Gateley (Holdings) Plc
Annual Report 2022

Plain-text annual report

Growth and resilience through diversity Annual Report for the year ended 30 April 2022 Gateley (Holdings) PlcAnnual report and financial statementsWhy do we do what we doHow do we do thisWhat do we doForward thinkingStraight talkingOur purpose is to deliver results that delight our clients, inspire our people and support our communities.We do this by: being forward thinking about the services that we deliver to our clients and the working environment we provide for our people; being straight talking about what matters, inside and outside of our business; and thinking differently about what we do and how we do it.We deliver legal and professional services which enable our clients to solve the challenges that they are facing or to maximise the opportunities they are pursuing, without ever losing sight of what makes us Gateley: our Gateley Team Spirit values.11Our people and long-established culture are central to the Group’s success.” “ContentsBusiness overview Highlights for the year 3At a glance 5Our story 6Business overview 8Our Platform strategy 10Our people 12Staying connected and engaging with our teams 14Responsible Gateley 16Five key reasons to invest 19Strategic reportChairman’s statement 22Chief Executive Officer’s review 24Chief Executive Officer’s Q&A 30Finance Director’s review 32Principal objectives, strategy and outlook 38Principal risks and uncertainties 42Section 172(1) statement 46Environmental actions statement 47Social matters 49Corporate governanceBoard of Directors 54Statement on remuneration: voluntary disclosure 56Directors’ report 63Our financialsIndependent auditors’ report to the members of Gateley (Holdings) Plc. 68Consolidated statement of profit and loss and other comprehensive income 75Consolidated statement of financial position 76Consolidated statement of changes in equity 78Consolidated cash flow statement 79 Notes to the consolidated financial statements 81Parent company statement of financial position 121Parent company statement of changes in equity 122Parent company cash flow statement 123Parent company notes to the financial statements 124Notice of annual general meeting 136Company information 147Gateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Strong results, further growth and demonstrable resilience Gateley (AIM: GTLY), the legal and professional services group, announces its audited preliminary results for the year ended 30 April 2022 (“FY22” or the “Period”), which continued the Group’s pre and post IPO unbroken record of year-on-year revenue and profit growth, and out-performed market expectations set at the start of the year. The Group delivered a strong financial performance in FY22, achieving significant organic growth and strengthening the business further through diversification and investment into new complementary service lines, while maintaining control on costs in the face of market specific and macro-economic headwinds. The balance sheet remains strong and the Group has significant headroom in its banking facilities to invest in further organic and acquisitive growth opportunities. “ Rod Waldie, Chief Executive Officer of Gateley, said: I am delighted with the Group’s performance in FY22. We have delivered another set of strong revenue and profit growth figures whilst continuing to strengthen our balance sheet. Legal services generated solid organic revenue growth, comparing favourably with reported UK legal industry performance. Our consultancy service lines delivered impressive organic growth of 26.7% resulting in overall consolidated Group organic revenue growth of 10.9%. “I am particularly pleased that we completed three exciting consultancy acquisitions in the Period and achieved annualised consultancy revenue of over c.£32m as we continue to grow our complementary services, diversifying our offering and deepening our connections with our clients. “I thank our ever-expanding client base for their trust and support throughout FY22 and for giving us the opportunity to work with them on high quality mandates. We remain committed to our purpose of delivering results that delight our clients, inspire our people and support our communities. We have a good pipeline of work and maintain our expectations for growth in FY23, despite the well-reported inflationary pressures. We look forward to continuing to grow the Group, both organically and via acquisition.” GROUP REVENUE Highlights for the year 13.0% 11.9% 22.9% GROUP PROFIT BEFORE TAX NET ASSETS In FY22 our Group revenue was £137.2m, up by 13% compared to £121.4m in FY21 In FY22 our Group profit before tax was £21.6m, up by 11.9% compared to £19.3m in FY21 In FY22 net assets were £72.9m, up by 22.9% compared to £59.3m in FY21 FY22 £137.2m £22.5m £21.6m £18.0m £14.3m 12.00p 14.31p £72.9m £10.4m FY21 £121.4m £20.5m £19.3m £16.3m £13.2m 11.18p 13.17p £59.3m £19.6m Change +13.0% +9.8% +11.9% +10.4% +8.3% +7.3% +8.7% +22.9% -9.2m Strategic Highlights • • • Three earnings-enhancing acquisitions completed in the Period, expanding the Group’s Property and Business Services Platforms Total headcount at 30 April 2022 of 1,368 (FY21: 1,081). Total headcount of professional staff increased by 23.6% from 767 to 948 New Revolving Credit Facility of £30m agreed in April 2022, providing increased funding flexibility to support the Group’s growth strategy • • • Personnel costs declined as a percentage of Group revenue to 63.0% (FY21: 63.8%) Proposed final dividend of 5.5p (FY21: 5.0p) taking total dividends for the Period to 8.5p (FY21: 7.5p) Group dividend policy remains to distribute up to 70% of our after-tax profits each year Group revenue Group underlying operating profit before tax1 Group underlying profit before tax1 Group profit before tax Group profit after tax Basic earnings per share (‘EPS’) Adjusted fully diluted EPS2 Net assets Net cash3 Financial Highlights • Group organic revenue growth was 10.9%, comprising 8.7% in legal services and 26.7% in consultancy services • • • • Total growth in consultancy revenues of 44.9%, as complementary consultancy services contributed £21.3m or 15.5% of total revenues (FY21: £14.7m or 11.5%) Adjusted underlying operating profit margin broadly maintained at 16.4% (FY21: 16.9%) Net assets increased by 22.9% to £72.9m “Gateley Agile” initiative, which builds on the flexible working introduced during the pandemic, continues to deliver cost savings, mitigating some inflationary pressure 2 3 1 Underlying operating profit before tax and underlying profit before tax excludes share based payment charges, amortisation and exceptional items 2 Adjusted fully diluted EPS excludes share based payment charges, amortisation and exceptional items. It also adjusts for the future weighted average number of expected unissued shares from granted but unexercised share option schemes in issue based on a share price at the end of the financial year 3 Net cash excludes IFRS 16 liabilities How we support clients At a glance Business Overview Strategic Report Corporate Governance Our Financials Property Platform People Platform Corporate Platform Business Services Platform V I N D E N incorporating Tozer Gallagher T W E E D We like the way you always become an extended part of our team. It’s not an easy thing to do and I admire how you do it. You just get the work done and it’s brilliant. I would definitely say this is your USP. I don’t know other firms who do this as well as you do.” You need to know that everything is on the same page and it’s a trusted relationship piece. I do feel that Gateley are very strong in that.” Where you need us to be With offices in 15 UK locations, and another in Dubai, we have the regional network to provide our clients with the advice they need on their doorstep. Often face to face meetings are the quickest way to overcome difficulties and resolve misunderstandings, and we will always travel to get the job done. NEWCASTLE BELFAST LEEDS BOLTON MANCHESTER CHESTER LLANDUDNO NOTTINGHAM BIRMINGHAM RUTLAND LEICESTER READING LONDON GUILDFORD EXETER What makes us forward thinking? The first UK commercial law firm to list on the London Stock Exchange in 2015 A legal and professional services group which combines legal advice with consultancy expertise through our market facing Business Services, Corporate, People and Property Platforms. Forward thinking about the services that we deliver, helping our clients to solve challenges and to maximise opportunities A responsible business committed to levelling up the world in which we work Being straight talking about what matters, inside and outside of our business: supporting diversity and inclusion, encouraging potential and ensuring a sustainable future Delivering results without ever losing sight of our Gateley Team Spirit values Working together Proud that 45% of colleagues participate in our Save As You Earn share scheme vs. a 25% UK average and at least 75% of colleagues are existing share or option holders in the Group Investors in People accredited A Levelling Up Partner and member of the Levelling Up Measurement TaskForce Signatory to the Better Business Act The only UK legal business to be ranked in the Glassdoor top 25 best companies for senior leadership Trusted to do FY22 key client account management programme: 67% of clients in the programme increased their fees in FY22 c£17m of fees generated across our account management programme last year 350 new client relationships were nurtured Rated 5 star/excellent on independent legal review platform, Review Solicitors. Excellent 170 reviews on Room to breathe Stonewall Diversity Champions and Law Society Gold Standard for our Diversity and Inclusion Charter Active wellbeing programme and proud to be a signatory to the Mindful Business Charter Engaged staff networks to support diversity and inclusion including Women in Leadership and Working Parents programmes A Halo Code workplace Sustainable working practices including paperlite, recycling and use of virtual technology Disability confident employer Ambitious for success Double digit revenue growth in the last 7 years. Revenue compound annual growth rate (CAGR) 12.3% 2022 £137.2m 4 5 Gateley (Holdings) PlcAnnual report and financial statementsGateley: the legal and professional services group Our story Our story starts in Victorian Birmingham - the then workshop of the world. Solicitors Stephen Gateley & Sons was founded to help forward thinking Victorians prosper. Two centuries later, and our approach is still about thinking ahead. Looking to the future to ensure the success of our clients, our business and our people. Business Overview Strategic Report Corporate Governance Our Financials 2022 In January we acquired Patent and Trade Mark Attorneys, Adamson Jones, adding breadth and depth to the intellectual property services we offer through our Business Services Platform. In April we added the team from Smithers Purslow to our Property Platform. Gateley Smithers Purslow is a multi-disciplinary practice of building and quantity surveyors, principally in the insurance industry. 2021 In July 2021 we acquired Tozer Gallagher, a leading practice of chartered quantity surveyors and construction consultants. Tozer Gallagher now sits within Gateley Vinden. Our decades of growth are recognised at the Birmingham Post Business Awards where we are named Professional Services Firm of the Year. 2020 We rank number 1 in the UK for M&A activity by deal volume. We acquire brand and reputation management experts Tweed Law, and built environment consultancy, The Vinden Partnership. 2019 We’re UK Law Firm of the Year at the British Legal Awards; we acquire land referencing experts, Persona Associates and leadership development specialists, t-three. 2018 We acquire three more businesses; GCL Solicitors, specialists in legal advice on residential developments; business psychologists, Kiddy & Partners and inward investment and international expansion experts, International Investment Services. 2016 We acquire our first complementary businesses: tax incentive specialists Capitus Ltd and property consultants Hamer Associates, forming Gateley Capitus and Gateley Hamer. 2015 We enter a new chapter with a UK law firm first: we put aside the traditional equity partnership model and go Plc. 6 7 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Business overview Our advisers deliver legal and professional services to incredible clients every day to enable them to compete in an ever-changing and competitive business environment, helping them to face tough challenges, to seize opportunities and to create profitable, resilient and purpose-led businesses. Our purpose To deliver results that delight our clients, inspire our people and support our communities. Strategic ambitions To diversify, differentiate and incentivise by being forward thinking about the services we deliver to our clients, the working environment we provide for our people and by being straight talking about what matters, inside and out of the business. 8 How we operate Growth drivers Delivering results for long term success Business Model Our business model creates a platform for scalable and sustainable growth. Our strong market reputation and the culture and Gateley Team Spirit that sits at the heart of our business enables the delivery of integrated legal and complementary business services across our four market facing Platforms. Business Services Combines the considerable commercial expertise of our IP and dispute resolution lawyers with that of the forensic and business intelligence skills of the Gateley Omega team and the Patent and Trade Mark Attorneys within Adamson Jones. Corporate Brings together the skills of corporate and banking and finance, tax and restructuring lawyers in Gateley Legal with the inward investment experience of consultants within International Investment Services. People Connecting the advisory skills of our leadership and development consultancies t-three and Kiddy & Partners with the expertise of our employment and pensions lawyers within Gateley Legal and the independent pension trustees within Entrust. The People Platform also includes a strong Private Client team with experts in private wealth matters for individuals based in England and internationally, private wealth disputes and family issues. Property Within our Property Platform, Gateley Legal lawyers advise on construction, planning, residential development, real estate finance, real estate development, real estate disputes and real estate investment. The property tax specialists within Gateley Capitus combine with the built environment consultants in Gateley Vinden (incorporating Tozer Gallagher) and Gateley Hamer to offer a one stop shop for all real estate needs. Our Property Platform is further complemented by Gateley Smithers Purslow, a specialist provider of surveying services, principally to the insurance industry. Organically Enhanced opportunity to grow Gateley organically, including lateral hires of individuals or teams. Diversification Making selective acquisitions including (i) other legal firms which offer geographical expansion or additional specialist services (ii) professional consultancy service businesses offering complementary services. Platforms Building out the Group’s four Platforms which comprise clusters of complementary Group services presenting a broader and more compelling offering to our clients. Incentivisation Alignment through share participation of the interests of shareholders (including employee shareholders) with those of the business, aiding retention of staff and widening our recruitment appeal. Our clients Delivering results that delight our clients by being forward thinking, straight talking, working in collaboration and being ambitious for their success. Our colleagues Inspiring our people, incentivising their hard work and providing a diverse and inclusive working environment that gives them room to breathe and opportunity to develop. Our communities Supporting the communities in which we work and measuring our social impact so we can provide the right support and make progress in the future. Our investors Delivering excellent returns and demonstrating that our shareholders’ investments are in safe hands. Our suppliers Building mutually beneficial relationships and long-term, sustainable partnerships. Our environment Taking ownership for the things we can do as a business and individuals to protect and repair our planet now and for future generations. 9 Gateley (Holdings) Plc Annual report and financial statements Business Overview Business Overview Strategic Report Strategic Report Corporate Governance Corporate Governance Our Financials Our Financials Our Platform strategy A sustainable strategy for growth, diversification and resilience The aggregation of complementary legal and consultancy services on our four market-facing Platforms of Corporate, Business Services, People and Property continues to differentiate Gateley, strengthen our appeal to clients and enhance our resilience. Our strategy remains to grow each of the four Platforms on which we have positioned legal and consultancy services that complement each other in servicing our chosen markets. During FY22 we made three earnings-enhancing acquisitions, quantity surveying and construction consultants, Tozer Gallagher in July 2021, trademark and patent attorneys, Adamson Jones in January 2022 and chartered surveying practice, Smithers Purslow in April 2022, adding further weight to both our Property and Business Services Platforms. Prudent management and a strong balance sheet enable us to drive incremental value through acquisitions. As new businesses are added and integrated onto each Platform we now see the model working exactly as we would expect, driving more revenue from existing clients, creating routes into new clients for other parts of the business to cross sell services and continually diversifying and strengthening revenue streams. Gateley Hamer, our property consultancy specialising in Compulsory Purchase Orders, easements and wayleaves, infrastructure projects, land referencing and public inquiries produced another strong performance. The business again posted strong organic top line growth of 41.5% but also added another core service line in the shape of telecoms infrastructure. Property Platform Gateley Legal Gateley Capitus Gateley Hamer Gateley Smithers Purslow Gateley Vinden Persona Associates Tozer Gallagher People Platform Gateley Legal Kiddy & Partners t-three Entrust Corporate Platform Gateley Legal International Investment Services Business Services Platform Gateley Legal Gateley Omega Adamson Jones Gateley Tweed Positive momentum and a return to growth flowed through into our People Platform consultancies, Kiddy & Partners and t-three, during FY22. This was in part due to increased demand for services, as client HR Directors and Heads of Talent saw development budgets, frozen during the pandemic, released once again to them. However, also of significant benefit was the successful integration of those two businesses into one assessment, development and cultural change-facing offering. Our integrated proposition and service offering went live in January driving excellent client feedback and securing significant new mandates. Overall, our acquired consultancy businesses performed strongly during the Period, contributing 15.5% to total Group revenues and supporting revenue growth in each of our four Platforms. We are focused internally on providing our teams with all the information they need to be able to cross-sell our services to clients. In the last year we have run numerous Platform sessions with our teams to showcase what each area of the Platform does and to demonstrate examples of where this is already working really well. Throughout the financial year we also ran an internal marketing campaign called the ‘BIG G’ which included an office wide league table with Big G points allocated based on the cross-selling results across our Platforms in each office. This was a huge success with our Manchester team being crowned the annual winners for FY22. 10 11 Business Overview Strategic Report Corporate Governance Our Financials Our people Inspiring with purpose One of the cornerstones of our purpose is to inspire our people but being purpose-led and a responsible business only works as it should if our people understand what that really means for them and if it impacts behaviours from the top down. During the last year we have focused on embedding our purpose right across the business with inspiring our people being at the heart of that. Left: Members of our t-three and Kiddy team Right: Chairman, Nigel Payne delivers a keynote speech at our Inspiring with Purpose conference in May 2022 Defining what great leadership looks like is an important strand of our people strategy. From our board, through to our partners, directors and senior managers across our legal and consulting group businesses, we have a collective responsibility to do our best by those we lead, impact and influence every day. ” Rod Waldie, Chief Executive Officer Leading through inspiration Being recognised for leadership Inspiring with Purpose conferences Working together with our business transformation specialists, t-three who we acquired in 2019, we recently developed our Gateley Leadership Framework, a positive set of behaviours that all leaders in our business should display. This has been rolled out across the Group via training and will be revisited on a regular basis. It is built around the five elements of our Gateley Team Spirit which are working together, being forward thinking, giving people room to breathe, being trusted to do and ambitious for success. In June 2022 we were the only legal business in the UK to rank in the Glassdoor UK Top 25 Companies for Senior Leadership. Glassdoor is the worldwide leader on insights about jobs and companies and the list was determined solely based on feedback provided by employees. Tens of thousands of companies were considered for the list and those recognised were those whose senior leaders met the challenges of the pandemic with grit, determination and continued support of their workforce. Strong leadership is a crucial driver of workplace satisfaction so we are delighted to be awarded this accolade. In May 2022 we brought together our leaders and senior managers from across the Group in person for the first time since the start of the pandemic. The two conferences were themed ‘Inspiring with Purpose’ with a clear agenda focusing on what we are already doing and what more we could be doing in the future to inspire our people and ensure we continue to build on our unique Gateley culture and team spirit. 12 13 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Staying connected and engaging with our teams We recognise that when teams are connected to each other and to key company information it has a positive impact on morale, culture and performance. That is why we place so much emphasis on internal communication at Gateley. This has become especially important as we have integrated new complementary businesses into our Platform structure post acquisition. A key part of our people strategy revolves around employee engagement and listening. We did this continually throughout the pandemic to ensure our Gateley Agile programme (hybrid working) was fit for purpose as we returned to our offices and to make sure it becomes a way of working that is flexible enough to evolve to meet our peoples’ and clients’ needs as we move past the pandemic. We regularly gauge sentiment across the Group to understand how engaged our people are about the business, their roles and the teams they work with. In our 2022 employee engagement survey we scored overall engagement levels of 83% against a private sector benchmark of 63%. We recognise there is always room for improvement and that will only come by regularly talking to and listening to our people, enabling us to progress, make positive change and build on the areas we know already work well. Shaping careers and incentivising talent We offer our people opportunities they won’t find easily elsewhere. We are a great place to work with stand-out people but we also provide a career path that’s rewarding and allows the individual’s strengths and ambitions to shine. As a listed company free from the usual constraints of a traditional professional services partnership, we believe all of our people should have the opportunity to share in the success of our business. We therefore reward those who help our business to grow. This includes a bonus scheme as well as various share schemes like our Save As You Earn (SAYE) that is open to all employees and other schemes that are tailored to the point the individual has reached in their career journey with us. Our SAYE share scheme gives everyone the opportunity to participate in the future success of the business. 45% of our people currently participate in the Gateley SAYE scheme, compared to a UK average of 25% participation in similar schemes and at least 75% of employees are existing share or option holders in the Group. Emerging Senior Talent In addition to our established LTIP scheme for partners and CSOP aimed at senior managers, in April we introduced a Restricted Share Award Scheme (RSA) targeted at those reaching partner or equivalent level within the Group. Our career structure for partners stands out against the traditional equity partnership model offered in an LLP. On making equity partner in a traditional LLP it is usually a requirement that the individual will invest capital in return for an equity stake in the partnership. Those partners then draw a share of the profits annually but there is no capital asset at retirement. When our people reach partner level or equivalent there is no financial obligation in terms of capital investment like in a traditional LLP. Instead, they are gifted shares with which to begin their partnership career and subject to them remaining with the business for five years. In addition to their salary and benefits, this provides them with a dividend income from day one, a healthy base on which to build their Gateley shareholding in the future and capital value in their shareholding on retirement. We believe this is a unique and attractive incentive for those who build a partnership career with Gateley and to attract new talent into the business at an earlier career stage. We have adopted this scheme following focus groups with partners and equivalents and those on our partnership track, to understand what being a partner should mean in a Plc structure and how we can better incentivise and retain our emerging senior talent. overall engagement levels against a private sector benchmark of 63% 83% 124 In 2022 we promoted 124 people across our business in both fee earner and business support roles. 14 14 15 Gateley (Holdings) Plc Annual report and financial statements Business Overview Business Overview Strategic Report Strategic Report Corporate Governance Corporate Governance Our Financials Our Financials Responsible Gateley Being a responsible business is about making the right choices and having the greatest and most measurable impact on areas that matter most to our stakeholders, whether a client, contact, shareholder or employee. Our Responsible Business ethos is intrinsically linked to our purpose. It is a key strategic priority, owned at the highest level of our business and one that threads right throughout the core of our organisation. In October 2021 our CEO, Rod Waldie launched our responsible business strategy internally. This accompanied the publication of our maiden Responsible Business Report. An important milestone in communicating the meaningful strategies we have in place to meet our environmental, social and governance obligations. Through an interactive webinar we launched the report to our entire business along with an explainer video. The event included speakers from the Better Business Act, of which we are a signatory and the Rt Hon. Justine Greening who heads up The Purpose Coalition, the independent ESG consultancy who helped us develop our own set of levelling up goals last year based around People, Potential and Planet. Our Responsible Business actions focus on the wellbeing of our employees, on being a force for good in society and within the communities in which we operate and by playing our part in protecting and repairing our planet. Measuring the value and the impact we are having in all of these areas is as important for us as taking action because it enables us to evaluate where we are effecting change and how we can improve and progress over time. We understand that being a responsible business is not simply a tick in the box, or a job that is eventually done and in March 2022 we appointed our first Responsible Business Manager who is helping us deliver for today and plan for tomorrow. Our 2021 Responsible Business Report can be found on the Responsible Gateley area of our website and our 2022 report will be published in October 2022. As a listed business delivering results is a must but it’s not just about delivering financial results. As a signatory to the Better Business Act, we believe that we can be a force for good, benefitting our people, clients, communities and the environment whilst also delivering profit. By balancing these needs we will be an employer of choice, an attractive investment opportunity, an organisation that clients are proud to collaborate with and a responsible business.” Rod Waldie, Chief Executive Officer Delivering against our 2022 objectives Our first Responsible Business report outlined a set of objectives that we committed to working towards during the last year and beyond. These objectives were set against the backdrop of our work with The Purpose Coalition. Established with input from businesses, universities, civil society and MPs, The Purpose Coalition identified 14 Levelling Up Goals. These goals use the same framework as the UN Sustainable Development Goals and set out clear objectives for the UK’s Levelling Up challenge in the wake of COVID-19. This year we worked with The Purpose Coalition on an action plan which captured our ambitions for where we wanted to get to in respect of each Levelling Up Goal. In addition to Gateley, other members of the Purpose Coalition include Amazon, bp, Compass Group, the BBC, Direct Line Group, Cisco and the NHS to name a few. Our responsible business objectives in FY22 were set against three categories of People, Potential and Planet. Full details about how we met our objectives will be outlined in our next Responsible Business report, published in the Autumn. Here is a brief summary of some of the activity from the last year: People Embedded the Mindful Business Charter framework including encouraging our people to take sufficient breaks, being mindful of non-working hours and emails sent during these times and asking people to ‘unplug’ at Christmas and during other periods of annual leave Maintained our Investors in People standard Secured Disability Confident employer status Maintained Glassdoor ranking and were recognised as the only UK legal business to rank in the top 25 companies for senior leadership, voted for anonymously by employees Launched our fifth internal diversity and inclusion network group; Ability. This aligns with our objective of raising awareness within our business around neurodiversity and supporting colleagues with any disabilities. It sits alongside our four other network groups: Pride; Thrive; Inspire and Unity Producing a language guide to assist in encouraging employees to have more open conversations around diversity, equality and inclusion Signed up to ‘Inspiring Futures’ to enable us to create more opportunities to formally partner with schools aligned with our office network belong... Our diversity, inclusion & well being network groups provide support for our people through a number of initiatives & activities: Supporting our LGBTQ+ community, raising awareness across our business and collaborating with related external charities, groups and networks. Taking care of the health and wellbeing of all our employees Nurturing our talent and supporting their careers Supporting employees with disabilities and raising awareness around neurodiversity Recognising, celebrating and supporting people from different cultures, religions and backgrounds 16 17 Gateley (Holdings) Plc Annual report and financial statements Responsible Gateley continued Potential Planet Continued to support Birmingham City University STEAMHouse, exploring other opportunities to add value to their start-ups Maintained reductions in travel through the continued use of Microsoft Teams Implemented the first in our series of litter pick lunches working with the Birmingham Improvement District team to clean up the streets and parks close to our head office Encouraged our people to submit their sustainability pledges and the positive actions we will take to protect our planet around World Environment Day Reviewed all our links with universities, identifying opportunities to connect with students across our network and announced our partnership with UA92. The partnership between our Manchester office and UA92 will see us fund students in the coming academic year who are studying degrees and higher education courses across business, sport, media and digital disciplines. UA92 aims to make higher education accessible to all, through its founding principles of accessibility, social mobility and inclusivity Became the UK’s first Patron of ‘Make Good Grow’, a social enterprise founded on the principles of uniting good businesses with good causes. We are working with them on their pledge marketplace and for volunteering opportunities. We are also using their Social Impact Dashboard software to help capture and measure metrics around our own social impact and the good causes we are supporting as a business and through individual colleagues across Gateley Continued with our SportsAid partnership; providing financial and personal development support to ten of our country’s brightest sporting prospects who are nominated to SportsAid by the governing bodies of more than 60 sports based on set criteria Delivered our annual UK Sports Law competition at the Etihad Stadium. 48 students from a number of universities competed in teams of two and were tested on their ability to think commercially when faced with a fictitious topical legal problem within the sports industry 18 18 Business Overview Strategic Report Corporate Governance Our Financials Five key reasons to invest Our business model creates a platform for scalable and sustainable growth. 22.9% growth in FY22 and net assets to £72.9m 116.8% cash conversion since IPO* 12.3% compound annual growth since IPO 14.3p adjusted fully diluted EPS FY22 13.3% growth in FY22 dividend to 8.5p * Cash conversion is net cash flows from operating activities as a percentage of profit for the year after tax • The market in the UK for legal and associated professional services is expected to continue to grow strongly • Gateley’s national presence provides a strong organic growth opportunity and its platform strategy facilitates additional growth through the acquisition of complementary businesses • Gateley has a diversified and resilient revenue stream with a high conversion of profit into cash • A strong balance sheet, with net cash of £10m, supports both investment into the business and acquisitions • Gateley provides an attractive income stream with 70% of post-tax profits earmarked for dividends. Since IPO in 2015 (at 95p) it has returned 43p to shareholders • Gateley’s experienced management team has demonstrated an unbroken track record of revenue and profit growth • Gateley has high internal share ownership and a strong people culture with Responsible Business objectives classified under people, planet and potential 19 19 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Business Overview Strategic Report Strategic Report Corporate Governance Corporate Governance Our Financials Our Financials Strategic report In this section Chairman’s statement Chief Executive Officer’s review Chief Executive Officer’s Q&A Finance Director’s review Objectives, strategy and outlook Principal risks and uncertainties Section 172 statement Environmental actions statement Social matters 22 24 30 32 38 42 46 47 49 20 21 This report has been prepared by the Directors in accordance with the requirements of Section 414 of the Companies Act 2006. Gateley (Holdings) Plc Annual report and financial statements Chairman’s statement Introduction I am delighted to welcome you to Gateley’s Annual Report and Accounts for the year ended 30 April 2022, a successful year for Gateley in which the Group has continued its unbroken record of year-on-year revenue and profit growth. Business Overview Strategic Report Corporate Governance Our Financials Summary of the year With revenue increasing by 13.0% to £137.2m and underlying profit before tax increasing by 11.9% to £21.6m, Gateley has again demonstrated the resilience of its business model and diversification strategy. These strong results led to a 22.9% increase in Group net assets to £72.9m (FY21: £59.3m), and an increase of 8.7% in adjusted fully diluted earnings per share to 14.31p per share (FY21: 13.17p). I am particularly proud that this year’s strong performance has been delivered despite disrupted circumstances. With the economic recovery from COVID-19 somewhat compromised by inflationary pressures, with uncertainty as a consequence of the terrible events in Ukraine and with the onset of higher than usual wage inflation within the legal and indeed other service sectors, Gateley has navigated the year well and I could not be more pleased with the resulting benefits for all of our stakeholders. Delivering our strategy During the year, we have delivered on our strategic intent to further diversify the business, placing the Group in a strong position to deliver further profitable growth in the coming years. In doing so, we have also expanded the breadth and depth of our offering with Group representation in four new geographies as part of the newly-acquired Smithers Purslow business. Our staff have shown great adaptability to the constant changes throughout the past few years and their dedication towards the business, their colleagues and clients has been first class. Within our consultancy businesses, overall headcount increased by 169.4% to 291 (FY21: 108) and fee-earner staff by 123.5% to 219 (FY21: 98). Together with three consultancy businesses acquired during the year, annualised revenues from this part of the Group now contribute revenues of over c.£32m, further diversifying our service offering and deepening our relationships with our clients in so doing. As part of our present and future acquisition strategy, we committed to a three-year revolving credit facility of up to £30.0m to assist with acquisitions. As we continue to grow and strengthen our business, the board remains committed to providing its people with the opportunity to own shares in the Company. We believe that employee share ownership secures a strong alignment with the Group’s external shareholders, incentivises employees and is reflective of Gateley’s long-established culture. At least 75% of current staff are existing share or option holders in the Group. Responsible business The board has made the introduction of Gateley’s Responsible Business commitments a key strategic priority this year. Working together with The Purpose Coalition, an independent ESG consultancy who helped us develop our own set of levelling up goals, in August 2021, we published Gateley’s Responsible Business report for which we have received significant positive feedback. The report outlines the plans and priorities that we are working to deliver over the coming years. They are set out under three broad categories being: People, Potential and Planet. I am delighted with the progress we have made in the year and how this important initiative has been readily embraced across the Group. We are committed to ensuring diversity, equality and inclusion across all three of these categories: our goal is to foster a positive work ethic, whilst remaining results and client focused, and demonstrate our commitment to doing the right thing for our people, our planet and developing potential wherever we can. Dividends An interim dividend of 3p per share (FY21: 2.5p) was paid on the 31 March 2022 to shareholders on the register at the close of business on 18 February 2022. The board is pleased to propose a final dividend of 5.5p per share (FY21: 5p), giving a total dividend for the year of 8.5p per share (FY21: 7.5p), subject to approval at the forthcoming Annual General Meeting, which will be held on 20th October 2022. If approved, this final dividend will be paid in October to shareholders on the register at the close of business on 23 September 2022. The shares will go ex-dividend on 22 September 2022. The board’s dividend policy remains to distribute up to 70% of profit after tax to shareholders, typically one third following its half year results and two thirds after the full year results are known. Summary and outlook This year has been another strong year for Gateley. Our people have excelled in client delivery, they have continued to overcome every challenge presented to them, and have delivered further strategic progress for the business, combining to generate a strong set of results for the benefit of all of our stakeholders. As we focus on service line enhancing opportunities that meet our clients’ needs and fulfil our strategy to build a broader professional services group, our acquisition pipeline remains strong, trading in the current year is in line with the board’s expectations and we look forward to the future with confidence. Nigel Payne Chairman Nigel Payne Chairman 12 September 2022 22 23 Gateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Chief Executive Officer’s review Rod Waldie Chief Executive Officer 24 Introduction I am delighted by the Group’s performance in FY22; another year in which global events created significant uncertainty, but nonetheless another year in which the Group produced an excellent result. We closed the Period ahead of market expectations whilst continuing our investment strategy, further strengthening our offering to clients and also our balance sheet. We continue to operate and invest in a differentiated, resilient and growing business, which has been deliberately designed to perform, regardless of the economic environment, and FY22’s results continue Gateley’s unbroken record of year- on-year revenue and profit growth. Since IPO in 2015, we have acquired ten complementary businesses which have broadened and diversified our offering and as planned, enhanced our financial strength. We focus our Group on four strategic markets (our “Platforms”): Business Services, Corporate, People and Property, each of which now comprise a complementary mixture of legal and consulting businesses. Approximately 20% of annualised Group revenues are now consulting revenues, with significant additional diversification opportunities. Our balance sheet was further strengthened during the Period with year-end net assets and net cash of £72.9m (FY21: £59.3m) and £10.4m (FY21: £19.6m) respectively. As a result, we remain well-placed to weather any further storms, but also to continue our acquisition strategy. The ongoing enhancement and strengthening of our business is why, in the seven years since floatation, we have been able to deliver compound annual revenue growth of 12.3%, compound profit before tax growth of 9.0% and, including the proposed final dividend proposed today, income to shareholders of 43.24 pence per share in aggregate. Results overview FY22 Group revenues grew by 13.0% to £137.2m (FY21: £121.4m). Agile working, a necessity during the pandemic, is now a key element of our operating model, enabling us to continue to deliver cost efficiencies. As pandemic restrictions were lifted, we were able to finalise the integration of the acquisitions that completed shortly before the pandemic impacted. Although our acquisition strategy is focused on driving additional revenue, cost efficiencies are a welcome by-product. The results yielded an increase of 10.4% in profit before tax to £18.0m (FY21: £16.3m). Underlying adjusted profit before tax increased by 9.8% to £22.5m (FY21: £20.5m) and profit after tax by 8.3% to £14.3m (FY21: £13.2m). Our strong revenue performance is undoubtedly a result of the depth and breadth of our professional services offering. Following on from the very strong second half performance in FY21, activity levels remained strong across the Corporate Platform, which grew by 12.7%, buoyed by the continuing strength of the UK M&A and Private Equity markets. The Property Platform grew by 15.7%, enhanced by greater market share and a widening range of mandates in our increasingly diverse property consultancy businesses, which generated 21.0% of Property Platform revenue. 