Annual Report and Accounts
8 July 2019
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Knights plc
Annual Report and Accounts 2019
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Overview
04 Highlights
06 At a Glance
Strategic Report
08 Chairman’s Statement
10 Chief Executive’s Review
Investment Case
14
16 Market Overview
18 Business Model
20 Competitive Advantage
26
32
34 Corporate and Social Responsibility
40
50
Financial Review
Principal Risks and Uncertainties
Strategy
Key Milestones
Corporate Governance
Introduction
57
58 Board of Directors
60 Corporate Governance Statement
64 Remuneration Committee Report
68
70 Directors’ Report
72
Audit Committee Report
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditors’ Report
76
80 Consolidated Statement of Comprehensive Income
81 Consolidated Statement of Financial Position
82 Consolidated Statement of Changes in Equity
83 Consolidated Statement of Cash Flows
84 Notes to the Consolidated Financial Statements
124 Company Statement of Financial Position
125 Company Statement of Changes in Equity
126 Notes to the Company Financial Statements
131 Glossary of Terms
134 Notice of Annual General Meeting
138 Shareholder Information
Our vision
is to be the leading legal
and professional services
business outside London.
Our mission
is to recruit and develop
the very best talent, with
each of us placing clients
at the heart of everything
we do.
Our purpose
is to challenge and
change the delivery of legal
and professional services;
offering the very best client
service in our sector.
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Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
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Knights plc
A fast growing, legal and
professional services business
offering high-quality expertise
across a full range of services.
Our strategy
To rapidly scale-up our
proven business model
by recruiting, acquiring
and developing the best
talent and businesses,
who place clients at
the heart of everything
they do.
To consolidate the
market and change
the delivery model to
offer the best service
to clients.
Revenue Growth
33%
6yr CAGR
Underlying Profit Before
Tax Growth*
68%
6yr CAGR*
Cash Conversion*
115%
+44%
Revenue
Reported Profit Before Tax
Underlying Profit Before Tax*
£53m
+51% (2018: £35m)
£5.2m
+26%
£9.8m
+104% (2018: £4.8m)
Absolute Fee Earners
as 30 April 2019
520
+49% (349 at 30 April 2018)
Offices
8
+33% (2018: 6 offices)
Financial Highlights
Strong Growth
Track Record
52.7
34.9
32.1
20.2
15.8
12.4
2.3
3.4
4.4
6.9
7.4
11.3
2014
2015
2016
2017
2018
2019
Our innovative approach
has driven significant
year on year growth,
through a mix of double
digit organic growth, and
selective acquisitions,
including four this year.
60
50
40
£m
30
20
10
9.4
0
0.6
2013
Revenue
Underlying EBITDA*
Note
* See Glossary on pages 131 - 133
Annual Report and Accounts 2019Knights plc
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Strategic Report
Corporate Governance
Financial Statements
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At a Glance
A full suite of services strengthened by sector specialisms and non-legal services
Our business is based on a foundation of high client and colleague satisfaction
Real Estate
30%
Private Client
16%
%
of total revenues
Dispute Resolution
35%
Corporate
19%
Revenue
(Strong 6 Yr Revenue CAGR) 33%
Healthy
Underlying PBT* £9.8m
Strong Cash Generation
(Targeted +75% going forward) 115%
Low
Working Capital*
(days lockup)
93
Long Client
Relationships
(for top 10)
+10yrs
High Colleague
Retention
90%+
Low Client
Concentration*
5%
High Client
Satisfaction
(NPS)*
+69
High Colleague
Satisfaction
(ENPS)*
+50
Low Fee Earner
Concentration*
2%
Service line
Service
Real Estate
Dispute
Resolution
Corporate
Private Client
Growing top tier positions outside London
Asset Management
Litigation
Construction
Development
Debt Recovery
Employment
Planning
Property Litigation
Commercial
Mergers/Acquisitions
Banking
Landed Estates
Tax and Trusts
Conveyancing
Family
Sector specialisms
and non legal
services
Energy
Environmental
Mines and Minerals
Town Planning
Education
Healthcare
Highway Claims
Regulatory
Intellectual Property
Health and Safety
Financial Services
Tax Planning
What sets us apart
Market positioning
We are the dominant
player in most of our
chosen locations,
offering a broad range
of high-quality services
from a lower cost base.
