51.7% (FY2020/21: 50.8%). This improvement reflects uplifts across all divisions which is particularly pleasing given higher than expected absence rates in the second half of the year driven by COVID-19 as well as ongoing cost pressures.

Administrative expenses

Administrative expenses (including impairment) have decreased compared to the previous year, from £197m in FY2020/21 to £153m in FY2021/22. On an underlying basis, excluding adjusting items, administrative expenses for FY2021/22 are £134m (FY2020/21: £133m), which is consistent with the prior year after considering the acquisitions of Zing and BCA contributed additional costs of over £1m. This results in a cost-to-income ratio of 38.4%, a reduction of 0.8% from FY2020/21.

Improved cost control is a key component of the Group's strategy, ensuring the Group's resources are deployed in areas which support sustainable profitable growth. The control of underlying administrative expenses is therefore pleasing given the growth in the business in the year and against a backdrop of inflationary pressures on salaries and increases in energy costs. In addition, fewer COVID-19 restrictions have resulted in increases in travel and marketing costs as our colleagues spend more time working collaboratively with each other, and with our current and prospective clients. Whilst travel and marketing costs have increased they are still significantly below pre-COVID-19 levels, partly due to the restrictions that were in place during the year but also as we have taken the opportunity to closely review spend in all areas of administrative expenses.

Our cost base continues to be an area of focus for FY23, with the ongoing execution of our premises strategy expected to generate savings as we right-size our office space for our established hybrid working model. An estimated 1/3^rd of the Group's global office space is considered as potentially surplus to requirements post-COVID which represents a c£7m recurring annualised saving opportunity in the medium term. Travel costs will be a particular focus area given that COVID-19 restrictions have eased but also to ensure that our colleagues are travelling with purpose in order to meet our ambitious environmental commitments. Other reductions in our existing overhead base are underway, to allow additional capital to be redeployed in areas of the business which will contribute to greater profitable growth.

Adjusting items have decreased significantly to £19m in FY2021/22 from £65m in FY2020/21. The table below provides more details with full analysis contained in note 2 to the financial statements:

	2022	2021
	£'000	£'000
Office closures and scale-backs	(238)	14,898
Acquisition-related expenses	9,564	20,743
DWF RCD modification impact	-	13,796
Change of CEO	-	1,011
Impact of COVID-19	-	1,011
Other share-based payment expenses	9,609	13,333
Refinancing costs	146	-
Adjusting items	19,081	64,792

 

Adjusting items in FY2021/22 can be summarised as:

1.    Office closures and scale-backs which relates to the scale-back of operations in Australia, which began in FY21, and the scale-back of operations in Germany which commenced at the end of FY22. The amounts reflect a charge for working capital, impairment of assets and people costs in Germany, offset by the reversal of a provision in Australia as a sublease has been entered into during the year;

2.    Acquisition related expenses principally relating to amortisation and impairment of intangibles recognised on acquisition as well as acquisition related remuneration expense from the Mindcrest acquisition, payments of which ceased in February 2022.

3.    Share based payment expenses reflecting grants from the Employee Benefit Trust which is a pre-funded trust established on IPO; and,

4.    Non-recurring costs relating to the refinancing of the Group's RCF facility.

Net finance expense & interest payable on leases

Net finance expenses relating to bank charges and borrowings were £3.7m (FY2020/21: £2.7m). Interest on bank borrowings increased by £0.5m as a result of an increase in interest rates and a lower level of debt in the prior year due to COVID deferrals. Bank and other charges includes a one-off charge of £0.4m for accelerated amortisation of bank fees connected with the previous RCF facility that has since been extinguished and replaced with a new facility.

Interest payable on leases of £1.7m (FY2020/21: £2.3m) reflects the notional interest cost relating to lease borrowings.

Profit/(loss) before tax

The Group reported a profit before tax of £22.3m (FY2020/21: £30.6m loss before tax), with the prior year reported loss before tax being driven by adjusting items totalling £64.8m referenced under the administrative expenses section above.

Adjusted PBT is £41.4m (FY2020/21: £34.2m) which represents a 21% increase on the prior year. Under new leadership the Group's strategy continues to be implemented operationally with a greater focus on sustainable growth, performance transformation and cost control. These factors together have generated an adjusted PBT margin (using net revenue) for FY2021/22 of 11.8% (FY2020/21: 10.1%).

Tax

The reported tax charge for the year, excluding prior year adjustments, is £6.1m (PY: 4.7m) on a profit before tax of £22.3m (PY: loss of £30.6m), representing an effective rate of tax of 27.4%. The effective tax rate was higher than the UK statutory tax rate primarily due to tax losses that have not been recognised as deferred tax assets (increasing the tax charge by £2.1m) and the tax effect of non-tax-deductible expenses (increasing the tax charge by £0.7m) offset by the effect on deferred tax resulting from the change in the UK corporation tax rate from 19% to 25% effective from 1 April 2023 (reducing the tax charge by £0.8m).

The Group also booked prior year tax adjustments of a net credit of £4.1m. Those adjustments arise principally as a result of (a) increased claims of the departing Australian partners on the Group's UK profit pool following the restructuring of the Group's Australian business in FY21 reducing the profits subject to UK corporation tax (£5.1m), offset by (b) revaluations of the Group's deferred tax assets relating to tax depreciation timing differences and expected tax deductions for share based payments as at 30 April 2021 (£1.4m).

This gives a net tax charge of £2.0m for the year (FY2020/21: £4.6m).

There are no open tax audits or investigations across the group.  In line with group's tax strategy, it is not considered that any aggressive or materially uncertain tax positions have been adopted by any of the group entities. As such, the level of tax risk faced by the group is considered to be low.

EPS

Diluted EPS has increased to 6.5p in FY2021/22 from a loss per share of 11.9p in FY2020/21, the highest Diluted EPS result since the IPO. Adjusted Diluted EPS has similarly increased in line with the increase in adjusted PBT from 7.4p in FY2020/21 to 10.7p in FY2021/22, a 45% improvement, and again a record since the IPO.

Dividend

The Group's capital allocation policy is to prioritise having sufficient capital to fund ongoing operating requirements and strategic investment in the Group's long-term growth.  Taking this into account the Board targets a pay-out ratio of up to 70% of adjusted profit after tax. For FY2021/22, the Board has declared a final dividend of 3.25p per share, taking the total dividend for the year to 4.75p (PY: 4.5p), reflecting a pay-out ratio of 44% of adjusted profit after tax (FY2020/21 61%). This pay-out ratio reflects a progressive dividend in absolute terms, but retains a proportion of FY2021/22 profits to invest in near-term growth opportunities. This final dividend is subject to approval at the AGM on 28 September 2022 and, if approved, will be paid on 7 October 2022 to all Shareholders on the register of members at the close of business on 9 September 2022.

Working capital, cash flow & net debt

The group measures working capital efficiency using "lock-up days". Lock-up days are comprised of two elements: Work-in-progress ('WIP days'), representing the amount of time between performing work and invoicing clients; and Debtor days, representing the length of time between invoicing and cash collection.

Driving working capital efficiency has continued to be a key focus for the Group in FY2021/22, with a number of operational improvements being effected in order to achieve a permanent reduction in the lock-up day cycle. Closing lock-up days at the end of April were 179 (FY2020/21: 184), a five day reduction and is the lowest level that lock-up has been for six years, despite an 88% increase in revenue over the same time period. The five day reduction comprises a one day increase in WIP days and a six day reduction in Debtor days. The WIP day increase is a product of a slight change in the mix of type of fee income, which is expected to be a timing issue only. The Debtor day reduction reflects an increase in the Group's cash collection efficiency and ongoing focus on operational discipline.

During the year, the Group has settled all remaining COVID-19 VAT deferrals totalling £10.7m. Under normal circumstances these payments would have been made in FY2020/21. In addition, the Group has had cash outflows in the year relating to closures & scale-backs of £3.8m. Normalising for the impact of these would have meant free cash flow of £27.4m. This compares against a reported free cash flow in FY2020/21 of £32.1m which benefitted from a significant working capital improvement, with lock-up days decreasing by 20 days, driven from a combination of operational improvements and also a catch-up of collections after the initial impact of COVID-19 led to a build-up of trade receivables.

As well as settling remaining COVID-19 VAT deferrals in the year the Group has also paid £3.5m in consideration for acquisitions with only £0.8m of consideration still to be paid as at the balance sheet date. As a result of these factors, net debt has increased to £71.8m from £60.2m at April 2021. The Group's strategy continues to be to manage borrowings such that the leverage ratio (borrowings as a multiple of adjusted EBITDA) reduces. Leverage at April 2022 has increased from the prior year to 1.08 (PY: 1.04) but the prior year included the benefit of COVID-19 VAT deferrals as explained above.  The future reduction in leverage is expected to be achieved through a combination of profitable growth and net debt gradually reducing over time through working capital efficiencies.

The Group successfully completed a refinancing of its rolling credit facility ('RCF') in December 2021, obtaining a £100m facility with an additional accordion facility of up to £20m as well as a permanent relaxation of certain covenants. The facility is for an initial three year term with two, one year extension options. The Group expects to continue to operate well within its available facilities and for all covenants to be compliant for the remaining tenure.

Capital expenditure (Capex)

The Group is actively reviewing office space and will consider selective investments in office refits in the coming years as the premises strategy is executed, freeing up redundant space and investing cost savings into improving the remaining space. In addition, there has been continued investment into IT during the year as the Group builds its IT infrastructure to support our colleagues in delivering for our clients. Overall capex (excluding right-of-use asset additions under IFRS 16, and intangible assets recognised from acquisitions) in FY2021/22 was £7.9m compared to £10.6m in FY2020/21. The PY comparator included significant one-off investment into the new Pune office.

Current trading and future outlook

The performance for FY2021/22 reflects another strong year for the Group after a transformational recovery in FY2020/21. The results reflect record net revenue, adjusted PBT, EPS and lockup performance for the Group.  As well as seeing significant organic growth opportunities from the existing client base, buoyed by our NPS score and client listening insights, the Group is actively pursuing a strong pipeline of M&A opportunities. Whilst macro-economic conditions suggest harder times ahead, the defensive nature of the Group's revenue being weighted towards litigation and the recurring revenue base in Insurance, protects the Group both from artificial peaks in growth but also hedges against a slowdown in transactional activity. The Group sees significant opportunity to apply self-help actions to control costs, with the premises strategy and various back-office initiatives offering protection from inflationary pressures.