25 Chief Executive Officer’s review continued The People Platform saw a return to significant growth across both its legal and consultancy service lines, in which combined revenue grew by 20.8%. The Business Services Platform grew by 14.6% as we expanded our market share in existing workstreams and through the addition of Adamson Jones IP Limited, Patent and Trademark Attorneys. People and culture FY22 saw a return to more familiar recruitment levels as headcount increased by 287 during the Period. This includes 145 new colleagues who joined the Group as a result of the three acquisitions completed in the Period, Tozer Gallagher in July 2021, Adamson Jones in January 2022 and Smithers Purslow in April 2022. After a pause in recruitment in the initial stages of the COVID-19 pandemic, the market has hardened with many factors now influencing peoples’ career decisions. The Gateley offering remains differentiated and attractive with a growing range of businesses across the Group. As the Group continues to expand, we are able to offer a broad range of career opportunities across our Platforms, which are underpinned by a unique identity and strong team culture. We owe the success of our business to the quality and dedication of our teams. FY22 saw significant ongoing disruption caused by the pandemic, but our teams, supported by our earlier investments in technology and our “one-team” culture, met demand to deliver excellent client service and excellent results for the Group. The Period also saw the beginnings of wage cost inflation across the UK legal industry, as strong client demand continued across the sector. Although this first impacted international firms in the City and whilst the highest, headline-grabbing salaries remain in that part of the market, gradually the trend spread across all UK legal markets. The result has and continues to be those legal businesses struggling to grow and/or who’s financial and remuneration models are not sufficiently strong or flexible have lost people where they cannot meet salary expectations. We believe that economic headwinds are likely to temper future rates of wage cost increase and in any event within Gateley our differentiated model and our ability to offer share ownership to all of our people continues to stand us in good stead. Our continuing programme of service line diversification not only drives additional sales but also creates skill set/talent pool diversification, adding operational and financial resilience for the Group and diluting the impact of trends affecting specific professional disciplines. Wage cost inflation seen in the legal sector in FY22 was less visible within our consultancy businesses and with approximately 23% of our professional staff qualified in disciplines other than law that too provided a degree of resilience and sheltering for the Group. After external consultation, the Group has introduced a new Restricted Share Award Plan (“RSA”) and also awarded a second vintage of awards under the existing Long Term Incentive Plan (“LTIP”). The RSA forms part of the Group’s retention and incentivisation policy for emerging senior talent. It supports long- term share ownership for people who are promoted to Partner or Partner-equivalent roles. It is a continuation of the board’s strategy to differentiate the position of a Partner or equivalent at Gateley from that of a Partner in traditionally structured professional services businesses. Responsible businesses Our Responsible Business commitment is a key strategic priority, which runs through the core of our organisation. Our first Responsible Business report, published in September 2021, outlined the objectives we committed to working towards during FY22 and beyond. These objectives flowed out of our work with The Purpose Coalition, the independent ESG consultancy who helped us develop our own set of levelling up goals. Other members of the Purpose Coalition include Amazon, bp, Compass Group, the BBC, Direct Line Group, Cisco and the NHS. In FY22 our objectives fell under three categories: People, Potential and Planet. I am delighted with the progress we made in the Period, with just a few of the highlights including: People • Maintaining our Glassdoor ranking, recognised as the only UK legal business to rank in the top 25 companies for senior leadership • • • Maintaining our Investors in People standard Securing our Disability Confident employer status Launching our fifth internal diversity and inclusion network group; Ability, which raises awareness around neurodiversity and supporting colleagues with any disabilities Potential • Continued support of Birmingham City University STEAMHouse, exploring other opportunities to add value to their start-ups • • • Announcing our partnership with UA92 in Manchester, which aims to make higher education accessible to all, through its founding principles of accessibility, social mobility and inclusivity Becoming the UK’s first Patron of ‘Make Good Grow’, a social enterprise founded on the principles of uniting good businesses with good causes Continuing our SportsAid partnership; providing financial and personal development support to ten of our country’s brightest young sporting prospects Business Overview Strategic Report Corporate Governance Our Financials Planet • Maintaining reductions in travel through the continued use of virtual meetings where appropriate • • Continued adherence to Group-wide “paper light” strategy Encouraging our people to submit their sustainability pledges and the positive actions we will take to protect our planet Operational review By the start of the Period our teams had already demonstrated their ability to deliver via a more flexible, agile model. They had also, like so many other sectors of UK and international markets, confirmed their wish to maintain that flexibility even after the pandemic has passed. Those factors combined to create a management focus for driving ongoing efficiency. Under the “Gateley Agile” initiative we made a number of changes to premises, including the move to a smaller footprint in Reading, vacating our Leicester office as part of conflation of a number of services into one East Midlands offering located in our existing Nottingham office, and combining Gateley Tweed, Gateley Capitus and Gateley Legal into one Belfast office. As pandemic restrictions were gradually lifted throughout the course of the Period, we were able to increase our efforts towards fully integrating recently acquired businesses. Whilst we had of course done the best we could to continue integration programmes during the pandemic, our efforts in the early part of the Period were limited broadly to matters capable of being dealt with virtually. That created certain limitations, not just in physical terms where opportunities which existed to merge offices and reduce duplicated costs could not be implemented until the latter half of the Period, but also in people and cultural integration terms. By the end of the Period, we were back on track with our integration programme. Throughout the Period, we continued to invest across the Group in growing and strengthening our teams. Overall headcount in the Group increased by 26.5% to 1,368 (FY21: 1,081). Legal services professional headcount growth was 9.0% to 729 employees (FY21: 669). The growth of our consultancy businesses’ contribution in the Period was matched by continued investment and diversification into consultancy operations, with overall consultancy headcount increasing by 169.4% to 291 (FY21: 108) and fee-earner consultancy staff up by 123.5% to 219 (FY21: 98). In H2 FY22, work commenced on the Phase 1 implementation of our new core IT “practice management” system. We identified over three years ago that our core systems needed replacing with new technology. That new technology was needed to provide improved management information within one financial system, to better support acquisitive growth and seamless integration in a more stable and robust IT system which can grow with us; and to create new processes to enable us to work as efficiently as possible for our clients. Phase 1 implementation, which resulted in over 80% of staff adopting the new system on 22 June 2022, is progressing well. We inevitably encountered some system interruptions in the days post-launch but these were all well-within anticipated tolerances and, as such, represented no significant overall business interruption or disruption. The balance of all staff are expected to come onto the new system in one final phase during FY23. Our Acquisition Strategy After deliberately pausing acquisition activity at the start of the pandemic, we considered that the Group had stabilised sufficiently by the beginning of FY22 for us to recommence it. We completed three acquisitions during the Period, two onto our Property Platform and our first onto our Business Services Platform. During the Period we committed to a three-year revolving credit facility of up to £30.0m to assist with acquisitions. To date, we have only used this for the acquisition of Gateley Smithers Purslow and only drawn down £6.0m. In July 2021 we acquired Tozer Gallagher, a leading practice of chartered quantity surveyors and construction consultants based in Manchester and London. The business specialises in built environment consultancy, fund monitoring services and surety advisory, and dovetails with the operations of Gateley Vinden, which was acquired in March 2020. The surety advisory expertise within Tozer Gallagher adds further strength to Gateley Vinden’s business but also complements the specialist surety work undertaken by Gateley Legal’s surety practice team. The internationally recognised experts within Gateley Legal’s surety team have a proven track record in advising on contentious and non-contentious issues relating to any surety. Since acquisition and despite the pandemic to some extent frustrating immediate integration efforts, Tozer Gallagher has traded strongly. In January 2022 we completed the acquisition of Patent and Trademark Attorneys, Adamson Jones; the first acquisition onto our Business Services Platform. The business has a broad range of technical expertise including biotechnology, engineering, pharmaceuticals and software and acts for clients from large multinational and national organisations, to universities and SMEs. The Adamson Jones team has 25 staff in offices in Nottingham and Leicester. The acquisition sets a solid foundation for the development, on the Business Services Platform, of complementary businesses with an IP and brands focus, working alongside the existing team within Gateley Legal, and enabling the Group to widen its scope in an area where it already has a well-established and continually growing client base. The business has traded well since acquisition and Adamson Jones staff have relocated into existing Gateley offices in the Midlands. 26 27 Gateley (Holdings) PlcAnnual report and financial statementsCurrent trading and outlook The solid foundations on which our business is built have enabled the Group to deliver strong results in a period which was impacted widely by macro events. One of the key objectives of our IPO in 2015 was to move the business into a structure that would enable it to build a strong balance sheet and deliver the future investment needed to drive the business forward. We are delivering on this objective and will continue in this vein. The business is continuing to demonstrate its resilience in the current financial year, with Q1 FY23 utilisation across the Group and against our historic averages supporting the board’s positive outlook, and with current trading in-line with the board’s expectations. Our financial position is such that we will continue with our acquisitions programme. The pipeline is strong and opportunities are under consideration on each of our four Platforms. We have confidence in our ability to perform well, even accepting current indicators for the wider economic environment, and continue to view the Group’s prospects for year ahead and beyond positively. Rod Waldie Chief Executive Officer 12 September 2022 Chief Executive Officer’s review continued In April 2022 we completed the acquisition of Smithers Purslow, our largest acquisition to date and our seventh onto our Property Platform, currently our largest and most mature Platform. Smithers Purslow is a rapidly growing multi-disciplinary chartered surveying practice, comprising building and quantity surveyors and civil and structural engineers. Specialising in services to the property insurance claims market, it resolves high value claims for insurers, policy holders and their advisers. The business operates from ten regional offices across the UK and employs 130 staff. Its blue-chip client base includes insurance and utility companies, property managers and high net worth individuals. It complements existing expertise at Gateley Vinden and Tozer Gallagher, further enhancing the Group’s already strong and growing Property Platform. Our Platform Strategy Prudent management and a strong balance sheet enable us to drive incremental value through acquisitions. As new businesses are added and integrated onto each Platform, we now see the model working exactly as we would expect, driving more revenue from existing clients, creating routes into new clients for other parts of the business to cross sell services and continually diversifying and strengthening revenue streams. Gateley Hamer, our property consultancy specialising in Compulsory Purchase Orders, easements and wayleaves, infrastructure projects, land referencing and public inquiries produced another strong performance. The business again posted strong organic top line growth of 41.5% but also added another core service line in the shape of telecoms infrastructure. Pleasingly, positive momentum and a return to growth flowed through into our People Platform consultancies, Kiddy & Partners and t-three, during the Period. This was in part due to increased demand for services, as client HR Directors and Heads of Talent saw development budgets, frozen during the pandemic, released once again to them. However, also of significant benefit was the successful integration of those two businesses into one assessment, development and cultural change-facing offering. Our integrated proposition and service offering went live in January and excellent client feedback and securing significant new mandates. Overall, our acquired consultancies performed strongly during the Period, contributing 15.5% to total Group revenues and supporting revenue growth in each of our four Platforms. 28 28 Business Overview Strategic Report Corporate Governance Our Financials We continue to operate and invest in a differentiated, resilient and growing business, which has been deliberately designed to perform, regardless of the economic environment, and FY22’s results continue Gateley’s unbroken record of year-on-year revenue and profit growth.” Rod Waldie, Chief Executive Officer 29 29 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Chief Executive Officer’s Q&A Chief Executive Officer, Rod Waldie, talks here about how the year has gone and priorities for the future. How are you finding activity within the business and in the market as we emerge from the pandemic? The pandemic highlighted the collective strength and adaptability of our people. That was no surprise to me given the long-established one team culture in Gateley. Although there have been many changes, our commitment to excellence in service delivery remains absolute across our Platforms, all of which have been, and remain, busy. Our strong activity levels are reflective of high demand from clients in our chosen markets throughout the year. That demand has driven impressive growth in both our legal and consultancy service revenues, which underpins our ability to report yet another year of profit and dividend growth. However, as business leaders begin to view economic uncertainty as a constraint, we are closely monitoring our clients’ activities and their needs so as to align our increasingly diverse range of professional services to where opportunities lie now and in the future. This is an inherent characteristic in our deliberately designed resilient business model which, for many years, has successfully rotated to deliver strong results in all economic conditions. We will continue to evolve this model and our enthusiasm for innovation whilst maintaining an unwavering focus on cost management. How has the Gateley Agile strategy been adopted by your people and clients and how is it working in practice? The pandemic certainly tested professional services businesses. The forced implementation of remote working was the first operational impact of scale. Agile working will be the long-lasting legacy. Our Gateley Agile strategy continues to evolve. We absolutely recognise that flexibility has become one of the most desired attributes of any business considered to be a great place to work and therefore a key component of a strong workplace culture, which we have always been absolutely committed to. Everything that we do at Gateley is underpinned by “the Gateley Team Spirit”. Two of its pillars are: • “ Working together” – our people want to be part of a team and we work inclusively and collaboratively with each other and our clients ; and • “ Trusted to do” – when we say that we will do something, we do it, maintaining a clear focus on the doing. In return, we are trusted to get on with things. Our success in embracing the flexibility in our Gateley Agile strategy boils down to trust; with leaders trusting team members to work together to meet expectations and goals and team members feeling assured that they are worthy of that trust. Gateley Agile is working well and, in many respects, is a mirror of what many of our clients are doing in their organisations. Resultant operational and premises cost savings are a bonus for them and for us in offsetting some of the inflationary pressure that we are all seeing. Gateley Agile will continue to evolve and we will continue to find creative ways to ensure engagement, collaboration and performance feedback and review. How are your most recent acquisitions bedding in and how is the Platform strategy progressing? It has been great to report three acquisitions during the Period. The sixth and seventh consultancy business additions to our Property Platform and the first onto our Business Services Platform. • • • Tozer Gallagher (quantity surveyors and construction consultants) specialise in built environment consultancy, fund monitoring services and surety advisory. These services dovetail with those provided by Gateley Vinden and by Gateley Legal in the context of surety expertise. Since acquisition in July 2021, the Tozer Gallagher team has relocated to our existing offices in London and Manchester and has traded strongly. Smithers Purslow (a multi-disciplinary chartered surveying practice) specialise in services to the property insurance claims market, resolving high value claims for insurers and policy holders. This is our largest acquisition to date. The 128 professional staff in Smithers Purslow complement existing expertise in Gateley Vinden and Tozer Gallagher and significantly enhance our strong and growing Property Platform. The Smithers Purslow team have settled in very well since acquisition in April 2022 and are trading strongly in a very active sector. Adamson Jones (patent and trademark attorneys) represent the first consultancy services acquisition onto our Business Services Platform. The team have a broad range of technical expertise and act for national and multi-national organisations. Most of the 25 Adamson Jones staff are now based in our existing Nottingham office. The business has traded well since acquisition in January 2022. We are focused upon adding similar businesses to this Platform to maximise opportunities for us to help our clients protect and monetise their ideas, inventions and brands. Our Platform strategy is progressing well. The Platforms remain our growth vectors and our key differentiator. All businesses are well integrated and working as we would expect in driving more (and more diverse) revenue from existing clients whilst creating opportunities with new clients. We have an encouraging pipeline of acquisition opportunities and a committed funding line to add yet more resilience to our business model. How has your first responsible business report been received and what are your plans to build on your ESG strategy? We launched our maiden responsible business report last September and alongside that held an internal launch to our business supported by keynote speakers from The Purpose Coalition, the independent ESG consultancy who helped us develop our own set of levelling up goals last year, and the Better Business Act of which we are a signatory. The virtual webinar was very well received by our colleagues right across the Group with around 870 of them joining us on the day. This was an important milestone in communicating the meaningful strategies we have put in place to meet our environmental, social and governance obligations. We’ve had lots of positive internal and external feedback during the year on our commitment and approach to being a responsible business but I don’t view this as a job that will eventually be completed. It will evolve over time so it’s important that we keep progressing in this area. With that in mind, in March this year, we appointed our first responsible business manager who is focused on helping us deliver the objectives we have already outlined as well as planning for the future. In addition, we want to ensure that we can measure the value and impact we are having so we can clearly evaluate where we are effecting change and what more we need to do to progress and improve. Our responsible business objectives in FY22 were set against three categories of People, Potential and Planet. You can find a summary of what has been delivered so far in the Responsible Gateley section of this annual report but more detail about how we met our objectives will be outlined in our next Responsible Business report, published in the Autumn. This will also include an overview on what the next steps in our ESG journey will be. You can expect those to be actions that focus on the wellbeing of our employees, being a force for good in society and within the communities where we do business and by playing our part in protecting and repairing our planet. 30 31 Gateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Finance Director’s review “ Results for FY22 reflect another strong year for the Group. They include significant organic growth and a return to our acquisitions plan with the addition of some excellent new complementary service lines that further enhance Group revenue diversification. We have maintained control of costs despite both market specific and macro- economic conditions suggesting further headwinds are to come, and we have produced a strengthened balance sheet with significant facility headroom to further expand the Group both organically and through acquisition.” Financial overview In FY22 the Group demonstrated strong growth in revenue and adjusted profit before tax ahead of consensus market expectations set at the start of the year, with revenue up 13.0% to £137.2m including organic revenue growth from legal service lines of 8.7% alongside exceptional organic growth of 26.7% from consultancy service lines. The measures taken by the Group to embrace changes in working practices driven by the pandemic resulted in another year of lower costs as a percentage of revenue. We continue to explore further cost reduction initiatives, such as our ongoing premises strategy, as part of our “Gateley Agile” initiative, designed to help mitigate the widely reported upward increase on staff costs in the sector, and broader inflationary pressures. We completed three acquisitions during the Period, which are integrating well. We have established a new revolving credit facility which was part used for our largest acquisition since listing, Gateley Smithers Purslow, and we remain well-placed with a strong balance sheet. FY22 continues our long track record of delivering profitable annual results and attractive investment returns, which once again enable strong dividend growth through the proposed final dividend of 5.5p, taking total dividends to 8.5p in respect of the Period. Revenue Group total revenue grew by 13.0% (FY21: 10.5%) to £137.2m (FY21: £121.4m). Revenue from core legal service lines grew organically by 8.7% (FY21: 5.5%). In addition, total revenue from complementary consultancy businesses grew by 44.9% to £21.3m or 15.5% of total revenues (FY21: £14.7m or 11.5%), highlighting the on-going success of our Platforms diversification strategy. Neil Smith Finance Director Platform performance At the start of FY22 the Group presented segmental reporting on our Group Platform structure. As the Group has continued its headcount investment across each Platform, margin performance has fluctuated dependent upon the stage of Platform investment. We have increased staff numbers within our Business Services and Property Platforms during FY22 to meet expected increases in demand in FY23. These investments have predominately driven decreases in their FY22 margins. However, despite our strategy of continual investment and the unique wage cost inflation seen in the legal sector, the Group has lowered its percentage of personnel costs to revenue in FY22 to 63.0% (FY21: 63.9%) and will continue to sensibly manage this key metric as market conditions evolve. Retention of staff remains key to the success of the Group which we believe is well served by our unique culture, business structure and the vast number of career opportunities in a growing, resilient Group which continues to deliver quality advice to a quality client base. The table below represents this performance over the last two reported years along with each Platform’s direct contribution towards our one profit view of the Group’s performance. FY22 Revenue Segmental contribution Contribution margin FY21 Revenue Segmental contributions Contribution margin Revenue movement Contribution margin change Business Services £m 18.0 5.7 31.7% 15.7 6.4 40.8% 14.6% (9.1%) Corporate £m 38.1 15.4 40.4% 33.8 11.4 33.7% 12.7% 6.7% People £m 19.2 6.9 35.9% 15.9 4.9 30.8% 20.8% 5.1% Property £m 61.3 23.0 37.5% 53.0 24.4 46.0% 15.7% (8.5%) Total £m 136.6 51.0 37.3% 118.4 47.1 39.8% 15.4% (2.5%) Business Services Platform Our Business Services Platform revenues grew by 14.6%. Our Business Services Platform offers a broad balance of services across many clients and industries as well as continuing to support our transactional work streams. Its mix of services in both complex litigation and in more transactional- led commercial services are now being widened further through the acquisition of Patent and Trademark attorneys, Adamson Jones. The addition of these IP and brands focused services, working alongside the existing team within Gateley Legal, will enable the Group to widen its scope in an area where it already has a well-established and continually growing client-base. This Platform was held back during the year on commercial and international-led litigation assignments of a contingent nature that have not achieved the fee levels we had hoped for due to Russia’s invasion of Ukraine, where in both jurisdictions we held litigation mandates. We have maintained these international teams but shifted our geographical focus to new jurisdictions which have already generated an attractive pipeline of complex international litigation assignments. Corporate Platform Our Corporate Platform produced another strong performance generating revenue growth of 12.7% and a significantly stronger contribution margin. Our continued strength of relationships with Private Equity and M&A clients continues to serve the Group well as activity in this area remains strong in FY23. Our banking team within this Platform also posted another strong year of growth alongside our growing tax team. Recruitment to service demand across the Platform remains a challenge, however staff numbers have increased and we take a highly skilled team into FY23 with confidence. Whilst corporate transactional activity within our client base shows no signs of relenting, traditional restructuring and recovery activities remained subdued during the Period, with upticks in activity shown post year-end as wider economic conditions impose challenges for UK businesses. People Platform This Platform grew by 20.8% due to the significant return of demand for services across our consultancy businesses, t-three and Kiddy & Partners (“Kiddy”), after the pandemic and also after the launch of their integrated service delivery model to corporate clients. Their focus on talent assessment and development and cultural change has proven to represent a strong sales proposition to a client-base inevitably needing to adjust and change as a result of the pandemic. Our national private client team performed well alongside our more traditional, but established, employment legal and pension trustee led services. Contribution margins increased as a result of a return to greater activity using these established existing teams at a higher level of activity during FY22. 32 33 Finance Director’s review continued Business Overview Strategic Report Corporate Governance Our Financials Property Platform Our Property Platform reporting segment grew revenue strongly by 15.7% as we took advantage of opportunities generated by our most mature Platform. It operates at regional and national levels in the UK’s commercial property, development and housing markets, which rely upon long-term specialist multi-disciplinary legal and consulting support. There was growth across both contentious and non-contentious service lines in areas such as construction disputes, plus we also saw strong growth in our specialist Gateley Hamer consultancy business which increased revenue by 42% during the year. We have recruited to meet FY23 demand in both existing and new service lines within Gateley Hamer, which is primarily why direct contribution has declined. Tozer Gallagher and Smithers Purslow have both enjoyed a strong first part year within the Group. Post year-end Tozer Gallagher has exceeded revenue expectations which will lead to achievement of its earn-out and a further £0.1m of consideration being payable. Underlying operating profit before tax The Group has recorded strong underlying operating profit before tax of £22.5m which has increased by 9.8% from £20.5m in FY21. Our strategy to maintain fee earner headcount in order to service increased client activity has been supported by our recruitment activity this year. Continuing robust demand in the UK’s legal services industry has led to continued pressure in the legal recruitment market and as previously highlighted our underlying trading margins have decreased slightly to 16.4% (FY21: 16.9%). We are not yet seeing this pressure relent as we move into FY23 and we have undertaken another comprehensive salary review in a continually changing professional services industry in order to remain competitive in the legal recruitment market. We have always operated an all-staff bonus scheme which typically amounts to c10% of our annual salary costs. We see such a scheme, where performance is directly linked to the Group’s performance, as a key management strategy whereby staff are incentivised accordingly to drive Group performance but management is also able to retain a significant element of discretion in matching remuneration with Group “one profit” performance. We have not changed our strategy on this incentivisation tool which sits alongside extremely attractive staff share plans and ensures the whole business is culturally aligned. Underlying operating profit before tax excludes amortisation of acquired intangibles, all share-based charges and exceptional acquisition related items. Underlying operating profit before tax has been calculated as an alternative performance measure in order to provide a more meaningful measure and year-on-year comparison of the profitability of the underlying business. Extract of UK statement of comprehensive income Revenue Operating profit Operating profit margin (%) 2022 £’000 137,249 18,987 13.83% 2021 £’000 121,375 17,505 14.42% Personnel costs and operating expenses Our total personnel costs increased by 11.7% (FY21: 21.9%) to £86.5m due to the full-year cost of staff introduced to the business through acquisitions made during the year together with a return to recruitment in order to expand capacity to meet client demands. In total, seven (FY21: six) new legal Partners joined the business and we made eight (FY21: nine) internal promotions to legal Partner. Average numbers of legal and professional staff rose by 3.9% (FY21: 9.1%) to 800 (FY21: 770), whilst support staff numbers increase marginally to 350 (FY21: 343). Personnel costs as a percentage of fees decreased to 63.0% of revenue from 63.8% in FY21, excluding share-based payment charges. Operating expenses have increased in line with top line growth of the Group, including in specific areas such as travel, marketing and premises related spending following a partial return to office working, and due to the effects of current UK-wide inflation impacting running costs. Whilst other operating expenses increased by £2.6m or 12.4% to £23.6m (FY21: £21.0m) overheads remain well-managed as a percentage of revenue, as demonstrated by their decrease as a percentage of revenue from 17.3% in FY21 to 17.2% in FY22. Earnings Per Share (EPS) Basic EPS increased by 7.3% to 12.00p (FY21: 8.1% to 11.18p). Basic EPS before non-underlying and exceptional items increased by 10.6% to 14.66p (FY21: 4.5% to 13.26p). Diluted EPS increased by 5.5% to 11.71p (FY21: 9.5% to 11.10p). Diluted EPS before non-underlying and exceptional items increased by 8.7% to 14.31p (FY21: 5.8% to 13.17p). Share option schemes The board remains committed to providing its people with the opportunity to own shares in the Company, as further evidenced by the introduction of the new RSA during the year. Such share ownership promotes strong alignment with the Group’s external shareholders, incentivises employees and is reflective of Gateley’s long-established culture. At least 75% of current staff are existing share or option holders in the Group. The awards, which vest on receipt, are made when an individual is promoted to Partner or an equivalent position. Awards are subject to a five-year non-dealing restriction and are forfeited should employment be terminated within that period. 1,267,560 shares were awarded on 27 April 2022 as part of one-off awards to people who were non-equity Partners at the date of Gateley’s IPO in June 2015, with a further 100,000 shares being awarded shortly after the FY22 financial year-end to newly promoted Partner or Partner-equivalents since then. The board also announced at the end of FY22, a second vintage of LTIP awards to certain Executive Directors and Senior Management over up to 1,115,000 Ordinary Shares of 10 pence each in the Company (“Ordinary Shares”). Awards under the LTIP vest at the end of a three- year period, dependent upon the achievement of profit related performance conditions and continuous employment. Profits used to calculate underlying EPS each year are disclosed below: Reconciliation to alternative performance measure: underlying operating profit before tax Operating profit 18,987 17,505 Reported profit after tax Non-underlying items Amortisation of intangible assets Share based payment charge – Gateley Plc Share based payment charge – Gateley Smithers Purslow Limited Release of contingent consideration – International Investment Services Limited Exceptional items Acquisitions costs One off remuneration charge – Gateley Smithers Purslow Limited Underlying operating profit before tax Adjusted underlying operating profit margin (%) 1,581 1,100 113 (135) 373 497 22,516 16.41% 2,073 956 - - - - 20,534 16.92% Adjustments for non-underlying and exceptional items: - Anticipated impact of IFRS 16 if it had been adopted in earlier years - Amortisation of intangible assets - Share-based payment adjustments - Release of contingent consideration – International Investment Services Limited - Impairment of software development costs - Acquisition-related costs Underlying profit after tax 2022 £’000 14,279 - 1,581 1,213 (135) - 870 17,808 2021 £’000 13,157 - 2,073 956 - - - 16,186 2020 £’000 11,723 - 1,375 1,355 - 463 107 15,023 2019 £’000 13,041 (313) 1,406 655 - - 61 14,850 Weighted average number of ordinary shares for calculating diluted earnings per share 121,893,238 118,508,833 115,599,727 112,280,569 Underlying adjusted fully diluted EPS 14.61p 13.66p 13.00p 13.23p 34 35 Gateley (Holdings) PlcAnnual report and financial statementsFinance Director’s review continued Taxation The Group’s tax charge for the Period was £3.8m (FY21: £3.2m) which comprised a corporation tax charge of £4.0m (FY21: £3.7m) and a deferred tax credit of £0.2m (FY21: credit of £0.5m). The deferred tax charge arises due to a combination of credits in respect of the share schemes that have vested in past years and the release of deferred tax on brands. The total effective rate of tax is 20.8% (FY21: 19.3%) based on reported profits before tax. The increase is as a result of the decrease in the tax allowable benefit arising from the exercise of nil cost share options from levels experienced in previous years. The net deferred taxation liability increased to £2.5m (FY21: £0.6m) as a result of the deferred tax charge arising from business combinations during the year. Dividend The Group paid an interim dividend of 3.0p per share on 31 March 2022 and proposes a final dividend at the Company’s Annual General Meeting on 20 October 2022 of 5.5p (FY21: 5.0p) per share, which if approved, will be paid in late-October 2022 to shareholders on the register at the close of business on 23 September 2022. The shares will go ex-dividend on 22 September 2022. Our dividend policy remains to distribute up to 70% of our after-tax profits each year. Balance sheet The Group’s net asset position has increased by £13.6m (FY21: £14.5m) to £72.9m (FY21: £59.3m), due to the following movements: There was a £13.4m increase in total current assets, resulting from £13.1m additional trade and other receivables through acquired businesses and the strong organic growth of the Group. Contract assets (“unbilled revenue”) increased by £3.3m and cash at bank decreased by £3.5m as excess cash was redeployed into acquisitions and to support working capital required for continued growth. Non-current assets increased by £14.5m, resulting from a decrease of £2.4m from a change in property use and right of use asset values and an increase of £16.8m in intangible assets and goodwill following the three acquisitions made during the year. The board has carefully considered the impact of COVID-19 on the future forecasts used in assessing the value in use of the cash generating units to which the goodwill and intangibles relate and determined that despite short term reductions such forecasts are more than sufficient to justify the carrying value of goodwill. Therefore, as at 30 April 2022, the board concluded that the goodwill and intangible assets do not require impairment. Total liabilities increased by £14.3m, due mainly to the drawdown of the RCF and creation of £5.7m of debt in connection with the acquisitions of Gateley Smithers Purslow together with the recognition of £5.4m of deferred consideration and £2.1m of deferred taxation on acquired intangibles, also in connection with the same acquisition. Working capital and cash flow During the year the Group agreed a new revolving credit facility with Bank of Scotland and HSBC UK. The facility provides total committed funding of £30m until April 2025, split equally between Bank of Scotland and HSBC UK. It replaces the Group’s existing £8m overdraft facilities with Bank of Scotland and HSBC UK, with the dual bank club providing increased flexibility to the Group to support future growth and expansion via acquisition. Interest is payable on the loan at a margin of 1.95% above the SONIA reference rate. The Group also has in place a litigation funding facility for an initial £20m of funding towards significant litigation cases, which has the ability to increase to £50m if required. To date the Group has not yet utilised this facility but has a number of large assignments currently being assessed for consideration in FY23. Cash generation was once again good with net cash inflows from operating activities of £12.3m(FY21: 25.4m) representing 86.5%(FY21: 193.2%) of profit after tax. The Group ended the year with net cash of £10.4m (FY21: 19.6m) the result of continued strong trading and also management’s sustained focus on cost efficiencies and costs management. Free cashflow during the year from operations (post cashflow from IFRS 16 leases) was £7.4m (FY21: £20.8m) which represents 51.7% (FY21: 158.2%) of profit after taxation. After conserving excess cash in FY21 as a result of decisions taken at the outset of the pandemic, FY22 has experienced the adverse effects caused by the timing of increases in cash movements from trade receivables as the business returned to growth and normal levels of trading related outgoings. 