Team based culture
We believe clients
are better served by
teams than individuals,
and collaboration
releases untapped
potential in our people.
Corporate structure
Scalable
Clear separation
between management
and fee earners enables
our professionals to
focus on what they do
best, serving the client.
operating model
Our infrastructure,
systems and technology
platforms enable fixed
costs to be diluted as we
grow, with new colleagues
and acquisitions able
to rapidly integrate into
the business.
Manchester
2018
Chester
2013
Derby
2015
Cheltenham
2011
Wilmslow
2017
Stoke
1759
Leicester
2018
Oxford
2016
Offices
8
Fee Earners
520
This year we entered
the Manchester and
Leicester market
with two acquisitions
and significantly
expanded in Oxford.
Note
* See Glossary on pages 131 - 133
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I am delighted to
introduce Knights’
first annual report as
an AIM-listed entity.”
Chairman’s Statement
After a successful track record
under private ownership, becoming
a public company was the next
logical step for Knights to achieve
its vision of creating the leading legal
and professional services business
outside London.
As well as the reputational benefits
of the transparency and recognition
that come from being listed, a key
advantage was that the people who
had helped us build the business
were able to participate in the listing;
our people are delighted to be stake-
holders in a public company.
We are already seeing the benefits
of the listing as we attract a wider pool
of potential talent and acquisition
targets.
Our first year as a listed business has
seen us deliver strongly on our strategy
– both organically and by acquisition,
with revenue and underlying profit before
tax* up 51% and 104% respectively.
This performance reflects organic
revenue growth of 15%, complemented
by our successful acquisitions during
the year of Turner Parkinson, Spearing
Waite, Cummins and BrookStreet des
Roches which have all been integrated
and are performing well.
Pioneering Business Model
Knights was the first organisation of
its type in the UK legal sector to attract
private equity investment, enabling us
to move from the traditional partnership
model to a corporate structure creating a
clear separation between management/
ownership and fee earners. We are
a legal and professional services bus-
iness, not a law firm. A clear indicator
of this is that only one member of our
Board - our CEO, David - has a legal
background, and he hasn’t practised
as a lawyer for 15 years. It also gives
Knights a significant point of difference
in that our profits are reinvested for
growth, rather than having to distribute
them to partners.
service we provide. As well as fantastic
professionals, the places in which
we operate have great clients we can
service. For instance, our client list
includes McDonald’s, Bupa, Prudential,
and MBNA. As we have achieved critical
mass, the size of our clients and the
volume of work has grown. The benefit
of our model is that we are able to work
with local corporate clients as well as
large national organisations that want
to work with advisory firms of scale.
The Top 50 legal firms in the UK are
not really looking to build a presence
beyond cities such as Birmingham,
Manchester or Leeds. In contrast, we
are targeting towns and cities where
we can be the leading legal and
professional services business outside
London. We work in a different way.
Having a successful career in law
doesn’t have to mean working long
hours with a long commute. We offer
a genuine work-life balance for our
colleagues.
Unique Culture
Knights’ culture and values are vitally
important differentiators, and underpin
our considerable success in attracting
and retaining both colleagues and
clients. When we ask new starters
about their first impression of Knights,
the first word used is ‘friendly’. Operating
as a single team is a core part of our
ethos, and we rotate Board meetings
around our eight offices so that our
senior team is as close to the activities
of the business as possible.
A key measure of our culture is coll-
eague retention, which is at market
leading levels and ultimately leads
to quality service for our clients. This
also helps us achieve high levels of
client retention, as our clients value
the consistency of our service. Our
relentless focus on doing these imp-
ortant things well, supports a highly
profitable and growing business.
Strong Governance
Knights is testament to the fact that
quality legal advice doesn’t have to sit
in central London. Knights is a City-
quality business, but the professionals
and clients don’t need to leave their
home city to be part of it. If you walk into
any of our offices, you will feel you’ve
entered a central London firm in terms
of the quality of our people and the
Public companies benefit from form-
alised and transparent governance
structures with the highest standards
of compliance and ethics, and our stru-
ctured approach is designed for the
benefit of all stakeholders. We have
a strong Board, including three Non-
Executive Directors who bring a wealth
of experience, and rigorous processes
and standards. Complementing my role
as Non-Executive Chairman, Steve
Dolton is the Senior Independent Non-
Executive Director. Steve has spent
more than 20 years in senior financial
roles, including CFO of NAHL plc, NSL
Services Group and Azzurri Communi-
cations, to name a few. Steve chairs our
Audit Committee and is also a member
of the Remuneration Committee.