 

Chris Stefani

Group Chief Financial Officer

21 July 2022

 

 

FINANCIAL STATEMENTS

Consolidated income statement

Year ended 30 April 2022

 

		2022	2021
	Notes	£'000	£'000
Revenue	3	416,052	400,948
Recoverable expenses	3	(65,810)	(62,818)
Net revenue	3	350,242	338,130
Direct costs	3	(169,332)	(166,349)
Gross profit	3	180,910	171,781
Administrative expenses		(146,691)	(187,471)
Trade receivables impairment	13	(2,973)	(5,349)
Other impairment	4	(3,593)	(4,595)
Operating profit / (loss)	4	27,653	(25,634)
Net finance expense	5	(3,664)	(2,682)
Net interest expense on leases	5	(1,673)	(2,284)
Profit / (loss) before tax		22,316	(30,600)
Total of adjusting items as defined under the Group's alternative performance measures	2	(19,081)	(64,792)
Adjusted profit before tax	2	41,397	34,192
Taxation	6	(2,029)	(4,567)
Profit / (loss) for the year		20,287	(35,167)
Earnings / (losses) per share attributable to the owners of the parent:
Basic (p)	8	6.8	(11.9)
Diluted (p)	8	6.5	(11.9)

 

The results are from continuing operations.

Consolidated statement of comprehensive income

Year ended 30 April 2022

 

	2022	2021
	£'000	£'000
Profit / (loss) for the year	20,287	(35,167)
Items that are or may be subsequently reclassified to the income statement:
Foreign currency translation differences - foreign operations	83	(2,855)
Total other comprehensive income / (expense) for the year	83	(2,855)
Total comprehensive income / (expense) for the year	20,370	(38,022)

 

There is no taxation on items within other comprehensive income.

 

Consolidated statement of financial position

As at 30 April 2022

		2022	Re-presented (note 1.4) 2021
	Notes	£'000	£'000
Non-current assets
Intangible assets	10	45,604	49,173
Property, plant and equipment	11	11,239	12,615
Right-of-use assets	12	65,234	69,166
Investments		-	227
Trade and other receivables	13	1,464	-
Deferred tax assets	19	3,938	4,649
Total non-current assets		127,479	135,830
Current assets
Trade and other receivables	13	190,174	183,506
Cash and cash equivalents (excluding bank overdrafts)	14	28,310	34,711
Total current assets		218,484	218,217
Total assets		345,963	354,047
Current liabilities
Trade and other payables	15	63,325	85,381
Corporation tax liabilities		6,190	6,030
Deferred consideration		890	1,699
Lease liabilities	16	14,576	13,104
Interest-bearing loans and borrowings	17	9,786	19,434
Provisions	18	6,315	3,764
Amounts due to members of partnerships in the Group		28,243	31,492
Total current liabilities		129,325	160,904
Non-current liabilities
Deferred tax liabilities	19	5,869	7,584
Lease liabilities	16	63,163	70,898
Interest-bearing loans and borrowings	17	90,344	75,444
Provisions	18	4,147	1,837
Total non-current liabilities		163,523	155,763
Total liabilities		292,848	316,667
Net assets		53,115	37,380
Equity
Share capital	20	3,254	3,246
Share premium	20	89,365	88,610
Treasury shares	20	(129)	(129)
Other reserves		4,929	6,219
Accumulated losses		(44,304)	(60,566)
Total equity		53,115	37,380

 

 

Consolidated statement of changes in equity

Year ended 30 April 2022

 

				Other reserves
	Share capital	Share premium	Treasury shares	Merger reserve	Share-based payments reserve	Translation reserve	Accumulated losses	Total equity
	(note 20)	(note 20)	(note 20)
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2021	3,246	88,610	(129)	(2,385)	12,885	(4,281)	(60,566)	37,380
Profit for the year	-	-	-	-	-	-	20,287	20,287
Other comprehensive income	-	-	-	-	-	83	-	83
Total comprehensive income	-	-	-	-	-	83	20,287	20,370
Shares issued	8	755	-	-	-	-	-	763
Dividends paid	-	-	-	-	-	-	(13,537)	(13,537)
Share-based payments (note 21)	-	-	-	-	7,701	-	-	7,701
Recycling of share-based payments (note 21)	-	-	-	-	(9,074)	-	9,074	-
Tax on share-based payments	-	-	-	-	-	-	438	438
At 30 April 2022	3,254	89,365	(129)	(2,385)	11,512	(4,198)	(44,304)	53,115

 

 

Year ended 30 April 2021

				Other reserves
	Share capital	Share premium	Treasury shares	Merger reserve	Share-based payments reserve	Translation reserve	Accumulated losses	Total equity
	(note 20)	(note 20)	(note 20)
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 May 2020	3,246	88,610	(20)	(2,385)	9,672	(1,426)	(28,500)	69,197
Loss for the year	-	-	-	-	-	-	(35,167)	(35,167)
Other comprehensive expense	-	-	-	-	-	(2,855)	-	(2,855)
Total comprehensive expense	-	-	-	-	-	(2,855)	(35,167)	(38,022)
Purchase of treasury shares	-	-	(109)	-	-	-	-	(109)
Dividends paid	-	-	-	-	-	-	(6,521)	(6,521)
Share-based payments (note 21)*	-	-	-	-	12,642	-	-	12,642
Recycling of share-based payments (note 21)*	-	-	-	-	(9,429)	-	9,429	-
Tax on share-based payments	-	-	-	-	-	-	193	193
At 30 April 2021	3,246	88,610	(129)	(2,385)	12,885	(4,281)	(60,566)	37,380

 

*These movements have been re-presented to separately identify the recycling of share-based payments.

 

Consolidated statement of cash flows

Year ended 30 April 2022

		2022	2021
	Note	£'000	£'000
Cash flows from operating activities
Cash generated from operations before adjusting items	23	41,623	65,161
Cash used to settle non-underlying items		(8,464)	(13,167)
Cash generated from operations		33,159	51,994
Interest paid		(4,596)	(5,064)
Tax paid		(2,854)	(3,155)
Net cash generated from operating activities		25,709	43,775
Cash flows from investing activities
Proceeds from sale of investment		227	-
Acquisition of subsidiary, net of cash acquired		(3,540)	(7,412)
Purchase of property, plant and equipment		(3,581)	(4,001)
Purchase of other intangible assets		(4,300)	(6,635)
Net cash flows used in investing activities		(11,194)	(18,048)
Cash flows from financing activities
Purchase of treasury shares		-	(109)
Dividends paid		(13,537)	(6,521)
Loan arrangement fee		(626)	(551)
Proceeds from borrowings		109,727	19,173
Repayment of borrowings		(104,861)	(17,553)
Repayment of principal of lease liabilities		(13,396)	(14,191)
Interest received		101	98
Capital contributions by members		2,132	4,276
Repayments to former members		(1,072)	(4,113)
Net cash flows from financing activities		(21,532)	(19,491)
Net (decrease) / increase in cash and cash equivalents		(7,017)	6,236
Cash and cash equivalents at the beginning of year		34,580	28,727
Effects of foreign exchange rate changes on cash and cash equivalents		141	(383)
Cash and cash equivalents at the end of year	14	27,704	34,580

 

Consolidated notes to the financial statements

Year ended 30 April 2022

 

1       Accounting policies

1.1       Nature of these financial statements

The following financial information does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and Financial Statements for the year ended 30 April 2022 on which an unqualified report has been made by the Company's auditors. The 2022 statutory accounts will be delivered to Companies House in due course.

Copies of the Annual Report and Financial Statements will be posted to shareholders shortly and will be available from the Company's registered office at 20 Fenchurch Street, London, EC2M 3AG.

1.2       Statement of accounting policies

The preliminary announcement for the year ended 30 April 2022 has been produced based on the Group's annual financial statements which are prepared in accordance with UK-adopted International Financial Reporting Standards. The accounting policies applied in this preliminary announcement are consistent with those reported in the Group's annual financial statements for the year ended 30 April 2022 along with new standards and interpretations which became mandatory for the financial year.

1.3       Going concern

The Directors have assessed the going concern basis adopted by the Group in the preparation of the consolidated financial statements, taking into account the current financial position including its available financing facilities, the business model and future outlook, as well as the principal risks as listed in the Strategic Report. The Directors conclude that the Group has adequate resources to continue as a going concern across the period of assessment.

Assessment of going concern

The going concern assessment has been considered for the period to 31 July 2023 and is carried out as follows:

·   The Group's Board-approved budget base case is used to calculate the net debt position, liquidity and covenant compliance and available headroom over the going concern period.

·   The assessment of going concern is carried out with reference to available financing facilities, the ability to pay debts as they fall due and the covenants associated with the financing facilities.

·   Plausible downside scenarios are modelled to quantify the impact of an individual risk materialising over the going concern period.

·   Mitigating actions which could be taken are identified, quantified and included in the assessment.

·   The reasonable worst case scenario, along with mitigating actions, is then used to test that the Group would continue to have headroom in its available financing facilities, settle liabilities as they fall due and comply with the associated financial covenants over the going concern period.

Financing facilities

The Group closed the year with committed banking facilities of £127m (of which £97m were drawn). The largest of these is the £100m revolving credit facility ('RCF') which was re-financed in December 2021 to increase the facilities available to the Group. This RCF has an initial maturity of three years, with two one-year extensions. The undrawn portion of the RCF is readily accessible and does not require any further approval for drawdown by the Group's banking syndicate. Associated with the facility is a further £20m accordion facility which is available on the same terms as the original RCF but is subject to the agreement of the banking syndicate for drawdown. The modelled assumption is that we do not draw on this. The facility agreement also permits the Group to obtain a further £30m of external funding and £15m of leasing facilities, if required. The covenant thresholds across the assessment period are set out below:

Covenant	Jul-22	Oct-22	Jan-23	Apr-23	Jul-23
Net Asset Value to Consolidated Net Borrowings	1.6x	1.6x	1.6x	1.6x	1.6x
Interest Cover	4x	4x	4x	4x	4x
Leverage	1.75x	1.75x	1.75x	1.75x	1.75x

 

Each of the covenants noted above is measured on a pre-IFRS 16 basis in accordance with the banking facility agreement. Interest cover is defined as the ratio of EBITDA to interest expense, and leverage is defined as the ratio of net debt to EBITDA. The Group's budget anticipates a cash inflow during the going concern period, whereas 2021/22 reported a cash outflow although this was because of the repayment of all remaining COVID-19 VAT deferrals of £10.7m in the year as well as the payment of acquisition related consideration.

Future outlook, risks and uncertainties

The going concern and viability assessments are closely linked and therefore the conclusions of the going concern assessment are directly relevant to and should be read in conjunction with the viability statement. The Board-approved base case combined with the annual three-year plan have been used to measure the going concern and future viability of the Group. This includes monitoring net debt positions and cash management activities of the Group and their effect on covenant testing. The going concern and viability of the Group have been assessed taking into account the potential impact of certain scenarios arising from the principal risks and uncertainties.