36 Business Overview Strategic Report Corporate Governance Our Financials Net cash generated from operations Tax paid Net interest (paid)/received Cash outflow from IFRS 16 leases (rental payments excluded from operating cash flows under IFRS 16) Purchase of property, plant and equipment Purchase of other intangible assets Free cash flow Underlying profit after tax Free cash flow 2022 £’000 16,846 (4,497) (7) (3,870) (775) (319) 7,246 14,279 51.7% 2021 £’000 29,457 (4,039) (240) (3,847) (503) (10) 20,818 13,157 158.2% At the year-end unbilled revenue recognised in the Group’s statutory accounts, from time recorded on non-contingent work, totalled £17.2m or 12.5% of revenue recognised over the year (FY21: £13.9m or 11.5%). Unbilled revenue represented 49 days in line with last year, of Pro- forma net revenue. Group debtor days have increased to 113 days compared to 104 days in FY21 of Pro-forma net revenue. Pro-forma net revenue includes revenue from acquisitions on a full year pro-forma basis. As the Group grows so has our volume of unpaid debts. This year especially the heightened activity levels of year billing and the growth of the Group through acquisition, alongside the position of the easter holidays, have all combined towards the increase in debtor days. We had a higher number of litigation and recovery assignments in particular at the year-end that have since been settled or are close to resolution that will generate settlement of certain outstanding debts. We have also made a good start to collections in FY23, despite the impact of the significant change in financial systems in June 2022. Concert party update Following consultation with The Takeover Panel (“the Panel”), it has been agreed that the concert party will be amended. At the time of the IPO, it was agreed with the Panel that the Directors, Existing Shareholders and the Company’s Employee Benefit Trust (once established), each as defined in Gateley’s admission document published on 1 June 2015, were acting in concert in respect of Gateley. The Company has now agreed with the Panel that the Gateley EBT along with the following individuals and their respective connected persons form the concert party in relation to Gateley pursuant to The Takeover Code: Rod Waldie Michael Ward Neil Smith Peter Davies Callum Nuttall Paul Hayward Brendan McGeever Chief Executive Officer Executive Director Finance Director Chief Operating Officer and member of the Strategic Board Member of the Strategic Board Former member of the Strategic Board Former member of the Strategic Board Summary Results for FY22 reflect another strong year for the Group. They include significant organic growth and a return to our acquisitions plan with the addition of some excellent new complementary service lines that further enhance Group revenue diversification. We have maintained control of costs despite both market specific and macro-economic conditions suggesting further headwinds are to come, and we have produced a strengthened balance sheet with significant facility headroom to further expand the Group both organically and through acquisition. The Group is actively pursuing a strong pipeline of M&A opportunities. Post year-end, we have enhanced our financial systems platform in order to drive greater efficiencies in the future and we continue to look at initiatives to balance off further increased cost pressures from wage and inflationary pressures. Neil Smith Finance Director 12 September 2022 3737 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Principal objectives, strategy and outlook The principal activity of the Group during the year was the provision of commercial legal services together with complementary professional consultancy services. The Group sells its services through 26 business lines, grouped into four operating segments. Dependent on a client’s requirements, any given instruction or assignment can involve more than one business line with fee earning staff being provided across one or more geographical office location. The Group’s services are tailored to those required by local, regional and national clients and are provided from 21 offices across the UK, as well as an office in Dubai. Gateley also maintains informal, non-exclusive, relationships with a number of law firms (30+) around the world, enabling it to provide clients access to a global legal solution. Gateley became an Alternative Business Structure (“ABS”) with effect from 1 January 2014. Non-lawyers are permitted to own and invest in ABS law firms. The Board believes a combination of the ABS structure and admission to trading on AIM provides a platform for the continued profitable growth and future diversified development of the business. It enables the business to differentiate itself from its competition through an enhanced service-offering and unique career opportunity, to diversify its revenue streams through the acquisition of additional complementary legal and professional consultancy service businesses and finally to incentivise its people offering wider and earlier ownership to staff of a more modern, dynamic business. The Group’s current areas of focus are: Enhanced opportunities to grow Gateley organically – including lateral hires of individuals or teams Making selective acquisitions, including (i) other legal firms which offer geographical expansion or additional specialist services and (ii) professional consultancy service businesses offering complementary services Building out the Group’s Platforms which comprise clusters of complementary group services presenting a broader and more compelling offering Alignment through share participation, of the interests of shareholders (including employee shareholders) with those of the business, aiding retention of staff and enhancing Gateley’s recruitment appeal. Organic growth strategy The UK legal services market continues to exhibit growth and clear opportunities exist for Gateley to continue to differentiate its service offering and grow organically, in particular from: Incentivisation Gateley operates a range of employee share schemes that ensure all staff can acquire shares and participate in the financial success of our business. The retention of existing employees, working together to deliver 100% client satisfaction by looking after our clients’ businesses as if they were our own The aim of encouraging earlier and widespread equity ownership in the business is to attract, retain and motivate talent and to ensure all employees can benefit from the Group’s longer-term success. • • • • • • • Attracting new talent wishing to be a part of a pioneering law led professional services group We will continue to provide enhanced cross-selling opportunities through collaborative working via our group wide Platforms Continued strengthening of our national network, offering a quality, value-for-money legal service to mid-market clients at home, in the markets in which they trade Continue to build upon our straight-talking mid-market corporate service offering Maintaining and building upon Gateley’s bank panel representation and “own account” work for banks Extending Gateley’s relationships with the UK’s leading house builders and in particular in those divisions and regions where Gateley does not currently act Acquisitive growth Gateley believes that it can strengthen its business by broadening its service offering through the acquisition of complementary legal and consultancy service businesses. A broader set of services create additional channels to market, increase cross- sales potential, facilitate a more flexible sales model and enhance client retention. To owners of target complementary professional services businesses Gateley offers a platform for their continued growth, drawing upon Gateley’s established national office network and supporting back-office infrastructure and access, via Gateley’s existing “sales force” of partners and other lawyers, to Gateley’s existing client-base. Gateley will expand by: • • • being well positioned, as a result of its more flexible corporate structure, to take advantage of anticipated consolidation within the UK legal services industry acquiring legal teams or firms offering new niche services, sector specialism, or an opportunity to enter new geographic markets deemed strategic acquiring complementary professional services businesses (facilitated by the Group’s alternative business structure) Overview for the year See Finance Director’s report on pages 32 to 37 for a summary of key financial highlights during the year. Management uses a number of financial and Non-GAAP alternative performance measures to assess the performance of the Group which are detailed below. Financial Measures • Revenue up 13.0% (2021: 10.5%) to £137.2m (2021: £121.4m) • • • • Profit before tax up 10.4% (2021: 10.5%) to £18.0m (2021: £16.3m) Profit after tax up 8.3% (2021: 12.2%) to £14.3m (2021: £13.2m) Operating profit margin 13.8% (2021: 14.4%) – Operating profit as a percentage of revenue Basic Earnings per share (EPS) up 7.3% (2021: 8.1%) to 12.00p (2021: 11.18p) • Total dividend declared up 13.3% to 8.5p (2021: 7.5p) Alternative Performance Measures (APMs) • Operating profit before non-underlying charges up 9.8% to £22.5m (2021: £20.5m). Operating profit before non- underlying charges excludes income or expenses that relate to amortisation, share based payment charges and non-underlying and exceptional items, see reconciliation on page 34. This measure is used as it removes the impact of non-cash items charged to the income statement, giving a more representative view of the Group’s performance for the year. • • Operating profit margin before non-underlying and exceptional charges 16.4% (2021: 16.9%) – Operating profit before non- underlying and exceptional charges as a percentage of revenue Revenue per pound of salary cost £1.59 (2021: £1.57): Employees are the driving force behind revenue earned and also the largest operating expense within the Group. Therefore, this measure is vital in monitoring the ratio between the two. 38 39 Business Overview Strategic Report Corporate Governance Our Financials Principal objectives, strategy and outlook continued • • • • Revenue days 113 (2021: 104): This measure expresses year end trade receivables (excluding unbilled disbursements and expenses) as the number of preceding days’ gross revenue. The measure is used to monitor the cash generation and working capital cycles of the business with the view to minimise the average days taken to collect revenue once it is billed. Utilisation 83% (2021: 88%): Utilisation represents an average of the total hours billed as a percentage of total available hours for each employee. The measure is used by Management to ensure efficient people management across the various segments and an early indication of Group activity levels. Gearing ratio 7.8% (2021: 0.0%): This ratio shows the proportion of total debt to total equity within the business. The business monitors this ratio to ensure that the liquidity and funding of the business continues to fall in line with its overall strategy to maintain a low level of gearing. Net cash £10.4m (2021: £19.6m): Net cash is calculated by subtracting the cash balance from the amount of other interest-bearing loans and borrowings. The measure is used to monitor the level cash and debt within the Group and ensure that this remains in line with the adopted business strategy. Earnings per share (EPS) Basic EPS was 12.00p (2021: 11.18p). Diluted EPS was 11.71p (2021: 11.10p). Adjusted, fully diluted EPS was 14.31p (2021: 13.17p). Cash flow generated and net debt position Net cash generated from operating activities was £12.3m (2021: £25.4m). The Group’s net cash position as at 30 April 2022 was £10.4m (2021: £19.6m). Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Finance Directors review, together with the financial position of the Group, its cash flows, liquidity position and borrowings. Financial projections have been prepared to October 2023 which show positive earnings and cash flow generation. The COVID-19 situation during the previous financial year created an unprecedented and constantly changing challenge to all businesses. Management successfully navigated the business through the impact of the pandemic on the Group’s financial performance. The Group typically applies sensitivities (informed by the past experiences of the Group since the onset of the pandemic, including the Group’s time recording activity, fee generation and cash collections) to any current financial projections based on various downside scenarios to illustrate the potential impact from a downturn in client activity or any increases in costs. The Group’s liquidity position has been enhanced during the year as the board has worked closely with its supportive banks in order to switch its funding line from an uncommitted overdraft facility to a three-year revolving credit facility, of which £6m was drawn down at 30 April 2022, with committed funding of £30m until April 2025. As at 30 April 2022 the Group has net cash of £10.4m and continues to sensibly manage cash position within permitted covenants relating to its new facility. This process included a reverse ‘stress test’ used to inform downside testing which identified the break point in the Group’s liquidity. Whilst the sensitivities applied do show an expected downside impact on the Group’s financial performance in future periods, in all scenarios modelled the board have identified the appropriate mitigating actions in order for the Group to maintain a robust balance sheet and liquidity position. In addition, the board have also considered mitigating actions such as lower capital expenditure, reductions in personnel and overhead expenditure and other short-term cash management activities within the Group’s control as part of their assessment of going concern. The Group expects to be able to operate within the Group’s existing financing facilities for the foreseeable future and currently demonstrates significant debt capacity headroom based on its strong financial performance. Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and they have adopted the going concern basis of accounting in preparing the annual Group financial statements. 40 41 Gateley (Holdings) PlcAnnual report and financial statementsPrincipal risks and uncertainties The board monitors both existing and emerging risks. The operational Risk Committee identifies risks facing the business, recording these in the risk register and regularly assesses the status of these risks. Many of the risks faced by the Group are similar to those risks faced by any business but those considered to be key risks for the Group are detailed below. Due to the nature of the business and the markets in which it operates, many of the risks it faces are ongoing, proving relevant to more than one single year. Details of Risk Mitigating Factors Ongoing Economic impact of COVID-19 pandemic and economic downturn The Group has proven that it is well positioned to withstand the effects of the COVID-19 pandemic and any resultant downturn. This is due to the broad-based nature of the Group’s activities; comprising legal and non-legal services delivered to a diverse and well spread client base. The balance between transactional services and litigation services effectively hedges the position of the business. Whilst lockdown restrictions initially impacted clients, the ability of clients and the Group to adapt to the home working environment has reduced the impact over time. The Group has demonstrated that it is prepared to take steps to preserve the liquidity of the business including cancelling dividends, cancelling bonuses, freezing pay and reducing non-essential expenditure. The Company remains confident that other mitigating actions are available alongside alternative sources of funding should further action be needed. In the last financial year, the reduction on efficiency was minimal and staff have adapted exceptionally well to home working. Our Learning and Development and IT teams have been extremely active in ensuring staff are supported in the use of IT and the new ways of working whilst our Business Development team have expanded the use of social media and webinar platforms to reach out to existing and new clients in order to protect against any decline in client activity. Whilst the COVID-19 pandemic has created an unprecedented and constantly changing challenge to all businesses since its onset in the UK around March 2020, Gateley has established over that period that COVID-19 carries a relatively low risk impact due to the nature of the Group’s business model, its work streams and its ability to adapt to homeworking. We believe the risks to the Group posed by the COVID-19 pandemic are as follows: Liquidity risk • Elements of any potential future disruption could impact the Group’s ability to convert unbilled time into fees as client activity is affected by the pandemic which could slow down collection of cash as forecast. • Slow-down in business development activity may reduce future forecast fees and cash flow, however it is likely that this would be mitigated by a slow-down in recruitment activity. Risk of loss of efficiency • Disruption impacting clients causing delays in concluding ongoing work due to change in their working practices Risk of loss of projected capacity • Team members being incapacitated or having to care for other family members • • • • The slow-down in recruitment which is likely to be partially offset by lower attrition Risk in winning and mobilising new projects Some clients and sectors slowing down due to further social distancing and government restrictions Practical challenges in planning and starting projects that have historically used physical presence in areas such as Human Capital consultancy or land and building inspections. Risk in IT & security • A possible breach of IT security through remote working, although significant activity has been undertaken by the business over a number of years to mitigate this risk M Chance: Medium L Impact: Low = Change in risk: No change Business Overview Strategic Report Corporate Governance Our Financials Details of Risk Reputation Mitigating Factors The success of the Group’s business depends on the maintenance of good client relationships and its reputation for providing high-quality professional services. If a client’s expectations are not met, or if the business is involved in litigation or claims relating to its performance in a particular matter, the Group’s reputation could be significantly damaged. The Group constantly endeavours to maintain its reputation as a provider of client focused commercial advice and has adopted internal management processes and training programmes to support this. Its legal services are Lexcel accredited (the SRA’s quality standard). These standards are applied across the non-legal parts of the business where applicable. The Group’s reputation could also be damaged through Gateley’s involvement (as an adviser or as a litigant) in high-profile or unpopular legal proceedings. The Group may incur significant reputational and financial harm if such litigation is successful or if there is negative press coverage. The Group regards its brand names, trademarks, domain names, trade secrets and similar intellectual property as important to its success. Its businesses have been developed with a strong emphasis on branding. Should the brand name of Gateley be damaged in any way or lose market appeal, the Group’s businesses could be adversely impacted. New clients and matters go through an internal acceptance process that includes a comprehensive risk assessment. This includes consideration of potential impact of each engagement on the Group’s integrity and reputation. While the Group will use all reasonable endeavours to protect its intellectual property rights should this be required, it may not be able to prevent any unauthorised use or disclosure of its intellectual property having an adverse effect on operating, marketing and financial performance of the Group. M Chance: Medium H Impact: High = Change in risk: No change Operational & IT risk The Group places significant reliance on its IT systems, any loss of these facilities or provisions would have a serious impact on the Group’s operations. Due to the nature of this risk no assurances can be given that all such risks will be adequately covered by its existing systems. The Group is in the process of transitioning to a new practice management system (“PMS”). With any transition of this nature there is a risk to data retention and integrity as well as business continuity. M Chance: Medium H Impact: High = Change in risk: No change Cyber risk The Group monitors the resilience of its information systems and other facilities on an ongoing basis, working with external partners to support the delivery of its internal and client facing IT provision. The Group has in place a business continuity plan and an IT disaster recovery plan that are reviewed as appropriate. The Group, and external partners assisting in the development and implementation of the new system have undertaken risk assessments and have concluded that adequate safeguards are in place to minimise the risk of loss or disruption to the business. Due to the nature of the Group’s business and its reliance on IT platforms, the Group is at risk of cyber-attack. The risk of cyber- attack continues to increase not just within the legal and other professional services sectors but for all businesses operating via the internet across the world. The risk to the Group relates primarily to the risk of malicious hacking of the Group’s systems with consequent risk to client data or of ransom attacks. H Chance: High H Impact: High = Change in risk: No change The Group and the Risk Committee are aware of the increasing cyber risk. The risk cannot be avoided as IT systems are fundamental to the delivery of the Group’s services. Accordingly, the Group has an ongoing programme based on the adoption and continual improvement of IT security controls and business procedures to mitigate this risk. The Group regularly reviews and tests its security arrangements, for example implementing regular third-party penetration tests, in order to identify and subsequently address possible weaknesses within the current systems. In June 2021 the Group experienced a cyber-attack. Fortunately, the attack was identified quickly, and significant disruption was avoided. A full review of the incident was carried out and enhancements to the Group’s IT security arrangements are being and will continue to be implemented as part of the Group’s ongoing programme to mitigate this risk. 42 43 Gateley (Holdings) PlcAnnual report and financial statementsPrincipal risks and uncertainties continued Details of Risk Mitigating Factors Professional liability and uninsured risks The Group provides professional services, predominantly legal advice. Like all providers of professional services, it is susceptible to potential liability from negligence, breach of client contract and other claims by clients. The professional indemnity insurance held by the Group may not be adequate to indemnify the Group for all liability that may be incurred (or loss which may be suffered). Any liability or legal defence expenses that are not covered by insurance or are in excess of the insurance coverage could have a materially adverse effect on the Group’s business and financial condition. The Group is advised by market leading insurance brokers and the Directors believe that it holds comprehensive professional liability insurance. Any claims are defended strongly by senior members of the business at all stages and external advice is sought where appropriate. The Group works hard to ensure its employees provide excellent advice and services to its clients, underpinned by quality processes and bespoke training programmes. In the opinion of the Directors the Group has a good claims history. L Chance: Low M Impact: Medium = Change in risk: No change Employees Well trained and experienced employees are essential for the delivery of excellent professional services. The market for such employees remains competitive and the loss of or failure to recruit and retain such employees could impact on the Group’s ability to deliver professional services and financial performance. A failure to implement effective succession planning throughout the business could also adversely affect financial performance. The geographical spread of management and the development of new offices and operations could compromise effective communication and responsiveness impacting the Group’s strategic goals. Recruitment is led by senior members of the business with all professional staff being interviewed by partners and senior managers. Remuneration arrangements include a range of benefits and are considered to be highly competitive. Employee contracts include appropriate provisions to protect the business where possible. A comprehensive training programme is in place for all staff providing management, leadership, technical and skills training. The board and the boards of the Group companies are responsible for the implementation of succession plans for each of the businesses and investment continues to be made in the recruitment of appropriate staff where required. L Chance: Medium M Impact: High = Change in risk: No change Use of internal communications systems is continuously reviewed and developed to meet staff needs. The Group has a vision statement which sets out the core values and behaviours expected of staff. Business Overview Strategic Report Corporate Governance Our Financials Details of Risk Regulatory Compliance Mitigating Factors The Directors are in a dialogue with the SRA to minimise such risk and as far as they are able, ensure that this particular regulation is made known to shareholders. Staff are trained and reminded of these duties and file management processes are in place to mitigate this risk, but it cannot be removed in full. The Group, like all businesses, is subject to a range of regulations, for example, AIM Rules and the Solicitors Regulation Authority’s (“SRA”) Code of Conduct for Firms. Failure to comply with these could have significant implications for the business ranging from reputational damage to criminal prosecution and sentencing. The Group operates in a regulated market which imposes additional regulation, including restrictions on holdings of 10% or more under the Legal Services Act 2007. This Act dictates that the acquisition by any non-deemed approved lawyer of a restricted interest (a shareholding of 10% or more) in Gateley Plc, (which is an SRA Licenced Body) without the prior consent of the SRA would be treated as a criminal offence. The SRA also has the power to force the divestment of any shareholding that breaches the rule or revoke the Licenced Body status of Gateley Plc which would have a serious effect on the Group. The SRA also regulates the use and disclosure of client information. The Group is exposed to the risk of employees engaging in misconduct, including the improper use or disclosure of confidential client information. Employee misconduct could result in considerable harm to the Group’s reputation, as well as regulatory sanctions and financial damage. L Chance: Low M Impact: Medium = Change in risk: No change Acquisition risk The Group‘s strategy is for growth, both organically and by acquisition. Acquisitions may not always realise the benefits expected at the time of completion. A failure to successfully integrate acquisitions may impact on Group profitability. The availability of viable acquisition opportunities may decrease. The Group will consider complementary and earnings enhancing acquisitions as part of its overall growth strategy. Acquisitions may not always realise the benefits expected at the time of completion. Integration plans are formulated as part of the acquisition process and executed in anticipation of and following acquisition as appropriate. The board considers that the recent consolidation within the professional services market will continue and that as a result there will be continuing availability of businesses for acquisition. L Chance: Low M Impact: Medium = Change in risk: No change Management have considered the principal risks and uncertainties faced by the Group for the year and not felt the need to add any risks to those disclosed last year. Management have removed the risk associated with the impact of ‘Brexit’ due to the broad-based nature of the Group’s activities; comprising legal and non-legal services delivered to a diverse and well spread client base. 44 45 Pictured: Gateley’s Risk & Compliance team Gateley (Holdings) PlcAnnual report and financial statementsSection 172(1) statement Environmental actions statement Business Overview Strategic Report Corporate Governance Our Financials The Directors consider that they have acted in the way most likely to promote the success of the Group for the benefit of its members. In doing so the Directors have paid regards to key stakeholders and other matters set out in s172(1) of the Act when making decisions in the year, including: • • • • • likely consequences of any decisions in the long term; interests of the Group’s employees; need to foster the Group’s business relationships with clients, suppliers, and others; impact of the Group’s operations on the community and environment; Group’s reputation for high standards of business conduct; and • need to act fairly as between members of the Group. Board decision made in the year Application of s.172 The disclosures set out below are some examples of how the Directors have had regard to the matters set out in Section 172(1) (a) to (f) when discharging their section 172 duties and the effect of that on certain decisions taken by them. More detail on how our board operates can be found in the Corporate Governance Report at www.gateleyplc.com/investors/investor-relations/aim-rule-26/. Illustrations of how section 172 factors have been applied by the Board can be found throughout the Strategic Report. For example, details of how we have considered the impact of the Company’s operations on the environment are set out below. Strategy: Acquisition of businesses during the year Strategy: Dividend Governance: Board effectiveness Finance: Approval of 2022/23 budget The Group has made several acquisitions in the year. During the board’s consideration of each acquisition management presented its due diligence findings. The board considered how each acquisition would fit in with the culture of the business and the long-term value creation strategy of the wider Group. In each case the acquired business demonstrated its alignment with the Gateley ethos and strong potential for growth. The board has declared an interim dividend of 3.0p per share and proposes a final dividend of 5.5p per share. In reaching this decision the board considered all key stakeholders including shareholders, employees and creditors. The board determined closing cash reserves to be sufficient to ensure the continued ability to meet future employee and creditor liabilities based on the results of FY22. The Group evaluates the performance and effectiveness of the board, its Directors and Chair each year to ensure the right balance of skills, experience and knowledge is maintained in order for each to perform their duties effectively and deliver strong continued growth. The Group’s business plan is to drive sustainable growth in the long term, which is in the interest of all stakeholders. The board has paid close consideration to this objective in establishing and approving the FY23 year -end budget. In the current economic climate this has involved close monitoring of the impact of economic headwinds on each sector in which the Group operates, ensuring no over reliance on a single market or client; ensuring the Group is well placed to continue to deliver a high standard of client service through new ways of working; and increasing focus on minimising our environmental impact. 46 The board believes good environmental practices, such as the recycling of paper waste and conservation of energy usage, will support its strategy by enhancing the reputation of the Group. The Group is committed to minimising its impact on the environment. During the year the Group has worked to identify and implement a number of initiatives to help reduce future waste and emissions. As part of these initiatives the Group has begun the process of appointing an Energy Manager to assist the business in the creation of an energy-saving action plan and improve the breadth of the Groups reporting. UK energy consumption and Greenhouse Gas disclosure The Companies Act 2006 (Strategic Report and Directors’ Report) Regulation 2018 requires Gateley (Holdings) Plc to disclose annual UK energy consumption and Greenhouse Gas (GHG) emissions from SECR regulated sources. Energy and GHG emissions have been calculated using previously set guidance from an independent third- party consultancy. The data reported is for Gateley Plc. The parent company consumes less than 40MWh of energy per year and is, therefore, exempt from providing full disclosure in this report. Reported energy and GHG emissions data is compliant with SECR requirements and has been calculated in accordance with the GHG Protocol and SECR guidelines. Energy and GHG emissions are reported from buildings and transport where operational control is held – this includes electricity, natural gas, and business travel in company-owned or grey-fleet vehicles. The table below details the regulated SECR energy and GHG emission sources for the current reporting period 1 May 2021 to 30 April 2022 and shows a comparison against last year 1 May 2020 to 30 April 2021. Gateley (Holdings) Plc is committed to reducing its environmental impact and contribution to climate change and has identified an Energy Manager to review environmental initiatives as appropriate, beginning with the creation of an energy-saving action plan to identify areas of the business where energy can be saved. During the year the Group has implemented changes including the introduction of an extensive paper light initiative contributing to a decrease in printing and paper waste; the provision of further recycling bins in our offices and a change to energy saving LED lights. Energy (thousand kWh) Natural Gas Electricity Transport Total energy (thousand kWh) Emissions (tCO2e) Natural Gas Electricity Transport Total SECR emissions Intensity metrics £m turnover tCO2e per £m of turnover Average headcount tCO2e per employee Square footage (thousand sq.ft) tCO2e per square foot 2022 1,290 2,555 149 3,994 301 596 35 932 137.2 6.8 1,150 0.8 125 7.5 2021 1,131 2,300 122 3,553 263 536 29 828 121.4 6.4 1,113 0.7 125 6.2 Change 14% 11% 22% 12% 14% 11% 22% 13% 13% 6% 3% 14% 0% 22% 47 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Environmental actions statement continued Social matters COVID-19 Pandemic The Group’s ‘normal’ business operations were significantly impacted by the COVID - 19 pandemic with the majority of employees working from home for the majority of the financial year ending 30 April 2021. The Group has recognised the efficiencies and benefits of a hybrid working model, allowing employees to spread their working week between home and the office. Whilst the Group has seen an increase in its energy consumption and emissions as a result of the workforce returning to the office in the year, the implementation of hybrid working has meant that whilst emissions have seen an increase compared to prior year, they have not reached pre COVID amounts. This policy has resulted in a significant decrease in the Group’s actual emissions, however as this does not provide a true comparison of the year-on-year changes, the Group have undertaken an analysis of the 2021 financial year consumption to determine an illustration of the emissions should the Group have continued to operate as normal. The Group intends to continue its approach to hybrid working meaning that future scope 2 emissions are not expected to increase with headcount. The finalisation and application of the energy saving plan is expected to assist the Group in achieving a further reduction in overall scope 2 emissions. Data records and methodology Metered kWh consumption taken from supplier or landlord invoices is reported where possible. Scope 1,2 and 3 consumption and CO2e emission data has been calculated in line with the 2019 UK Government environmental reporting guidance. The following Emission Factor Databases consistent with the 2019 UK Government environmental reporting guidance have been used, utilising the current published kWh gross calorific value (CV) and kgCO2e emissions factors relevant for reporting years ending 30 April 2021 and 30 April: • Database 2020, Version 1.0 Transport emissions have been calculated based on mileage expense claim records, applying the average UK split between petrol and diesel vehicles to estimate relative fuel usage. Mileage per fuel type was converted into equivalent GHGemissions using the most recent emissions factors published by BEIS in 2020, and then divided by the gross Calorific Value to deduce kWh consumption. 48 We believe that running a profitable and growing business, which creates jobs and contributes to the economic success of the areas in which it operates, is a platform for good corporate social responsibility. We have a long-standing commitment to support our staff in engaging with their local communities and charities. This social awareness is present throughout the business, from our employees to our clients, our professional connections and the suppliers we work with. Our ongoing contribution through the commitment of our people to their local community continues to improve lives and build these communities. Diversity and inclusion We are an equal opportunities employer and it is our policy to ensure that all job applicants and employees are treated fairly and on merit regardless of race, sex, marital/civil partnership status, age, disability, religious belief, pregnancy, maternity, paternity, gender identity or sexual orientation. We have five staff groups providing support to staff. Sustainability To deliver strong, sustainable shareholder returns over the long-term the operation of a profitable business is a priority and that means investing for growth. To achieve this, the Group recognises that it needs to operate in a sustainable manner and therefore has adopted core principles to its business operations which provide a framework for both managing risk and maintaining its position as a good ‘corporate citizen’. Charities and communities We have a high level of engagement within our local communities. Each year, we sponsor business, sports and community awards. Our business has benefited greatly from winning numerous awards and we feel it’s right to help other businesses reap the rewards of such accolades. In addition, we sponsor a variety of local clubs, business and sports related events across the country. We believe this brings many benefits to the local community and beyond. Our staff vote annually to choose a national and local office charity to support throughout the year with fund raising activities engaging staff, clients and communities in a number of enjoyable events. Developing our people The Group continues to create opportunities for staff at all levels of the Group. We have a strong track record as an employer of choice in the provision of legal graduate traineeships and apprenticeship schemes highlighting our motivation to ‘grow our own’. Trainees work alongside qualified professionals in completing a period of recognised training (often known as a training contract) giving individuals supervised experience in legal practice. This is the final stage of the process of qualification as a solicitor where they refine and develop their professional skills. For our non-lawyer employees we offer both internal and external routes to qualifications and accreditations within their chosen sector and area of expertise. In order to oversee our people development we have a dedicated internal training team on hand with soft skills and professional course guidance to enhance staff careers and upskill our staff at all levels throughout the year. Unity – Unity recognises, celebrates and supports employees from all different cultures, religions, backgrounds and those with disabilities. Our Unity network Group highlights and celebrates events across all our offices to ensure we have an environment where all employees have room to breathe and feel comfortable bringing their full selves to work. Thrive – Our Thrive network group supports the health and wellbeing of all employees to promote high levels of performance both physically and mentally across the Group. The Thrive committee runs a series of events and training programmes throughout the year to raise awareness and to inspire our people to take care of themselves and those around them. Inspire – Our Inspire network group has been set up to nurture, develop and provide support to all of our talent with a particular focus on career milestones and enabling our people to carve the careers they want successfully. Pride – The Gateley Pride network group provides a welcoming, supportive, safe and confidential space for staff affected by sexual orientation and gender identity issues to share experiences, ideas or concern. Ability – Ability is our most recent network set up to provide a focus on, and raise awareness of, disabilities to ensure that we are providing a welcoming, supportive and confidential space for colleagues across the Group to discuss issues of disability and to ensure enhanced awareness is reflected in a positive, inclusive and fulfilling working environment. Modern slavery We are committed to preventing acts of modern slavery and human trafficking from occurring within our business and supply chain and expect our suppliers to adopt the same high standards. As part of our commitment to combating modern slavery, the Directors have approved the adoption and implementation of a specific modern slavery policy. We expect all of our suppliers to adhere to our Anti-Slavery Policy and will not tolerate slavery and human trafficking within our supply chains. 49 Business Overview Business Overview Strategic Report Strategic Report Corporate Governance Corporate Governance Our Financials Our Financials Gateley (Holdings) Plc Annual report and financial statements Social matters continued Our slavery and human trafficking statement, made in accordance with section 54(1) of the Modern Slavery Act 2015 can be found on our website, www.gateleyplc.com. Anti-bribery policy We value our reputation for ethical behaviour and upholding the utmost integrity and we comply with the FCA’s clients’ best interests rule. We recognise that in addition to the criminality of bribery and corruption, any such crime would also have an adverse effect on our reputation and integrity and we do not tolerate bribery and corruption in our business. We limit our exposure to bribery and corruption, we ensure all our employees are adequately trained and our suppliers are aware of our position, by: • • • • Setting out clear anti-bribery and corruption policies; Providing mandatory training to all employees; Encouraging our employees to be vigilant and report any suspected cases of bribery in accordance with the specified procedures; and Escalating and investigating instances of suspected bribery and assisting the police or other appropriate authorities in their investigations. Gender pay reporting The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 requires all employers with 250 or more employees in the UK to publish details of their gender pay gap. Its aim is to achieve greater transparency about gender pay difference. The analysis is based on data as of 5 April of each year and shows the differences in the average pay between men and women. The Group has submitted its data on gender pay to the Government and published these details on our website. Disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment within the Group continues and that appropriate training is arranged and support provided. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. Employee consultation The Group places considerable value on the involvement of its employees and has continued to keep them informed regularly on matters directly affecting them and Group wide developments. This is achieved through informal discussions between Management and other employees at a local level after board meetings which are held across our office network, in annual briefing presentations to each office location and through the formation of committees and boards at different levels across the Group together with an active social events calendar. The Group further encourages employee involvement in the performance of the business through participation in share schemes, including the SAYE and CSOPs schemes. Our internal digital communication platform, refreshed in 2020, is now a hub of activity and communication across the Group and used extensively for social interaction as well as internal training, policy updates, cross selling activity and recognition of recent successes from around the Group. Political donations The Group made no political donations in the year (2021: £nil). Approval The strategic report contains certain forward-looking statements, which are made by the Directors in good faith based on the information available to them at the time of their approval of this annual report. Statements contained within the strategic report should be treated with some caution due to the inherent uncertainties (including but not limited to those arising from economic, regulatory and business risk factors) underlying any such forward-looking statements. The strategic report has been prepared by Gateley (Holdings) Plc to provide information to its shareholders and should not be relied upon for any other purpose. Pages 20 to 51 constitute the strategic report, which has been approved by the Board of Directors and signed on its behalf by: Neil Smith Finance Director 12 September 2022 50 51 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Corporate governance In this section Board of Directors Report on remuneration: voluntary disclosure Directors’ report 54 56 63 52 53 Board of Directors Details of the Directors’, their roles and their backgrounds are as follows: Business Overview Strategic Report Corporate Governance Our Financials Peter Davies Chief Operating Officer (resigned 30 April 2022) aged 64 Peter has over 30 years’ experience as a dispute resolution lawyer. He has considerable experience in construction disputes, acting for developers, contractors, sub- contractors and construction professionals. More recently he has concentrated on providing advice to the Group’s house-builder clients. He is a member of the Law Society and a CEDR accredited mediator. He was involved in the management of Gateley LLP for over 20 years. He sits on the Strategic Board and Chairs the Operations Board. Nigel Payne Non-Executive Chairman Rod Waldie Chief Executive Officer aged 62 aged 54 Nigel has extensive experience of listing companies, fund raising on the public markets and acting as either the Non-Executive Chairman or Non-Executive Director of public companies and as a Director of private companies. In addition to his Gateley responsibilities as Chairman, Nigel is also the Non-Executive Chairman of Green Man Gaming (Holdings) plc and Main Market listed Braemar Shipping Services Plc. and a Non- Executive Director of JSE listed Sun International Limited, AIM listed GetBusy plc, Ascot Racecourse Betting and Gaming Limited and Kwalee Limited. Previously Nigel was the CEO of Sportingbet plc, one of the world’s largest internet gaming companies. Nigel has also previously been the Non-Executive Chairman of AIM quoted EG Solutions plc, the Non- Executive Chairman of AIM quoted Stride Gaming Plc, the Non-Executive Chairman of AIM quoted Hangar8 Plc, the Non-Executive Chairman of AIM quoted ECSC plc and a Non- Executive Director of AIM quoted Gama Aviation Plc. Rod was appointed to the position of Chief Executive Officer on 1 May 2020. He has been a key member of the Group’s Strategic Board since joining the business via the acquisition of the Manchester office of Halliwells LLP in 2010. Prior to his appointment as Chief Executive Officer, Rod was the Senior Office Partner of the Manchester office and led the Group’s national property services team. He has been involved in the successful integration of a number of Gateley’s post IPO acquisitions. Rod has over 25 years’ experience as a real estate lawyer. He has considerable experience in real estate investment acquisitions, and disposals, estate management, development and landlord and tenant. Clients include off-shore investors, on-shore real estate companies and developers, real estate asset management companies, high net-worth individuals, retail and leisure operators and specialist providers of supported living accommodation. Neil Smith Finance Director and Company Secretary aged 46 Neil has more than 25 years’ experience working in the accountancy profession where he specialised in the professional services industry. Initially, Neil spent 14 years at a major accounting practice where he gained considerable experience of auditing and advising a wide range of privately owned and publicly listed businesses across many sectors. He joined Gateley LLP in 2008, was appointed as Finance Director in 2011 and became the first non-lawyer to be appointed as Partner within Gateley LLP following its successful application to become an Alternative Business Structure in January 2014. Neil was a member of the Management team on Gateley LLP’s acquisition of the commercial law business from Halliwells LLP in 2010 and, following his involvement in Gateley (Holdings) Plc’s admission to AIM, was appointed to the Plc Board in 2015. As well as Company Secretary for the Group he is also the Group’s Compliance Officer for Finance and Administration (“COFA”) and a fellow of the Association of Certified Chartered Accountants. Victoria Garrad Chief Operating Officer Elect (appointed 1 May 2022) aged 48 Victoria was appointed to the board as COO elect on 1 May 2022. She is an award winning employment lawyer with over 24 years’ experience undertaking a mix of contentious and non- contentious work. Having joined the business in 1996 as a trainee solicitor, Victoria was promoted to partner in the legal services employment team in 2005. She has been a member of the Operations Board since 2011 and was appointed to the Strategic Board on 1 May 2017 to undertake the Group HRD role. Suzanne Thompson Michael Ward Non-Executive Director Executive Director Joanne Lake Non-Executive Director aged 54 aged 63 aged 58 Mike (Michael) has over 30 years’ experience as a corporate lawyer, advising private and public companies, management teams and private investors. He joined Gateley in 1987 and has been instrumental in the development of Gateley. He was Senior Partner from 2001 to 2015 when he became CEO. Mike is a former President and Treasurer of the Birmingham Law Society and a former President of the Greater Birmingham Chamber of Commerce. Joanne has over 30 years’ experience in financial and professional services; in investment banking with firms including Panmure Gordon, Evolution Securities and Williams de Broe and in audit and business advisory services with Price Waterhouse. Joanne is Senior Independent Director of Main Market-listed land promotion, property development and construction group, Henry Boot Plc and is Non-Executive Chair of Aim-quoted Made Tech plc, a provider of digital, data and technology services to the UK public sector; Honeycomb Investment Trust Plc and Braemar Shipping Services plc. Joanne is also a Fellow of the Chartered Institute for Securities & Investment and of the ICAEW, and is a member of the ICAEW’s corporate finance faculty. Suki (Suzanne) is an entrepreneur and transformational business leader. Founder and Chief Executive Officer of Let’s Reset, she specialises in cultural change and marketing transformation, pioneering new performance based wellbeing programmes linked to commercial outcomes and new ways of working, post COVID-19. Suki has advised 80% of the FTSE 250, leading global communications networks and technology groups. Centaur Media acquired her previous marketing consultancy, Oystercatchers in September 2016 and she remains Chair of the business and Exec Director of the Xeim Group. Suki is also Non- Executive Director of AIM-quoted retail group, Unbound Group Plc. Suki was a Board Trustee of Macmillan Cancer Support and is an Addidi Angel Investor for Small Businesses. She is a long standing member of WACL, MGGB and AllBright. Suki also holds an honorary Doctorate from Coventry University for services to Entrepreneurship and International Business. She was awarded Small Business Entrepreneur of the Year and is the Author of Let’s Reset and Creative Influence. Committees & Boards: N R A H Committees & Boards: N H S Committees & Boards: H S O Committees & Boards: H S O Committees & Boards: R A N H Committees & Boards: H Committees & Boards: A N R H Committees & Boards: H S O Committee Key: N Nomination R Remuneration A Audit & Risk Board Key: H Gateley (Plc) Holdings S Strategic O Operations 54 55 Gateley (Holdings) PlcAnnual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Introduction of a Restricted Share Award Plan Following the uncertainty and difficult trading conditions created by the COVID-19 pandemic during FY21, the Group refocused on growth and the attraction, incentivisation and retention of talent during FY22. As part of this, a Restricted Share Award Plan (“RSA”) has been introduced, to support long-term share ownership for employees who are promoted to partner or partner-equivalent roles and to foster stewardship amongst this cohort. Executive Directors currently participate in the Group’s performance based LTIP and are not eligible to participate in the RSA. N Smith was granted an LTIP award on 27 April 2022 and details are set out on page 61. More generally, the board is committed to providing its people with the opportunity to own shares in the Company and continues to grant awards under the Save As You Earn scheme and the Company Share Option Plan. At least 75% of current staff are existing share or option holders in the Group. Review of Executive Director remuneration for Executive Directors and Senior Management Since IPO, the committee has been implementing a strategy of gradually aligning the remuneration for the Group’s Executive Directors to market rates. Whilst progress has been made, it is acknowledged that the remuneration for the Executive Directors remains broadly below market rate for similar roles in similar sized AIM listed businesses. With this in mind, and in light of recent succession Plc Board changes (as announced on 3 May 2022), during FY23 the committee will comprehensively review the remuneration levels for Executive Directors, as well as the incentive arrangements in place for Executive Directors and the broader senior management population undertake a remuneration benchmarking exercise. With a view to ensuring that the Executive Directors remuneration with effect from FY24 is aligned with market rates and the incentive arrangements in place continue to support our core reward principles, in order to retain the right skill set and experience within our leadership team to deliver the Group’s strategic objectives. I hope that you find the remainder of this report helpful and informative and I look forward to receiving feedback from you on the information presented. Suki Thompson Remuneration Committee Chair Statement on remuneration: voluntary disclosure Dear shareholders, I am pleased to introduce the Directors’ Remuneration Report for the financial year ended 30 April 2022. This letter introduces the report, outlines the major decisions on Directors’ remuneration during the year and importantly explains the context in which these decisions have been taken. Gateley (Holdings) Plc is committed to high standards of corporate governance and our policy and disclosures on Directors’ remuneration are intended to reflect this approach. We welcome shareholder feedback on these matters and this Directors’ Remuneration report will be put to an advisory vote at the forthcoming 2022 AGM. Key reward principles Remuneration at Gateley for executives and the wider workforce is guided by the following principles: • • • Support an effective pay for performance culture which enables the Group to attract, retain and motivate the very best talent, without paying excessively Support the delivery of the business strategy and promote long term sustainable performance, whilst ensuring that performance related pay does not encourage individuals to operate outside of the Group’s risk appetite Reward outcomes should fairly reflect Group and personal performance and take into account the experience of shareholders Bonus outcome for FY22 The Group continued to perform well throughout FY22, delivering strong growth in revenue and adjusted PBT ahead of consensus market expectations. The continued hard work, dedication and loyalty from employees during the year has been paramount to the Group’s performance. The committee therefore considered it appropriate to award bonuses to employees in respect of FY22. This included awarding bonuses under the merit pool, in which the Executive Directors participate. The amounts paid are set out on page 61. Suki Thompson Remuneration Committee Chair 56 57 Gateley (Holdings) PlcAnnual report and financial statementsBusiness Overview Strategic Report Corporate Governance Our Financials Report on remuneration: voluntary disclosure This report is for the year ended 30 April 2022. It sets out the detailed remuneration for the Executive and Non-Executive Directors of the Company. As an AIM-quoted company, the information is disclosed to fulfil the requirements of AIM Rule 19. Remuneration policy The remuneration policy is designed to support an effective pay-for-performance culture which enables the Group to attract, retain and motivate Executive Directors and senior management with the necessary experience and expertise to deliver the Group’s objectives and strategy. The table below summarises the key elements of the Executive Directors’ remuneration package. Element, purpose and operation Opportunity and performance measures Activities during the year The main activities undertaken by the committee during the year included: - • • • • Determining incentive outcomes for the Executive Directors for FY22; Determining salary increases for the Executive Directors for FY23; Granting awards under the Long Term Incentive Plan to certain Executive Directors and senior management; Implementation of the RSA and granting awards under the RSA to certain senior management. Gateley (Holdings) Plc is not required to comply with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, however the board believes this disclosure is key to the readers understanding of the business. The information is unaudited except where stated. This report sets out: • • • a description of how the committee operates. a summary of the Directors’ remuneration policy – setting out the parameters within which the remuneration arrangements for Directors operate; and details of the remuneration paid to the Directors for the year under review. The committee The committee is appointed by the board and is formed entirely of Non-Executive Directors. The committee is chaired by Suzanne (Suki) Thompson. Other members of the committee are Nigel Payne and Joanne Lake. The committee meets formally at least twice a year and has responsibility for setting the Group’s general policy on remuneration and also specific packages for individual Directors including those that comprise the Strategic Board. The committee is also responsible for structuring Non-Executive Director pay, which is subject to approval of all independent Directors and oversight from the Plc Board including the Executive Directors. The committee receives internal advice from Executive Directors and external advice from remuneration consultants where necessary. The committee also makes recommendations to the board concerning the allocation of long-term incentive awards to senior management. The committee’s terms of reference are available for public inspection on request. Other members of the Board of Directors are invited to attend meetings when appropriate, but no Director is present when his or her remuneration is discussed. Deloitte LLP continues to act as advisors to the committee. Deloitte LLP is a founding member of the Remuneration Consultants Group and voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. Base salary Reviewed on an annual basis with any increases normally becoming effective from the start of the financial year. Bonus Designed to align participants’ interests with shareholders and to incentivise participants to perform at the highest levels. The bonus comprises a merit pool and a performance pool. All Executive Directors participate in the merit pool. NA Smith also participates in the performance pool. It is proposed that appropriate salary increases will be awarded to provide alignment with the market over time and so that levels reflect the responsibilities of the role and the skills and experience of the individual. Merit pool Each year, a pre-agreed percentage of pre-tax profits is allocated to the merit pool. The merit pool is distributed to participants based on their individual performance during the year. Performance pool A fixed sum is allocated to the performance pool in circumstances where the Group exceeds budgeted performance. If the pool operates the pool is distributed to participants based on their role, responsibility and contribution to the long-term business strategy. Long Term Incentive Plan (LTIP) Designed to incentivise participants to perform at the highest levels, and to deliver genuine performance related pay, with clear line of sight and direct alignment with shareholder interests. Awards will normally be granted annually to participants. Each year, the committee will agree the number of shares under option for each participant. Executive Directors and selected senior employees will participate in the LTIP as determined by the Strategic Board and approved by the committee. Awards will be granted in the form of nil-cost or nominal-cost share options. Vesting of awards is dependent on the achievement of performance measures set by the committee, normally over a three-year performance period. Awards will vest following the end of the performance period once the committee has ratified the outcome of the performance measures and will be exercisable for six months following the vesting date. The committee has the right to apply malus provisions to reduce, cancel or impose further conditions on unvested awards in specified circumstances. Pension and benefits Pension and benefits Performance measures are selected that reflect underlying business performance as outlined on page 61. The Executive Directors have chosen not to participate in a company funded pension scheme nor receive a cash allowance in lieu thereof. The Executive Directors do not receive any form of taxable benefits other than private health scheme benefits. 58 59 Gateley (Holdings) PlcAnnual report and financial statementsReport on remuneration: voluntary disclosure continued Orderly market agreement The Group operates a five-year orderly market agreement (the “Agreement”) with its Partners (the “Locked-in Shareholders”) which, inter alia, places certain restrictions on the sale of ordinary shares in the Company (“Ordinary Shares”). The Agreement became effective on 8 June 2021 following the expiry of the previous lock-in arrangements, which were put in place at the time of the Company’s admission to AIM in June 2015 (the “Admission”). Pursuant to the Agreement, each Locked-in Shareholder and his/ her associates, which include their spouse and children under the age of 18 to whom any Ordinary Shares have been transferred (“Associates”), that held Ordinary Shares as at Admission are restricted to selling a maximum of 10% per annum of the aggregate number of the Ordinary Shares that they held on Admission for a period of five years from 8 June 2021. Policy for the remuneration of employees more generally The key principles of the remuneration policy for Executive Directors also apply to employees more generally. In particular, senior employees may participate in the merit bonus pool, performance bonus pool, RSA and LTIP, depending on their role and responsibilities and contribution to the business. The Company also supports and encourages share ownership for all employees through the all employee Save As You Earn (SAYE) scheme and the Company Share Option Plan (CSOP). In owning shares, employees are directly aligned with the interests of shareholders and are able to participate in the dividend income that share ownership provides. 48.3% (2021: 46.5%) of the Group’s issued share capital was held by employees as at 30 April 2022. Non-Executive Directors’ fees The Chairman of the board and the other Non-Executive Directors receive an annual fee for their services, reflective of their level of responsibility, relevant experience and specialist knowledge. Non-Executive Directors are also reimbursed for appropriate travel expenses to and from board meetings. Together with the Executive, the committee also examines the time that the Non-Executive Directors commit to the business ensuring that each Non-Executive has sufficient time to carry out their duties in light of their other business commitments. This exercise concluded that all of the Non-Executives have available and apply sufficient time to discharge their duties. Executive Directors’ service agreements and Non-Executive Directors’ letters of appointment The Executive Directors entered into service agreements on 1 June 2015. The service agreements provide that their employment with the Company is on a rolling basis, subject to written notice being served by either party of not less than six months. The service agreements contain provisions for early termination in the event of a breach of a material term of the service agreement by the Executive Director or where the Executive Director ceases to be a Director of the Company for any reason. The service agreements also contain restrictive covenants for a period of 12 months following termination of employment. No bonus is payable to the Executive Director if their employment terminates for any reason or they are under notice of termination (whether given by the Company or the Executive Director) at or prior to the date when the bonus is paid. All bonuses are payable within six months of the financial year end. The Non-Executive Directors serve under letters of appointment. Nigel Payne and Joanne Lake were originally appointed on 8 June 2015 and both were re-appointed for a third three-year term which commenced on 1 October 2021. Suzanne (Suki) Thompson was originally appointed on 27 September 2017 and was re-appointed on 30 October 2020 for a second three-year term. The notice period required in the letters of appointment for either party to terminate the appointment is at least three months. Each agreement also contains provisions for early termination in the event of a serious or repeated breach of the agreement by the Non-Executive Director or where the Non-Executive Director ceases to be a Director of the Company for any reason. 60 Business Overview Strategic Report Corporate Governance Our Financials Summary of Directors’ remuneration for the year The following table represents the Directors’ remuneration for the years ended 30 April 2022 and 30 April 2021: Nigel Terrence Payne Joanne Carolyn Lake Suzanne Francis Alison Thompson Roderick Richard Waldie Michael James Ward** Peter Gareth Davies*** Neil Andrew Smith Salaries and fees £’000 56 42 42 300 144 180 225 989 Bonus £’000 - - - 212 45 112 112 481 Share options £’000 - - - - - - - - Total 2022 £’000 56 42 42 512 189 292 337 1,470 Salaries and fees £’000 40 36 36 260* 162 225 190 949 Bonus £’000 - - - 139 116 113 112 480 Share options** £’000 - - - - - - - - Total 2021 £’000 40 36 36 399 278 338 302 1,429 1. As disclosed in the FY21 report on remuneration, the committee agreed to increase RR Waldie’s salary from £180,000 to £260,000 on his appointment as CEO (1 May 2020). RR Waldie waived his contractual entitlement to the increase for FY21 and remained on a salary of £180,000. This was consistent with the “one team approach” of a pay freeze implemented across the business as part of a series of prudent cost and cash management measures in response to the COVID-19 pandemic. Had he not waived his contractual entitlement to the increase, RR Waldie’s total remuneration for FY21 would have been £399,000. In real terms RR Waldie received £319,000. 2. MJ Ward’s salary was reduced from a full time equivalent of £260,000 to £180,000 with effect from 1 May 2021 following him stepping down as CEO. MJ Ward was contracted to work 4 days per week with effect from 1 November 2021 and has continued throughout FY22 to work 4 days per week. 3. PG Davies was contracted to work 4 days per week with effect from 1 May 2022. With effect from 1 May 2022 PG Davies was contracted to work 5 days per week. Salary and fee increases for FY23 Details of FY22 salary and fee increases are set out in the FY21 report on remuneration. Long term incentives granted during the year Awards were granted to certain Executive Directors and selected senior employees under the LTIP on 27 April 2022. The committee agreed to increase RR Waldie’s salary by 7.5% with effect from 1 May 2022 to £322,500. NA Smith’s and PG Davies salaries increased by 6.6% with effect from 1 May 2022 to £240,000. MJ Ward’s salary increased by 5.6%, to a full time equivalent of £190,000. The committee took into consideration salary increases for the wider workforce when determining the Executive Directors’ salary increases; the average increase for the wider workforce exceeded 7.5%. With regard to Non-Executive Directors, NT Payne’s annual fee increased to £72,000 with effect from 1 May 2022 and both JC Lake and SFA Thompson’s annual fees increased to £48,000. These fee increases were considered appropriate reflecting the time commitment required in order for the Non-Executives to effectively carry out their duties. Bonus outcome for the year The Group continued to perform well throughout FY22, delivering strong growth in revenue and adjusted PBT ahead of consensus market expectations. Key performance highlights are set out on page 4. The continued hard work, dedication and loyalty from employees during the year has been paramount to the Group’s performance. The committee therefore considered it appropriate to award bonuses to employees in respect of FY22. This included awarding bonuses under the merit pool, in which the Executive Directors participate. No bonuses were awarded under the performance pool. The awards are subject to an adjusted fully diluted earnings per share performance measure as described in the table below. The targets are considered appropriately stretching taking into account internal forecasts and the current economic environment. Adjusted, fully diluted earnings per Share Compound Annual Growth Rate (CAGR) over the three-year period ending 30 April 2025 Below 5% 5% Between 5% and 10% Above 10% Amount Vesting % 0% 25% Straight line vesting 100% Adjusted fully diluted earnings per share is calculated based on Profit of the Group for the relevant financial year before interest and tax adjusted to exclude the effect of: • • cost of amortisation and any impairment review of intangible assets and goodwill cost of IFRS 2 share-based payment charges relating to all share schemes • cost and/or income from exceptional items • the tax impact of adjustments above LTIP awards granted on 27 April 2022 to NA Smith totalled 25,000 (with a face value at grant equal to £55,000 or circa 25% of salary, based on the mid-market closing share on the dealing day prior to grant (£2.20)). No awards were granted to MJ Ward, PG Davies or RR Waldie as they are deemed to be sufficiently incentivised by their existing shareholding. 61 Gateley (Holdings) PlcAnnual report and financial statementsReport on remuneration: voluntary disclosure continued Directors’ report Business Overview Strategic Report Corporate Governance Our Financials Directors’ Interests Directors’ shareholdings at the year end were as follows: Nigel Terrence Payne Joanne Carolyn Lake Suzanne Francis Allison Thompson Roderick Richard Waldie Michael James Ward Peter Gareth Davies Neil Andrew Smith At 30 April 2022 10p ordinary shares At 30 April 2021 10p ordinary shares Number of shares Percentage Holding Number of shares Percentage Holding 70,942 26,300 10,000 1,275,670 1,990,000 1,983,357 362,537 0.06% 0.02% 0.01% 1.02% 1.60% 1.59% 0.29% 70,918 26,300 10,000 1,380,670 2,216,754 2,215,739 383,313 0.06% 0.02% 0.01% 1.17% 1.88% 1.88% 0.33% The following Directors held share options under the LTIP Scheme as at 30 April 2022: Number of shares at 30 April 2022 Date of grant Exercise price Earliest exercise date Neil Andrew Smith Neil Andrew Smith 15,974 25,000 22 July 2020 27 April 2022 £nil £nil 22 July 2023 22 April 2025 The Directors present their annual report and the audited financial statements for the year ended 30 April 2022. Principal activities The principal activities of the Group during the year were the provision of commercial legal services together with complementary consultancy services including acting as independent trustees to pension schemes, the provision of specialist tax incentive advice, the supply of specialist property consultancy services and the supply of specialist human capital management. Business review The results of Gateley (Holdings) Plc for the year are set out in the consolidated statement of profit and loss and other comprehensive income on page 75. A review of the business, results and dividends, and likely future developments of the company are contained in the Chief Executive Officer’s review on pages 24 to 29 and the Finance Director’s review on pages 32 to 37. The Group’s key performance indicators (KPIs) are set out on page 39. The strategic report, which includes a description of the principal risks and uncertainties facing the Group, is set out on pages 20 to 51. Employee share trust The Gateley Employee Benefit Trust (EBT) was established to facilitate the issue of the equity shares of Gateley (Holdings) Plc to Group employees under share-based payment arrangements. During the year ended 30 April 2022 the EBT purchased 187,033 shares in the company (2021: 222,724) at a cost of £75,854 (2021: £288,003). Dividends The Directors propose to recommend a final dividend of £6,850,800 (2021: £5,896,051), being 5.5p (2021: 5.0p) per share, be paid, giving a total dividend for the year of 8.5p (2021: 7.5p). The final dividend has not been included within creditors as it was not approved before the year end. During the period the board became aware of a technical issue in respect of a number of historic dividends paid by the Company. Details are included in Note 12 to the consolidated financial statements. A circular will be sent to shareholders shortly and will be available on the Company’s website at www.gateleyplc.com/ investors/investor-relations The Directors and their interests in the shares of the parent company Nigel Terrence Payne Joanne Carolyn Lake Suzanne Francis Alison Thompson Roderick Richard Waldie Michael James Ward Peter Gareth Davies Neil Andrew Smith 10p ordinary shares 10p ordinary shares Number of shares 2022 Percentage Holding 2022 Number of shares 2021 Percentage Holding 2021 70,942 26,300 10,000 1,275,670 1,990,000 1,983,357 362,537 0.06% 0.02% 0.01% 1.02% 1.60% 1.59% 0.29% 70,918 26,300 10,000 1,380,670 2,216,754 2,215,739 383,313 0.06% 0.02% 0.01% 1.17% 1.88% 1.88% 0.33% Substantial shareholdings The Company was notified that the following were interested in 3% or more of the issued share capital of the Company as at 31 July 2022: Name Liontrust Asset Management BMO Global Asset Management (UK) Premier Miton Investors Unicorn Asset Management Number of ordinary shares % of issued share capital 14,040,039 6,443,461 5,251,662 4,931,194 11.27% 5.17% 4.22% 3.96% 62 63 Gateley (Holdings) PlcAnnual report and financial statementsBusiness Overview Strategic Report Corporate Governance Our Financials Directors’ report continued Financial risk management objectives and policies The Group uses various financial instruments including cash, trade debtors and trade creditors. It is the Group’s policy not to enter into complex financial instruments. Such instruments give rise to liquidity risk, interest rate risk, credit risk and foreign exchange risk. More detail on financial instruments is given in note 27 to the financial statements. Directors’ professional indemnity insurance All Directors and Officers of the Company have the benefit of the indemnity provision contained in the Company’s Articles of Association. The provision, which is a qualifying third-party indemnity provision, was in force throughout the last two financial years and is currently still in force. The Group also purchased and maintained throughout the financial period Directors’ and Officers’ liability insurance in respect of itself and its Directors and Officers, although no cover exists in the event Directors or Officers are found to have acted fraudulently or dishonestly. Directors’ responsibilities statement The Directors are responsible for preparing the Strategic Report and Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the financial statements in accordance with UK- adopted international accounting standards. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. • • • • 64 The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Disclosure of information to auditor The Directors confirm that: • • so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Employees Details of how the Group’s policy and approaches to employee engagement, diversity and inclusion and disabled employees can be found in the strategic report. Engaging with stakeholders The Directors have identified the key stakeholders of the business and documented their engagement with these groups throughout the year along with how they have been considered in the making of key decisions within the year. The Group conducts regular client surveys to better understand and improve the clients’ experience and service received. We seek to build strong, long-term relationships with our suppliers working alongside them as business partners for the benefit of all. The Group works closely with its advisors to ensure it operates in accordance with the market regulations. The CEO and FD, have regular meetings with the Group’s Relationship Manager at the Solicitors Regulatory Authority (SRA), the organisation that oversees the regulation of the legal services sector. Streamlined Energy & Carbon Reporting Under The Companies Act 2006 (Strategic Report and Director’s Report) Regulation 2018, Gateley (Holdings) Plc have disclosed their annual UK energy consumption within the Strategic Report. Corporate Governance Statement Since September 2018 all AIM companies have been required to set out details of a recognised corporate governance code that the Board of Directors has chosen to apply, how they comply with that code, and where it departs from its chosen corporate governance code an explanation for doing so. The board adopted the Quoted Companies Alliance (‘QCA’) Code. The Group’s application of this code is detailed in the Corporate Governance Statement as detailed on the Group’s website at www.gateleyplc.com/investors/investor-relations/aim-rule-26/. As required under AIM Rule 26, the information in this statement is updated annually. Future developments The board plans to continue to drive growth within the existing business and through acquisitions within both the legal and non-legal sectors, supporting this with further investment in technology and recruitment of quality personnel. Subsequent events There were no subsequent events to report. Auditor In accordance with section 489 of the Companies Act 2006, a resolution In accordance with section 489 of the Companies Act 2006, a resolution for the re-appointment of MHA MacIntyre Hudson as auditor of the Company is to be proposed at the forthcoming Annual General Meeting. By order of the board. Rod Waldie Chief Executive Officer 12 September 2022 One Eleven Edmund Street Birmingham West Midlands B3 2HJ 65 65 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Gateley (Holdings) Plc Annual report and financial statements Annual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Financial statements In this section Independent auditors’ report to the members of Gateley (Holdings) Plc. Consolidated statement of profit and loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated financial statements Parent company statement of financial position Parent company statement of changes in equity Parent company cash flow statement Parent Company notes to the financial statement Notice of Annual General Meeting Company information 68 75 76 78 79 81 121 122 123 124 136 147 66 67 Gateley (Holdings) PlcAnnual report and financial statementsIndependent auditors’ report to the members of Gateley (Holdings) plc For the purpose of this report, the terms “we” and “our” denote MHA MacIntyre Hudson in relation to UK legal, professional and regulatory responsibilities and reporting obligations to the members of Gateley (Holdings) plc. For the purposes of the table on pages 54 to 55 that sets out the key audit matters and how our audit addressed the key audit matters, the terms “we” and “our” refer to MHA MacIntyre Hudson. The Group financial statements, as defined below, consolidate the accounts of Gateley (Holdings) plc and its subsidiaries (the “Group”). The “Parent Company” is defined as Gateley (Holdings) plc. The relevant legislation governing the Parent Company is the United Kingdom Companies Act 2006 (“Companies Act 2006”). Opinion We have audited the financial statements of Gateley (Holdings) plc for the year ended 30 April 2022. The financial statements that we have audited comprise: • • • • • • • • • the consolidated statement of profit and loss and other comprehensive income for the year ended 30 April 2022; the consolidated statement of financial position for the year then ended; the consolidated statement of changes in equity for the year then ended; the consolidated cash flow statement for the year then ended; Notes 1 to 31 of the consolidated financial statements, including the accounting policies. the Parent Company statement of financial position for the year ended 30 April 2022; the Parent Company statement of changes in equity; the Parent Company cash flow statement; Notes 1 to 14 of the Parent Company financial statements, including the accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted International Accounting Standards. In our opinion the financial statements: • • • give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 April 2022 and the Group’s profit for the year then ended; have been properly prepared in accordance with UK adopted International Accounting Standards; and have been prepared in accordance with the requirements of the Companies Act 2006. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our ethical responsibilities in accordance with those requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included: The consideration of inherent risks to the company’s operations and specifically its business model. The evaluation of how those risks might impact on the company’s available financial resources. An examination of budgets and forecasts and their basis of preparation. • • • 68 Business Overview Strategic Report Corporate Governance Our Financials • Liquidity considerations including examination of cash flow projections, considering sensitivities to the underlying assumptions on profitability and cash lock up, which drives the cash flow projections. • Consideration of the funding facilities available to the Group and the market attitude to lending in the legal sector. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. Overview of our audit approach Materiality Group Parent 2022 £950k £460k Key audit matters 2021 £800k £380k Group Scope 5% (2021: 5%) of underlying profit before tax and exceptional items 1% (2021: 1%) of gross assets • Accuracy and valuation of unbilled revenue • Existence/cut off of billed revenue Our audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement. We undertook full scope audits on the complete financial information of 2 components. For the remaining 17 components we performed a mixture of specified audit procedures and analytical procedures. 69 Gateley (Holdings) PlcAnnual report and financial statementsIndependent auditors’ report continued Key Audit Matters Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those matters which had the greatest effect on the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter description How the scope of our audit responded to the key audit matter Risk of fraud in revenue recognition – valuation of unbilled revenue Revenue (in respect of client matters) is recognised in accordance with IFRS 15 ‘Revenue from Contracts with Customers’. Under ISA (UK) 240, there is a rebuttable presumed risk that revenue may be misstated due to fraud arising from the improper recognition of revenue. There is judgement in the calculation of accrued income in terms of the recoverability of the time recorded. In addition, the uncertainties in the economy as a result of the war in Ukraine, high inflation and the increased cost of living may mean that the existing recovery rate used for the purposes of valuing unbilled revenue may no longer be appropriate. Contingent work in progress may be included in the year-end valuation of accrued revenue, when the contingent event has not occurred and therefore the revenue has not been earned in accordance with the requirements of IFRS 15. We evaluated the Group’s accounting policies for recognition of revenue for appropriateness in accordance with requirements of the financial reporting framework, including IFRS 15 ‘Revenue from Contracts with Customers’, and checked this has been appropriately applied. We agreed, on a sample basis, client engagement terms to ensure client matters are classified correctly between contingent and non-contingent and also to support the existence of revenue recognised in the period. We evaluated management’s assessment, in accordance with the requirements of IFRS 15, that it is not probable that client matters classified as contingent at the year end, and valued at nil, will result in revenue being incorrectly recognised, including, but not limited to, testing billings post year end. For unbilled revenue recognised in the year we tested on a sample basis that entitlement to revenue had been obtained through proof of service being carried out and that time had been recorded pre year end confirming that the matter is live, and that unbilled revenue is recoverable. We reviewed the application of departmental recovery rates used to value unbilled revenue, assessing their appropriateness and challenging management on whether the effect of macroeconomic factors such as inflation on the expected recovery of unbilled revenue had been taken into account. We also reviewed post year- end actual recovery rates against the year-end recovery rates to review any significant movements. We tested the completeness and cut-off of unbilled revenue by a review of time sheets posted after the year end to identify any material unposted time. We assessed the adequacy of provisions against irrecoverable unbilled revenue by review of aged work in progress reports. Key observations We concluded that there was no material misstatement in the valuation of unbilled revenue, in accordance with IFRS15. Business Overview Strategic Report Corporate Governance Our Financials Key audit matter description How the scope of our audit responded to the key audit matter Risk of fraud in revenue recognition – existence/cut off of billed revenue Bills raised in the year may be fictitious/erroneous or raised before time has been worked by the fee earners and the business may therefore not be entitled to the income. Bills may also be raised when work in progress should be written off as irrecoverable. We reviewed a sample of sales invoices issued during the year to ensure that the service had been provided pre year end, confirming that entitlement to record the invoice as revenue had been reached. The evidence of services being provided included, but was not limited to, time records maintained by fee earners and client contracts. We reviewed the level of post year end credit notes being raised to identify significant credit notes being raised indicating erroneous recognition of revenue in the current year. For unbilled revenue recognised in the year, we tested on a sample basis that entitlement to revenue had been reached through proof of the relevant service being carried out pre year end. Key observations We concluded that revenue had been recorded appropriately. We did not identify any material errors in relation to cut-off. Our application of materiality Our definition of materiality considers the value of error or omission on the financial statements that, individually or in aggregate, would change or influence the economic decision of a reasonably knowledgeable user of those financial statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the results. Materiality in respect of the Group was set at £950k (2021: £800k) which was determined on the basis of 5% of the underlying profit before tax and exceptional items, as the primary measure on which the performance of the business is judged by its stakeholders. Performance materiality is the application of materiality at the individual account or balance level, set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. Performance materiality for the Group was set at £665k (2021: £560k) which represents 70% (2021 – 70%) of the above materiality levels. The determination of performance materiality reflects our assessment of the risk of undetected errors existing, the nature of the systems and controls, the impact of there being a number of non-significant components and the level of misstatements arising in previous audits Materiality in respect of the Parent was set at £460k (2021: £380k) which was determined on the basis of 1% of gross assets. Gross assets was considered to be the most appropriate materiality metric on the basis that the Parent is not a trading entity and its primary purpose is to the hold investments. Performance materiality for the Parent was set at £322k (2021: £265k) which represents 70% (2021 – 70%) of the above materiality levels. Our audit work on the significant component of the Group, and for determining and evaluating the specific targeted procedures on other components, was executed at levels of materiality applicable to the individual entity which were lower than Group materiality. We agreed to report any corrected or uncorrected adjustments exceeding £47.5k (2021: £40k) to the audit committee as well as differences below this threshold that in our view warranted reporting on qualitative grounds. 70 71 Gateley (Holdings) PlcAnnual report and financial statementsIndependent auditors’ report continued The scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. The Group comprises one main trading component, a Parent Company, which does not trade, and several smaller subsidiary entities. The Group engagement team carried out audits of the complete financial information of the following significant components of the Group: • • The Parent Company, Gateley (Holdings) plc Gateley plc A desktop analytical review was performed on the other components that were not considered to be individually financially significant, and specific targeted procedures performed on material subsidiaries based on an assessment of the risk to the Group audit results. The coverage achieved by our audit procedures was: Full scope audit Analytical review and specific targeted procedures Total Number of components 2 17 19 Revenue 83% 17% 100% Net assets/ (liabilities) Profit before tax 124% (24%) 100% 94% 6% 100% Reporting on other information The other information comprises the information included in the Annual Report and Accounts, other than the financial statements and our auditor’s report thereon. Our opinion of the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. • • • • 72 Business Overview Strategic Report Corporate Governance Our Financials Responsibilities of Directors As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non- compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud is detailed below: • • • • • • • • • • • • Obtaining an understanding of the legal and regulatory frameworks that the group operates in, focusing on those laws and regulations that had a direct effect on the financial statements. The key laws and regulations we considered in this context included, the Companies Act 2006, the Financial Services and Markets Act 2000 and applicable tax legislation. In addition, we considered compliance with employee legislation, as fundamental to the group’s operations; Reviewing press releases, and performing an online search of articles about the group in the financial press; Enquiry of management to identify any instances of non-compliance with laws and regulations; Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations; Enquiry of management around actual and potential litigation and claims; Enquiry of the audit and finance committee concerning actual and potential litigation and claims; Enquiry of management to identify any instances of known or suspected instances of fraud; Discussing among the engagement team regarding how and where fraud might occur in the financial statements and any potential indicators of fraud, Reviewing minutes of meetings of those charged with governance; Reviewing the control systems in place and testing the effectiveness of the controls; Performing audit work over the risk of management override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business, and reviewing accounting estimates for bias; and Challenging assumptions and judgements made by management in their significant accounting estimates, in particular with respect to provisions for claims incurred but not reported. 