During the year, Richard King moved
from Non-Executive Director to Chief
Operating Officer. To replace Richard,
we were delighted to welcome Jane
Pateman as a Non-Executive Director.
Jane brings over 17 years’ experience
in senior HR roles to our Board. She
chairs our Remuneration Committee
and is also a member of the Audit Com-
mittee. Jane is HR Director at Biffa PLC
and her experience of leading people,
project management and cultural integra-
tion adds a significant asset to our Board.
Maiden Full Year Dividend
The Group’s progressive dividend policy
enables us to both retain profits to fund
our long-term growth strategy and
provide shareholders with a return as
that growth strategy delivers strong
results. In line with that policy, the Board
is proposing a final dividend of 1.27p
per share. Together with the interim
divid-end of 0.6p per share, this gives
a total dividend for the year of 1.87p
per share. The dividend will be payable
on 30/09/19 to shareholders in the
register at 30/08/19, subject to share-
holder approval.
Positive Outlook
The Group has delivered a strong
performance and has a strengthened
platform, with more diversified expert-
ise, a broader geographical base and
an expanded client base. Having also
strengthened our leadership team and
extended our funding during the year,
we are well placed to deliver further
cash generative, profitable growth as
we execute our strategy in the current
financial year and beyond.
Note
* See Glossary on pages 131-133
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plcBalbinder (‘Bal’) Johal Non-Executive Chairman8 July 2019
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Knights plc
Annual Report and Accounts 2019
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It gives me great pleasure
to report on a landmark
year for Knights, our first
as a public company.”
David Beech
Chief Executive Officer
Chief Executive’s Review
Knights has always done things
differently: in 2012, we were the first
organisation of our type in the UK
legal sector to attract private equity
investment, enabling us to move from
the traditional partnership model
to a corporate structure, creating a
clear separation between manage-
ment/ownership and fee earners.
IPO
The success of our model was reflected
in very attractive growth over the follow-
ing 6 years. Having reached a certain
scale, becoming listed was the natural
next step and would allow us to accel-
erate our progress towards achieving
our ambition of becoming the leading
legal and professional services business
outside London.
Public companies benefit from trans-
parency, as well as the recognition and
trust of institutional shareholders. This
has helped to increase our ability to
attract team hires and prospective acq-
uisition candidates by making it easier
for them to understand the business that
they will be joining.
Listing has enhanced our profile, such
that acquisition candidates now app-
roach us, and it is easier for groups of
lawyers to assess the business they
are looking to join. I believe that listing
has helped us to maintain our high
colleague retention rates.
Results-driven,
Collaborative Culture
Our maiden year as a public company
has seen further stellar growth for
Knights. However, rather than being
fixated on the numbers, I believe that
it’s the behaviours in a business that
create the results. What I am most
proud of is how culturally together we
are. We’re very clear on how we do
business together and how we want
to perform for clients, and financial
results flow from this. We live and
breathe our values, they are not just
words on a wall. A business where
people trust each other behaves very
differently; I firmly believe that it’s best
to manage a business by walking
around and being with our people, not
by being removed, and I’m very proud
of our colleague retention.
Growth Drivers
We have made substantial progress in
line with our strategy to invest in organic
growth, complimented by acquisitions.
Organic Growth
Organic growth is core to the Knights
Business Model.
During the year we opened a modern
and larger office in Manchester, which
supports our plan to significantly inc-
rease our presence in the city over the
next year. Turner Parkinson, which was
rebranded as Knights on 1 February
2019, relocated there in the Spring.
The organic growth is a result of an
increase in the average fees per fee
earner* from £107,000 in FY 2018 to
£131,000 in FY 2019, reflecting our
focus on enhanced efficiency and
productivity and increased fee earner
numbers. Recruitment has continued
into our existing and acquired offices,
with 46 net recruits during the year.