In particular, the Board has considered the impact of a range of potential M&A activities including impacts on net assets, cash flows and covenants. In addition the assessment considers the reduction in demand caused by either macro environmental factors, commercial pipeline, our ability to retain or attract the correct level of talent as well as inflationary pressures over and above the base case.

Mitigating actions

If faced with the reasonable worst-case scenario, the Board also considers possible mitigating actions available to the Group to maintain liquidity and covenant compliance. These can be swiftly implemented should the worst-case scenario arise and include (but are not limited to):

·   freezing recruitment and a slowdown in investment in recruitment and reward;

·   reducing discretionary operating spend such as marketing and travel;

·   reducing non-committed capital expenditure;

·   revision of the existing dividend policy; and

·   cost cutting measures in non-fee earning areas including an acceleration of the execution of the Group's real estate strategy and a reduction in headcount.

Reverse stress test

In addition to the modelling of the above scenarios, a reverse stress test was conducted by the Group to assess the quantum of increased inflationary pressures and downside on trading performance that would materially impact our ability to comply with financial covenants. Such a material impact is not considered a reasonable scenario to adversely impact the going concern assessment.

Conclusion

Based on this assessment, the Directors have a reasonable expectation that the Group has sufficient resources to continue its operations for the period of assessment. In particular the Directors have a reasonable expectation that it will operate under its existing financing facilities, will comply with all covenants with adequate headroom and settle all other liabilities as they fall due. The Directors therefore consider it appropriate for the Group to adopt the going concern basis in preparing these financial statements.

1.4       Re-presentation of comparative period

The consolidated statement of financial position has been re-presented for the comparative period to present the IFRS 16 right-of-use assets as a standalone financial statement line item in order to provide users with clearer information on the leased assets. note 11 now comprises solely the property, plant and equipment information, and note 12 comprises solely IFRS 16 right-of-use asset information.

This note is intended to disclose material re-presentations within the primary financial statements. For other re-presentations within note disclosures, explanations have been provided within the note that has been changed.

2       Alternative performance measures ('APMs')

APMs are not intended to supplant IFRS measures but are included in response to investor feedback or to provide readers of the financial statements with additional understanding of the underlying trading performance of the Group.

APMs are fully defined and information as to why they are useful is provided in the glossary.

Adjusted profit before tax reconciles to profit / (loss) before tax as follows:

	2022	2021
	£'000	£'000
Profit / (loss) before tax	22,316	(30,600)
Adjusting items:
Amortisation of intangible assets - acquired	4,655	4,609
Impairment of intangible assets	2,966	1,411
Impairment of tangible and right of use assets	627	3,134
Impairment of investments	-	50
Non-underlying items	1,224	27,101
Share-based payments expense	9,609	28,510
Gain on investment	-	(23)
Total of adjusting items	19,081	64,792
Adjusted PBT	41,397	34,192

 

Adjusted PBT reconciles to profit / (loss) before tax with reconciling items by nature as follows:

	2022	2021
	£'000	£'000
Profit / (loss) before tax	22,316	(30,600)
Office closures and scale-backs	(238)	14,898
Acquisition-related expenses	9,564	20,743
DWF RCD modification impact	-	13,796
Change of CEO	-	1,011
Impact of COVID-19	-	1,011
Other share-based payment expenses	9,609	13,333
Refinancing costs	146	-
Adjusted PBT	41,397	34,192

 

Cash used to settle non-underlying items includes £3.8m (FY2021: £2.3m) relating to closures and £4.6m (FY2021: £6.9m) relating to the remuneration element of purchase price payments for acquisitions.

Non-underlying items are set out in the table below:

		2022	2021
		£'000	£'000
Acquisition-related advisory fees - successful	a	336	31
Acquisition-related advisory fees - aborted	b	-	(544)
Acquisition-related expense	c	1,104	15,222
COVID-19-related costs	d	-	1,011
Closure and scale-back of operations	e	(362)	10,370
Costs associated with the change of CEO	f	-	1,011
Non-underlying items within operating profit		1,078	27,101
Non-underlying finance expense	g	146	-
Total non-underlying items		1,224	27,101

 

a.   The Group periodically considers and analyses potential acquisition targets and recognises there is inherent complexity and risk associated with acquisitions. The Group manages this by employing external professional advisors to perform legal, financial, commercial and tax due diligence on targets. These costs relate to opportunities the Group identifies and pursues, of which a portion result in successful acquisitions. Acquisition fees in the current period relate to the acquisitions of Zing and BCA.

b.  No fees have been incurred in the current period for aborted acquisitions. Prior year aborted acquisition-related advisory fees are releases of accruals for work done in FY2020 that were credited following the decision to abort the transaction.

c.   Acquisition-related expense relates to the remuneration expense from the acquisition of Mindcrest in FY2020. Payments to the sellers of Mindcrest were deemed to be remuneration (and not consideration) under IFRS 3, and therefore expensed over the deemed service period rather than included in goodwill. As these costs are not considered recurring and ceased in February 2022, they have been included within adjusting items in order to give greater clarity of underlying trading performance. The prior year comparator is of the same nature but relates to both the Mindcrest and RCD acquisitions, including the costs relating to the modification of the RCD acquisition agreement (see note 9).

d.  COVID-19 related costs were incurred between March 2020 and October 2020 and relate to one-off additional expenses for IT support and sanitisation of offices that covers the period of the first UK national lockdown. As the Group was not making use of its UK offices during this period and was already supporting agile working across its workforce, these costs are one-off and specifically as a result of COVID-19.

e.  Closure and scale-back of operations in the current year relate to the scale-back of the operations in Australia, which began in FY2021, and Germany. The credit in the current year principally reflects working capital provisions made for Germany, offset by the reversal of a provision made for Australia in FY2021. The prior year costs relate to the Board decision to close the Singapore and Brussels offices and to scale back the operations in Dubai and Australia. These costs comprise people and supplier exit expenses as a result of the decision taken.

f.   Costs of the prior year relate to the one-off costs for the change in CEO.

g.   These costs are associated with the re-financing and include professional fees incurred that are significant in value and by their nature are not recurring annually. More detail around the refinancing can be found in note 17.

 

The cost to income ratio is used to assess the levels of operational gearing in the Group. The cost to income ratio is defined as administrative expenses less adjusting items and divided by net revenue and is calculated as follows:

	2022	2021
	£'000	£'000
Net revenue	350,242	338,130
Administrative expenses and impairment	153,257	197,415
Total of adjusting items	(19,081)	(64,792)
Less: re-financing costs included in adjusting items	146	-
Adjusted administrative expenses	134,322	132,623
Cost to income ratio	38.4%	39.2%

 

3       Operating segments

Reporting segments

In accordance with IFRS 8: Operating Segments ('IFRS 8'), the Group's operating segments are based on the operating results reviewed by the executive directors of the Board, who represent the chief operating decision maker ('CODM'). The Group has the following three strategic divisions, which are its reportable segments. These divisions offer different services and are reported separately because of different specialisms within teams in the business group.

The following summary describes the operations of each reportable segment:

Reportable segment	Operations
Legal Advisory Services	Premium legal advice, commercial intelligence and relevant industry experience.
Connected Services	Collection of products and business services that enhance and complement our legal offerings.
Mindcrest	Outsourced and process-led legal services, designed to standardise, systemise, scale and optimise legal workflows.

The revenue, net revenue and gross profit are attributable to the principal activities of the Group.

Effective from 1 May 2021, the Group changed from five strategic divisions to three more streamlined, consistent and efficient global divisions that match the Group's strategy.

The comparative period table below has been re-presented to reflect the current divisional structure.

For year ended 30 April 2022

	Legal Advisory	Connected Services	Mindcrest	Total
	£'000	£'000	£'000	£'000
Revenue	355,063	34,181	26,808	416,052
Recoverable expenses	(63,110)	(324)	(2,376)	(65,810)
Net revenue	291,953	33,857	24,432	350,242
Direct costs	(138,729)	(18,828)	(11,775)	(169,332)
Gross profit	153,224	15,029	12,657	180,910
Gross margin %	52.5%	44.4%	51.8%	51.7%
Administrative expenses				(146,691)
Trade receivables impairment				(2,973)
Other impairment				(3,593)
Operating profit				27,653
Net finance expense				(3,664)
Net interest expense on leases				(1,673)
Profit before tax				22,316
Taxation				(2,029)
Profit for the year				20,287

 

For year ended 30 April 2021 - Re-presented

	Legal Advisory	Connected Services	Mindcrest	Total
	£'000	£'000	£'000	£'000
Revenue	345,559	28,752	26,637	400,948
Recoverable expenses	(60,233)	(329)	(2,256)	(62,818)
Net revenue	285,326	28,423	24,381	338,130
Direct costs	(137,487)	(16,225)	(12,637)	(166,349)
Gross profit	147,839	12,198	11,744	171,781
Gross margin %	51.8%	42.9%	48.2%	50.8%
Administrative expenses				(187,471)
Trade receivables impairment				(5,349)
Other impairment				(4,595)
Operating loss				(25,634)
Net finance expense				(2,682)
Net interest expense on leases				(2,284)
Loss before tax				(30,600)
Taxation				(4,567)
Loss for the year				(35,167)

There are no inter-segmental revenues which are material for disclosure. Administrative expenses represent indirect costs that are not specifically allocated to segments.

Non-current assets, revenue and net revenue by region

The UK is the Group's country of domicile and the Group generates the majority of its revenue from external clients in the UK. The geographical analysis of revenue and net revenue is on the basis of the country of origin in which the client is invoiced.

The Group's non-current assets, net revenue and revenue by geographical region are as follows:

	Non-current assets		Revenue		Net revenue
	2022	2021	2022	Re-presented* 2021	2022	Re-presented* 2021
	£'000	£'000	£'000	£'000	£'000	£'000
UK	57,141	71,758	310,381	290,966	250,584	234,824
Spain	23,935	26,087	36,515	33,530	36,515	33,530
Asia	14,063	15,701	11,107	9,260	8,838	7,976
Rest of World	26,938	17,408	58,049	67,192	54,305	61,800
Total allocated to geographical regions	122,077	130,954	416,052	400,948	350,242	338,130
Deferred tax assets	3,938	4,649
Non-current other trade receivables	1,464	-
Investments	-	227
Total	127,479	135,830

 

*The revenue and net revenue for 2021 have been re-presented for consistent comparison with 2022 to reflect a change in the allocation of which countries were included in Asia and Rest of World.

Total assets and liabilities for each reportable segment are not provided to the CODM and therefore not presented.