73 Gateley (Holdings) PlcAnnual report and financial statementsIndependent auditors’ report continued A further description of our responsibilities for the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Andrew Moyser FCA FCCA (Senior Statutory Auditor) for and on behalf of MHA MacIntyre Hudson, Statutory Auditor Birmingham 12 September 2022 Business Overview Strategic Report Corporate Governance Our Financials Consolidated statement of profit and loss and other comprehensive income for the year ended 30 April 2022 Revenue Other operating income Personnel costs, excluding IFRS 2 charge Depreciation – Property, plant and equipment Depreciation – Right-of-use asset Impairment of trade receivables and contract assets Other operating expenses, excluding non-underlying and exceptional items Operating profit before non-underlying and exceptional items Non-underlying operating items Exceptional items Operating profit Financial income Financial expense Profit before tax Taxation Profit for the year after tax attributable to equity holders of the parent Other comprehensive income Items that are or may be reclassified subsequently to profit or loss - Revaluation of other investments - Exchange differences on foreign branch Profit for the financial year and total comprehensive income all attributable to equity holders of the parent Statutory Earnings per share Basic Diluted Note 4 5 7 13 13 19/20 6 6 6 6 9 9 10 2022 £’000 137,249 - (86,517) (851) (3,783) (866) (22,716) 22,516 (2,659) (870) (3,529) 18,987 194 (1,149) 18,032 (3,753) 14,279 2021 £’000 121,375 2,451 (77,460) (1,045) (3,751) (1,834) (19,202) 20,534 (3,029) - (3,029) 17,505 176 (1,373) 16,308 (3,151) 13,157 (190) 58 - (87) 14,147 13,070 11 11 12.00p 11.71p 11.18p 11.10p The results for the periods presented above are derived from continuing operations. The accompanying notes on pages 65 to 118 form an integral part of these financial statements. 74 75 Gateley (Holdings) PlcAnnual report and financial statementsBusiness Overview Strategic Report Corporate Governance Our Financials EQUITY Share capital Share premium Merger reserve Other reserve Treasury reserve Translation reserve Retained earnings TOTAL EQUITY Note 26 2022 £’000 12,456 11,342 (9,950) 14,465 (261) (2) 44,863 72,913 2021 £’000 11,792 9,421 (9,950) 6,815 (312) (60) 41,560 59,266 These financial statements were approved by the directors on 12 September 2022 and were signed and authorised for issue on their behalf by: Rodrick R Waldie Chief Executive Officer Neil A Smith Finance Director Company registered number: 09310078 The accompanying notes on pages 65 to 118 form an integral part of these financial statements. Consolidated statement of financial position at 30 April 2022 Non-current assets Property, plant and equipment Right of use asset Investment property Intangible assets & goodwill Other intangible assets Other investments Total non-current assets Current assets Contract assets Trade and other receivables Deferred tax asset Cash and cash equivalents Total current assets Total assets Non-current liabilities Other interest-bearing loans and borrowings Lease liability Other payables Deferred tax liability Provisions Total non-current liabilities Current liabilities Trade and other payables Lease liability Provisions Current tax liabilities Total current liabilities Total liabilities NET ASSETS Note 13 13 14 15 17 18 19 20 23 25 21 29 22 23 24 22 29 24 2022 £’000 1,334 24,627 164 32,590 564 173 59,452 17,239 56,168 638 16,105 90,150 2021 £’000 1,323 27,007 164 15,765 282 363 44,904 13,900 43,093 138 19,605 76,736 149,602 121,640 (5,715) (25,207) (5,360) (3,089) (863) (40,234) (31,793) (3,719) (101) (842) (36,455) (76,689) 72,913 - (27,702) (120) (772) (763) (29,357) (29,032) (2,743) (176) (1,066) (33,017) (62,374) 59,266 76 77 Gateley (Holdings) PlcAnnual report and financial statements Consolidated statement of changes in equity Consolidated cash flow statement for year ended 30 April 2022 Business Overview Strategic Report Corporate Governance Our Financials At 1 May 2020 Comprehensive income: Profit for the year Exchange rate differences Total comprehensive income Transactions with owners recognised directly in equity: Issue of share capital Sale of treasury shares Purchase of treasury shares Share based payment transactions Total equity at 30 April 2021 At 1 May 2021 Comprehensive income: Profit for the year Revaluation of other investments Exchange rate differences Total comprehensive income Transactions with owners recognised directly in equity: Issue of share capital Purchase of own shares at nominal value Sale of treasury shares Purchase of treasury shares Recognition of tax benefit on gain from equity settled share options Dividend paid Share based payment transactions Total equity at 30 April 2022 Share premium £’000 Merger reserve £’000 Other reserve £’000 Treasury reserve £’000 Retained earnings £’000 Foreign currency translation reserve £’000 9,153 (9,950) 6,815 (417) 27,447 27 Share capital £’000 11,761 Total Equity £’000 44,836 - - - - - - 31 - - - 11,792 11,792 - - - - 664 - - - - - - 12,456 550 (282) - - 9,421 9,421 - - - - 1,921 - - - - - - 11,342 - - - - - - - (9,950) (9,950) - - - - - - - - - - - (9,950) - - - - - - - 6,815 6,815 - - - - 7,650 - - - - - - 14,465 - - - 13,157 - 13,157 - (87) (87) 13,157 (87) 13,070 - 400 (295) - (312) (312) - - - 956 41,560 41,560 - - - - 14,279 (190) - 14,089 - - 127 (76) - - (132) - - 563 - - (261) (12,430) 1,213 44,863 - - - - (60) (60) - - 58 58 - - - - - 581 118 (295) 956 59,266 59,266 14,279 (190) 58 14,147 10,235 (132) 127 (76) 563 - - (2) (12,430) 1,213 72,913 The following describes the nature and purpose of each reserve within equity: Share premium – Amount subscribed for share capital in excess of nominal value together with gains on the sale of own shares and the difference between actual and nominal value of shares issued by the Company in the acquisition of trade and assets. Merger reserve – Represents the difference between the nominal value of shares acquired by the Company in the share for share exchange with the former Gateley Heritage LLP members and the nominal value of shares issued to acquire them. Other reserve – Represents the difference between the actual and nominal value of shares issued by the Company in the acquisition of subsidiaries. Treasury reserve – Represents the repurchase of shares for future distribution by Group’s Employee Benefit Trust. Retained earnings – All other net gains and losses and transactions with owners not recognised anywhere else. Foreign currency translation reserve – Represents the movement in exchange rates back to the Group’s functional currency of profits and losses generated in foreign currencies. The accompanying notes on pages 65 to 118 form an integral part of these financial statements. 78 Cash flows from operating activities Profit for the year after tax Adjustments for: Depreciation and amortisation Financial income Financial expense Release of contingent consideration Interest charge on capitalised leases Equity settled share-based payments Loss/(profit) on disposal of property, plant and equipment Tax expense Increase in trade and other receivables Increase in trade and other payables Increase in provisions Cash generated from operations Tax paid Net cash flows from operating activities Investing activities Acquisition of property, plant and equipment Acquisition of other intangible assets Cash received on disposal of property, plant and equipment Acquisition of other investments Contingent consideration paid - acquisition of subsidiary Consideration paid on acquisitions, net of cash acquired Interest received Net cash used in investing activities Note 2022 £’000 2021 £’000 14,279 13,157 13/15/17 9 9 6 9 7 6 10 24 13 17 18 9 6,215 (194) 201 (135) 948 1,213 16 3,753 26,296 (10,233) 758 25 16,846 (4,497) 12,349 (775) (319) - - - (5,982) 194 (6,882) 6,869 (176) 416 - 957 956 (3) 3,151 25,327 (5,312) 9,216 226 29,457 (4,039) 25,418 (503) (10) 11 (134) (363) - 176 (823) 79 Gateley (Holdings) PlcAnnual report and financial statementsGateley (Holdings) Plc Annual report and financial statements Consolidated cash flow statement continued Financing activities Interest and other financial income paid Lease repayments Receipt of new revolving credit facility, net of refinancing costs Repayment of term bank loans Repayment of loans from former members of GCL Solicitors & Directors of IIS Proceeds from sale of own shares Acquisition of own shares Cash received for shares issued on exercise of SAYE/CSOP options Dividends paid Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 9 21 21 21 12 25 2022 £’000 (201) (3,870) 5,715 - - 90 (39) 1,768 (12,430) (8,967) (3,500) 19,605 16,105 2021 £’000 (416) (3,847) - (3,077) (729) 145 (288) 299 - (7,913) 16,682 2,923 19,605 The accompanying notes on pages 65 to 118 form an integral part of these financial statements. 80 81Business OverviewStrategic ReportCorporate GovernanceOur FinancialsNotes to the consolidated financial statements(forming part of the financial statements)1. Basis of preparation and significant accounting policiesGateley (Holdings) Plc is a Company incorporated and domiciled in the United Kingdom. The Parent Company’s acquisition of Gateley Plc and its acquisition of Gateley LLP have been assessed as being business combinations under common control which are scoped out of IFRS 3 ‘Business Combinations’. In accordance with the requirements of IAS 8 the Directors have selected an appropriate accounting policy to reflect the substance of this transaction. The Directors have chosen to apply merger accounting as outlined in UKGAAP (FRS102). This requires the Group to be consolidated at the date of the business combinations as though the Group structure has always been in place. No Goodwill has been recognised on this transaction.The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The parent company financial statements present information about the Company as a separate entity and not about its Group.The financial statements of Gateley (Holdings) Plc have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 3.The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in GBP, which is the functional currency of the Company, and the presentational currency for the Group.1.1 Measurement conventionThe financial statements are prepared on the historical cost basis except where adopted IFRSs require an alternative treatment. The principal variations relate to investment properties and financial instruments which are carried at fair value.1.2 Going concernSee full explanation on page 24 of the Strategic Report.Having reviewed the Group’s forecasts, which includes an analysis of both short term cash flow forecasts and longer term cash flow forecasts, the risk and uncertainties surrounding the current and future demand for legal services, and other reasonably possible variations in trading performance, mitigating actions available to management and the possible continued impact of Covid-19 the Group expects to be able to operate within the Group’s financing facilities.Sensitivity analysis has been performed in respect of specific scenarios which could negatively impact our future performance such as lower levels of revenue growth, lower than forecast receipts of cash, and reduced levels of gross margin expansion. In addition, the Directors have also considered further mitigating actions such as lower capital expenditure and other short-term cash management activities within the Group’s control. On this basis, the Directors have a reasonable basis to conclude that the Group is forecast to continue to trade in line with existing financing facilities for the foreseeable future.Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing the financial statements.1.3 Basis of consolidationOn 29 May 2015, the Company acquired 100 per cent of the issued share capital of Gateley Plc which had, on the same day, acquired the business assets and liabilities of Gateley Heritage LLP, formerly the partnership of Gateley LLP. Following this Group reorganisation the financial statements for the year ended 30 April 2016 were prepared on a merger accounting basis as though this Group structure had always been in place.Although the share for share exchange resulted in a change of legal ownership, in substance these financial statements reflect the continuation of the pre-existing Group, headed by Gateley LLP.SubsidiariesSubsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group’s primary consideration is voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies used into line with those used by the Group.Notes to the consolidated financial statements continued Audit exemption of subsidiaries The following subsidiaries are exempt from the requirements of the UK Companies Act 2006 relating to the audit of individual accounts by virtue of s479A of the Act. Name Gateley UK LLP Gateley EBT Limited Gateley Capitus Limited Gateley Hamer Limited Gateley Omega Limited Kiddy & Partners Limited International Investment Services Limited T-Three Consulting Limited T-Three Group Limited T-Three Holdings Limited Gateley Vinden Limited Matsa Holdings Limited Thomas Alexander Holdings Limited TVP Holdings Limited SP 2018 Limited Byrom Clark Roberts Limited Smithers Purslow Limited Smithers Purslow Group Limited Ainsley Stokes Limited Adamson Jones Holdings Limited Adamson Jones IP Limited GEG Services Limited Registered number OC315778 09576648 03324995 03948095 13367322 11379755 08597472 03959623 06495180 04579021 03830233 08293396 02280956 06548795 11344448 02390547 01402539 05508205 03219786 10698979 07188937 12374579 The outstanding liabilities at 30 April 2022 of the above named subsidiaries have been guaranteed by the Company pursuant to s479A to s479C of the Act. In the opinion of the directors, the possibility of the guarantee being called upon is remote. 1.4 Foreign currency Transactions in foreign currencies are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated statement of profit and loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, sterling, at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from the translation of foreign operations are reported as an item of other comprehensive income and accumulated in the foreign currency reserve. 1.5 Classification of financial instruments issued by the Group IFRS 9 ‘Financial Instruments’ specifies how an entity should classify and measure financial assets including some hybrid contracts. Financial assets are to be classified on principle-based requirements dependent on the assets contractual cash flow characteristics and the Group business model for managing those assets. The standard also introduced an impairment model that is to be applied to debt instruments measured at amortised cost or fair value through other comprehensive income, as well as trade receivables and contract assets. Under the model, expected credit losses are to be recognised against financial assets. Expected credit losses have been calculated in relation to debt securities and over the lifetime of trade and other receivables in line with the approach provided within the standard. The Group have based the assessment of the expected credit losses on a number of factors including the credit risk of the asset upon initial recognition as well as observed actual losses against classes of financial assets and specific client and industry knowledge held by fee earners. Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and (b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the financial instruments (including members’ capital of subsidiary LLP’s) are classified as a financial liability. Profit distributions relating to equity instruments are debited direct to equity. Business Overview Strategic Report Corporate Governance Our Financials 1.6 Non derivative financial instruments Financial assets The Group’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Group becomes party to the contractual provisions of the instrument. i) Investments Other investments in equity securities held by the Group that were previously classified as being available-for-sale and are stated at fair value, have been classified as equity investments measured at fair value through other comprehensive income under IFRS 9. ii) Trade and other receivables Trade and other receivables (except unbilled amounts for client work) are initially recognised at their transaction price and carried at amortised cost under IFRS 9. In line with IFRS 9, the Group recognises as disclosed in note 19 and 20 any expected credit loss against trade receivables in order to recognise the inherent risk that the Group may not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision recorded is based on a broad range of information including past events, current conditions and forecasts of the future cash flows of the asset and is recognised in the statement of profit and loss in other operating expenses. iii) Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at call with banks. For the purpose of the consolidated cash flow statement, cash and cash equivalents includes bank overdrafts in addition to the definition above. iv) Treasury shares The Group operates an Employee Benefit Trust (“EBT”) under which ordinary shares have been issued and are held by the EBT. These are treated as treasury shares under IAS 32 and are added to the Treasury Share Reserve. Financial Liabilities Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities. The Group’s financial liabilities comprise trade and other payables, borrowings, contingent consideration, members’ capital and amounts due to members. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method with the exception of contingent consideration that is measured at fair value through profit or loss. i) Bank borrowings All loans and borrowings are initially recognised at the fair value of the consideration received net of issue costs associated with the borrowing. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit and loss over the period of the borrowings using the effective interest method. Financial expenses comprise interest expense on borrowings. ii) Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. iii) Contingent consideration Contingent consideration is initially recognised and carried at the fair value. Following the end of the measurement period contingent consideration is continually remeasured to fair value with changes in fair value being reflected in profit or loss. Any interest payable on the balance is reflected in the value of the liability and charged to Profit and Loss as it arises. 1.7 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation and impairment charges. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation is calculated to write off the cost of property, plant and equipment less the estimated residual value on a straight-line basis over the expected useful economic life of the assets concerned. Estimated residual values are revised annually. The useful lives over which these assets are depreciated are: Leasehold improvements over the term of the lease Equipment 33.3% straight line Fixtures and fittings 20% straight line Right-of-use assets term of the lease (between 1 and 10 years) 1.8 Leases The Group leases offices, equipment and vehicles. Rental contracts are for periods of between 1 and 10 years. Lease terms are negotiated on a lease by lease basis and contain a variety of terms and conditions. The Group assesses whether a contract is or contains a lease at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (being those assets with a value less than £5,000 when new). For short term and low value leases, the Group recognises the lease payments as an operating expense on a straight line basis over the term of the lease. 82 83 Gateley (Holdings) PlcAnnual report and financial statements Notes to the consolidated financial statements continued Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments: • • • • • • fixed payments (including in-substance fixed payments), less any lease incentives receivable; variable lease payments that are based on an index or a rate; amounts expected to be payable by the Group under residual value guarantees; the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term assumed reflects the Group exercising that option. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. The lease liability is presented as a separate line in the consolidated statement of financial position. Right-of-use assets are recognised at commencement of the lease and initially measured at the amount of the lease liability, plus any incremental costs of obtaining the lease and any lease payments made at or before the leased asset is available for use by the Group. Subsequent to initial recognition, the lease liability is reduced for payments made and increased to reflect interest on the lease liability (using the effective interest method). The related right-of-use asset is depreciated over the term of the lease or, if shorter, the useful economic life of the leased asset. The lease term shall include the period of an extension option where it is reasonably certain that the option will be exercised. Interest on the lease liability is recognised in the Statement of Comprehensive Income. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: the lease term has changed or there is a significant change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); • • 84 a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The Group did not make any such adjustments during the periods presented. In May 2020 the International Accounting Standards Board issued COVID-19-Related Rent Concessions (the 2020 amendments) which amended IFRS 16 Leases. These amendments introduced an optional practical expedient providing lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease modification. The Group has applied this practical expedient where applicable, the impact of this election and any COVID-19 related rent concession have not had a material impact on the closing value of the right-of-use asset or lease liability at 30 April 2022. 1.9 Business combinations Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Acquisitions on or after 1 January 2010 For acquisitions on or after 1 January 2010, the Group measures goodwill at the acquisition date as: • • • • the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. Any interest payable on the balance is reflected in the value of the liability and charged monthly to the Statement of Profit and Loss as it arises. Further detail on contingent consideration is disclosed in note 16. Business Overview Strategic Report Corporate Governance Our Financials On a transaction-by-transaction basis, the Group elects to measure non-controlling interests, which have both present ownership interests and are entitled to a proportionate share of net assets of the acquiree in the event of liquidation, either at its fair value or at its proportionate interest in the recognised amount of the identifiable net assets of the acquiree at the acquisition date. All other non-controlling interests are measured at their fair value at the acquisition date. 1.10 Intangible assets and goodwill Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee. Other intangible assets Other intangible assets, including software licences, expenditure on internally generated goodwill, brands and software, customer contracts and relationships are capitalised at cost and amortised on a straight-line basis over their estimated useful economic lives through operating expenses. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Customer lists Customer lists that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation and impairment losses (see accounting policy ‘Impairment of assets’). Cost reflects Management’s judgement of the fair value of the individual intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset, discounted at an appropriate discount rate. Brand value Certain acquisitions have retained their trading name due to the value of the brand in their specific market place. Brand value is amortised over a period of three or five years based on the Directors assessment of the future life of the brand, supported by trading history. Internally generated computer software Costs associated with maintaining computer software programs are recognised as an expense when incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets where the following criteria are met: – – it is technically feasible to complete the software product so that it will be available for use; Management intends to complete the software product and use or sell it; – – – – there is an ability to sell or use the software product; it can be demonstrated how the software product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell software product are available; and the expenditure attributable to the software product during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed five years. Computer software under development is not amortised. Amortisation starts from the date on which the software is available for use. If a decision is made to halt development then the cost is immediately expensed. Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each statement of financial position date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Customer lists and brands Computer software 3 to 15 years 3 years 1.11 Investment property Investment properties are properties which are held either to earn rental income or for capital appreciation or for both. Investment properties are stated at fair value. Any gain or loss arising from a change in fair value is recognised in profit or loss. 1.12 Impairment excluding investment properties Financial assets (including receivables) A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether it is impaired. Management assess impairment of financial assets based on a broad range of information, including past events, current conditions and forecasts of the future cash flows of the asset that can be estimated reliably. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Under IFRS 9 the Group recognises expected credit losses (ECL’s) on receivables through application of the simplified method. The 85 Gateley (Holdings) PlcAnnual report and financial statements Notes to the consolidated financial statements continued ECL’s are determined using historic credit loss experience adjusted for forward-looking factors and specific provisions based on Management knowledge and expertise. Intangibles and property, plant and equipment (non-financial assets) The carrying amount of the Group’s assets including property, plant and equipment and intangibles other than goodwill is reviewed at each year end date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss where it relates to an amount charged to profit or loss. Goodwill (non-financial asset) Goodwill is capitalised as an intangible asset and is not amortised but tested for impairment annually and when there are any indications that its carrying value is not recoverable. As such, goodwill is stated at cost less any provision for impairment in value. For impairment testing purposes, goodwill is allocated to cash-generating units. If a subsidiary undertaking is subsequently sold, goodwill arising on acquisition is taken into account in determining the profit or loss on sale. 1.13 Employee benefits Defined contribution plans A defined contribution plan is a post-employment benefit plan under which the company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of profit and loss in the periods during which services are rendered by employees. Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payment transactions The Group operates several equity settled share based compensation plans. The grant date fair value of share-based payment awards made to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date, measured at the grant date fair value of the award. At each reporting date, the Group revises its estimates of the number of share incentives which are expected to vest. The impact of the revision of original estimates is recognised in the income statement with a corresponding adjustment to equity. 1.14 Own shares held by EBT trust (treasury reserve) Transactions of the group-sponsored EBT trust are included in the Group financial statements. In particular, the trust’s purchases and sales of shares in the Company are recognised directly within equity. 1.15 Provisions Professional indemnity provision A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Where material, the impact of the time value of money is taken into account by discounting the expected future cash flow at a pre-tax rate, which reflects risks specific to the liability. Insurance cover is maintained in respect of professional negligence claims. This cover is principally written through insurance companies with coverage of up to £150 million for each claim. Premiums are expensed as they fall due with prepayments or accruals being recognised accordingly. Expected reimbursements are recognised once they become receivable. The liability and the associated reimbursement asset are shown separately in the financial statements. Where outflow of resources is considered probable and reliable estimates can be made, provision is made for the cost (including related legal costs) of settling professional negligence claims brought against the Group by third parties and disciplinary proceedings brought by regulatory authorities. Amounts provided for are based on Management’s assessment of the specific circumstances in each case. No separate disclosure is made of the detail of such claims and proceedings, as to do so could seriously prejudice the position of the Group. In the event the insurance companies cannot settle the full liability, the liability will revert to the Group. Business Overview Strategic Report Corporate Governance Our Financials Dilapidations provision The Group recognise a provision for the future costs of dilapidations on leased office space. The provision is an estimate of the total cost to return applicable office space to its original condition at the end of the lease term, spread over the term of the lease. The estimated total cost is based on previous dilapidation expense per square foot of office space. 1.16 Revenue recognition IFRS 15 Revenue from contracts with customers Under IFRS 15 Revenue from contracts with customers, revenue is recognised either over time or at a point in time. The model uses a contract based five-step analysis of transactions to determine when, and how much, revenue is recognised; this includes the matching of stand-alone process for services provided to the satisfaction of performance obligations. The Group considers that there are two contract types in issue in the performance of the Group’s professional services, being non-contingent and contingent contracts. Non-contingent contracts Non-contingent work is typically recognised over the duration of the contract in line with the number of hours charged to the engagement at a pre-established rate. Under IFRS 15 the hours worked on these engagements are considered to be the satisfaction of the performance obligation, therefore where collection of revenue is considered probable, it is recognised in line with the hours performed. Contingent contracts Contingent work is typically recognised at a point in time, once the pre-agreed stages of the contract performance are reached or concluded as a result of an event linked to each work type performance. In line with IFRS 15 the Group recognises revenue on these contracts at a point in time once the uncertainty over the contingent event has been satisfied as this is the point at which the performance obligation is considered to have been met. Recognition of accrued revenue The standard requires both contract assets and liabilities being recognised. Whilst IFRS 15 requires that when an entity has an unconditional right to consideration then at this point the contract asset would become a trade receivable regardless of whether a bill has been issued. However, the Group does not consider the right to be unconditional until the point of billing at which point the fee amount has been agreed and confirmed with the customer. Therefore, these unbilled amounts are recognised as contract assets as opposed to trade receivables. The Group have also recognised a contract liability under the standard that represents the amount of income that has been invoiced in advance of the service being performed. Recoverable expenses Recoverable expenses and disbursements represent charges from other professional service firms, sub-contractors and out of pocket expenses incurred in respect of assignments and expected to be recovered from clients. Other income Rental income, generated through the subletting of office space, is recognised in line with IFRS 16, on a straight line basis over the lease term. Other income includes the recognition of amounts received in relation to the termination of a software development contract and government supported income from its Coronavirus Job Retention scheme. Income is recognised in the same period as the corresponding employee costs. Government grant income The Group applies the performance model to government grant income, grants are recognised as income once all of the performance conditions have been met. In the year ended 30 April 2021, the Group utilised the Coronavirus Job Retention Scheme (CJRS) which meets the criteria of a government grant under IAS 20. CJRS allowed the Group to place staff on temporary leave (furlough) and claim the cost of 80% of employee’s payroll costs from the government. Under the performance model the Group has recognised the income on a straight line basis over the period of the furlough. This income has been recognised in other income within the statement of profit and loss. The Group has not utilised the CJRS during the year ended 30 April 2022. 1.17 Short term and low value lease payments Payments made on short term and low value leases are recognised in the statement of profit and loss on a straight-line basis over the term of the lease in prior year comparatives and where current year leases meet the short-term lease criteria under IFRS 16. 1.18 Financial income and expenses Financial expenses comprise interest payable and exchange losses that are recognised in the statement of profit and loss. Financial income comprises interest receivable on funds invested and exchange gains. Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. 1.19 Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates and laws enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial 86 87 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statements continued recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates and laws enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. 1.20 Non-underlying items Non-underlying items are non-trading and or non-cash items disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of non- underlying items: • Share based payment charges: such charges are treated as non-underlying as the gain realised on the options granted is settled in shares not cash and therefore does not impact the income statement. The IFRS 2 charge is taken to the income statement, these expenses are treated as non-underlying items as they are either non-cash or non-recurring in nature. • Amortisation in respect of intangible fixed assets: these costs are treated and non-underlying as they are non-cash items. The tax effect of the above is also included if considered significant. 1.21 Exceptional items Exceptional items are one off transactions, unrelated to the underlying trading performance of the Group disclosed separately in the Consolidated Statement of Profit and Loss where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of exceptional items: • • • • Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations. Impairment charges in respect of intangible fixed assets: these costs are treated as exceptional due to their one off nature. Non-typical expenses associated with acquisitions. Costs incurred as part of significant refinancing activities. The tax effect of the above is also included if considered significant. Details in respect of the non-underlying items recognised in the current and prior year are set out in note 6 to the Financial Statements. 1.22 Ordinary dividends Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders. 2. Accounting developments New and revised IFRS in issue but not yet effective At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective and have not been applied early to the Group: Revised IFRS Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16 Reference to the Conceptual Framework – Amendments to IFRS 3 Onerous Contracts – Cost of Fulfilling a Contract – Amendments to IAS 37 Annual Improvements to IFRS Standards 2018–2020 Reference to the Conceptual Framework – Amendments to IFRS 3 Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 Definition of Accounting Estimates - Amendments to IAS 8 Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 Effective date 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2023 1 January 2023 1 January 2023 1 January 2023 The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods. 3. Critical accounting judgements and key sources of estimation uncertainty The preparation of consolidated financial statements under IFRS requires Management to make estimates and assumptions which affect the reported amount of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If in the future such estimates and assumptions, which are based on Management’s best judgement at the date of preparation of the financial statements, deviate from actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change. The key areas where a higher degree of judgement or complexity arises, or where estimates and assumptions are significant to the consolidated financial statements are discussed below. Business Overview Strategic Report Corporate Governance Our Financials Estimates Impairment assessment of trade receivables (note 20) and unbilled revenue (note 19) The carrying amount of trade receivables on client assignment is held at selling price less lifetime estimated credit losses (ECLs). The inclusions of the ECLs contributes to reducing the risk relating to the amounts of debts that are recoverable or not recoverable. ECLs have been estimated based on historic credit losses within each operating segment for each ageing bracket. These credit losses calculated have then been adjusted where appropriate for the inclusion of Management and legal professional judgement to account for any forward looking information on specific clients. Management have performed sensitivity analysis over the ECL applied to trade receivables: +1% increase in ECL -1% decrease in ECL (Decrease)/ increase in value of trade receivables £’000 (502) 502 Management have also applied the same expectation of credit losses for trade receivables to contract assets to assess the recoverability of unbilled revenue recognised in the consolidated accounts Management have performed sensitivity analysis on the expectation of recoverability applied to the contract assets balance: (Decrease)/ increase in value of contract assets £’000 (172) 172 +1% increase in ECL rate -1% decrease in ECL rate Management believe that the provision in place is sufficiently prudent and therefore any increase in the rate applied is unlikely. Unbilled revenue on client assignments (note 19) The valuation of unbilled revenue involves detailed understanding of contractual terms with clients, and affects the amount of revenue recognised. The valuation is based on an estimate of the amount expected to be recoverable from clients on unbilled items based on such factors as time spent, the expertise and skills provided and the stage of completion of the assignment. The principal uncertainty over this estimation is a result of the amounts not yet being billed to, or recognised by the client. The extent of such uncertainty is increased on contingent engagements as there is no certainty that the amount will be recoverable at all until the contingent event is satisfied. Management look to reduce this level of uncertainty by conducting comprehensive risk assessments over each engagement undertaken to minimise the overall risk held by the Group. Provision is made for such factors as historical recoverability rates, contingencies, agreements with clients, external expert’s opinion and the potential credit risks, following interactions between legal staff, finance and clients. In assessing whether unbilled time is recognised as unbilled revenue, Management are required to make estimates in determining the point at which the contingency is resolved and when the fair value of consideration can be measured reliably. Where a case is contingent at the statement of financial position date, no revenue is recognised. Where entitlement to income is certain it is recognised at selling price. Valuation of intangibles (note 15) Measurement of intangible assets relating to acquisitions: In attributing value to intangible assets arising on acquisition, Management has made certain assumptions in terms of cash flows attributable to intellectual property and customer relationships. The key assumptions made relate to the valuation of the brand, where the acquired brand is retained by the entity, and the customer list. The value of such intangibles has been estimated based on the amount of revenue expected to be generated by them. The revenue estimations rely on annual growth rates. Management have selected the appropriate rates based on a combination of observed historical growth, industry norms and forecasted influencing factors. The rates applied reflect previous growth rates, with sensitivities indicating that variations in the actual rate achieved are unlikely to materially impact the valuation of the intangible assets. Judgements Application of IFRS 3 Business Combinations – contingent consideration, remuneration vs consideration (note 15) Accounting for contingent consideration under IFRS 3 requires significant judgement to be exercised where selling shareholders remain in employment, post-acquisition. A detailed understanding of key acquisition agreements is required in order to assess the substance of the transaction against the requirements included within Appendix B of IFRS 3, in order to substantiate whether contingent consideration should be included within the initial acquisition accounting or charged to profit or loss as a remuneration expense over the period of the earn out. In the current year two acquisitions included contingent consideration arrangements with selling shareholders who have remained in continuing employment within the Group. Management has performed a detailed review of the acquisition agreements and concluded that whilst judgement is required, the employment clauses are not substantive and thus, the arrangements are deemed to be additional consideration. The effect on these financial statements if the arrangements were to be accounted for as remuneration rather than additional consideration would be a reduction in profit of £123k. 88 89 Gateley (Holdings) PlcAnnual report and financial statementsBusiness Overview Strategic Report Corporate Governance Our Financials 4. Revenue and operating segments 2022 The Chief Operating Decision Maker (“CODM”) is the Strategic Board. The Group have the following four strategic divisions, which are its reportable segments. These divisions offer a mixture of legal and consultancy services to clients. With effect from 1 May 2021 all service lines are managed through two separately reporting lines renamed Gateley Legal and Gateley Consultancy. The following summary describes the operations of each reportable segment as reported up to 30 April 2022 and also the new service lines: Reportable segment Legal service lines (Gateley Legal) Consultancy service lines (Gateley Consultancy) Corporate Business services People Property Banking Corporate Restructuring advisory Taxation GEG Services International Investment Services Commercial Adamson Jones Commercial Dispute Resolution/Litigation Tweed (reputation, media and privacy law) Employment Pension Private client Real Estate Real Estate Dispute Resolution Construction Planning Entrust Pension Kiddy and Partners T-three Capitus Hamer/Persona Smithers Purslow Vinden/Tozer Gallagher The revenue and operating profit are attributable to the principal activities of the Group. A geographical analysis of revenue is given below: United Kingdom Europe Middle East North and South America Asia Other 2022 £’000 127,386 5,336 923 692 1,501 1,411 2021 £’000 109,934 6,231 937 1,045 802 2,426 137,249 121,375 The Group has no individual customers that represent more than 10% of revenue in either the 2022 or 2021 financial year. The Group’s assets and costs are predominately located in the UK save for those assets and costs located in the United Arab Emirates (UAE) via its Dubai subsidiary. Net Group assets of £0.08m (2021: Net Group assets of £0.07m) are located in the Group’s Dubai subsidiary. Revenue generated by the Group’s Dubai subsidiary to customers in the UAE totalled £0.92m (2021: £0.94m) as disclosed above as due from the customers in the Middle East. Corporate £’000 Business Services £’000 People £’000 Property £’000 Total segments £’000 Other expense and movement in unbilled revenue £’000 Total £’000 Segment revenue from services transferred at a point in time Segment revenue from services transferred over time Total Segment revenue 10,175 3,467 5,901 10,994 30,537 305 30,842 27,889 38,064 14,490 17,957 13,264 19,165 50,426 61,420 106,069 136,606 338 643 106,407 137,249 Segment contribution (as reported internally) 15,373 5,733 6,919 22,956 50,981 643 51,624 Costs not allocated to segments: Other operating income Personnel costs Depreciation and amortisation Other operating expenses Share based payment charges Exceptional costs Net financial expense Profit for the financial year before taxation - (10,487) (6,215) (13,852) (1,213) (870) (955) 18,032 90 91 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials Contract assets Under IFRS 15 the Group recognises any goods or services transferred to the customer before the customer pays consideration, or before payment is due, as a contract asset . These assets differ from accounts receivables. Accounts receivable are the amounts that have been billed to the client and the revenue recognised, whereas these contract assets are amounts of work in progress where work has been performed, yet the amounts have not yet been billed to the client. Due to the nature of the services delivered by the Group the significant component of the cost of delivery is staff costs. As a result, there is little to no judgement exercised in determining the costs incurred as they are driven by the time recorded by fee earners. Contract assets are subject to impairment under IFRS 9. No other financial information has been disclosed as it is not provided to the CODM on a regular basis. Contract Liabilities Under IFRS 15 the Group is required to recognise contract liabilities based on those amounts recognised against contracts for which the satisfaction of performance obligations has not yet been met. These liabilities relate to the deferred income recognised within Kiddy & Partners, T-three Consulting Limited and GEG Services Limited as a result of their billing structure. The amounts recognised reflect the agreed cost of the services to be performed and are realised in line with the ongoing cost of delivery. Due to the nature of the services provided, the main component of this cost of delivery is staff costs, as a result there is little to no judgement exercised in determining the value of the liability held at year end. Practical expedients under IFRS 15 Under IFRS 15 companies are required to disclose the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied at the end of the reporting period. However, only a small proportion of revenue contracts in issuance are for fixed amounts, rather the company has a right to consideration from the customer in an amount that corresponds directly with the value to the customer of the business’ performance completed to date. Therefore, the Group considers it impractical to estimate the potential value of unsatisfied performance obligations and has elected to apply the practical expedient available under IFRS 15. 