4       Operating profit and auditor's remuneration

	2022	2021
	£'000	£'000
Recognised in the income statement
Impairment of intangible assets	2,966	1,411
Amortisation of intangible assets - acquired	4,655	4,609
Impairment of property, plant and equipment and right-of-use assets	627	3,134
Impairment of investment	-	50
Gain on sale of investment	-	(23)
Non-underlying items (less: non-underlying finance expense)	1,078	27,101
Share-based payments expense (note 21)	9,609	28,510
Total of adjusting items within operating profit	18,935	64,792
Members' remuneration charged as an expense	43,670	41,361
Net foreign exchange gain	(1,856)	(55)
Amortisation of intangible assets - software and capitalised development costs	4,251	2,244
Depreciation of tangible assets	2,960	4,745
Depreciation of right-of-use assets	12,737	11,977
Gain on disposal of leases	-	(775)

 

Auditor's remuneration
Audit of the Group financial statements	510	369
Audit fees in respect of prior periods	-	99
Total audit fees	510	468
Amounts payable to the Company's auditor and its associates in respect of:
Audit of financial information of subsidiaries, subsidiary undertakings and partnerships of the DWF Group plc	125	158
Other assurance services	-	44
Other services pursuant to legislation or regulation	105	107
Total fees	740	777

 

5       Net finance expense

	2022	2021
	£'000	£'000
Finance income
Interest receivable	101	98
	101	98
Finance expense
Interest payable on bank borrowings	2,300	1,767
Other interest payable	54	47
Bank and other charges	1,265	966
Non-underlying finance expense	146	-
	3,765	2,780
Net finance expense	3,664	2,682
Net interest expense on leases
Interest expense on lease liabilities	1,673	2,284
	1,673	2,284

 

6       Taxation

	2022	2021
	£'000	£'000
UK corporation tax on profit / loss	5,639	5,582
Foreign tax on profit	2,822	1,576
Adjustments in respect of prior periods	(5,443)	(129)
Current tax expense	3,018	7,029
Deferred tax credit	(2,354)	(2,468)
Adjustments in respect of prior periods	1,365	6
Total deferred tax credit	(989)	(2,462)
Total tax charge for the year	2,029	4,567

The effective tax rate is lower (2021: higher) than the average rate of corporate tax in the UK of 19% (2021: 19%), and excluding prior year adjustments the effective tax rate is higher than the average rate of corporate tax in the UK. The difference is explained below:

	2022	2021
	£'000	£'000
Profit / (loss) before taxation	22,316	(30,600)
Tax on Group profit / (loss) at standard UK corporation tax rate of 19% (2021: 19%)	4,240	(5,814)
Foreign tax rate differences	(4)	(128)
Non-deductible expenses	706	7,620
Temporary differences on intangible assets	-	-
Adjustments in respect of prior periods	(4,079)	(123)
Brought forward tax losses utilised	(263)	(84)
Tax losses not recognised as assets	2,060	2,622
Impact of share price on expected tax deduction	203	474
Effect on deferred tax of change in corporation tax rate	(834)	-
Group total tax charge for the year	2,029	4,567

In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate will increase to 25%. The proposal to increase the rate to 25% was substantively enacted on 24 May 2021, therefore the relevant deferred tax balances have been remeasured. The impact of the change in tax rate has been recognised in tax expense in the income statement, except to the extent that it relates to items previously recognised outside the income statement.

The reported tax charge for the year, excluding prior year adjustments, is £6.1m on a profit before tax of £22.3m, representing an effective rate of tax of 27.4%. The effective tax rate was higher than the UK statutory tax rate primarily due to tax losses that have not been recognised as deferred tax assets (increasing the tax charge by £2.1m) and the tax effect of non-tax deductible expenses (increasing the tax charge by £0.7m) offset by the effect on deferred tax resulting from the change in the UK corporation tax rate from 19% to 25% effective from 1 April 2023 (reducing the tax charge by £0.8m).

The Group also booked prior year tax adjustments of a net credit of £4.1m. Those adjustments arise principally as a result of (a) increased claims of the departing Australian partners on the Group's UK profit pool following the restructuring of the Group's Australian business in FY2021 reducing the profits subject to UK corporation tax (£5.1m), offset by (b) revaluations of the Group's deferred tax assets relating to tax depreciation timing differences and expected tax deductions for share based payments as at 30 April 2021 (£1.4m).

7       Dividends

Distributions to owners of the parent in the year:

	2022	2021
	pence per share	pence per share
Final dividend recognised as distributions in the year	3.00	0.75
Interim dividend recognised as distributions in the year	1.50	1.50
Total dividend paid in the year	4.50	2.25
Final dividend proposed	3.25	3.00

 

	2022	2021
	£'000	£'000
Final dividend recognised as distributions in the year	9,008	2,162
Interim dividend recognised as distributions in the year	4,529	4,359
Total dividend paid in the year	13,537	6,521
Final dividend proposed	10,574	9,737

 

The Board recommended a final dividend for the year ended 30 April 2022 of 3.25 pence per share on 20 July 2022 which is subject to Shareholder approval at the Annual General Meeting on 28 September 2022. If approved by the Shareholders, the dividend will be paid on 7 October 2022 to all shareholders on the Register of Members on 9 September 2022.

8       Earnings per share

	2022	2021
	£'000	£'000
Profit / (loss) for the year for the purpose of basic earnings per share	20,287	(35,167)
	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share	298,898,991	294,392,422
Effect of dilutive potential ordinary shares:
Future exercise of share awards and options	13,639,188	17,067,508
Weighted average number of ordinary shares for the purposes of diluted earnings per share	312,538,179	311,459,930
Earnings / (loss) per share attributable to the owners of the parent:
Basic earnings per share (p)	6.8	(11.9)
Diluted earnings per share (p)	6.5	*(11.9)

 

*For the year ended 30 April 2021, potential ordinary shares of 17,067,508 are anti-dilutive, as their inclusion in the diluted loss per share calculation would reduce the loss per share, and hence have been excluded.

Adjusted basic and adjusted diluted earnings per share are APMs (as defined in the glossary) and have been calculated using profit / (loss) for the purpose of basic earnings share adjusted for total adjusting items and the tax effect of those items.

Adjusted basic and adjusted diluted earnings per share may be reconciled to basic earnings per share as follows:

	2022	2021
	£'000	£'000
Profit / (loss) for the year	20,287	(35,167)
Add/(remove):
Total of adjusting items (note 2)	19,081	64,792
Tax effect of adjustments above	(4,651)	(5,503)
Adjusted profit for the purpose of adjusted earnings per share	34,717	24,121
	Number	Number
Weighted average number of ordinary shares for the purposes of adjusted basic earnings per share	298,898,991	294,392,422
Ordinary shares for the purposes of adjusted diluted earnings per share	325,352,865	324,554,653
Adjusted basic earnings per share (p)	11.6	8.2
Adjusted diluted earnings per share (p)	10.7	7.4

Shares held in trust are issued shares that are owned by the Group's employee benefit trusts for future issue to employees as part of share incentive schemes. These are recognised on consolidation as treasury shares. The future exercise of share awards and options is the dilutive effect of share awards granted to employees that have not yet vested.

Share held in trust are deducted from the weighted average number of ordinary shares for basic earnings per share. For its adjusted basic measure, the Group uses the weighted average number of ordinary shares.

The definitions of adjusted basic earnings per share and adjusted diluted earnings per share can be found in the glossary to these financial statements.

9       Acquisitions of subsidiaries and transactions related to previous acquisitions

Acquisitions in the year to 30 April 2022

Two acquisitions were made in the year; Zing 365 Holdings Limited ('Zing') and BCA Claims and Consulting Limited ('BCA'). Details of the acquisitions are as follows:

	Country of incorporation	Nature of activity	Date of acquisition	Consideration £'000	Percentage ownership
Zing	UK	Training and compliance	24 May 2021	1,157	100%
BCA	Canada	Claims and adjusting	25 May 2021	2,297	100%

 

Zing is a compliance training business based in Bristol, and was purchased to support growth in the Connected Services division through offering additional services to the Group's clients. BCA is a market-leading claims handling business based in Vancouver, acquired to increase the Group's presence in the local market.

The fair values of the assets and liabilities and the associated goodwill arising from the acquisitions are as follows:

	Zing  £'000	BCA  £'000
Intangible assets	659	1,064
Trade and other receivables	123	524
Cash and cash equivalents	69	148
Trade and other payables	(276)	(158)
Loans and borrowings	(331)	-
Deferred consideration	(341)	-
Deferred tax liability	(149)	(282)
Net (liabilities) / assets acquired	(246)	1,296
Purchase consideration	1,157	2,297
Purchase consideration satisfied by:
Initial cash consideration	394	884
Deferred cash consideration	-	1,413
Shares issued to Zing / BCA Shareholders	763	-
Goodwill	1,403	1,001

 

Of the £2.3m consideration for BCA, £1.4m is deferred and payable over two years post-acquisition. This is not contingent on future performance targets. During the period £0.61m of deferred consideration has been paid.

The goodwill is attributable to the benefits of operating two already well-established businesses in the relevant sector and the synergies that are expected to be achieved from incorporating the businesses into the Group's operations. As the purchases were not made with any qualifying intellectual property, all goodwill acquired is non-tax deductible.

The following intangible assets were recognised at acquisition. These have been measured at their fair value through the multi-period excess earnings method (customer relationships) and royalty relief method (brand).

	Zing  £'000	BCA  £'000
Intangible assets - brands	-	248
Intangible assets - customer relationships	659	816
Deferred tax	(149)	(282)
Total fair value on acquisition	510	782

 

Cash flows arising from the acquisition were as follows:

	Zing  £'000	BCA  £'000
Purchase consideration	(394)	(884)
Cash and cash equivalents acquired	69	148
Total fair value on acquisition	(325)	(736)
Deferred consideration paid in the year	-	(612)
Net cash outflow	(325)	(1,348)

 

The table below outlines the revenue and PBT of the acquirees since the acquisition date, which is included in the consolidated statement of comprehensive income for the year, and the annualised revenue and PBT of the acquirees had the acquisition dates for the business combinations been at the beginning of the year:

	Revenue contributed post-acquisition	PBT contributed post-acquisition	Revenue in year of acquisition	PBT in year of acquisition
	£'000	£'000	£'000	£'000
Zing	750	38	819	41
BCA	1,779	43	1,939	47

Transaction costs comprised mainly advisor fees, including financial, tax and legal due diligence. These are all included within administrative expenses (non-underlying items) within note 2.

Acquisitions in the year to 30 April 2021

There were no acquisitions during the year.

On 22 January 2021 DWF Group plc and the original sellers of Rousaud Costas Duran S.L.P. ('RCD'), a Spanish subsidiary, mutually agreed to modify the acquisition agreement and related documents ('RCD Documents') entered into on 20 December 2019 to help facilitate the integration of DWF-RCD into the wider Group as part of moving to the new operating model effective from 1 May 2021.

Full details of the modification can be found in the Annual Report and Accounts 2021 at www.dwfgroup.com.

10     Intangible assets

		Acquired
	Goodwill	Customer relationships	Brand		External software costs		Capitalised development costs		Total
	£'000	£'000	£'000		£'000		£'000		£'000
Cost
At 1 May 2021	11,141	35,608	1,633		4,322		11,311		64,015
Additions - internally developed	-	-	-		-		2,854		2,854
Additions - externally purchased	2,403	1,475	248		1,446		-		5,572
Disposals	-	-	-		(354)		-		(354)
Asset transfers	-	-	-		1,347		-		1,347
Effect of movements in foreign exchange	490	(271)	52		1		-		272
At 30 April 2022	14,034	36,812	1,933		6,762		14,165		73,706
Amortisation and impairment
At 1 May 2021	1,357	6,128	1,041		1,587		4,729		14,842
Amortisation for the year	-	3,945	711		1,593		2,658		8,907
Disposals	-	-	-		(94)		-		(94)
Impairment	-	2,955	-		11		-		2,966
Asset transfers	-	-	-		1,347		-		1,347
Effect of movements in foreign exchange	-	104	30				-		134
At 30 April 2022	1,357	13,132	1,782		4,444		7,387		28,102
Net book value
At 30 April 2022	12,677	23,680	151		2,318		6,778		45,604
At 1 May 2021	9,784	29,480	592		2,735		6,582		49,173

 

		Acquired
	Goodwill	Customer relationships	Brand	External software costs	Capitalised development costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Cost
At 1 May 2020	11,691	35,211	1,685	1,923	7,083	57,593
Additions - internally developed	-	-	-	-	4,228	4,228
Additions - externally purchased	-	-	-	2,407	-	2,407
Disposals	-	-	-	(10)	-	(10)
Effect of movements in foreign exchange	(550)	397	(52)	2	-	(203)
At 30 April 2021	11,141	35,608	1,633	4,322	11,311	64,015
Amortisation and impairment
At 1 May 2020	1,356	1,351	159	1,007	3,066	6,939
Amortisation for the year	-	3,695	914	581	1,663	6,853
Disposals	-	-	-	(10)	-	(10)
Impairment	-	1,409	-	2	-	1,411
Effect of movements in foreign exchange	1	(327)	(32)	7	-	(351)
At 30 April 2021	1,357	6,128	1,041	1,587	4,729	14,842
Net book value
At 30 April 2021	9,784	29,480	592	2,735	6,582	49,173
At 1 May 2020	10,335	33,860	1,526	916	4,017	50,654

Individual intangible assets that are material to the financial statements are set out below:

·    Customer relationships - Spain: Net book value at 30 April 2022 £19.5m (2021: £23.0m) - remaining amortisation period is 8 years

·    Customer relationships - Mindcrest: Net book value at 30 April 2022 £0.8m (2021: £4.1m) - remaining amortisation period is 8 years

·    Customer relationships - Poland: Net book value at 30 April 2022 £2.2m (2021: £2.3m) - remaining amortisation period is 7 years

Goodwill

Goodwill considered significant in comparison to the Group's total carrying amount of such assets has been allocated to CGUs or groups of CGUs as follows:

 

	2022	2021
	£'000	£'000
Mindcrest (note 3)	9,127	8,569
Other individually immaterial CGUs	3,550	1,215
	12,677	9,784

The recoverable amounts of the CGUs are determined from value in use calculations. The calculations have been based on a discounted cash flow model covering a period of five years using forecast revenues and costs, extended to perpetuity. The inputs into the model appropriately consider the relevant market maturity and local factors. The first year of the forecast is established from the budget for FY2023 which is underpinned by the business plan that has been signed off by the Board. Cash flows for FY2023 through to FY2026 have been included on a consistent basis with the Board approved strategy. In each case, the calculations use a long term growth rate of 2% (2021: 2%) consistent with the sector average and a pre-tax discount rate of 10-12% (2021: 10-11%). These pre-tax discount rates reflect current market assessments for the time value of money and the specific risks associated with each CGU. The long-term growth rates used are based on management's expectations of future changes in the markets for each CGU.

Goodwill that has been allocated to other individually immaterial CGUs in the table above is monitored at a lower level than operating segment. Significant headroom exists for each CGU. No reasonable worst-case scenario gives rise to a material impairment risk.

Customer relationships

The impairment charge of £3.0m includes £3.0m relating to the impairment of customer relationship assets which were recognised on acquisition of Mindcrest in FY2020. The impairment trigger, and subsequent reduction in value of the associated intangible asset, is due to Mindcrest delivering services under certain contracts in an increasingly efficient manner and passing those savings on to the customers whilst maintaining a consistent gross margin percentage. The scale of the efficiencies gained and the resulting decrease in absolute margin was not anticipated as part of the valuation methodology at the point of the acquisition. The recoverable amount for the customer relationship asset has been determined based on fair value less cost of disposal as at 30 April 2022. The fair value calculation was based on cash flow projections from financial budgets covering a one year period, with a degradation rate applied for the following six years (the remaining useful economic life). The post-tax discount rate applied to cash flow projections is 9%, and cash flows have assumed degradation at 2% per annum. It was concluded that the value in use did not exceed the fair value less cost of disposal. The remaining carrying amount as at 30 April 2022 was £0.8m. The impairment charge is recorded within other impairment in the income statement.

11     Property, plant and equipment

	Leasehold improvements	Office equipment and fixtures and fittings	Computer equipment	Total
	£'000	£'000	£'000	£'000
Cost
At 1 May 2021	16,179	15,366	38,499	70,044
Additions	508	1,169	1,903	3,580
Disposals	(669)	(448)	(1,584)	(2,701)
Asset transfers	2,130	(2,130)	(1,347)	(1,347)
Effect of movements in foreign exchange	22	(19)	20	23
At 30 April 2022	18,170	13,938	37,491	69,599
Accumulated depreciation
At 1 May 2021	13,287	8,235	35,907	57,429
Charge for the year	778	1,029	1,153	2,960
Disposals	(463)	(129)	(608)	(1,200)
Impairment	402	84	17	503
Asset transfers	46	(46)	(1,347)	(1,347)
Effect of movements in foreign exchange	16	(10)	9	15
At 30 April 2022	14,066	9,163	35,131	58,360
Net book value
At 30 April 2022	4,104	4,775	2,360	11,239
At 1 May 2021	2,892	7,131	2,592	12,615

The impairment expense includes £0.5m relating to asset write-offs following the scale-back of operations in Australia and Germany (see note 2).

 

	Leasehold improvements	Office equipment and fixtures and fittings	Computer equipment	Re-presented (note 1.4) Total
	£'000	£'000	£'000	£'000
Cost
At 1 May 2020	16,782	12,282	39,838	68,902
Additions	59	3,310	632	4,001
Disposals	(666)	(232)	(1,964)	(2,862)
Effect of movements in foreign exchange	4	6	(7)	3
At 30 April 2021	16,179	15,366	38,499	70,044
Accumulated depreciation
At 1 May 2020	12,736	7,188	34,860	54,784
Charge for the year	935	919	2,891	4,745
Disposals	(392)	(232)	(1,964)	(2,588)
Impairment	-	370	128	498
Effect of movements in foreign exchange	8	(10)	(8)	(10)
At 30 April 2021	13,287	8,235	35,907	57,429
Net book value
At 30 April 2021	2,892	7,131	2,592	12,615
At 1 May 2020	4,046	5,094	4,978	14,118

 

12     Right-of-use assets

Leases as a lessee

	Property	Equipment	Re-presented (note 1.4) Total
	£'000	£'000	£'000
Right-of-use assets
At 1 May 2020	69,615	42	69,657
Additions	14,258	2,315	16,573
Depreciation	(11,712)	(265)	(11,977)
Impairment	(2,832)	-	(2,832)
Disposals	(4,061)	-	(4,061)
Remeasurement adjustment	2,367	-	2,367
Effect of movements in foreign exchange	(562)	1	(561)
At 30 April 2021	67,073	2,093	69,166
Additions	10,467	-	10,467
Depreciation	(12,264)	(473)	(12,737)
Impairment	(124)	-	(124)
Disposals	(1,110)	-	(1,110)
Remeasurement adjustment	(1,156)	-	(1,156)
Effect of movements in foreign exchange	729	(1)	728
At 30 April 2022	63,615	1,619	65,234

 

The impairment expense during the year includes £1.2m relating to the scale-backs of operations in Australia and Germany (see note 2). The remeasurement adjustment relates to the impact of term and rent changes on property leases during the year.

Leases as a lessor

During FY2022, the Group has sub-leased property in Australia. In the recognition of the lease receivables pertaining to the sub-leased property, the Group has reversed impairment of £1.0m (2021: £nil) which was previously recorded against the right-of-use assets.

 

13     Trade and other receivables

	2022	*Re-presented 2021
	£'000	£'000
Current
Trade receivables	88,949	91,185
Amounts recoverable from clients in respect of unbilled revenue	71,958	66,671
Unbilled disbursements	7,982	9,437
Contract assets	79,940	76,108
Trade receivables and contract assets	168,889	167,293
Other receivables	2,216	2,890
Amounts due from Members of partnerships	2,238	2,008
Lease receivables	432	-
Reimbursement asset	4,040	852
Prepayments	12,359	10,463
	190,174	183,506
Non-current
Other receivables	938	-
Lease receivables	526	-
	1,464	-

 

The comparative year has been re-presented so as to split out the Amounts due from Members of partnerships from other receivables, in order to provide clearer information as to the nature of the balance.

The reimbursement asset is attributable to the FOIL provision and the professional indemnity provision (see note 18).

Prepayments include £nil (2021: £1.1m) relating to acquisition-related remuneration expense.

Ageing of trade receivables, amounts recoverable from clients in respect of unbilled revenue and unbilled disbursements

	2022	2021
	£'000	£'000
Trade receivables not past due	14,794	22,235
Trade receivables past due
0 - 90 days	59,876	53,271
91 - 180 days	8,846	9,417
181 - 270 days	3,337	4,597
271 - 365 days	2,366	3,603
More than 365 days	11,459	11,093
Gross trade receivables	100,678	104,216
Amounts recoverable from clients in respect of unbilled revenue	71,958	66,671
Unbilled disbursements	7,982	9,437
Expected credit losses	(8,588)	(11,192)
Other impairment provisions	(3,141)	(1,839)
Total trade receivables and contract assets	168,889	167,293

Lifetime expected credit losses are used to measure the loss allowance. These balances are held against trade receivables, amounts recoverable from clients in respect of unbilled revenue and unbilled disbursements. Other impairment provisions are applied against the trade receivables which are not based on the average expected credit loss rates presented below. The other categories of trade and other receivables do not contain impaired assets.

Expected credit loss rates

To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit risk characteristics and the days past due. The contract assets relate to unbilled revenue and have substantially the same risk characteristics as the trade receivables for the same types of contracts.