5. Other operating income Rental and service charge income COVID-19 Job retention scheme income Cash incentives – Bank account switching income Profit on sale of fixed assets Amounts received against terminated contract 2022 £’000 - - - - - - 2021 £’000 2 1,945 1 3 500 2,451 2021 Segment revenue from services transferred at a point in time Segment revenue from services transferred over time Total segmental revenue Segment contribution (as reported internally) Costs not allocated to segments: Other operating income Personnel costs Depreciation and amortisation Other operating expenses Share based payment charge Exceptional costs Net financial expense Profit for the financial year before taxation Banking and Financial Services £’000 Corporate £’000 Business Services £’000 Employee Pensions and Benefits £’000 Property £’000 Total segments £’000 Other expenses and movement in unbilled revenue £’000 Total £’000 3,239 7,437 1,357 3,780 13,289 29,102 1,361 30,463 12,774 16,013 14,450 21,887 11,996 13,353 10,472 14,252 39,654 52,943 89,346 118,448 1,566 90,912 2,927 121,375 5,291 7,100 5,688 4,597 24,406 47,082 2,927 50,009 2,448 (8,240) (6,869) (18,887) (956) - (1,197) 16,308 Group entities may be engaged on a contingent basis; in such cases the Group considers the satisfaction of the contingent event as the sole performance obligation within the contract. Fees are only billed once the contingent event has been satisfied. The initial financing of these engagements is met by the Group. Due to the nature and timing of the billing, such engagements influence the contract asset balance held in the balance sheet at year end. In the majority of cases the contingent event is expected to be concluded within one year of the engagement date. The Group operates standard payment terms of 30 days. £9.2 million of the current period revenue is derived from services satisfied, in part, in the previous period. Services transferred over time For non-contingent engagements, fee earners’ hourly rates are determined at the point of engagement with all hours attributed to the engagement fully and accurately recorded. The recorded hours are then translated into fees to be billed and invoiced on a monthly basis. The Group typically operates on 30 days credit terms, in line with IFRS 15 the performance obligations are fulfilled over time with revenue being recognised in line with the hours worked. 92 93 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials 7. Personnel costs The average number of persons employed by the Group during the year, analysed by category, was as follows: Legal and professional staff Administrative staff The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Pension costs Non-underlying items (see note 6) Share based payment expense – Gateley Plc Share based payment expense – Gateley Smithers Purslow Limited Number of employees 2021 2022 800 350 1,150 2022 £’000 76,672 7,769 2,076 86,517 1,100 113 87,730 770 343 1,113 2021 £’000 68,020 7,736 1,704 77,460 956 - 78,416 Details of the Directors’ remuneration and share interests are given in the Summary of Directors’ remuneration for the year within the Directors’ Remuneration Report on page 43. 8. Share based payments Group At the year end the Group has nine share based payment schemes in existence. Save As You Earn scheme (‘SAYE’) The Group operates a HMRC approved SAYE scheme for all staff. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at a discount of 20% of the market price determined at the grant date. During the year 64,549 SAYE 17/18 options were exercised and the remaining 193,063 had lapsed by 30 April 2022. The accumulated IFRS2 charge of £155,381 was recycled through retained earnings in the prior period. During the year 407,963 SAYE 18/19 options vested with 237,450 being exercised by 30 April 2022 leaving 170,513 options still to be exercised. New shares were issued to satisfy these options being 237,450 10p shares with a nominal value of £23,745. The accumulated IFRS2 charge of £135,078 has been recycled through retained earnings. 6. Expenses and auditor’s remuneration Included in operating profit are the following: Depreciation on tangible assets (see note 13) Depreciation on right-of-use asset (see notes 13 and 29) Short term and low value lease payments (see note 29) Operating lease costs on property (see note 29) Other operating income – rent received Foreign exchange (gains)/losses Loss/(profit) on sale of fixed assets Non-underlying items Amortisation of intangible assets (see notes 15 and 17) Share based payment charges – Gateley Plc Share based payment charges – Gateley Smithers Purslow Limited Release of contingent consideration – International Investment Services Limited Exceptional items Acquisition costs One off remuneration charge – Gateley Smithers Purslow Limited Total non-underlying and exceptional items 2022 £’000 851 3,783 75 - - (58) 16 2022 £’000 1,581 1,100 113 (135) 2,659 373 497 3,529 2021 £’000 1,045 3,751 40 26 (2) 87 (3) 2021 £’000 2,073 956 - - 3,029 - - 3,029 Acquisition costs in the 2022 financial year represent professional fees in respect of the acquisition of SP 2018 Limited, Adamson Jones Holdings Limited and the business and assets of Tozer Gallagher LLP. Share based payment charges in Gateley Plc represent charges in accordance with IFRS 2 in respect of unexercised SAYE, CSOP, LTIP and RSA schemes (See note 8). Share based payment charges in Gateley Smithers Purslow Limited represent shares awarded to staff following the successful acquisition of SP 2018 Limited (See note 7 and 8). Auditor’s remuneration Fees payable to the Company’s Auditor in respect of audit services: Audit of these financial statements Audit of financial statements of subsidiaries of the Company Amounts receivable by the Company’s auditor and its associates in respect of: Other assurance services 2022 £’000 2021 £’000 85 20 105 31 73 15 88 44 Other assurance services relate to Solicitors Accounts Rules review with associated reporting to legal regulators. This work is entirely assurance focused. 94 95 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinued Company Share Option Plan (‘CSOP’) The Group operates an HMRC approved CSOP scheme for associates, senior associates, legal directors, equivalent positions in Gateley Group subsidiary companies and Senior Management positions in our support teams. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at the price on the date of grant. During the year 401,542 CSOPS 17/18 options were exercised and the remaining 26,603 had lapsed by 30 April 2022. New shares were issued to satisfy these options being 410,632 10p shares with a nominal value of £41,063. The accrued IFRS2 charge of £95,780 was recycled through retained earnings in the prior period. During the year 631,580 CSOPS 18/19 options vested with 447,494 being exercised by 30 April 2022 leaving 184,086 options still to be exercised. New shares were issued to satisfy these options being 447,494 10p shares with a nominal value of £44,749. The accumulated IFRS2 charge of £108,421 has been recycled through retained earnings. Long Term Incentive Plan (‘LTIP’) The Group operates an LTIP for the benefit of Executive Directors and Senior Management. Awards under the LTIP may be in the form of an option granted to the participant to receive ordinary shares on exercise dependent upon the achievement of profit related performance conditions. Performance conditions Options granted under the LTIP are only exercisable subject to the satisfaction of the following performance conditions which will determine the proportion of the option that will vest at the end of the three-year performance period. The awards will be subject to an adjusted fully diluted earnings per share performance measure as described in the table below: Adjusted, fully diluted earnings per Share Compound Annual Growth Rate (CAGR) over the three year period ending 30 April 2023/2025 Amount Vesting % Below 5% 5% Between 5% and 10% Above 10% 0% 25% Straight line vesting 100% The options will generally be exercisable after approval of the financial statements during the year of exercise. The performance period for any future awards under the LTIP will be a three-year period from the date of grant. Vested and unvested LTIP awards are subject to a formal malus and clawback mechanism. Grant of equity share options under the LTIP Certain senior employees and Executive Directors were granted options on 27 April 2022 based on performance conditions commencing on 1 May 2022. In total, 1,115,000 options have been granted which, subject to satisfying the above performance conditions, will vest in the year ending 30 April 2025. Restricted Share Award Plan (‘RSA’) The Group has introduced during the year an RSA for the benefit of Senior Management. Awards under the RSA entitle the option holder to participate in dividends however, the shares are restricted for a period of 5 years from issue, such that they cannot be traded. Business Overview Strategic Report Corporate Governance Our Financials The annual awards granted under all schemes are summarised below: Weighted average remaining contractual life Weighted average exercise price Originally granted Number Lapsed at 30 April 2021 Number At 1 May 2021 Number Granted during the year Number Lapsed during year Number Exercised in the year Number At 30 April 2022 Number SAYE SAYE 17/18- 15 September 2017 SAYE 18/19 – 21 September 2018 SAYE 19/20 – 30 September 2019 SAYE 20/21 – 6 November 2020 SAYE 21/22 – 25 August 2022 CSOPS CSOPS 17/18 – 3 October 2017 CSOPS 18/19 – 24 October 2018 CSOPS 20/21 – 7 July 2020 0 years £1.33 556,296 (298,684) 257,612 0 years £1.27 620,432 (168,463) 451,969 0.4 years £1.28 822,625 (125,652) 696,973 1.5 years £1.02 2,337,197 (47,113) 2,290,084 - - - - (92,760) (172,713) (193,063) (64,549) - (44,006) (237,450) 170,513 2.3 years £1.70 - - - 673,077 (14,925) 4,336,550 (639,912) 3,696,638 673,077 (517,467) (301,999) 3,550,249 - - - 604,213 2,117,371 658,152 0 years £1.65 581,162 (153,017) 428,145 0 years £1.44 812,131 (127,774) 684,357 1.2 years £1.35 976,797 (57,411) 919,386 2,370,090 (338,202) 2,031,888 (26,603) (401,542) - (52,777) (447,494) 184,086 (89,634) - 829,752 (169,014) (849,036) 1,013,838 LTIPS LTIPS 20/21 – 22 July 2020 LTIPS 27 April 2022 1.2 years 3.0 years £0.00 1,405,766 (38,339) 1,367,427 (130,992) £0.00 - - - 1,115,000 - 1,405,766 (38,339) 1,367,427 1,115,000 (130,992) RSA RSA 27 April 2022 5.0 years £0.00 - - - - - - 1,422,560 1,422,560 - - - - - - - 1,236,435 1,115,000 2,351,435 1,422,560 1,422,560 - - - - - 96 97 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials Fair value calculations The award is accounted for as equity-settled under IFRS 2. The fair value of awards which are subject to non-market based performance conditions is calculated using the Black Scholes option pricing model. The inputs to this model for awards granted during the financial year are detailed below: 10. Taxation Grant date Share price at date of grant Exercise price Volatility Expected life (years) Risk free rate Dividend yield Fair value per share Market based performance condition Non-market based performance condition/no performance condition SAYE LTIP RSA 25/8/21 27/4/22 27/4/22 £2.115 £2.175 £2.175 £1.70 29% 3.3 n/a 33% 3.3 n/a 33% 5.0 0.227% 1.522% 1.575% 4.53% 4.53% 0% - - - £0.44 £1.87 £2.175 Expected volatility was determined by using historical share price data of the Company since it listed on 8 June 2015. The expected life used in the model has been based on Management’s expectation of the minimum and maximum exercise period of each of the options granted. The total charge to the income statement for all schemes now in place, included within non-underlying items, is £1,213,000 (2021: £956,000). 9. Financial income and expense Recognised in profit and loss Financial income Interest income Total financial income Financial expense Interest expense on bank borrowings measured at amortised cost Interest on lease liability Total financial expense Net financial expense 2022 £’000 194 194 (201) (948) (1,149) (955) 2021 £’000 176 176 (416) (957) (1,373) (1,197) 98 Current tax expense Current tax on profits for the year Under/(over) provision of taxation in previous period Total current tax Deferred tax expense Origination and reversal of temporary differences Under provision on share-based payment charges Total deferred tax expense Total tax expense 2022 £’000 3,949 15 3,964 (211) - (211) 3,753 2021 £’000 3,749 (43) 3,706 (436) (119) (555) 3,151 The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows: Profit for the year (subject to corporation tax) Tax using the Company’s domestic tax rate of 19% Expenses not deductible for tax purposes Under/(over) provision of taxation in previous period Under provision on share-based payment charges Total tax expense 2022 £’000 18,032 3,426 312 15 - 3,753 2021 £’000 16,308 3,099 214 (43) (119) 3,151 The Finance Act 2021 increased the main rate of corporation tax to 25% from 1 April 2023. Closing deferred tax balances have therefore been valued at 19% or 25% (2021: 19%) depending on the date they expect to fully unwind. 11. Earnings per share Statutory earnings per share Weighted average number of ordinary shares in issue, being weighted average number of shares for calculating basic earnings per share Shares deemed to be issued for no consideration in respect of share based payments Weighted average number of ordinary shares for calculating diluted earnings per share Profit for the year and basic earnings attributable to ordinary equity shareholders Non-underlying and exceptional items (see note 6) Operating expenses Tax on non-underlying and exceptional items Underlying earnings before non-underlying and exceptional items 2022 Number 2021 Number 118,961,047 2,932,191 121,893,238 117,685,265 823,568 118,508,833 2022 £’000 14,279 3,529 (370) 17,438 2021 £’000 13,157 3,029 (576) 15,604 99 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials Earnings per share is calculated as follows: 13. Property, plant and equipment Basic earnings per ordinary share Diluted earnings per ordinary share Basic earnings per ordinary share before non-underlying and exceptional items Diluted earnings per ordinary share before non-underlying and exceptional items 12. Dividends Equity shares: Interim dividend in respect of 2021 (2.5p per share) - 28 June 2021 Final dividend in respect of 2021 (5p per share) - 8 October 2021 Interim dividend in respect of 2022 (3p per share) - 31 March 2022 2022 Pence 12.00 11.71 14.66 14.31 2022 £’000 2,940 5,908 3,582 12,430 2021 Pence 11.18 11.10 13.26 13.17 2021 £’000 - - - - The board proposes to recommend a final dividend of 5.5p (2021: 5p) per share at the AGM. If approved, this dividend will be paid in mid October 2022 to shareholders on the register at the close of business on 23 September 2022. The shares will go ex-dividend on 22 September 2022. This dividend has not been recognised as a liability in these final statements. Breach of Companies Acts requirements in respect of historic dividend payments - circular to shareholders The board has become aware of a technical issue in respect of the payment of a number of historic dividends paid by the Company. The Company has always filed its statutory annual accounts on time in accordance with the requirements of the Companies Act 2006 (the “Act”), and at all times had sufficient profits and other distributable reserves to justify the payment of dividends. However, the Company has not satisfied certain procedural requirements of the Act before paying certain of the dividends in the years since the Company’s IPO (the “Relevant Distributions”). These procedural requirements relate to the failure to file interim accounts at Companies House which justified the payment of interim dividends or the payment of final dividends before the circulation to members of the audited accounts of the Company in respect of the relevant financial year. The Company has been advised that, as a consequence of the above distributions being made otherwise than in accordance with the Act, it may have claims against past and present shareholders who were recipients of the Relevant Distributions and against those persons who were directors of the Company at the time of the Relevant Distributions. The Company wishes to put all potentially affected parties so far as possible in the position in which they were always intended to be had the Relevant Distributions been made in accordance with the procedural requirements of the Act. Accordingly, a resolution will be proposed at the upcoming annual general meeting, which will, if passed, give the board authority to enter into deeds of release to discharge these parties from any obligation to repay any amount to the Company in connection with the Relevant Distributions. The proposed ratification of the Relevant Distributions, and the entry by the Company into the Shareholders’ Deed of Release and Directors’ Deed of Release will not have any effect on the Company’s financial position. A circular to shareholders to convene the annual general meeting and giving more information about the Relevant Distributions will be sent to shareholders shortly. Leasehold improvements £’000 Equipment £’000 Fixtures and fittings £’000 Right-of-use assets £’000 462 - (145) 317 317 23 - 340 327 23 (141) 209 209 - 22 - 231 108 109 6,207 302 (16) 6,493 6,493 266 583 (110) 7,232 5,157 670 (13) 5,814 5,814 173 514 (94) 6,407 679 825 5,226 201 (31) 5,396 5,396 63 169 - 5,628 4,538 352 (30) 4,860 4,860 53 315 - 5,228 536 400 26,146 9,238 (1,359) 34,025 34,025 793 610 - 35,428 3,267 3,751 - 7,018 7,018 - 3,783 - 10,801 27,007 24,627 Cost Balance at 1 May 2020 Additions Disposal As at 30 April 2021 Balance at 1 May 2021 Arising on acquisition after fair value adjustments Additions Disposal As at 30 April 2022 Depreciation and impairment Balance at 1 May 2020 Depreciation charge for the year Eliminated on disposal Balance at 30 April 2021 Balance at 1 May 2021 Arising on acquisition after fair value adjustments Depreciation charge for the year Eliminated on disposal Balance at 30 April 2022 Net book value At 30 April 2021 At 30 April 2022 14. Investment property Fair value Balance at 1 May 2020 and 30 April 2021 Balance at 1 May 2021 and 30 April 2022 Total £’000 38,041 9,741 (1,551) 46,231 46,231 1,122 1,385 (110) 48,628 13,289 4,796 (184) 17,901 17,901 226 4,634 (94) 22,667 28,330 25,961 £’000 164 164 The Group’s interest in its freehold property at 216 Capella House, Celestia Falcon Drive, Cardiff Bay, Cardiff, CF10 4RE was valued as at 30 April 2022 at £164,000 (2021: £164,000) by the Directors based on current open market values for existing use. However, it was noted that a valuation by a qualified individual with relevant experience has not been performed during the year on the basis that it is not expected by the Directors to have materially changed. Rental income of £nil (2021: £nil) was received during the year. Services charges of £3,089 (2021: £3,089) were incurred during the year. 100 101 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials 15. Intangible assets and goodwill Deemed cost At 1 May 2020 Adjustment At 30 April 2021 Arising through business combinations At 30 April 2022 Amortisation At 1 May 2020 Charge for the year At 30 April 2021 Charge for the year At 30 April 2022 Carrying amounts At 30 April 2021 At 30 April 2022 Goodwill is allocated to the following cash generating units: Property Group Gateley Capitus Limited Gateley Hamer Limited GCL Solicitors (acquisition of trade and assets) Persona Associates Limited Gateley Vinden Limited Tozer Gallagher (acquisition of trade and assets) Gateley Smithers Purslow Limited Employment, Pensions and Benefits Group Kiddy & Partners Limited International Investment Services Limited T-three Consulting Limited Business services Group Gateley Tweed (acquisition of goodwill) Adamson Jones IP Limited 102 Goodwill £’000 12,329 (631) 11,698 8,440 20,138 - - - - - 11,698 20,138 Customer lists and brands £’000 9,850 - 9,850 9,929 19,779 3,741 2,042 5,783 1,544 7,327 4,067 12,452 2022 £’000 1,515 1,161 2,900 40 2,259 405 6,605 14,885 1,600 338 309 2,247 1,576 1,430 3,006 Total £’000 22,179 (631) 21,548 18,369 39,917 3,741 2,042 5,783 1,544 7,327 15,765 32,590 2021 £’000 1,515 1,161 2,900 40 2,259 - - 7,875 1,600 338 309 2,247 1,576 - 1,576 20,138 11,698 Impairment testing The Group tests goodwill annually for impairment. The impairment test involves determining the recoverable amount of the cash generating unit (CGU) to which the goodwill has been allocated. The Directors believe that each operating segment represents a cash generating unit for the business and as a result, impairment is tested for each segment, and all the assets of each segment are considered. The recoverable amount is based on the present value of expected future cash flows (value in use) which was determined to be higher than the carrying amount of goodwill so no impairment loss was recognised. Value in use was determined by discounting the future cash flows generated from the continuing operation of the Group and was based on the following key assumptions: • • A pre-tax discount rate of between 12 and 21% (2021: 12-21%) was applied in determining the recoverable amount. The discount rate is based on the Group’s average weighted cost of capital of 10.18% and adjusted according to the risks attributable to each CGU. The values assigned to the key assumptions represent Management’s estimate of expected future trends and are based on both external (industry experience, historic market performance and current estimates of risks associated with trading conditions) and internal sources (existing Management knowledge, track record and an in-depth understanding of the work types being performed). o o o o Growth rates of between 2% to 10% (2021: -25-10%) are based on Management’s understanding of the market opportunities for services provided pertaining to the industry in which each CGU is aligned. Increases in costs are based on current inflation rates and expected levels of recruitment needed to generate predicted revenue growth. Attrition rates are based on the historic experience and trends of client activity over a two to three year period and applied to future fee forecasts. Cash flows have been typically assessed over a five-year period which Management extrapolates cash using a terminal value calculation based on an estimated growth rate of 2%. The expected current UK economic growth forecasts for the legal services market is 2%. • The Group has conducted a sensitivity analysis on the impairment test of the CGU carrying value. The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of goodwill is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU. 16. Acquisitions During the year ended 30 April 2022 the Group completed three acquisitions, the table below summarises the consideration paid: Total fair value of identifiable assets and liabilities acquired Goodwill Total consideration Satisfied by: Cash Equity instruments Contingent cash consideration payable Contingent shares consideration payable Total consideration Net cash outflows arising on acquisition Cash consideration Acquisition costs Net cash acquired Net cash outflow arising on acquisition Total £’000 12,380 8,440 20,820 7,033 8,335 2,776 2,676 20,820 (7,033) (373) 1,051 (6,355) 103 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinued Business Overview Strategic Report Corporate Governance Our Financials Details of individual acquisitions are included below: Acquisition of Tozer Gallagher LLP On 22 July 2021 Gateley Vinden Limited acquired the business and assets of Tozer Gallagher LLP, a leading practice of chartered quantity surveyors and construction consultants. Tozer Gallagher was founded over 30 years ago and is a nationally recognised and highly respected practice of chartered quantity surveyors and construction consultants based in Manchester and London. The business specialises in built environment consultancy, fund monitoring services, and surety advisory. The amounts recognised in respect of identifiable assets acquired and liabilities assumed are as set out in the table below: Property, plant and equipment Intangible asset relating to customer list and brand Prepayments Accrued income Total assets Accruals and other payables Lease liability Deferred tax Total liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Total consideration Satisfied by: Initial cash consideration paid Issue of 142,179 new 10p ordinary shares in Gateley (Holdings) Plc Contingent cash consideration payable Total consideration Net cash outflow arising on acquisition Cash consideration Net cash acquired Net cash outflow arising on acquisition Pre-acquisition carrying amount £’000 Policy alignment and fair value adjustments £’000 7 - 14 101 122 (4) - - (4) 118 36 393 - - 429 - (36) (98) (134) 295 Total £’000 43 393 14 101 551 (4) (36) (98) (138) 413 405 818 418 300 100 818 (418) - (418) Acquisition of the Adamson Jones Holdings Limited (“Adamson Jones”) On 7 January 2022 the Company acquired the entire issued share capital of Adamson Jones via the acquisition of the entire issued share capital of Adamson Jones Holdings Limited that owns 100% of the entire issued share capital of Adamson Jones IP Limited. Adamson Jones provides intellectual property (IP) services encompassing patent, design and trademark protection advice in the UK, Europe and around the world. The amounts recognised in respect of identifiable assets acquired and liabilities assumed are as set out in the table below: Property, plant and equipment Cash Intangible asset relating to customer list and brand Trade receivables Total assets Trade payables Deferred income Accruals and other payables Other tax and social security Deferred tax Total liabilities Total identifiable net assets at fair value Goodwill arising on acquisition Total consideration Satisfied by: Initial cash consideration paid Issue of 543,668 new 10p ordinary shares in Gateley (Holdings) Plc Total consideration Net cash outflow arising on acquisition Cash paid Acquisition costs Net cash acquired Net cash outflow arising on acquisition Pre-acquisition carrying amount £’000 Policy alignment and fair value adjustments £’000 38 48 - 564 650 (257) (11) (30) (82) - (380) 270 - - 1,067 - 1,067 - - - - (267) (267) 800 Total £’000 38 48 1,067 564 1,717 (257) (11) (30) (82) (267) (647) 1,070 1,430 2,500 1,255 1,245 2,500 (1,255) (36) 48 (1,243) The goodwill of £405,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes. A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on Tozer Gallagher achieving revenue in excess of £850k in the 12 month period ending 21 July 2022. The sellers will receive £1 of contingent consideration for every £1 they exceed £850k up to a maximum consideration of £0.1m. The contingent consideration totalling £100,000 will be settled during September 2022. From the date of acquisition Tozer Gallagher has contributed £0.7m of revenue to the Group’s Statement of Comprehensive Income. If the acquisition had been completed on the first day of the financial year, Group revenue would have been higher by £0.2m. The profit contributed is not separately identifiable due to its trade and assets being incorporated into Gateley Vinden Limited upon acquisition. The goodwill of £1,430,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes. From the date of acquisition Adamson Jones has contributed £1.2m of revenue to the Group’s Statement of Comprehensive Income together with after tax profit of £0.1m. If the acquisition had been completed on the first day of the financial year, Group revenue and profit after tax would have been higher by £2.4m and £0.3m respectively. 104 105 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedAcquisition of Gateley Smithers Purslow Limited (formerly Smithers Purslow Limited) (‘Smithers Purslow’) On 19 April 2022 Gateley (Holdings) Plc acquired the entire issued share capital of Gateley Smithers Purslow Limited (formerly Smithers Purslow Limited) via the acquisition of the entire issued share capital of SP 2018 Limited. Smithers Purslow is a specialist business offering corporate advisory, dispute and consultancy to the built environment in the property and construction markets. Pre-acquisition carrying amount £’000 Policy alignment and fair value adjustments £’000 69 - 2,560 1,003 2,531 411 6,574 (417) (559) (406) - (585) (12) (1,979) 4,595 Property, plant and equipment Intangible asset relating to customer list and brand Work in progress Cash Trade receivables Prepayments and accrued income Total assets Trade payables Accruals and other payables Current tax Lease liability Contingent liability Other tax and social security Deferred tax Total liabilities Total identifiable net liabilities at fair value Goodwill arising on acquisition Total consideration Satisfied by: Initial cash consideration paid Issue of 3,312,322 new 10p ordinary shares in Gateley (Holdings) Plc Contingent cash consideration payable Contingent share consideration payable Total consideration Net cash outflow arising on acquisition Cash paid Acquisition costs Net cash acquired Net cash outflow arising on acquisition Total £’000 826 8,469 2,560 1,003 2,531 411 757 8,469 - - - - 9,226 15,800 - - - (757) (50) - (2,117) (2,924) 6,302 (417) (559) (406) (757) (50) (585) (2,129) (4,903) 10,897 6,605 17,502 5,360 6,790 2,676 2,676 17,502 (5,360) (192) 1,003 (4,549) Business Overview Strategic Report Corporate Governance Our Financials A contingent consideration arrangement was entered into as part of the acquisition. A further £7.85 million could be payable with any payment subject to Smithers Purslow achieving at least £4.5 million of EBITDA over the 24 months to 30 September 2023. Such payment is to be split in shares and cash as agreed between the Sellers and the Company, providing no Seller is entitled to receive more than 50% of their total consideration in cash. From the date of acquisition Smithers Purslow has contributed £0.6m of revenue to the Group’s Statement of Comprehensive Income together with after tax profit (before exceptional items) of £0.2m. If the acquisition had been completed on the first day of the financial year, Group revenue and profit after tax would have been higher by £11.4m and £1.2m respectively. 17. Other intangible assets Cost Balance at 1 May 2020 Additions At 30 April 2021 Additions At 30 April 2022 Amortisation Balance at 1 May 2020 Charge for the year At 30 April 2021 Charge for the year At 30 April 2022 Net book amount at 30 April 2021 Net book amount at 30 April 2022 IT development costs £’000 Computer software £’000 258 - - 258 - 258 - - - - - 258 258 111 10 - 121 319 440 66 31 97 37 134 24 306 Total £’000 369 10 - 379 319 698 66 31 97 37 134 282 564 The Group’s amortisation policy, as disclosed in note 1.10, is to amortise other intangible assets from the date they are made available for use. As at 30 April 2022 the software relating to the IT development costs was not available for use, therefore no amortisation has been recognised. The software came into use following the period end. 18. Other investments The Group holds other investment interests in the following third party investments: Fair value Balance at 1 May 2020 Additions Balance at 30 April 2021 Loss on revaluation - FVOCI Balance at 30 April 2022 £’000 229 134 363 (190) 173 The goodwill of £6,605,000 arising from the acquisition represents the assembled workforce. None of the goodwill is expected to be deductible for income tax purposes. All the effects of this acquisition on the Group’s assets and liabilities are disclosed as provisional due to the proximity of the acquisition to the balance sheet date. £15,000 (2021: £15,000) – Gateley Investments Limited holds a 1.9% investment in the ordinary shares of Manchester Biotech Limited (formerly PeptiGelDesign Ltd). £157,998 (2021: £347,734) – Gateley Plc holds a 3.0% investment in the ordinary shares in Incanthera Plc, acquired on 26 February 2021. 106 107 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials 19. Contract assets and liabilities 20. Trade and other receivables As at 30 April 2022 As at 30 April 2021 Contract assets £’000 17,239 13,900 Trade receivables £’000 50,201 36,680 Contract liabilities £’000 (569) (1,243) Trade receivables Prepayments Other receivables including insurance receivables 2022 £’000 50,201 5,626 341 56,168 2021 £’000 36,680 5,699 714 43,093 Contract assets Contract assets consist of unbilled revenue in respect of professional services performed to date. Contract assets in relation to non-contingent work are recognised at appropriate intervals, normally on a monthly basis in arrears, in line with the performance of the services and engagement obligations. Where such matters remain unbilled at the period end the asset is valued on a contract-by-contract basis at its expected recoverable amount. Contract assets in relation to contingent work are recognised at a point in time once the uncertainty over the contingent event has been satisfied and all performance obligations satisfied, such that it is no longer contingent, these matters are valued based on the expected recoverable amount. Due to the complex nature of these matters, they can take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter not billed until a later financial period. Until the performance obligations have been performed the Group does not recognise any contract asset value at the year end. During the year, contract assets of £2,661,000 (2021: £nil) were acquired in business combinations. An impairment loss of £108,000 has been recognised in relation to contract assets in the year (2021: gain £89,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The contract asset loss is estimated at 0.6% (2021: gain 0.6%) of the balance. Contract assets recognised under IFRS 15 Under IFRS 15 the Group is required to recognise contract assets, as detailed in note 1.16. Contract asset value at 1 May 2021 Contract assets arising on acquisition Contract asset value added in the year Contract asset value realised in the year Contract asset value at 30 April 2022 2022 £’000 13,900 2,661 19,237 (18,559) 17,239 2021 £’000 11,684 - 17,452 (15,236) 13,900 The Group have applied ECLs to unbilled revenue in order to account for the potential default on amounts not yet billed to the client. The ECLs have been calculated on the same basis as those applied to trade receivables. Contract liabilities When matters are billed in advance or on a basis of a monthly retainer, this is recognised in contract liabilities and released over time when the services are performed. Contract liabilities recognised under IFRS 15 Under IFRS 15 the Group is required to recognise contract liabilities. Contract liabilities at 1 May 2021 Contract liabilities gained in the year Contract liabilities credited to P&L in year Contract liabilities at 30 April 2022 108 2022 £’000 1,243 533 (1,207) 569 2021 £’000 70 1,207 (34) 1,243 Trade receivables Trade receivables are recognised when a bill has been issued to the client, as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Trade receivables also includes disbursements. Bills are payable within thirty days unless otherwise agreed with the client. All trade receivables are repayable within one year. Movement in loss allowance Brought forward provision Recognition of provisions for businesses acquired Provision utilised Charged to statement of profit and loss Provisions released 2022 £’000 (4,171) (173) 1,161 (1,173) 415 (3,941) 2021 £’000 (2,967) - 719 (2,391) 468 (4,171) The Group applies the simplified approach to providing for the expected credit losses under IFRS 9. Management have also elected to apply an uplift to the IFRS 9 provision in the current year to account for the specific risks in the subsidiary entities where the application of IFRS 9 alone is not considered appropriate. The provision uplift is based on Management’s assessment of specific clients and related debts, this is presented separately to the ECL provision detailed below: Expected credit loss rate Estimated total gross carrying amount £’000 Lifetime ECL £’000 Not passed due Past due 0-30 days Past due 31-120 days 3.60% 31,544 1,136 4.45% 4,642 207 5.11% 5,429 277 Past due greater than 120 days 18.53% 12,526 2,321 Total 54,141 3,941 The carrying amount of financial assets (including contract assets but not including equity investments) recorded in the financial statements, which is net of any impairment losses, represents the Group’s maximum expected exposure to credit risk. Financial assets include client and other receivables and cash. The Group does not hold collateral over these balances. All the Group’s trade and other receivables have been reviewed for indicators of impairment. The specifically impaired trade receivables are mostly due to customers experiencing financial difficulties. An impairment loss of £1,173,000 has been recognised in relation to trade receivables in the year (2021: £1,525,000). This is based on the expected credit loss under IFRS 9 of these types of assets. The trade receivables loss is estimated at 2.3% (2021: 3.7%) of the balance. 109 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials 21. Other interest-bearing loans and borrowings 22. Trade and other payables The contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at amortised cost, with the exception of loans to members that are held at fair value, are described below. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 27. Non-Current liabilities Bank borrowings 2022 Fair value £’000 5,715 Carrying amount £’000 5,715 2021 Fair value £’000 - Carrying amount £’000 - On 18 April 2022, the Company entered into a revolving credit facility which provides total committed funding of £30m until April 2025. Interest is payable at a margin of 1.95% above the SONIA reference rate. On 19 April 2022 £6m was drawdown against the facility in order to fund the initial cash consideration in the acquisition of SP 2018 Limited. As at 30 April 2022, the Group’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 April 2022 Bank borrowings Trade and other payables Total Current Within 6 months £’000 - 8,309 8,309 6 to 12 months £’000 - - - Non-current 1 – 5 years £’000 Later than 5 years £’000 6,000 - 6,000 - - - This compares to the maturity of the Group’s non-derivative financial liabilities in the previous reporting period as follows: 30 April 2021 Trade and other payables Total Current Within 6 months £’000 8,130 8,130 6 to 12 months £’000 - - Non-current 1 – 5 years £’000 Later than 5 years £’000 120 120 - - The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. 110 Current Trade payables Other taxation and social security payable Other payables Contingent consideration Accruals Deferred income Non-current Other payables Contingent consideration 2022 £’000 7,935 10,122 374 100 12,693 569 31,793 £’000 - 5,360 5,360 2021 £’000 6,086 9,641 582 135 11,345 1,243 29,032 £’000 120 - 120 £100,000 of current contingent consideration represents the earn-out sums payable to the sellers of Tozer Gallagher LLP. All contingent consideration is Level Three in the fair value hierarchy as there are no observable inputs. Amounts have been calculated based on the Group’s expectation of what it will pay in relation to the earn-out clause of the relevant sale and purchase agreement discounted to present value. The earn-out targets are based on the annual results of the acquired business. The fair value of the earn-out consideration is calculated based on the forecasted results, using EBIT growth rate ranges from 2-10%, to give an estimate of the final obligation capped at the maximum earn-out amount stated in the purchase agreement. Where contingent consideration is due over a period of more than one year the value of the consideration is discounted and recorded at the present value. The discount rate applied in determining the present value of contingent consideration is 4.75%. 