The average expected credit loss rates for trade receivables and contract assets are presented below.

	Group rates		Spain rates
	2022	2021	2022	2021
0 - 90 days	0.5%	1.7%	0.9%	0.9%
91 - 180 days	3.4%	6.6%	4.2%	4.2%
181 - 270 days	10.5%	14.3%	13.1%	13.1%
271 - 365 days	19.9%	25.5%	20.7%	20.7%
More than 365 days	50.6%	62.4%	45.0%	45.0%

Movement in provision for impairment

	2022	2021
	£'000	£'000
At 1 May	13,031	11,871
Provision utilised and other movements	(4,275)	(4,189)
Charges to income statement	2,973	5,349
At 30 April	11,729	13,031

Other movements include expected credit loss provisions acquired from business combinations in the year of £61,500.

Trade receivables, unbilled disbursements and contracts assets are written off where there is no reasonable expectation of recovery. For trade receivables and unbilled disbursements, impairment losses are presented as net impairment losses within operating profit whereas contract asset impairment losses are presented as a reduction in revenue. Subsequent recoveries of amounts previously written off are credited against the same line item.

14     Cash and cash equivalents

	2022	2021
	£'000	£'000
Cash at bank and in hand	28,310	34,711
Bank overdrafts	(606)	(131)
Cash and cash equivalents	27,704	34,580

 

15     Trade and other payables

	2022	*Re-presented 2021
	£'000	£'000
Trade payables	27,896	28,236
Other payables	3,748	10,337
Other taxation and social security	15,284	27,375
Deferred income	2,014	757
Accruals	14,383	18,676
Trade and other payables	63,325	85,381

Deferred income has been re-presented for the prior year to split it out as a separate line from accruals.

Other payables relates principally to payroll-related creditors but has largely reduced due to the utilisation of amounts recognised relating to the closure and scale-back of operations (note 2) which were included in the balance in the prior year.

Accruals include £nil (2021: £4.9m) relating to acquisition-related remuneration expense (see note 2).

In 2020 the Group participated in the UK Government's VAT deferral scheme, which was launched to assist businesses in their response to COVID-19. Within other taxation and social security in FY2021 was £10.7m of VAT payable, which was deferred from March 2020. This has been fully repaid in FY2022.

In FY2021 the Group's Polish and US businesses benefited from local COVID-19 assistance programs totalling £984,000. Of the assistance, £307,000 was recognised in the P&L (within administrative expenses) in FY2021 as the conditions attached to the assistance had been satisfied. The remaining £677,000 was held in other payables as at 30 April 2021. In FY2022, a further £515,000 was recognised in the P&L as the relevant conditions for those elements of Government assistance had been met. The remaining £161,000 is included within other payables as at 30 April 2022, which is due to be repaid to the Polish Government as remaining conditions will not be met.

16     Lease liabilities

	2022	2021
	£'000	£'000
At 1 May	84,002	84,678
Additions	7,683	16,573
Interest expense related to lease liabilities	1,673	2,284
Net foreign currency translation loss / (gain)	763	(589)
Disposals	-	(4,836)
Remeasurement adjustment	(1,313)	2,367
Repayment of lease liabilities (including interest)	(15,069)	(16,475)
At 30 April	77,739	84,002

 

Current lease liabilities	14,576	13,104
Non-current lease liabilities	63,163	70,898
	77,739	84,002

 

The undiscounted contractual cash flows relating to lease liabilities accounted for in accordance with IFRS 16 is £82.9m (2021: £91.4m).

Operating costs, included within administrative expenses, relating to short-term and low value leases during the year were £1.6m (2021: £1.6m).

17     Interest-bearing loans and borrowings

This note provides information about the Group's interest-bearing loans and borrowings, which are measured at amortised cost.

Obligations under interest-bearing loans and borrowings

	2022	2021
	£'000	£'000
Current liabilities
Bank loans	9,093	19,099
Supplier payment facility	87	204
Bank overdrafts	606	131
	9,786	19,434
Non-current liabilities
Bank loans	90,907	76,085
Unamortised finance costs	(563)	(641)
	90,344	75,444
	100,130	94,878

 

On 22 December 2021, the Group completed a refinancing of its principal RCF. The new facility was increased to £100m and matures in fiscal year ending 2025 with two 12-month extension options and additional headroom on some covenants (with no reduction in headroom in any covenant) that better aligns to the current business structure and operations. The refinancing also moves the facility from a fixed LIBOR benchmark rate to a variable SONIA rate. The non-current borrowings relating primarily to the principal RCF.

The Group operates a supplier payment facility with HSBC, which has a limit of £11m. This facility is utilised in paying certain suppliers from time to time and repaid in the short-term.

      Analysis of cash and cash equivalents and other interest-bearing loans and borrowings:

	1 May 2021	Cash flow	Exchange movement	Non-cash movement	30 April 2022
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	34,580	(7,017)	141	-	27,704
Bank loans	(94,544)	(4,240)	227	(880)	(99,437)
Supplier payments facility	(204)	15,683	-	(15,566)	(87)
Total net debt (excluding IFRS 16)	(60,168)	4,426	368	(16,446)	(71,820)

 

	1 May 2020	Cash flow	Exchange movement	Non-cash movement	30 April 2021
	£'000	£'000	£'000	£'000	£'000
Cash and cash equivalents	28,727	6,236	(383)	-	34,580
Bank loans	(93,279)	1,069	(205)	(2,129)	(94,544)
Supplier payments facility	(310)	23,144	-	(23,038)	(204)
Total net debt (excluding IFRS 16)	(64,862)	30,449	(588)	(25,167)	(60,168)

Non-cash movements within bank loans relate to the amortisation of fees incurred on arrangement of the facility, over the expected life of the facility. Non-cash movements within the supplier payments facility relate to the utilisation of the facility to settle liabilities with suppliers, with the supplier payments facility being settled with cash when the liability becomes due.

Net debt including lease liabilities is £149.6m (2021: £144.2m).

Net debt is an APM and is defined in the glossary to the report.

18     Provisions

 

	Dilapidation provision	FOIL provision	Professional indemnity provision	Total
	£'000	£'000	£'000	£'000
At 1 May 2021	1,837	1,252	2,512	5,601
Utilised in the year	-	-	(3,472)	(3,472)
Released in the year	(100)	(552)	(507)	(1,159)
Provisions made in the year	2,725	-	7,717	10,442
Reclassified to other payables	-	(700)	(250)	(950)
At 30 April 2022	4,462	-	6,000	10,462
Current	315	-	6,000	6,315
Non-current	4,147	-	-	4,147
	4,462	-	6,000	10,462

 

Professional indemnity provision

The provision for professional indemnity reflects the Group's expected outflow for legal claims brought against the Group relating to historic professional services rendered. A provision is only recognised where an outflow is probable. The probability is established by reference to whether a claim is more likely than not to be successful. A professional indemnity liability for a claim that is agreed (i.e. the timing and amount of payments are well understood) is recognised in accruals (see note 15). Claims are assessed as being settled in full within the next 5 years.

Separately, the Group recognises expected reimbursements from professional indemnity insurance when it is virtually certain that the reimbursement will be received (note 13). No separate disclosure is made of the detail of such claims or proceedings, or the costs recovered by insurance, as such detail would be seriously prejudicial to the position of the Group. Note that in the prior year the professional indemnity provision and the reimbursement asset is presented net within provisions within the financial statements. This prior year presentation has not been restated to match the current year presentation.

There are circumstances of which the Group is aware but there is insufficient information available to either estimate whether a claim will develop or, where a claim appears possible, make an assessment of the outflow. Such circumstances are contingent liabilities of the Group.

Dilapidation provision

Dilapidation provisions are established for restoration and reinstatement costs for property  leases, held at the date of the statement of financial position. Such provisions are estimated at the start of the lease and updated annually. The Group's current lease portfolio terminates over the course of the next 10 years.

The Group has engaged external valuators to perform a review of the Group's property portfolio and they have provided updated estimates of required dilapidations at the end of the lease terms. The increase in the dilapidations provision for the various properties has been reflected in the corresponding right-of-use assets and is depreciated over the remaining lease term.

FOIL provision

The Forum of Insurance Lawyers (FOIL) provision represents the total VAT (partial exemption) exposure on historic claims handling engagements. During FY2022, a settlement amount has been agreed with HMRC, and therefore the settlement amount has been reclassified as other payables.

 

19     Deferred taxation

The deferred tax asset is as follows:

	2022	2021
	£'000	£'000
Assets
At 1 May	4,649	3,522
Deferred tax debit recognised directly in equity	438	193
Deferred tax (charge) / credit in the income statement for the year	(1,173)	1,092
Exchange rate translation	24	(158)
At 30 April	3,938	4,649

Deferred tax assets of £3.9m have been recognised in respect of tax depreciation timing differences (£1.3m), expected tax deductions for share-based payments (£2.3m) and other temporary differences (£0.3m). It is anticipated that the Group and certain related subsidiary undertakings will make sufficient taxable profit to allow the benefit of the deferred tax asset to be utilised. A potential deferred tax asset of £11.7m (2021: £5.2m) has not been recognised relating to tax losses in subsidiary undertakings that are not anticipated to make sufficient taxable profit to allow the benefit of the deferred tax asset to be utilised.

The deferred tax liability as at 30 April 2022 is as follows:

	2022	2021
	£'000	£'000
Non-current liabilities
At 1 May	7,584	8,884
Arising on acquisition intangibles	503	-
Deferred tax credit in the income statement for the year	(2,163)	(1,427)
Exchange rate translation	(55)	127
At 30 April	5,869	7,584

 

The Group deferred tax liability relates to the recognition of acquired intangible assets arising on consolidation.

20     Share capital

	Number	Share capital	Share premium	Treasury shares	Total
	of 1p each	£'000	£'000	£'000	£'000
At 1 May 2020	324,554,653	3,246	88,610	(20)	91,836
Purchase of treasury shares	-	-	-	(109)	(109)
At 30 April 2021	324,554,653	3,246	88,610	(129)	91,727
Shares issued on acquisition of Zing 365 Holdings Ltd	798,212	8	755	-	763
At 30 April 2022	325,352,865	3,254	89,365	(129)	92,490

On 24 May 2021 798,212 ordinary shares were issued as a result of the acquisition of Zing.

The Group has 24,322,488 (2021: 30,162,231) shares held in treasury.

 

21     Share-based payments

Share-based payment arrangements

The Group operates three share-based payment plans (2021: two plans), all of which are equity settled and consist only of share awards.

·    The equity incentive plan ('EIP'): This is used to incentivise and reward performance from primarily Directors, upper-level management and members. Within the EIP are the following schemes: The EIP-IPO award, the career level 1-3 award, the long-term incentive plan ('LTIP') and the promotion award.

·    The buy-as-you-earn ('BAYE') plan: All employees, excluding members, are eligible for the BAYE plan which is used to incentivise retention and reward contribution. Within the BAYE are the following schemes: The BAYE-IPO award, the free-share award and the share incentive plan matching award ('SIP matching award').

·    The deferred bonus plan: This comprises the deferred bonus award scheme. This plan is used as an alternative to cash bonuses for eligible employees and awards may be made following year-end results announcements.

The social security expenses in relation to share-based payment arrangements are based on the rates and treatment prevailing in each jurisdiction. This is accounted for as a cash-settled award.

Details of Directors' share awards are set out in the Directors' Remuneration Report.

Charge to the income statement

The charge to the income statement is set out below:

 

	2022	2021
	£'000	£'000
Share plans:
Equity incentive plan	6,721	24,098
Buy-as-you-earn plan	871	3,720
Deferred bonus plan	109	-
	7,701	27,818
Social security expenses	1,908	692
Total expense	9,609	28,510

 

Impact of SBP movement in 2022:

	SBP expense £'000	SBP reserve £'000	Accumulated losses £'000	Prepayments £'000	Other taxation and social security £'000
Share-based payment schemes	7,701	(7,701)	-	-	-
Recycling of vested shares	-	9,074	(9,074)	-	-
Social security expenses	1,908	-	-	-	(1,908)
Total movement	9,609	1,373	(9,074)	-	(1,908)

Impact of SBP movement in 2021:

	SBP expense £'000	SBP reserve £'000	Accumulated losses £'000	Prepayments £'000	Other taxation and social security £'000
DWF-RCD acquisition*	15,176	-	-	(15,176)	-
Share-based payment schemes	12,642	(12,642)	-	-	-
Recycling of vested shares	-	9,429	(9,429)	-	-
Social security expenses	692	-	-	-	(692)
Total movement	28,510	(3,213)	(9,429)	(15,176)	(692)

*The charge for 2021 includes the accelerated expense, post-modification of the acquisition agreement, for shares awarded as part of the purchase price for the acquisition of DWF-RCD. This was charged against the related prepayment, which was released in full.

Summary of share awards

The following table shows the movements in share awards across all plans for the year:

	2022 Number of shares '000	2021 Number of shares '000
Number of shares awards outstanding 1 May	33,046	24,286
Awards granted during the year	12,331	19,149
Awards vested during the year	(8,598)	(7,186)
Awards lapsed during the year	(2,706)	(3,203)
Number of shares awards outstanding 30 April	34,073	33,046

The weighted average remaining contractual life at the end of the period is 1.8 years (2021: 1.9 years).

The exercise price of all share awards is nil. The weighted average share price at the vesting date for all awards vested during the year was £1.07 (2021: £0.63).

Details of the Group's share awards are as follows:

Share awards under the DWF Group plc 2019 EIP - IPO award

At IPO, conditional and restricted share awards were granted to a limited number of the senior management team.

The awards are subject to a service condition and have an entitlement to receive dividend equivalents. A portion of the awards were previously subject to performance targets, but these have subsequently been removed.

Share awards under the DWF Group PLC EIP - Career level 1-3 award

This scheme is to incentivise senior employees for performance and exceptional contributions to the Group, on promotion or as a lateral or senior hire to the Group. Additionally, as part of the RCD acquisition, shares are ring-fenced for future grant to employees of the acquired business which fall under this award.

All of the awards under this scheme are subject to service conditions and a portion of the awards are also subject to performance targets. There is an entitlement to receive dividend equivalents on the awards.

Share awards under the DWF Group PLC EIP - Long-Term Incentive Plan

The Group incentivises its Executive Board with long-term rewards based on challenging performance targets.

The awards under this scheme are also subject to service conditions. There is no dividend or dividend equivalent entitlement until such time as they vest and after a holding period.

Share awards under the DWF Group PLC EIP - Promotion award

The Group may incentivise its employees on promotion with a share award from this scheme.

All of the awards under this scheme are subject to service conditions. A portion of the awards were previously subject to performance targets, but these have subsequently been removed. There is an entitlement to receive dividend equivalents on the awards.

Share awards under the DWF Group plc BAYE - IPO award

At IPO, awards were granted to eligible employees.

The awards under this scheme were subject to service conditions. There was no entitlement to receive dividends or dividend equivalents on the awards until such time as they vested.

Share awards under the DWF Group plc BAYE - Free-share award

The Group incentivises its employees for exceptional contributions from this scheme.

The awards under this scheme are subject to service conditions. There is no entitlement to receive dividends or dividend equivalents until such time as they vest.

Share awards under the DWF Group plc BAYE - Plan matching award ('BAYE  matching shares award')

The Group offers its employees in the UK, Spain and the US the opportunity to actively buy shares in DWF Group plc and become an investor in the business. The Group will match a certain number of awards, subject to service conditions.

There is no entitlement to receive dividends or dividend equivalents until such time as they vest.

Share awards under the DWF Group plc - Deferred bonus plan

The Group may make awards under this scheme to eligible employees as part of the bonus plan.

The awards under this scheme are subject to service conditions. There is no entitlement to receive dividends or dividend equivalents until such time as they vest.

Share awards granted

The Black Scholes method was used to value all share awards granted during the year. The following table outlines the inputs and assumptions used:

	2022				2021
	EIP	BAYE	Deferred bonus		EIP	BAYE
Weighted average fair value at measurement date	1.14	1.10	0.95		0.70	0.68
Weighted average share price at grant date	1.19	1.20	1.17		0.74	0.72
Expected volatility	42.96%	43.46%	43.52%		45.05%	50.23%
Expected life (years)	2.87	1.37	2.87		2.96	1.30
Expected dividend yield	1.33%	5.72%	6.57%		5.00%	5.00%
Risk free interest rate	0.50%	0.51%	0.18%		0.07%	0.03%
Estimate of attrition	21.60%	9.42%	20.46%		25.0%	25.0%
Estimate of performance conditions being met	85.70%	N/A	N/A		94.15%	N/A

The expectations and estimates used represent the average across the tranches granted. Expected volatility was determined by reference to the period for which the share price history is available. The expected life used is the vested date of the award.

22     Employee information and their pay and benefits

The average number of persons employed by the Group (including Executive Directors) during the year, analysed by category, and the aggregate payroll costs of these persons were as follows:

	2022	2021
	No.	No.
Legal advisors	2,426	2,405
Support staff	1,222	1,265
	3,648	3,670
	£'000	£'000
Wages and salaries	199,828	192,493
Social security costs	11,694	11,528
Contributions to defined contribution plans	6,698	6,822
	218,220	210,843

 

The Group operates defined contribution pension plans. The total annual pension cost for the defined contribution plan was £6.7m (FY2021: £6.8m) and the outstanding balance at 30 April 2022 was £0.9m (30 April 2021: £0.9m).

23     Cash generated from operations

a) Cash generated from operations before adjusting items

	2022	2021
	£'000	£'000
Cash flows from operating activities
Profit / (loss) before tax	22,316	(30,600)
Adjustments for:
Other impairment	3,593	4,595
Amortisation of acquired intangible assets	4,655	4,609
Depreciation of right-of-use asset	12,737	11,977
Other depreciation and amortisation	7,211	6,989
Gain on disposal of leases and investments	-	(798)
Non-underlying items	1,224	27,101
Share-based payments expense	9,609	27,818
Interest expense on lease liabilities	1,673	2,284
Net finance expense	3,518	2,682
Operating cash flows before movements in working capital	66,536	56,657
(Increase) / decrease in trade and other receivables	(8,031)	13,120
Decrease in trade and other payables	(17,641)	(176)
Decrease in provisions	4,798	(296)
Decrease in amounts due to members of partnerships in the Group	(4,039)	(4,144)
Cash generated in operations before adjusting items	41,623	65,161

b) Free cash flows

Free cash flows is an APM and is defined in the glossary to the report.

	2022	2021
	£'000	£'000
Free cash flows
Operating cash flows before movements in working capital	66,536	56,657
Net working capital movement	(20,874)	12,648
Amounts due to members of partnerships in the Group	(4,039)	(4,144)
Cash generated from operations before adjusting items	41,623	65,161
Net interest paid	(4,596)	(5,064)
Tax paid	(2,854)	(3,155)
Repayment of lease liabilities	(13,396)	(14,191)
Purchase of property, plant and equipment	(3,581)	(4,001)
Purchase of other intangible assets	(4,300)	(6,635)
Free cash flows	12,896	32,115

 

c) Working capital measures

	2022	2021
	£'000	£'000
WIP days
Amounts recoverable from clients in respect of unbilled revenue	71,958	66,671
Unbilled disbursements	7,982	9,437
Total WIP	79,940	76,108
Annualised net revenue	350,490	338,130
WIP days	83	82
Debtor days
Trade receivables (net of allowance for doubtful receivables)	88,949	91,185
Other receivables*	3,154	2,890
Total debtors	92,103	94,075
Annualised net revenue	350,490	338,130
Debtor days	96	102
Total lock-up days
Total WIP	79,940	76,108
Total debtors	92,103	94,075
Total lock-up	172,043	170,183
Annualised net revenue	350,490	338,130
Total lock-up days	179	184

*In a change to the calculation of lock-up days from the prior year, other receivables is shown excluding amounts due from members of partnerships as it does not represent part of the Group's normal working capital. The comparator has been restated for consistency. This has the impact of reducing the current and prior year lock-up days by two days each. Under both methods of calculation, lock-up days have reduced by five days and therefore the change in calculation has had no impact on the reduction of lock-up days for the year.

Annualised net revenue, an APM as defined in the glossary, reflects the total net revenue for the previous 12-month period inclusive of pro-forma adjustments for acquisitions and scale-backs.

Lock-up days is an APM and is defined in the glossary to the financial statements.

The Group also measures lockup as above but excluding other receivables as this more closely aligns with lockup measurement of other businesses in the legal sector and also as other receivables do not represent sales outstanding. Excluding other receivables, lockup days are 176 days (2021: 180 days).