23. Deferred tax Deferred tax assets and liabilities are summarised below: Deferred tax asset The deferred tax asset recognised in the consolidated statement of financial position represents the future tax impact of issued share based payments schemes that are yet to vest. At 1 May 2021 Credited during the year to retained earnings Debited during the year in the Consolidated income statement At 30 April 2022 Share-based payments £’000 138 563 (63) 638 111 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedDeferred tax liability The deferred tax liability recognised in the Consolidated Statement of Financial Position represents the future tax impact of the Group’s benefit from customer lists obtained through acquisitions. At 1 May 2020 Credited during the year in the Consolidated income statement At 30 April 2021 Arising through business combinations – Tozer Gallagher LLP, Adamson Jones Holdings Limited and SP 2018 Limited Credited during the year in the Consolidated income statement At 30 April 2022 24. Provisions Current provision Professional indemnity provision Total current provision Non-current provision Professional indemnity provision Dilapidations provision Total non-current provision Total provisions Professional indemnity estimated claim cost Brought forward Provisions made during the year Provisions reversed during the year At end of year Non-current Current Customer lists £’000 1,208 (436) 772 2,482 (165) 3,089 2022 £’000 2021 £’000 101 101 649 214 863 964 2022 £’000 725 35 (10) 750 649 101 750 176 176 549 214 763 939 2021 £’000 713 385 (373) 725 549 176 725 The Group from time to time receives claims in respect of alleged professional negligence which it defends where appropriate but makes provision for the best estimate of probable amounts considered likely to be payable as set out above. Inevitably, these estimates depend on the outcome and timing of future events and may need to be revised as circumstances change. A different assessment of the likely outcome in each case or of the probable cost involved may result in a different level of provision recognised. Professional indemnity Insurance cover is maintained in respect of professional negligence claims. 112 Business Overview Strategic Report Corporate Governance Our Financials Dilapidations provision The Group has leases for a number of offices, some of which include dilapidation clauses. The Group maintains the office buildings throughout each lease term with regular maintenance, however a cost is likely to arise at the end of the lease term in order to return the space to its original condition. Management have therefore elected to introduce a dilapidations provision to account for the future cost. The provision is based on Management’s estimate of the total costs across all applicable lease to be recognised on a straight line basis over the total lease terms. At 1 May Provision made in the year At 30 April 25. Net debt Cash and cash equivalents Debt Total loans brought forward Revolving credit facility – due in more than one year New lease liability in the year Repayment of loans from former members Repayment of term loans Termination of lease Repayment of lease liability Total loan carried forward Brought forward from previous year Movement during year Net debt at the year end 2022 £’000 214 - 214 2022 £’000 16,105 (30,445) (5,715) (2,351) - - - 3,870 (34,641) (10,840) (7,696) (18,536) 2021 £’000 - 214 214 2021 £’000 19,605 (29,262) - (9,385) 729 3,077 1,359 3,037 (30,445) (26,339) 15,499 (10,840) 113 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials The changes in the Group’s liabilities arising from financing activities can be classified as follows: The Company has one class of Ordinary shares which carry no right to fixed income. Long term borrowings £’000 Short term borrowings £’000 - - 5,715 - - 5,715 - - - - - - Long term borrowings £’000 3,077 Short term borrowings £’000 729 Lease liabilities £’000 30,445 (3,870) - 793 1,558 28,926 Lease liabilities £’000 25,456 Total £’000 30,445 (3,870) 5,715 793 1,558 34,641 Total £’000 29,262 (3,077) (729) (3,037) (6,843) - - - - 8,026 30,445 8,026 30,445 1 May 2021 Cashflows: Repayments Receipt of revolving credit facility Non-cash Fair value on acquisition New lease liability in the year 30 April 2022 1 May 2020 Cashflows: Repayments Non-cash New lease liability in the year 30 April 2021 26. Share capital Authorised, issued and fully paid Ordinary shares of 10p each Brought forward Issued on acquisition of Tozer Gallagher LLP Issued on acquisition of Adamson Jones IP Limited Issued on acquisition of Gateley Smithers Purslow Limited Issued as part of contingent consideration of Gateley Vinden Limited Issued on vesting of RSA Issued on vesting of SAYE Issued on vesting of CSOPS At 30 April 2022 2022 Number 2022 £ 2021 Number 2021 £ 117,914,205 11,791,420 117,609,094 11,760,909 142,179 543,668 3,312,322 - 1,477,560 308,819 858,126 14,218 54,367 331,232 - 147,756 30,882 85,813 - - - 197,368 - 107,743 - - - - 19,737 - 10,774 - 124,556,879 12,455,688 117,914,205 11,791,420 On 22 July 2021 the Group acquired the trade and assets of Tozer Gallagher LLP in part for the issue of 142,179 10p ordinary shares. On 9 January 2022 the Company acquired Adamson Jones IP Limited and dormant group companies in part for the issue of 543,668 10p ordinary shares. On 19 April 2022 the Company acquired Gateley Smithers Purslow Limited (Formerly Smithers Purslow Limited) and other group companies in part for the issue of 3,312,322 10p ordinary shares. Between 1 May 2021 and 19 April 2022 308,819 10p ordinary shares were issued upon vesting of the 2018 SAYE schemes to participants. Between 3 August 2021 and 1 November 2021 858,126 10p ordinary shares were issued upon vesting of the 2018 CSOP schemes to participants. On 27 April 2022 1,477,560 10p ordinary shares were issued upon vesting of the 2022 RSA scheme to participants. 27. Financial instruments and related disclosures Financial risk management The board has overall responsibility for the oversight of the Group’s risk management framework. A formal process for reviewing and managing risk in the business has been developed. A register of strategic and operational risk is maintained and reviewed by the board, who also monitor the status of agreed actions to mitigate key risks. Management’s objective in managing financial risks is to ensure the long-term sustainability of the Group. As the Group’s principal financial instruments comprise cash, client receivables and unbilled revenue, the main risks are those that relate to credit in regard to receivables. Credit risk Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s credit risk is primarily attributable to its trade receivables. The Group continuously monitors the credit quality of customers and risk attributable to specific debts. The Group’s policy is to deal only with credit worthy counterparties, with standard credit terms being 30 days. The credit terms as negotiated with customers are subject to close monitoring and internal approval. The ongoing credit risk is managed through regular review of ageing analysis. Trade receivables across the Group have been assessed with regard to credit risk characteristics which vary across segmental reporting lines according to the nature of the industry, size and financial position of the counterparty. The Group also considers days past due in making this assessment as well as historical credit losses experienced within over a period of 12 months before 30 April 2022. The expected loss rates derived from this assessment are adjusted to reflect current and forward-looking information affecting the ability of the customers to settle the receivables. The Group has a policy of performing credit checks and the large spread of reputable clients ensures there are no unacceptable concentrations of credit risk. Historic cash collection rates and the Group write-off of financial instruments do not show an increased likelihood of default once the payments are more than 30 days past due. The Group hold long standing relationships with most clients therefore there is no increased risk perceived based on the age of the contractual payment alone. The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade receivables and contract assets. The board considers financial instruments where contractual payments are significantly past due on a monthly basis to determine the risk of default. As part of this process and financial instruments that have had a significant increase in credit risk are identified. For these purposes default is considered to be where the counterparty to the financial instrument fails to fulfil part or all of their financial obligation. The Group will consider a financial asset to be credit impaired based on both the age of the item and specific knowledge held by the fee earner in relation to the client’s ability and intention to meet their obligations. In circumstances where fee earners and the board find sufficient indicators that there is no longer reasonable expectation of recovery, the amounts are written off. 114 115 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedLiquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group ensures that it has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient cash or working capital facilities to meet the cash requirements of the Group. Gateley Plc is financed through a combination of unsecured bank loans together with cash generated from operations. The board reviews the projected financing requirements annually when agreeing the Group’s budget and, based on this review, sets the value of the future capital requirements of the business. The cash flow forecast for the entire Group is updated regularly and compared to the budget with any significant variance being reported to the board. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Group’s income. The Group’s exposure to market risk predominantly relates to interest and currency risk. Management does not consider this to be a significant risk to the Group. Interest rate risk The Group’s bank borrowings incur variable interest rate charges linked to SONIA plus a margin. Management do not consider this to be a significant risk to the Group. Foreign currency risk The Group has an overseas operation based in Dubai and another in the Republic of Ireland which, therefore, exposes the Group to changes in Sterling/Dirhams and Sterling/Euro exchange rates. Management does not consider this to be a significant risk to the Group due to the total value of transactions conducted in Dubai and the Republic of Ireland. Fair value disclosures The fair value of each class of financial assets and liabilities is the carrying amount, based on the following assumptions: Trade receivables, trade payables, short term deposits and borrowings The fair value approximates to the carrying value because of the short maturity of these instruments. Long-term borrowings The fair value of bank loans and other loans approximates to the carrying value reported in the statement of financial position. Fair value hierarchy Financial instruments carried at fair value should be measured with reference to the following levels: • • Level 1: quoted prices in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) 116 Business Overview Strategic Report Corporate Governance Our Financials The fair value of financial assets and liabilities are as follows (there is no difference between the carrying value of the financial assets and liabilities and their fair value): Cash and cash equivalents Contract assets Trade receivables at amortised cost Total financial assets Trade and other payables Contingent consideration at FVTPL Short-term borrowings Current financial liabilities Long-term borrowings Other payables due after more than one year Contingent consideration at FVTPL Total financial liabilities 2022 £’000 16,105 17,239 50,201 83,545 (21,002) (100) - 2021 £’000 19,605 13,900 36,680 70,185 (18,013) (135) - (21,102) (18,148) (5,715) - (5,360) (32,177) - (120) - (18,268) Financial assets contain trade receivables and unbilled revenue whereas financial liabilities contain trade payables, other payables and accruals. Measurement of fair value of financial instruments The Group performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. Fair value measurement of contingent consideration All contingent consideration relating to business combinations is Level 3 in the fair value hierarchy as there are no observable inputs. The fair value of contingent consideration is estimated using the present value technique, based on estimated future cash outflows discounted at 4.75% being the applicable weighted average cost of debt. Where the contingent consideration is due less in less than 12 months, no discount factor is applied. The estimated cash outflows before discounting reflect Management’s estimate of the earnout due based on the forecasted results, using EBIT growth rates ranging from 2-10%, capped at the maximum earn-out amount as stated in the purchase agreement. The earn-out targets are based on the annual results of the acquired business. An increase in the forecasted EBITDA of 1% would result in an increase of £46,000 in contingent consideration, a decrease in the forecasted EBITDA of 1% would result in a decrease of £46,000 in contingent consideration due. The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows: Balance at 1 May Arising on business combination Amount of earn-out paid Amount recognised in profit or loss Balance at 30 April 2022 £’000 135 5,452 - (127) 5,460 Contingent consideration 2021 £’000 1,149 - (368) (646) 135 117 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedBusiness Overview Strategic Report Corporate Governance Our Financials Lease liabilities are presented in the statement of financial position as follows: Current lease liability Non-current lease liability 2022 £’000 3,719 25,207 2021 £’000 2,743 27,702 A number of property leases held by the Group include break or termination options. The lease liability has been calculated based on the likelihood of such option being exercised. An option would only be exercised when in line with the Groups wider strategy. In line with IFRS 16 Leases the Group has elected not to recognise a lease liability for leases with a term of 12 months or less, or for leases of low value assets. The payments made under such leases are expensed to the profit and loss on a straight-line basis. Any variable lease payments incurred are expensed as incurred. The table below shows amounts recognised in the Statement of Comprehensive Income for short term and low value leases as at 30 April 2022: Expenses relating to short-term leases Expenses relating to leases of low-value assets, excluding short-term leases of low value assets Property £’000 Equipment £’000 26 - 26 23 17 40 Total £’000 49 17 66 The total minimum undiscounted lease payments at 30 April 2022 under non-cancellable operating lease rentals were: Within one year In the second to fifth year inclusive After five years 30. Related parties 30 April 2022 £’000 30 April 2021 £’000 4,645 22,435 16,606 43,686 3,024 15,921 13,822 32,767 Gateley Plc entered into a lease agreement for the Leicester office, in which some of the directors have a beneficial interest. The annual rent charge under the lease is £120,000 (2021: £120,000) and the amounts outstanding at the year-end are £nil (2021: £80,000). Mattiolli Woods Plc The Company’s Non-Executive Director, Joanne Lake, was Non-Executive Director and Chairman of Mattiolli Woods Plc during the year (resigned 8 April 2022). Mattiolli Woods Plc and its subsidiaries are a provider of wealth management and employee benefit services. During the year, the Group paid Mattiolli Woods Plc a total of £52,009 (2021: £49,046) in respect of employee benefits services provided by Mattiolli Woods Plc. The Group received revenues of £900 (2021: £nil) in respect of legal services provided to Mattiolli Woods Plc and its subsidiaries. No amounts were outstanding at the year-end (2021: £nil). Financial instruments sensitivity analysis In managing interest rate and currency risks, the Group aims to reduce the impact of short term fluctuations on its earnings. At the end of each reporting period, the effect of hypothetical changes in interest and currency rates are as follows: Interest rate sensitivity analysis The table below shows the Group’s sensitivity to interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) if interest rates were to change by +/- 1%. The impact on the results in the statement of profit and loss and other comprehensive income and equity would be: +1 % movement in interest rates -1 % movement in interest rates 2022 Increase/ (decrease) in profit and loss £’000 1 (1) 2021 Increase/ (decrease) in profit and loss £’000 - - The borrowing facilities arranged include overdraft facility and short term borrowing facilities. All borrowings are repayable within one year. Foreign exchange rate sensitivity analysis The Group had the following net currency denominated financial instruments at year end: Net currency The effect of foreign currency fluctuations on the financial statements is immaterial. 28. Capital commitments 2022 £’000 183 2021 £’000 345 In 2021 the Group entered a contract with a provider of legal technology for the development of a new practice management system, with Thomson Reuters for the installation of their market leading practice management system. The cost of the contractual capital commitment was £1.1million and was incurred across calendar years 2021 and 2022. The outstanding obligation at year end is £nil. 29. Leases liabilities – IFRS 16 The Group has leases for offices, vehicles and some IT equipment, with the exception of short-term leases and leases of low-value assets each lease is held on the balance sheet as a right-of-use asset and corresponding lease liability. Property leases have a remaining term of one to ten years. Leases of vehicles and IT equipment have a term of three to five years. Lease payments on all those recognised on the balance sheet are fixed. Unless there is a contractual right for the Group to sublet the asset to a third party, the right of use asset can only be used by the Group. The table below provides additional information on the right-of-use assets by class of assets: Number of leased assets* Average length of lease remaining Opening lease asset £’000 Net additions £’000 Depreciation £’000 Closing lease asset £’000 Office buildings IT equipment 17 2 5.9 years 2years 26,986 21 1,397 6 (3,767) (16) 24,616 11 * Where properties within the same building are leased on a floor by floor basis on the same contractual terms, the Group has elected to treat these as a portfolio and are counted as a single leased asset within the table 118 119 Gateley (Holdings) PlcAnnual report and financial statementsNotes to the consolidated financial statementscontinuedGateley (Holdings) Plc Annual report and financial statements Notes to the consolidated financial statements continued Compensation paid to key management personnel At the year end, Directors of Gateley (Holdings) Plc control 4.60% (2021: 5.35%) of the voting shares of the Company. The key management personnel comprise the Strategic Board on the basis that they make any final key decisions. Short term compensation paid to key management personnel during the year totalled £4.101m (2021: £3.088m). Short term remuneration to key management personnel is included in personnel costs and analysed as follows: Wages and salaries Social security Pension costs Share based payment charges 31. Pensions 2022 £’000 3,553 512 - 36 4,101 2021 £’000 2,713 374 - 1 3,088 The Group participates in a defined contribution scheme operated by Aegon UK Plc, the assets of which are held separately from the Group. The amounts charged to the profit and loss account in respect of this scheme represent contributions payable in respect of the accounting year. The total annual pension cost for the defined contribution scheme was £2,076,081 (2021: £1,704,636) and the outstanding balance at the year end was £40,609 (2021: £30,417). 120 121Business OverviewStrategic ReportCorporate GovernanceOur FinancialsNote2022£’0002021£’000Non-current assetsInvestments554,24233,027Total non-current assets54,24233,027Current assetsTrade and other receivables65,9136,769Cash and cash equivalents439107Total current assets6,3526,854Total assets60,59439,903Non-current liabilities Other interest-bearing loans and borrowings8(5,715)-Other payables 7(5,360)-Total non-current liabilities (11,075)-Current liabilitiesOther payables7(27)(152)Total current liabilities(27)(152)Total liabilities(11,102)(152)Net assets49,49239,751EquityShare capital912,45611,792Share premium11,3429,421Other reserves14,4656,815Retained earnings11,22911,723Total equity 49,49239,751Under section s408 of the Companies Act 2006 the company is exempt from the requirement to present its own profit and loss account. The profit for the year to 30 April 2022 was £10,723,499 (2021: £5,131,791). These financial statements were approved by the directors on 12 September 2022 and were signed and authorised on their behalf by:Rodrick Neil A Smith Chief Executive Officer Finance DirectorCompany registered number: 09310078The accompanying notes on pages 122 to 134 form an integral part of these financial statements.Parent company statement of financial positionat 30 April 2022 Parent company statement of changes in equity for the year ended 30 April 2022 Parent company cash flow statement for the year ended 30 April 2022 Business Overview Strategic Report Corporate Governance Our Financials At May 2020 Comprehensive income: Profit for the year Total comprehensive income Transactions with owners: Dividend paid Issue of share capital Share based payment transactions Total equity at 30 April 2021 At May 2021 Comprehensive income: Profit for the year Total comprehensive income Transactions with owners: Dividend paid Issue of share capital Share based payment transactions Total equity at 30 April 2022 Share capital £’000 Share premium £’000 Other reserves £’000 11,761 8,938 6,812 Retained earnings £’000 5,635 Total Equity £’000 33,146 - - - 31 - 11,792 11,792 - - - 664 - 12,456 - - - 483 - 9,421 9,421 - - - 1,921 - 11,342 - - - 3 - 6,815 6,815 - - - 7,650 - 14,465 5,132 5,132 - - 956 11,723 11,723 10,723 10,723 5,132 5,132 - 517 956 39,751 39,751 10,723 10,723 (12,430) (12,430) - 1,213 11,229 10,235 1,213 49,492 The following describes the nature and purpose of each reserve within equity: Share premium – Amount subscribed for share capital in excess of nominal value. Other reserves – Represents the difference between the actual and nominal value of shares issued by the company in the acquisition of subsidiaries. Retained earnings – All other net gains and losses and transactions with owners not recognised anywhere else. The accompanying notes on pages 122 to 134 form an integral part of these financial statements. Cash flows from operating activities Profit for the year Interest expense Release of contingent consideration Increase/(decrease) in liabilities Decrease/(increase) in trade and other receivables Net cash flows from operating activities Investing activities Consideration paid on acquisitions Contingent consideration paid Net cash used in investing activities Financing activities Receipt of funds for issue of SAYE/CSOP/RSA shares Receipt of revolving credit facility, net of refinancing costs Receipt of funds for issue of shares on acquisition of Tozer Gallagher Dividends paid Net cash (used in)/generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of year The accompanying notes on pages 122 to 134 form an integral part of these financial statements. 2022 £’000 10,723 8 (135) 10 856 11,462 (6,615) - (6,615) 1,900 5,715 300 (12,430) (4,515) 332 107 439 2021 £’000 5,132 - - (595) (4,541) (4) - (363) (363) 299 - - - 299 (68) 175 107 122 123 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements For the period ended 30 April 2022 (forming part of the financial statements) 1. Basis of preparation and significant accounting policies Gateley (Holdings) Plc (the “Company”) is a company incorporated and domiciled in the UK under the Companies Act. The nature of the Group’s operations and its principal activities are set out in the strategic report. The financial statements have been prepared in accordance with UK-adopted International Accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. Judgements made by the Directors, in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 13 below. The individual financial statements of the Company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the financial statements, the results and financial position of the company are expressed in GBP, which is the functional and presentational currency of the Company. Measurement convention The financial statements are prepared on the historical cost basis except where Adopted IFRSs require an alternative treatment. The principal variations relate to financial instruments which are carried at fair value. 1.1 Going concern See full explanation on page 24 of the Strategic Report. Having reviewed the Company’s forecasts, which includes an analysis of both short term cash flow forecasts and longer term cash flow forecasts, the risk and uncertainties surrounding the current and future demand for legal services, and other reasonably possible variations in trading performance, and the possible impact of Covid-19 the Company expects to be able to operate within the Company’s financing facilities and in accordance with the covenants set out in those facility agreements. Sensitivity analysis has been performed in respect of specific scenarios which could negatively impact our future performance such as lower levels of revenue growth, lower than forecast receipts of cash, and reduced levels of gross margin expansion. In addition, the directors have also considered mitigating actions such as lower capital expenditure and other short-term cash management activities within the Company’s control. On this basis, the directors have a reasonable basis to conclude that the Company is forecast to continue to trade in line with existing financing facilities for the foreseeable future. Accordingly the Directors continue to adopt the going concern basis of accounting in preparing the financial statements. 1.2 Classification of financial instruments issued by the Company Financial instruments issued by the Company are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the Company to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company; and (b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the financial instruments are classified as a financial liability. Business Overview Strategic Report Corporate Governance Our Financials 1.3 Non derivative financial instruments Financial Assets The Company’s financial assets include cash and cash equivalents and trade and other receivables. All financial assets are recognised when the Company becomes party to the contractual provisions of the instrument. i) Investments Fixed asset investments are stated at cost less provision for any impairment in value. Investments in subsidiary undertakings are stated as fixed asset investments, at cost less amounts written off for impairment with any subsequent year adjustments stated directly into the profit and loss account. Investments are reviewed for impairment where events or circumstances indicate that their carrying amount may not be recoverable. In some instances investments are subject to contingent consideration, this is included in the cost of investment. The amount of contingent consideration due is assessed regularly by Management based on actual and forecast performance. Any changes to contingent consideration due are recognised within the profit and loss account. Cost of investment also includes share-based payment charges of equity settled share based payment schemes to be settled on behalf of subsidiary companies. ii) Trade and other receivables Trade and other receivables (except unbilled amounts for client work) are initially recognised at their transaction value and carried at amortised cost under IFRS 9. In line with IFRS 9, the Company recognises any expected credit loss against trade receivables in order to recognise the inherent risk that the Group may not be able to collect all amounts due according to the original terms of the receivable. The amount of the provision recorded is based on a broad range of information including past events, current conditions and forecasts of the future cash flows of the asset and is recognised in the statement of profit and loss in other operating expenses. iii) Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held at call with banks. For the purpose of the cash flow statement, cash and cash equivalents includes bank overdrafts in addition to the definition above. Financial liabilities Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities. The Company’s financial liabilities comprise trade and other payables, borrowings, contingent consideration, members’ capital and amounts due to members. All financial liabilities are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method with the exception of contingent consideration that is measured at fair value through profit or loss. 1.4 Impairment Financial assets (including receivables) A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss scenario is likely to occur after the initial recognition of the asset, and that the loss event has a negative effect on the estimated future cash flows of that asset that can be estimated reliably. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Under IFRS 9 the Group recognises expected credit losses (ECL’s) on receivables through application of the simplified method. The amount of the provision recorded is based on a broad range of information including past events, current conditions and forecasts of the future cash flows of the asset . Whilst the longevity and impact of the COVID 19 pandemic is unknown, Management have considered the potential defaults on receivables as a result and reflected these in the ECL’s calculated. 124 125 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements continued 1.5 Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the statement of financial position date. A deferred tax asset is recognised on deductible temporary differences only to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 1.6 Ordinary dividends Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders. 1.7 Own shares held by EBT trust (treasury reserve) Transactions of the group-sponsored EBT trust are included in the Group financial statements. In particular, the trust’s purchases and sales of shares in the Company are recognised directly within equity. 1.8 New and revised IFRS in issue but not yet effective At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published by the IASB but are not yet effective and have not been applied early to the Group: Revised IFRS Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16 Reference to the Conceptual Framework – Amendments to IFRS 3 Onerous Contracts – Cost of Fulfilling a Contract – Amendments to IAS 37 Annual Improvements to IFRS Standards 2018–2020 Reference to the Conceptual Framework – Amendments to IFRS 3 Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 Definition of Accounting Estimates - Amendments to IAS 8 Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 Effective date 1 January 2022 1 January 2022 1 January 2022 1 January 2022 1 January 2023 1 January 2023 1 January 2023 1 January 2023 The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods. 2. Expenses Audit fees in relation to the audit of these accounts of £10,000 (2021: £10,000) have been borne by Gateley Plc. The company does not have any employees (2021: Nil) 126 Business Overview Strategic Report Corporate Governance Our Financials 3. Investment income Intercompany dividends to the Company have been received from other Group entities as detailed below: Dividend received from Gateley Plc – 29 October 2021 Dividend received from Gateley Plc – 29 April 2022 Dividend received from T-Three Consulting Limited – 29 April 2022 Dividend received from Gateley Hamer Limited – 29 April 2022 Dividend received from Gateley Vinden Limited – 29 April 2022 Dividend received from Gateley Plc – 28 April 2021 Dividend received from T-Three Consulting Limited – 28 April 2021 Dividend received from Gateley Capitus Limited – 28 April 2021 Dividend received from Gateley Hamer Limited – 28 April 2021 4. Taxation 2022 £’000 3,570 5,053 800 628 949 - - - - 11,000 2021 £’000 - - - - 2,950 1,000 825 357 5,132 The Company’s profit for the year arises from the receipt of intercompany dividends and the issuance of new shares to Gateley EBT Limited, which are not chargeable to corporation tax. As a result, no provision for corporation tax is needed in these financial statements. 5. Investments At 1 May 2020 Share based payment charge Adjustment to Kiddy & Partners Limited acquisition cost Adjustment to T-three Consulting Limited Adjustment to Gateley Vinden Limited (formerly The Vinden Partnership Limited) Balance at 30 April 2021 At 1 May 2021 Share based payment charge Acquisition of Gateley Smithers Purslow Limited Acquisition of Adamson Jones IP Limited Balance at 30 April 2022 £’000 32,720 956 (279) (652) 282 33,027 33,027 1,213 17,502 2,500 54,242 127 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements continued Business Overview Strategic Report Corporate Governance Our Financials Investments in subsidiaries The Company has effective control of the following: Gateley Plc Entrust Pension Limited Gateley Capitus Limited Gateley Hamer Limited Kiddy & Partners Limited International Investments Services Limited Persona Associates Limited T-Three Consulting Limited* T-Three Group Limited T-Three Holdings Limited* Gateley Vinden Limited GEG Services Limited Matsa Holdings Limited Thomas Alexander Holdings Limited* TVP Holdings Limited* SP 2018 Limited Smithers Purslow Group Limited* Gateley Smithers Purslow Limited* Registered office One Eleven, Edmund Street, Birmingham, B3 2HJ Ship Canal House 98, King Street, Manchester, M2 4WU One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ Ordinary share proportion held 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Intermediate holding company Intermediate holding company Corporate advisory, dispute resolution and consultancy to the built environment in the property and construction markets UK Investment services provider Intermediate holding company Intermediate holding company Intermediate holding company Intermediate holding company Intermediate holding company Architecture, building surveyance and civil & structural engineering Nature of business Legal services Pension trustee services Tax incentive services Specialist property consultancy Human capital consultancy UK Investment consultancy Dormant Byrom Clark Roberts Limited* Ainsley Stokes Limited* Adamson Jones Holdings Limited Adamson Jones IP Limited* Gateley EBT Limited Gateley Investments Limited* Human capital consultancy Ensco Trustee Company Limited* Registered office One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ Imperial House, 4-10 Donegall Square East, Belfast, Northern Ireland, BT1 5HD Ordinary share proportion held 100% 100% Nature of business Dormant Architecture, building surveyance and civil & structural engineering 100% Intermediate holding company 100% Patent attorney 100% Employee benefit trust 100% Corporate investment company 100% Corporate trustee company 100% Non-trading 100% Non-trading 100% Non-trading 100% Non-trading 100% Non-trading 100% n/a n/a Legal services via a branch in Dubai Legal services in Northern Ireland Legal Services in Ireland Gateley Secretaries Limited* Gateley Incorporations Limited* Gateley Custodian and Nominee Services Limited* Gateley Custodian and Nominee Services No.2 Limited* Gateley Omega Limited (formerly Ensco 1413 Limited) Gateley UK LLP** Gateley Tweed LLP*** Victoria Louise Garrad, Callum Laing Nuttall, Thomas Oliver Durrant and Richard Julian Healey trading as Gateley Tweed*** One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ 128 129 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements continued Gateley Heritage LLP* Gateley (Manchester) LLP* Registered office One Eleven, Edmund Street, Birmingham, West Midlands, B3 2HJ Ship Canal House 98, King Street, Manchester, M2 4WU Ordinary share proportion held Nature of business 100% Non-trading 51% Non-trading * ** *** these investments are indirectly held at the year end. certain Directors of Gateley (Holdings) Plc and Gateley Plc as individuals are members of this entity, although effective control is held by Gateley (Holdings) Plc via a trust holding arrangement. These entities are related entities of Gateley Plc since the majority of its Members are also board members of Gateley Plc. In substance they are controlled by Gateley Plc and so their results are included in the consolidated results of Gateley (Holdings) Plc. In accordance with local governance regulations, direct ownership in Gateley Tweed LLP and Gateley Tweed (a partnership in Ireland) is not permitted however both entities will be recognised as subsidiary undertakings of Gateley Plc under section 1162(4) of the Companies Act 2006 and thus subsidiary undertakings of the Group by virtue of section 1162(5) of the Companies Act 2006. 6. Trade and other receivables Amounts owed from Gateley Plc Amounts owed from Gateley EBT Limited Amounts owed from T-Three Consulting Limited 2022 £’000 5,010 903 - 5,913 2021 £’000 4,450 1,319 1,000 6,769 All receivables are anticipated to be due within one year and repayable on demand. The carrying amount of financial assets (excluding investments) recorded in these accounts, which is net of any impairment losses, represents the Company’s maximum exposure to credit risk. Financial assets include amounts due from Gateley Plc. The Company does not hold collateral over these balances. 7. Other payables Contingent consideration due in one year Other payables 2022 £’000 - 27 27 2021 £’000 135 17 152 Contingent consideration of £0.135m relating to estimated earn out payments are due to the vendor of IIS have been released in the year as a result of performance against earnout criteria. Contingent consideration due in more than one year 2022 £’000 5,360 2021 £’000 - Business Overview Strategic Report Corporate Governance Our Financials 8. Other interest-bearing loans and borrowings The contractual terms of the Company’s interest-bearing loans and borrowings, which are measured at amortised cost, are described below. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 27. Non-Current liabilities Bank borrowings 2022 Fair value £’000 5,715 2022 Carrying amount £’000 5,715 2021 Fair value £’000 - 2021 Carrying amount £’000 - On 18 April 2022, the Company entered into a revolving credit facility which provides total committed funding of £30m until April 2025. Interest is payable at a margin of 1.95% above the SONIA reference rate. On 19 April 2022 £6m was drawdown against the facility in order to fund the initial cash consideration in the acquisition of SP 2018 Limited. As at 30 April 2022, the Company’s non-derivative financial liabilities have contractual maturities (including interest payments where applicable) as summarised below: 30 April 2022 Bank borrowings Total Current Within 6 months £’000 - - 6 to 12 months £’000 - - Non-current 1 – 5 years £’000 Later than 5 years £’000 6,000 6,000 - - This compares to the maturity of the Company’s non-derivative financial liabilities in the previous reporting period as follows: 30 April 2021 Bank borrowings Total Current Within 6 months £’000 6 to 12 months £’000 - - - - Non-current 1 – 5 years £’000 Later than 5 years £’000 - - - - The above amounts reflect the contractual undiscounted cash flows, which may differ to the carrying values of the liabilities at the reporting date. 130 131 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements continued 9. Capital and reserves Authorised, issued and fully paid Ordinary shares of 10p each Brought forward Issued on acquisition of Tozer Gallagher LLP Issued on acquisition of Adamson Jones IP Limited Issued on acquisition of Gateley Smithers Purslow Limited Issued as part of contingent consideration of Gateley Vinden Limited Issued on vesting of RSA Issued on vesting of CSOPS Issued on vesting of SAYE 2022 Number 2022 £ 2021 Number 2021 £ 117,914,205 11,791,420 117,609,094 11,760,909 142,179 543,668 3,312,322 - 1,477,560 858,126 308,819 14,218 54,367 331,232 - - - - - - - 197,368 19,737 147,756 85,813 30,882 - - - - 107,743 10,774 124,556,879 12,455,688 117,914,205 11,791,420 The Company has one class of Ordinary shares which carry no right to fixed income. On 22 July 2021 the Group acquired the trade and assets of Tozer Gallagher LLP in part for the issue of 142,179 10p ordinary shares. On 9 January 2022 the Company acquired Adamson Jones IP Limited and dormant group companies in part for the issue of 543,668 10p ordinary shares. On 19 April 2022 the Company acquired Gateley Smithers Purslow Limited (Formerly Smithers Purslow Limited) and other group companies in part for the issue of 3,312,322 10p ordinary shares. Between 1 May 2021 and 19 April 2022 308,819 10p ordinary shares were issued upon vesting of the 2018 SAYE schemes to participants. Between 3 August 2021 and 1 November 2021 858,126 10p ordinary shares were issued upon vesting of the 2018 CSOP schemes to participants. On 27 April 2022 1,477,560 10p ordinary shares were issued upon vesting of the 2022 RSA scheme to participants. 10. Financial instruments and related disclosures Financial risk management The board has overall responsibility for the oversight of the Company’s risk management framework. A formal process for reviewing and managing risk in the business has been developed. A register of strategic and operational risk is maintained and reviewed by the board, who also monitor the status of agreed actions to mitigate key risks. Management’s objective in managing financial risks is to ensure the long-term sustainability of the Company and Group. As the Company’s principal financial instruments comprise cash and inter-group receivables. The main risks are those noted below: Credit risk Credit risk is the risk of financial loss to the Company if a subsidiary to a financial instrument fails to meet its contractual obligation. The Company has a policy of monitoring subsidiaries who perform credit checks which together with the spread of reputable clients ensures there are no unacceptable concentrations of credit risk. Business Overview Strategic Report Corporate Governance Our Financials Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company ensures that the Group has sufficient cash or loan facilities to meet all its commitments when they fall due by ensuring that there is sufficient cash or working capital facilities to meet the cash requirements of the Company. Gateley Plc is financed through a combination of unsecured bank loans together with cash generated from operations. The board reviews the projected financing requirements annually when agreeing the Group’s budget and, based on this review, sets the value of the future capital requirements of the business. The cash flow forecast for the entire Group is updated regularly and compared to the budget with any significant variance being reported to the board. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company’s income. The Company’s exposure to market risk predominantly relates to interest and currency risk. Management does not consider this to be a significant risk to the Company. Interest rate risk The Company’s bank borrowings incur variable interest rate charges linked to SONIA plus a margin. Management do not consider this to be a significant risk to the Company or Group. Foreign currency risk The Group has one overseas operation based in Dubai which, therefore, exposes the Group to changes in Sterling/ Dirhams exchange rates. Management does not consider this to be a significant risk to the Company or Group. Fair value disclosures The fair value of each class of financial assets and liabilities is the carrying amount, based on the following assumptions: Inter Group receivables The fair value approximates to the carrying value because of the short maturity of these instruments. Fair value hierarchy Financial instruments carried at fair value should be measured with reference to the following levels: • • Level 1: quoted prices in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) There are no financial instruments carried at fair value within this financial information. 