 

UNAUDITED INFORMATION

Appendix

 

Reconciliation to new global operating structure - re-presented year ended 30 April 2021

The following reconciliation shows how the prior year's revenue and gross profit has been re-presented from the old operating structure to the new global operating structure:

	As reported for the year ended 30 April 2021	Impact of restructure	As reported under new global operating structure effective 1 May 2021
	£'000	£'000	£'000
Segment net revenue
Legal Advisory	-	285,326	285,326
Commercial Services	110,667	(110,667)	-
Insurance Services	103,884	(103,884)	-
International	85,255	(85,255)	-
Connected Services	25,338	3,085	28,423
Mindcrest (FY2021: Managed Services)	12,986	11,395	24,381
Net revenue	338,130	-	338,130
Segment direct cost
Legal Advisory	-	(137,487)	(137,487)
Commercial Services	(46,245)	46,245	-
Insurance Services	(51,560)	51,560	-
International	(49,012)	49,012	-
Connected Services	(14,406)	(1,819)	(16,225)
Mindcrest (FY2021: Managed Services)	(5,126)	(7,511)	(12,637)
Direct cost	(166,349)	-	(166,349)
Segment gross profit
Legal Advisory	-	147,839	147,839
Commercial Services	64,422	(64,422)	-
Insurance Services	52,324	(52,324)	-
International	36,243	(36,243)	-
Connected Services	10,932	1,266	12,198
Mindcrest (FY2021: Managed Services)	7,860	3,884	11,744
Gross profit	171,781	-	171,781

 

UNAUDITED INFORMATION

Glossary

Alternative Performance Measures ('APMs')

In accordance with the Guidelines on APMs issued by the European Securities and Markets Authority ('ESMA'), additional information is provided on the APMs used by the Group below. In the reporting of financial information, the Group uses certain measures that are not required under IFRS.

These additional measures (commonly referred to as APMs) provide the Group's stakeholders with additional information on the performance of the business. These measures are consistent with those used internally, and are considered insightful for understanding the financial performance of the Group. The Group's APMs provide an important measure of how the Group is performing by providing a meaningful comparison of how the business is managed and measured on a day-to-day basis and achieves consistency and comparability between reporting periods.

These APMs may not be directly comparable with similar measures reported by other companies and they are not intended to be a substitute for, or superior to, IFRS measures. All Income Statement measures are provided for continuing operations unless otherwise stated.

Changes to APMs

The Directors and management have redefined adjusted diluted earnings per share ('adjusted DEPS') to aid comparability and simplicity. The denominator reflects the aggregate of shares in issue and those shares held in trust, to represent a fully diluted EPS. In addition, the denominator for the adjusted earnings per share ('adjusted EPS') has been made consistent to the basic EPS measure to provide further consistency to the statutory measure. The definitions of adjusted DEPS and adjusted EPS are fully defined below.

 

APM Net revenue
Closest equivalent statutory measure Revenue
Definition and purpose Revenue less recoverable expenses   Recoverable expenses do not attract a profit margin and can vary significantly month-to-month such that they may distort the link between revenue and the performance of the Group. Net revenue is widely reported in the legal sector as the key measure reflecting underlying trading, and allows greater comparability with other legal businesses.
Reconciliation	2022	2021
	£'000	£'000
Revenue	416,052	400,948
Recoverable expenses	(65,810)	(62,818)
Net revenue	350,242	338,130

 

 

APM Adjusting items

Closest equivalent statutory measure None

Definition and purpose Those items which the Group excludes from its statutory metrics to arrive at adjusted profit or cash flow metrics in order to present further measures of the Group's performance.   These include items which are significant in size or by nature are non-trading or non-recurring. This provides a comparison of how the business is managed and measured on a day-to-day basis and provides consistency and comparability between reporting periods, as well as allows our results to be compared more fairly with other similar businesses.   Share-based payment charges within adjusting items relate to shares allocated from the pre-funded employee benefit trust, which are not dilutive to shareholders.

Reconciliation See note 2

APM Adjusted earnings before interest, tax, depreciation and amortisation ('adjusted EBITDA')

Closest equivalent statutory measure Operating profit / (loss)

Definition and purpose Operating profit adjusted for adjusting items as detailed in note 2, and adding back depreciation and amortisation.   Adjusted EBITDA is useful as a measure of comparative operating performance between both previous periods, and other companies as it is reflective of adjustments for adjusting items and other factors that affect operating performance. Adjusted EBITDA removes the effect of depreciation and amortisation, and adjusting items as described above, as well as items relating to capital structure (finance costs and income) and items outside the control of management.

Reconciliation   2022 2021 £'000 £'000 Operating profit / (loss) 27,653 (25,634) Depreciation of right-of-use asset 12,737 11,977 Other depreciation and amortisation 7,211 6,989 Total of adjusting items 19,081 64,792 Adjusted EBITDA 66,682 58,124

 

 

APM Adjusted profit before tax ('adjusted PBT')
Closest equivalent statutory measure Profit / (loss) before tax
Definition and purpose Profit before tax and after reflecting the impact of adjusting items.   Adjusted PBT is useful as a measure of comparative operating performance between both previous periods, and other companies as it is reflective of adjustments for non-underlying items, amortisation of acquired intangibles, share based payments expense, impairment/impairment reversal and other factors that affect operating performance. Adjusted PBT is used to provide a useful and consistent measure of the ongoing performance of the Group. Adjusted measures are reconciled to statutory measures in note 2.
Reconciliation	2022	2021
	£'000	£'000
Profit / (loss) before tax	22,316	(30,600)
Total of adjusting items (note 2)	19,081	64,792
Adjusted profit before tax	41,397	34,192

 

 

APM Cost to income ratio
Closest equivalent statutory measure Not applicable
Definition and purpose Adjusted administrative expenses and impairment as detailed in note 2, divided by net revenue as defined above.   After adjusting for significant items that are one-off in nature, the cost to income ratio is an essential metric in assessing the levels of underlying operational gearing in the Group. The Group uses the cost to income ratio to measure the efficiency of its activities. A decrease in cost to income ratio indicates an improvement to efficiency, and likewise an increase indicates a decline. Management note that the usefulness of the cost to income ratio is inherently limited by the fact that it is a ratio and thus does not provide information on the absolute amount of operating revenue and expenses.
Reconciliation	2022	2021
	£'000	£'000
Net revenue	350,242	338,130
Adjusted administrative expenses and impairment (note 2)	134,322	132,623
Cost to income ratio	38.4%	39.2%

 

 

APM Adjusted administrative expenses

Closest equivalent statutory measure Administrative expenses and impairment

Definition and purpose Adjusted administrative expenses are defined as administrative expenses plus impairment less adjusting items (as defined above).   Adjusted administrative expenses provide a useful and consistent measure of the ongoing administrative expenses of the Group. In particular, the adjusted administrative expenses are utilised within the Group's definition of 'Cost to income ratio' which is also defined above.

Reconciliation See note 2

 

 

APM Net debt (excluding IFRS 16)

Closest equivalent statutory measure Cash and cash equivalents less borrowings

Definition and purpose Net debt comprises cash and cash equivalents less interest-bearing loans and borrowings (including the supplier payments facility).   Net debt is one measure that can be used to indicate the strength of the Group's statement of financial position and can be a useful measure of the indebtedness of the Group. This metric excludes the Group's lease liabilities under IFRS 16 in order to provide consistency with how the Group manages and reports its indebtedness and also providing consistency with the definition of Net debt under the Group's banking agreement.

Reconciliation See note 17

 

 

APM Lock-up days

Closest equivalent statutory measure Not applicable

Definition and purpose Lock-up days comprise work-in-progress ('WIP') days, representing the amount of time between performing work and invoicing clients; and debtor days, representing the length of time between invoicing and cash collection. WIP days are calculated as unbilled revenue divided by annualised net revenue multiplied by 365 days. Debtor days are calculated as trade and other receivables, excluding amounts due from members of partnerships, divided by annualised net revenue multiplied by 365 days. Annualised net revenue is the total net revenue for the previous 12 month period with adjustments for acquisitions and discontinuations.

Reconciliation See note 23

 

APM Adjusted diluted earnings per share ('adjusted DEPS')

Closest equivalent statutory measure Diluted earnings per share ('DEPS')

Definition and purpose Adjusted earnings divided by the total number of ordinary shares in issue: Adjusted earnings is defined as (loss) / earnings from continuing operations adjusted for: -     non-underlying items; -     share-based payments expense; -     gain on investment; -     amortisation of acquired intangible assets; -     impairment; and -     the tax effect of the above items;   Whilst this metric is not prepared in accordance with IAS 33 'Earnings per Share', it is an important APM to provide the Group's stakeholders with a fully diluted EPS metric using the Group's adjusted earnings for the period that is consistent year on year.

Reconciliation See note 8

 

 

APM Adjusted earnings per share ('adjusted EPS')

Closest equivalent statutory measure Basic EPS

Definition and purpose Adjusted earnings divided by weighted average number of ordinary shares for the purposes of the basic earnings per share calculation. See adjusted diluted EPS definition and purpose above for details of adjusting measures.   This metric provides the Group's stakeholders with an EPS metric using the Group's adjusted profitability but with a denominator consistent with the statutory basic EPS measure.

Reconciliation See note 8

 

 

APM Like for like ('L4L')
Closest equivalent statutory measure N/A
Definition and purpose Like for like metrics, are applied to net revenue, direct costs, gross profit and gross margin to exclude the results of DWF Australia and Germany following the scale back of operations in March 2021 and April 2022 respectively, along with the results for current year acquisitions, Zing and BCA.   This metric allows the Group's stakeholders to compare the performance of the business on a consistent basis with the prior period, given that the scale back of the Australian and German business was a significant change to the Group.
Reconciliation
Not applicable

 

 

APM Revenue per partner
Closest equivalent statutory measure Revenue
Definition and purpose Revenue per partner is defined as net revenue divided by average number of partners (on a full time equivalent basis) for the period.   This metric allows the Group's stakeholders to view the performance of the business based on average revenue per partner, split by division (this includes both member and employee partners).
Reconciliation	2022	2021
	£'000	£'000
Legal Advisory	896	842
Connected Services	1,382	1,428
Mindcrest	12,216	16,254
Group	975	924

 

 

APM Annualised net revenue
Closest equivalent statutory measure Revenue
Definition and purpose Annualised net revenue reflects the total net revenue for the previous 12-month period inclusive of pro-forma adjustments for acquisitions and discontinuations/closures/scale-backs.   This metric is utilised as a denominator for lock up, WIP and debtor day calculations which allow greater comparability within the legal sector consistent with prior and full year metrics.
Reconciliation
Not applicable

 

 

APM Free cash flows
Closest equivalent statutory measure Not applicable
Definition and purpose Free cash flow is the amount by which the operating cash flow exceeds working capital, amounts payable to members, tax, interest and capital expenditure.   This metric provides the Group's stakeholders detail around the efficiency of cash generation and utilisation.
Reconciliation
See note 23

 

 

APM Leverage
Closest equivalent statutory measure Not applicable
Definition and purpose Leverage is calculated as net debt, divided by the last 12 months adjusted EBITDA (both defined above).   This metric provides the Group's stakeholders detail around the Group's ability to repay debt and meet payment obligations. Leverage should be compared with a benchmark, or industry average and is widely used by analysts and credit rating agencies.
Reconciliation	2022	2021
	£'000	£'000
Adjusted EBITDA (last 12 months)	66,682	58,124
Net debt	71,820	60,168
Leverage	1.08	1.04