132 133 Gateley (Holdings) PlcAnnual report and financial statementsParent company notes to the financial statements continued The fair value of financial assets and liabilities are as follows (there is no difference between the carrying value of the financial assets and liabilities and their fair value): Cash and cash equivalents Group receivables Total financial assets Contingent consideration - FVTPL Other payables Group payables Current financial liabilities Long-term borrowings Contingent consideration at FVTPL Total non-current liabilities Total financial liabilities 2022 £’000 439 5,913 6,352 - (27) - (27) (5,715) (5,360) (11,075) (11,102) 2021 £’000 107 6,769 6,876 (135) - (17) (152) - - - (152) The company itself does not have any exposure to foreign exchange rates. The Group’s exposure is detailed in note 27. Measurement of fair value of financial instruments The Group performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. Fair value measurement of contingent consideration All contingent consideration relating to business combinations is Level 3 in the fair value hierarchy as there are no observable inputs. The fair value of contingent consideration is estimated using the present value technique, based on estimated future cash outflows discounted at 4.75% being the applicable weighted average cost of debt. Where the contingent consideration is due less in less than 12 months, no discount factor is applied. The estimated cash outflows before discounting reflect Management’s estimate of the earnout due based on the forecasted results, using EBITDA growth rates ranging from 2-10%, capped at the maximum earn-out amount as stated in the purchase agreement. The earn-out targets are based on the annual results of the acquired business. An increase in the forecasted EBITDA of 1% would result in an increase of £46,000 in contingent consideration, a decrease in the forecasted EBITDA of 1% would result in a decrease of £46,000 in contingent consideration due. The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows: Balance at 1 May Arising on business combination Amount of earn-out paid Amount recognised in profit or loss Balance at 30 April Contingent consideration 2021 £’000 1,149 - (368) (646) 135 2022 £’000 135 5,352 - (127) 5,360 Business Overview Strategic Report Corporate Governance Our Financials Financial instruments sensitivity analysis In managing interest rate and currency risks, the Group aims to reduce the impact of short term fluctuations on its earnings. At the end of each reporting period, the effect of hypothetical changes in interest and currency rates are as follows: Interest rate sensitivity analysis The table below shows the Company’s sensitivity to interest rates on floating rate borrowings (i.e. cash and cash equivalents and bank borrowings which attract interest at floating rates) if interest rates were to change by +/- 1%. The impact on the results in the statement of profit and loss and other comprehensive income and equity would be: +1 % movement in interest rates -1 % movement in interest rates 2022 Increase/ (decrease) in profit and loss £’000 1 (1) 2021 Increase/ (decrease) in profit and loss £’000 - - The borrowing facilities arranged include overdraft facility and short term borrowing facilities. All borrowings are repayable within one year. 11. Share based payments Details of the Group’s share based payment schemes in operation are shown in note 8 of the Group financial statements. All shares are issued by Gateley (Holdings) Plc. 12. Related parties None of the executive directors received any remuneration from the company during the year, other than dividend income. They are however remunerated by Gateley Plc, further details can be found in note 30. 13. Accounting estimates and judgements The preparation of these financial statements under IFRS requires Management to make estimates and assumptions which affect these financial statements. The key estimates and assumptions relate to the impairment assessment of investments. Impairment of investments (note 5) The total carrying amount of investments is held net of impairment losses. In determining whether investments are impaired requires an estimation of the future value arising from a subsidiary or the trade and assets acquired with it. The value in use calculation requires an estimate of the future cash flows expected to arise from a subsidiary or cash generating unit and the use of a suitable discount rate in order to calculate present value. Any change in estimates could result in an adjustment to recorded amounts. Management do not believe any impairment is necessary against the carrying value of its investments. 14. Contingent liability A cross guarantee between the company and Gateley Plc exists in respect of all loans and overdrafts. The value of the contingent liability at 30 April 2022 is £5,715,000 (2021: £nil). 134 135 Gateley (Holdings) PlcAnnual report and financial statementsNotice of annual general meeting NOTICE IS GIVEN that the Annual General Meeting of the above named Company will be held at One Eleven Edmund Street, Birmingham B3 2HJ on 20 October 2022 at 12:30 p.m. Shareholders will be asked to consider and, if thought fit, to pass the following resolutions of which resolutions 1 to 9 (inclusive) will be proposed as ordinary resolutions and resolutions 10 to 13 (inclusive) will be proposed as special resolutions. ORDINARY RESOLUTIONS 1. To receive the Company’s annual accounts for the financial year ended 30 April 2022 together with the Directors’ Report and the auditors’ report on those accounts. 2. 3. 4. 5. 6. 7. 8. 9. To approve the Directors’ Remuneration Report for the financial year ended 30 April 2022, which is set out in the Company’s annual report for the financial year ended 30 April 2022. To declare a final dividend for the year ended 30 April 2022 of 5.5p per share. If approved, this final dividend will be paid in October to shareholders on the register at the close of business on 23 September 2022. The shares will go ex-dividend on 22 September 2022. To reappoint Joanne Carolyn Lake (who retires in accordance with article 23.4.2 of the Company’s articles of association and, being eligible, offers herself for re-election) as a Director of the Company. To reappoint Neil Andrew Smith (who retires in accordance with article 23.4.2 of the Company’s articles of association and, being eligible, offers himself for re-election) as a Director of the Company. To appoint Victoria Louise Garrad (in accordance with article 23.1 of the Company’s articles of association) as a director of the Company. To appoint MacIntyre Hudson LLP as auditors of the Company to hold office until the conclusion of the next Annual General Meeting of the Company. To authorise the Directors to fix the remuneration of the auditors of the Company. THAT, in substitution for all existing and unexercised authorities and powers, the Directors of the Company be generally and unconditionally authorised for the purpose of section 551 Companies Act 2006 (the Act) to exercise all or any of the powers of the Company to allot shares of the Company or to grant rights to subscribe for, or to convert any security into, shares of the Company (such shares and rights being together referred to as Relevant Securities) up to an aggregate nominal value of £4,152,917 to such persons at such times and generally on such terms and conditions as the Directors may determine (subject always to the articles of association of the Company), such authority, unless previously renewed, varied or revoked by the Company in general meeting, to expire at the conclusion of the next Annual General Meeting of the Company (or, if earlier, at the close of business on 20 January 2024) save that the Directors of the Company may, before the expiry of such period, make an offer or agreement which would or might require relevant securities or equity securities (as the case may be) to be allotted after the expiry of such period and the Directors of the Company may allot relevant securities or equity securities (as the case may be) in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired. SPECIAL RESOLUTIONS 10. THAT, if resolution 9 above is passed, and in substitution for all existing and unexercised authorities and powers, the Directors of the Company be and are hereby generally and unconditionally empowered pursuant to section 570 of the Act to allot equity securities (as defined in section 560 of the Act) (Equity Securities) for cash under the authority given by that resolution 9 and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Act did not apply to any such allotment or sale, such authority to be limited to: 10.1 the allotment of Equity Securities or sale of treasury shares in connection with a rights issue or similar offer in favour of ordinary shareholders where the Equity Securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them on that date provided that the Directors of the Company may make such exclusions or other arrangements to deal with any legal or practical problems under the laws of any territory or the requirement of any regulatory body or any stock exchange or with fractional entitlements as they consider necessary or expedient; and Business Overview Strategic Report Corporate Governance Our Financials 10.2 the allotment of Equity Securities or sale of treasury shares (otherwise than under paragraph 10.1 above) up to an aggregate nominal amount of £622,937 representing approximately 5% of the current share capital of the Company, such authority, unless previously renewed, varied or revoked by the Company in general meeting, to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business on 20 January 2024) save that the Directors of the Company may, before the expiry of such period, make an offer or agreement which would or might require Equity Securities to be allotted (and treasury shares to be sold) after the expiry of such period and the Directors of the Company may allot Equity Securities (and sell treasury shares) in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired. 11. THAT, if resolution 9 above is passed, and in addition to any authority granted under resolution 10 above, the Directors of the Company be and are hereby generally and unconditionally empowered pursuant to section 570 of the Act to allot Equity Securities for cash under the authority given by that resolution 9 and/or to sell ordinary shares held by the Company as treasury shares for cash as if section 561 of the Act did not apply to any such allotment of Equity Securities, such authority to be: 11.1 limited to the allotment of Equity Securities or sale of treasury shares pursuant to the authority granted under resolution 9 up to an aggregate nominal amount of £622,937 representing approximately 5% of the current share capital of the Company; and 11.2 used only for the purposes of financing (or refinancing, if the authority is to be used within six months after the original transaction) a transaction which the Directors of the Company determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre- Emption Group prior to the date of this notice of Annual General Meeting of the Company, such authority, unless previously renewed, varied or revoked by the Company in general meeting, to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business on 20 January 2024) save that the Directors of the Company may, before the expiry of such period, make an offer or agreement which would or might require Equity Securities to be allotted (and treasury shares to be sold) after the expiry of such period and the Directors of the Company may allot Equity Securities (and sell treasury shares) in pursuance of such offer or agreement as if the authority conferred by this resolution had not expired. 12. THAT, for the purposes of section 701 of the Act, the Company be generally and unconditionally authorised to make market purchases (within the meaning of section 693(4) of the Act) of ordinary shares of £0.10 each in the capital of the Company (Ordinary Shares) provided that: 12.1 the maximum number of Ordinary Shares which may be purchased is 12,458,753 (representing 10% of the Company’s issued share capital); 12.2 the minimum price which may be paid for each Ordinary Share is £0.10; 12.3 the maximum price which may be paid for each Ordinary Share is an amount equal to 105% of the average of the middle market quotations for an Ordinary Share as derived from the Daily Official List of The London Stock Exchange plc for the five business days immediately preceding the day on which the Ordinary Share in question is purchased; 12.4 unless previously renewed, varied or revoked by the Company in general meeting, to expire at the end of the next Annual General Meeting of the Company (or, if earlier, at the close of business on 20 January 2024); and 12.5 the Company may make a contract or contracts to purchase Ordinary Shares under the authority conferred by this resolution prior to the expiry of such authority which contract or contracts will or maybe executed wholly or partly after the expiry of such authority, and may make a purchase of Ordinary Shares in pursuance of any such contract or contracts. 13. That, conditional on: (a) the audited annual accounts and reports for the year ended 30 April 2022 being laid before shareholders; (b) delivery of the completed accounts for the year ended 30 April 2022 to the Registrar of Companies; and (c) the audited annual accounts for the year ended 30 April 2022 showing sufficient distributable profits to enable the releases being entered into: 136 137 Gateley (Holdings) PlcAnnual report and financial statements Notice of annual general meeting continued 13.1 the appropriation of distributable profits of the Company (as shown in the annual accounts of the Company made up to 30 April 2022 received in resolution 1 above) to the payment of the unlawful element of each of the dividends set out below (each a Relevant Dividend and together the Relevant Dividends), the unlawful elements of those Relevant Dividends together having a total aggregate sum not exceeding £3,283,881.93, be and are authorised, each by reference to the same record date as the original accounting entries for the Relevant Dividends: Date of dividend payment 16 March 2018 interim dividend 15 March 2019 interim dividend 31 March 2022 interim dividend Total aggregate value Amount per ordinary share Total aggregate amount of dividend paid Total unlawful element of dividend paid 2.2p 2.6p 3p – £2,351,024.57 £2,853,261.84 £3,582,071.34 – £1,458,919.83 £1,118,470.48 £706,491.62 £3,283,881.93 13.2 any and all claims which the Company has, or may have, arising out of or in connection with the approval, declaration and/or payment of the Relevant Dividends against its current or former shareholders who appeared on the register of members on the relevant record date for each respective Relevant Dividend (or the personal representatives and their successors in title (as appropriate) of a shareholder’s estate if that shareholder is deceased and/or the successors in title or assignees for corporate members) be waived and released, and a deed of release in favour of those shareholders (or the personal representatives and their successors in title (as appropriate) of a shareholder’s estate if that shareholder is deceased and/or successors in title or assignees for corporate members) be entered into by the Company and any Director in the presence of a witness, any two Directors or any Director and the Company Secretary be authorised to execute that deed of release as a deed for and on behalf of the Company; and 13.3 any and all claims which the Company has, or may have, arising out of or in connection with the approval, declaration and/or payment of the Relevant Dividends against all Directors (present and former) of the Company at the time of declaration and payment of each respective Relevant Dividend (or the personal representatives and their successors in title (as appropriate) of any Director’s estate if that Director is deceased), including any breach of fiduciary duties, be waived and released, and a deed of release in favour of those Directors who acted as Directors of the Company at the time of the declaration and payment of each Relevant Dividend (or the personal representatives and their successors in title (as appropriate) of any Director’s estate if that Director is deceased) be entered into by the Company and any Director in the presence of a witness, any two Directors or any Director and the Company Secretary be authorised to execute that deed of release as a deed for and on behalf of the Company. BY ORDER OF THE BOARD Neil Andrew Smith Secretary Date: 26 September 2022 Registered office: One Eleven Edmund Street Birmingham B3 2HJ 138 Business Overview Strategic Report Corporate Governance Our Financials NOTES: Entitlement to Attend and Vote 1. To be entitled vote at the Meeting (and for the purposes of the determination by the Company of the votes that may be cast in accordance with Regulation 41 of the Uncertified Securities Regulations 2001), only those members registered in the Company’s register of members at close of business on 18 October 2022 (or, if the Meeting is adjourned, close of business on the date which is two business days before the adjourned Meeting) shall be entitled to vote at the Meeting. Changes to the register of members of the Company after the relevant deadline shall be disregarded in determining the rights of any person to vote at the Meeting. Voting on a poll 2. In line with best practice, voting at the meeting will be on a poll, rather than a show of hands. Each shareholder present at the meeting will be entitled to one vote for every Ordinary Share registered in his or her name and each corporate representative or proxy will be entitled to one vote for each Ordinary Share which he or she represents. Website Giving Information Regarding the Meeting 3. Information regarding the Meeting, including the information required by Section 311A of the Act, is available from www.gateleyplc. com/investors. Appointment of Proxies 4. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Meeting. You can appoint a proxy only using the procedures set out in these notes and the notes to the proxy form. 5. 6. 7. A proxy does not need to be a member of the Company but must attend the Meeting to represent you. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, please indicate on your proxy submission how many shares it relates to. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the Meeting. Appointment of Proxy Using Hard Copy Proxy Form 8. A hard copy form of proxy has not been sent to you but you can request one directly from the registrars, Link Group’s general helpline team on Tel: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. Or via email at shareholderenquiries@linkgroup.co.uk or via postal address at Link Group, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 4DL. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form. For the purposes of determining the time for delivery of proxies, no account has been taken of any part of a day that is not a working day. Appointment of a Proxy Online 9. You may submit your proxy electronically using the Share Portal service at www.signalshares.com. Shareholders can use this service to vote or appoint a proxy online. The same voting deadline of 48 hours (excluding non-working days) before the time of the meeting applies. Shareholders will need to use the unique personal identification Investor Code (“IVC”) printed on your share certificate. If you need help with voting online, please contact our Registrar, Link Group’s portal team on 0371 664 0391. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday to Friday excluding public holidays in England and Wales. Or via email at shareholderenquiries@linkgroup.co.uk. 139 Gateley (Holdings) PlcAnnual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials Corporate Representatives 15. A corporation which is a member can appoint one or more corporate representatives who may exercise, on its behalf, all its powers as a member provided that no more than one corporate representative exercises powers over the same share. Issued Shares and Total Voting Rights 16. As at 26 September 2022, the Company’s issued share capital comprised 124,618,605 Ordinary Shares of £0.10 each. Each Ordinary Share carries the right to one vote at a General Meeting of the Company and, therefore, the total number of voting rights in the Company on 26 September 2022 is 124,618,605. The website referred to in note 3 will include information on the number of shares and voting rights. Questions at the Meeting 17. Under Section 319A of the Act, the Company must answer any question you ask relating to the business being dealt with at the Meeting unless: • • • answering the question would interfere unduly with the preparation for the Meeting or involve the disclosure of confidential information; the answer has already been given on a website in the form of an answer to a question; or it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered. Website Publication of Audit Concerns 18. Under Section 527 of the Act, shareholders meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company’s financial statements (including the Auditor’s Report and the conduct of the audit) that are to be laid before the Meeting; or (ii) any circumstances connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual financial statements and reports were laid in accordance with Section 437 of the Act (in each case) that the shareholders propose to raise at the relevant meeting. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the Act . Where the Company is required to place a statement on a website under Section 527 of the Act, it must forward the statement to the Company’s auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the Meeting for the relevant financial year includes any statement that the Company has been required under Section 527 of the Act to publish on a website. Documents on Display 19. Copies of the letters of appointment of the Directors of the Company and a copy of the Articles of Association of the Company will be available for inspection at the registered office of the Company from the date of this notice until the end of the Meeting. Notice of annual general meeting continued Appointment of Proxies Through Crest 10. CREST members who wish to appoint a proxy or proxies by utilising the CREST electronic proxy appointment service may do so for the Meeting and any adjournment(s) of it by using the procedures described in the CREST Manual (available from https://www. euroclear.com/site/public/EUI). CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment made by means of CREST to be valid, the appropriate CREST message (a CREST Proxy Instruction) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (EUI) specifications and must contain the information required for such instructions, as described in the CREST Manual. The message must be transmitted so as to be received by the issuer’s agent (ID: RA10) by 12:30 p.m. on 18 October 2022. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001. Proxy appointment via Proxymity 11. If you are an institutional investor you may be able to appoint a proxy electronically via the Proxymity platform. For further information regarding Proxymity, please go to www.proxymity.io. Your proxy must be lodged 48 hours prior to the time appointed for the Meeting in order to be considered valid. Before you can appoint a proxy via this process you will need to have agreed to Proxymity’s associated terms and conditions. It is important that you read these carefully as you will be bound by them and they will govern the electronic appointment of your proxy. Appointment of Proxy by Joint Members 12. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding, the first-named being the most senior. Changing Proxy Instructions 13. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off times for receipt of proxy appointments (see above) also apply in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Link Group as per the communication methods shown in note 8. If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. Termination of Proxy Appointments 14. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to Link Group, at the address shown in note 8. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed, or a duly certified copy of such power or authority, must be included with the revocation notice. The revocation notice must be received by Link Group no later than 48 hours before the Meeting. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the Meeting and voting in person. If you have appointed a proxy and attend the Meeting in person, your proxy appointment will automatically be terminated. 140 141 Gateley (Holdings) PlcAnnual report and financial statements Business Overview Strategic Report Corporate Governance Our Financials The consequence of those dividends being paid otherwise than in accordance with the Act is that the Company may have a claim against all shareholders who received those dividends as well as a claim against all Directors (former or present) who approved the declaration and payment of those dividends. It is therefore proposed that the Company enter into the Shareholders’ Deed of Release and the Directors’ Deed of Release (as those terms are defined in the Annex to this Notice). Copies of the deeds are available to be viewed on the Company’s website at https://gateleyplc.com/investors/investor-relations. The consequence of the entry into those deeds by the Company is that the Company will be unable to make any claims against: (a) the Recipient Shareholders; and (b) the Relevant Directors, in each case in respect of the payment of the Relevant Dividends otherwise than in accordance with the Act. However, it should be made clear that the Company’s clear intention is that no party should be put in a worse position as a result of these procedural breaches. The breaches were technical in nature and in substance the Company could afford to pay the unlawful dividends. The Directors consider it appropriate that no claims should be made and are trying to provide legal effect to the commercial transaction intended at the time the unlawful dividends were paid. As such, the purpose of resolution 13 is to: (i) authorise the Company to appropriate distributable profits equal to the amount of the dividends paid otherwise than in accordance with the Act; and (ii) authorise the Company to enter into deeds of release having the effect of releasing all relevant shareholders and directors from any liability that may exist in respect of those dividends, including any breach of fiduciary duties. Further details of the background to and impact of resolution 13 are set out in the Annex to this Notice. Notice of annual general meeting continued EXPLANATORY NOTES ON CERTAIN BUSINESS OF THE ANNUAL GENERAL MEETING Resolution 9 – Directors’ power to allot relevant securities Under section 551 of the Act, relevant securities may only be issued with the consent of the shareholders, unless the shareholders pass a resolution generally authorising the Directors to issue shares without further reference to the shareholders. This resolution authorises the general issue of shares up to an aggregate nominal value of £4,152,917, which is equal to 33% of the nominal value of the current ordinary share capital of the Company. Unless previously revoked or varied, the authority will expire on the conclusion of the next Annual General Meeting of the Company or on the date which is 15 months after the resolution being passed (whichever is the earlier). Resolutions 10 and 11 – Disapplication of pre-emption rights on equity issues for cash Section 561 of the Act requires that a company issuing shares for cash must first offer them to existing shareholders following a statutory procedure which, in the case of a rights issue, may prove to be both costly and cumbersome. These resolutions exclude that statutory procedure as far as rights issues are concerned. These special resolutions are drawn up in accordance with the Pre-Emption Group’s Statement of Principles, and enable the Directors to allot shares up to: (a) an aggregate nominal value of £622,937, which is equal to 5% of the nominal value of the current ordinary share capital of the Company, which could be used for any purpose; and (b) an additional aggregate nominal value of £622,937, which is equal to 5% of the nominal value of the current ordinary share capital of the Company, which could only be used for an acquisition or specified capital investment, subject in each case to resolution 9 being passed. The Directors believe that the limited powers provided by these resolutions will maintain a desirable degree of flexibility. Unless previously revoked or varied, the disapplications will expire on the conclusion of the next Annual General Meeting of the Company or on the date which is 15 months after the relevant resolution being passed (whichever is the earlier). Resolution 12 – Company’s authority to purchase Ordinary Shares In certain circumstances it may be advantageous for the Company to purchase its own shares and this resolution seeks the authority from shareholders to do so. This is the first time that the Company has sought authority to make market purchases up to an aggregate of 12,461,860 Ordinary Shares, representing approximately 10 per cent of the Company’s issued ordinary share capital as at 26 September 2022, being the latest practicable date prior to the publication of this notice. Granting authority for the Company to purchase Ordinary Shares in the market is intended to allow your Board to take advantage of opportunities that may arise to increase shareholder value. The Directors will exercise this power only when, in the light of market conditions prevailing at the time, they believe that the effect of such purchases will be to increase earnings per share and will be likely to promote the success of the Company for the benefit of its members as a whole. Other investment opportunities, appropriate gearing levels and the overall position of the Company will be taken into account when exercising this authority. The price paid for shares will not be less than the nominal value of £0.10 per share nor more than 5% above the average of the middle market quotation of the Company’s Ordinary Shares as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the shares are purchased. The Company may hold in treasury any of its own shares that it purchases pursuant to the Act and the authority conferred by this resolution. This gives the Company the ability to reissue treasury shares quickly and cost-effectively and provides the Company with greater flexibility in the management of its capital base. It also gives the Company the opportunity to satisfy employee share scheme awards with treasury shares. Once held in treasury, the Company is not entitled to exercise any rights, including the right to attend and vote at meetings in respect of shares. Further, no dividend or other distribution of the Company’s assets may be made to the Company in respect of the treasury shares. The Directors have no present intention of purchasing Ordinary Shares in the market. The authority given under this resolution will lapse, unless renewed, at the conclusion of the next Annual General Meeting of the Company or on the date which is 15 months after the relevant resolution being passed (whichever is the earlier). Resolution 13 – Dividend rectification The Board has become aware of certain procedural issues in relation to the declaration and payment of three historical dividend payments, further details of which are set out in the text of the resolution. In brief, the Act sets out certain requirements which must be satisfied in order for a company to declare and pay dividends (interim or otherwise). In respect of certain dividends previously paid by the Company it has become apparent that, in contravention of the requirements of the Act, the Company did not properly prepare and file interim accounts to justify the relevant dividends at Companies House before declaring those dividends. 142 143 Gateley (Holdings) PlcAnnual report and financial statementsNotice of annual general meeting continued ANNEX Rectification of Relevant Dividends 1. Background to and reasons for resolution 13 1.1 The Act requires that a public limited company must satisfy certain criteria in order to be able to declare and pay a dividend. Not only must a public limited company have distributable profits but the Act also provides that a public limited company may only pay a dividend: 1.1.1 if, at the time of the dividend, the amount of its net assets are not less than the aggregate of its called-up share capital and undistributable reserves; and 1.2 1.3 1.4 1.1.2 if, and to the extent that, the dividend does not reduce the amount of those net assets to less than the aggregate amount of its called-up share capital and undistributable reserves. Before paying the Relevant Dividends (as defined below), the Company should have ensured that it had the requisite level of distributable profits and net assets. In order to make this determination, the Company was required to prepare and refer to “relevant accounts” (as defined by the Act). If the annual accounts of a company showed sufficient distributable profits to declare a dividend, then those accounts will constitute “relevant accounts” for the purposes of the Act. Where they do not, a company may prepare “interim accounts” (as defined in the Act) which show the requisite level of distributable profits and net assets provided that those interim accounts are filed at Companies House before the declaration and payment of an interim dividend. Upon further review in conjunction with the audit of the Company for the financial year ending 30 April 2022, it has come to the Board’s attention that, in relation to the Relevant Dividends, the technical requirements of the Act as regards the preparing and filing of relevant accounts had not been satisfied (albeit the Company would have been in a position to comply with those requirements), which resulted in the Relevant Dividends being paid otherwise than in accordance with the requirements of the Act. 1.5 The total amount of the unlawful element of the Relevant Dividends declared and paid is £3,283,881.93. The Relevant Dividends were paid in accordance with the Company’s dividend policy and established practice. 2. The consequences of the Relevant Dividends having been made otherwise than in accordance with the Act 2.1 2.2 2.3 Given that the Relevant Dividends have been declared and paid otherwise than in accordance with the Act, the Company may have claims against past and present shareholders who were recipients of the Relevant Dividends (the Recipient Shareholders) and against persons who were directors of the Company at the time of the declaration and payment of the Relevant Dividends (being Nigel Terrence Payne, Joanne Carolyn Lake, Suzanne Frances Allison Thompson, Roderick Richard Waldie, Michael James Ward, Neil Andrew Smith, Victoria Louise Garrad and Peter Gareth Davies, together the Relevant Directors). If resolution 13 is not passed, the Company would, in theory, retain the ability to bring these potential claims against both the Recipient Shareholders and the Relevant Directors. The Company has no intention of bringing such claims, and the Board’s intention is to instead put all potentially affected parties in the position, so far as is possible, in which they were always intended to be had the Relevant Dividends been declared and paid in accordance with the requirements of the Act. Business Overview Strategic Report Corporate Governance Our Financials 3. The Relevant Dividends 3.1 The issues discovered and referred to at paragraphs 1 and 2 above affect the unlawful element of the following dividends (the Relevant Dividends) paid by the Company and result in each of the Relevant Dividends being made otherwise in accordance with the Act: Date of dividend payment 16 March 2018 interim dividend 15 March 2019 interim dividend 31 March 2022 interim dividend Total aggregate value Amount per ordinary share Total aggregate amount of dividend paid Total unlawful element of dividend paid 2.2p 2.6p 3p – £2,351,024.57 £2,853,261.84 £3,582,071.34 – £1,458,919.83 £1,118,470.48 £706,491.62 £3,283,881.93 3.2 The issues set out above only affect the Relevant Dividends and do not affect any other dividends declared or paid by the Company. 4. Proposed remedial action 4.1 In order to remedy the potential consequences of the Relevant Dividends having been declared and paid otherwise than in accordance with the Act and to put all potentially affected parties in the position, so far as possible, in which they were always intended to be had the Relevant Dividends been made in accordance with the Act, the Company is proposing resolution 13, the full text of which is set out in the Notice. 4.2 If passed, the effect of resolution 13, will be to: 4.2.1 authorise the appropriation of, in aggregate, an amount not exceeding £3,283,881.93 of the distributable profits of the Company to the payment of the Relevant Dividends; 4.2.2 waive any and all claims which the Company has, or may have, in respect of the payment of the Relevant Dividends against its shareholders and former shareholders who appeared on the register of members on the relevant record date of each respective Relevant Dividend (or the personal representatives and their successors in title of the estate of any deceased shareholders or former shareholders), such waiver to be effected by way of the Company entering into a deed of release in favour of those Recipient Shareholders (the Shareholders’ Deed of Release); and 4.2.3 waive any and all claims which the Company may have against all Directors (present or former) of the Company at the time of the declaration and/or payment of each respective Relevant Dividend and the personal representatives (and their successors in title) of the estate of any deceased Directors, such waiver to be effected by way of the Company entering into a deed of release in favour of those Relevant Directors (the Directors’ Deed of Release). The Company has been advised that the approach the Company is proposing way of resolution 13 is consistent with the approach taken by other UK incorporated publicly quoted companies who have declared and paid dividends otherwise than in compliance with the Act. Resolution 13, the full text of which is set out in the Notice of AGM, is proposed as a special resolution and, if passed, will, in conjunction with the relevant deeds of release, put all potentially affected parties in the position, so far as possible, in which they were always intended to be had the Relevant Dividends been made in compliance with all of the procedural requirements of the Act. 4.3 4.4 5. The authorisation of the appropriation of the Company’s distributable profits and the Shareholders’ Deed of Release 5.1 The Company proposes to seek authorisation to appropriate an aggregate sum of £3,285,000 of the distributable profits of the Company (being a sum equal to the aggregate of the unlawful elements of the Relevant Dividends paid to the Recipient Shareholders) to the payment of those dividends. As a matter of common law, it is necessary for the appropriation of distributable profits to be approved by shareholders. 144 145 Gateley (Holdings) PlcAnnual report and financial statements Gateley (Holdings) Plc Annual report and financial statements Notice of annual general meeting continued 5.2 5.3 The proposed authorisation of the appropriation of the Company’s distributable profits to the payment of the Relevant Dividends and by the Company entering into the Shareholders’ Deed of Release, will not have any effect on the Company’s financial position. This is because the aggregate amount of the unlawful element of the Relevant Dividends is equal to, and offset by, the release of each Recipient Shareholder from their liability to repay the amount already paid to them in respect of the unlawful element of their respective Relevant Dividends, and the Company will not be required to make any further payments to shareholders in respect of the Relevant Dividends. The Company has not recorded or disclosed the potential right to make claims against the Recipient Shareholders as an asset or contingent asset in its financial statements. Under the Company’s International Financial Reporting Standards (IFRS) accounting policies, it could only record such a right as an asset when an inflow of economic benefit in favour of the Company as a result of such claim or claims being brought was virtually certain, and the Board notes that the Company has no intention of bringing such a claim principally as it would not be appropriate to do so and also as the likelihood of any such claim being successful is very low. The value of any economic benefit which the Company may derive from bringing claims against the Recipient Shareholders is uncertain (and, in any case, incapable of estimation with any certainty) on the basis that it may be possible for the Recipient Shareholders to establish defences to any such claims and there can be no certainty as to the amounts which could be recovered by the Company (if any). 5.4 In addition, under IFRS, a contingent asset is required to be disclosed only when an inflow of economic benefit in favour of the Company is probable. The Board has concluded that any inflow of economic benefit as a result of such claims is less than probable. 5.5 Accordingly, the Company’s entry into the Shareholders’ Deed of Release will not itself result in any decrease in the Company’s net assets or level of its distributable reserves. 6. Directors’ Deed of Release 6.1 6.2 The entry by the Company into the Directors’ Deed of Release will not have any impact on the Company’s financial position as the Company has not recorded or disclosed its right to potentially make claims against the Relevant Directors in respect of the Relevant Dividends as an asset or contingent asset of the Company. As set out in paragraph 5.3 above, under the Company’s IFRS accounting policies, it could only record such right as an asset or contingent asset when an inflow of economic benefit in favour of the Company as a result of such claim or claims being brought was virtually certain and the Board notes that the Company has no intention of bringing such a claim, primarily as it would not be appropriate to do so and also as the likelihood of such claim being successful is very low. The value of any economic benefit which the Company may derive from bringing claims against the Relevant Directors is uncertain (and, in any case, incapable of estimation with any certainty) on the basis that the Relevant Directors would be entitled to seek the court’s relief against such claims and there can be no certainty as to the amounts (if any) which could be recovered by the Company (if any). 6.3 The Company’s entry into the Directors’ Deed of Release does not involve the disposition of any recognised asset or contingent asset in favour of the Relevant Directors. 7. Tax position of UK Shareholders 7.1 It is the Company’s expectation that the tax position of UK shareholders should not be impacted by any procedural irregularity in relation to the Relevant Dividends. Therefore, the Company does not expect the passing of resolution 13 to have an effect on the UK tax position of such persons. 7.2 If any UK tax resident shareholder has any doubts about their tax position, they should consult with an independent professional adviser. 8. Tax position of non-UK Shareholders 8.1 It is also the Company’s expectation that the tax position of non-UK shareholders should not be impacted by any procedural irregularity in relation to the Relevant Dividends. Therefore, the Company does not expect the passing of resolution 13 to have an effect on the non-UK tax position of such persons. 8.2 If any non-UK tax resident shareholder has any doubts about their tax position, they should consult with an independent professional adviser. 146 6Our people and long-established culture are central to the Group’s success.” “ContentsBusiness Overview: We are Gateley Highlights for the year [l]At a glance [l]The Gateley story [l]Our people are our success [l]Our Platform strategy [l]Responsible Gateley [l]Five key reasons to invest [l]Strategic ReportChairman’s statement [l]Chief Executive Officer’s review [l]Chief Executive Officer’s Q&A [l]Finance Director’s review [l]Objectives, strategy and outlook [l]Risk management [l]Section 172 statement [l]Environmental actions statement [l]Social matters [l]Corporate GovernanceBoard of Directors [l]Statement on remuneration: voluntary disclosure [l]Directors’ report [l]Our financialsIndependent auditor’s report to the members of Gateley (Holdings) Plc. [l]Consolidated statement of profit and loss and other comprehensive income [l]Consolidated statement of financial position [l]Consolidated statement of changes in equity [l]Consolidated cash flow statement [l] Notes to the consolidated financial statements [l]Parent company statement of financial position [l]Parent company statement of changes in equity [l]Parent company cash flow statement [l]Parent Company notes to the financial statement [l]Notice of Annual General Meeting [l]Company information [l]Company information Registration number 09310078 Registered office One Eleven Edmund Street Birmingham West Midlands B3 2HJ Directors RR Waldie Chief Executive Officer V L Garrad Executive Director NA Smith Finance Director and Company Secretary MJ Ward Executive Director NT Payne Non-Executive Chairman JC Lake Non-Executive Director SFA Thompson Non-Executive Director Auditor MHA MacIntyre Hudson Rutland House 148 Edmund Street Birmingham B3 2FD Nominated adviser and broker Liberum 5 Ropemaker Street London EC2Y 9LY Principal bankers HSBC Bank Plc 6th Floor 120 Edmund Street Birmingham B3 2QZ Lloyds Bank Plc 125 Colmore Row Birmingham West Midlands B3 3SFBusiness OverviewStrategic ReportCorporate GovernanceOur Financials Registrars Link Group 10th Floor Central Square 29 Wellington Street Leeds LS1 4DL Financial PR adviser Belvedere Communications 25 Finsbury Circus London EC2M 7EE Website www.gateleyplc.comDesigned and Printed by Perivan147 www.gateleyplc.com 

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