A successful recruitment drive in the
second half of the year added to the
number of fee earners and leaves us
with a strong pipeline of new recruits
expected to join in the coming months.
Acquisitions
In line with our strategy to acquire
legal teams or firms offering geogra-
phic expansion into attractive regional
markets or complementary business
services, we have acquired four busi-
nesses since IPO. The acquisition of
Manchester-based Turner Parkinson
in June 2018 brought to the Group
one of the top corporate law firms by
deal volume in the North-West. With
the acquisition of Spearing Waite in
October 2018, we now own the leading
independent legal services business
in Leicester. Our presence in Leicester
was further expanded with the acq-
uisition in January 2019 of Cummins
Solicitors, which added a high calibre
employment specialist to the Group.
April also saw the acquisition of Brook-
Street des Roches in Oxford, one of the
leading commercial law firms in the reg-
ion, with a particularly strong reputation
nationally for its real estate practice.
We have successfully integrated the
acquired firms - both culturally and
operationally - into our services busi-
ness model, while carrying on with our
day-to-day activities and also growing
management capacity. Our ability to
cope with this faster growth is a credit
to our people, who have really stepped
up and raised the bar.
Several of our acquisitions resulted from
leading firms in their locations seeking
to move to the next level of growth.
With the traditional partnership-based
structure of law firms, individual equity
partners have different agendas. For
example, some might want to retire,
others are looking to work for the next
10 years but want financial security.
Under our approach we are able to give
equity partners a return for their life’s
work. They can de-risk financially and
continue to work without the pressures
of running a business, and without all
of the ever increasing demands con-
cerning compliance and technology
investment. As part of Knights, former
equity partners can forget all the worry
and focus on what they like and do
best, client work, and see their firm and
themselves become part of a Group
that’s going to another level. We put
people into attractive office spaces,
we invest in them, and we bring in rec-
ognised, heavy hitting talent that they
wouldn’t have been able to attract as
an independent firm – that’s exciting.
Our sector is unique, in that we’re not
really acquiring businesses but rather
dealing with partners of firms with very
personal objectives.
Having now completed 7
acquisitions, we’ve proven
that we know how to talk
to these equity partners
in respect of their indivi-
dual goals, and we’ve been
able to pick up businesses
by doing so. It’s very diff-
erent to M&A scenarios in
other sectors.
We have a healthy pipeline of pros-
pective acquisition candidates, and
will continue to focus on those that
align with our strategy and can be
integrated into our culture.
Note
* See Glossary on pages 131–133
Strategic ReportCorporate GovernanceFinancial Statements 12
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Strategy
Our vision is to be the leading legal and professional services
business outside London, and our model has benefits for
clients and our people. We’re achieving this in 3 ways:
1
Investment
The profit we make is not distri-
buted to partners, it is reinvested
into
is
the business, which
reflected in the quality of our
recruits, infrastructure, techno-
logy, and offices. We want to be
leading edge in terms of our offices
and technology, and have opened
two new offices this year. The app-
ointment of Richard King to our
newly created Chief Operating
Officer role is also an indication
of our ability to attract external
talent to the Group.
2 Organic Growth
An increasing number of clients
and lawyers want to join us. We
had 46 net new joiners last year.
3 Acquisitions
Where we have opportunities
around the country, we will make
selected acquisitions for the pur-
poses of geographical infill and
also potentially to add new prac-
tice areas. In our first year as a PLC
we have made 4 acquisitions.
Outlook
I am delighted with the strength of our first set of annual results as a listed
business. The IPO and subsequent acquisitions accelerated our already strong
organic growth and form the key strategic pillars to achieving our vision of
consolidating the independent legal and professional services sector. The progress
we have made is testament to our dedicated, motivated colleagues, and the
strength of Knights’ unique culture.
The Group has made a good start to the new financial year.
Looking ahead, we have a clear strategy, the team and financial resources
in place to continue to deliver our growth trajectory, and are excited about
the future.
David Beech
Chief Executive Officer
8 July 2019
I would describe the busi-
ness as having been through
2 phases and entering a third.
Initially it was about proving
the corporate model at a time
when people were very cyn-
ical. Phase 2, over the last 2
to 3 years, was about attain-
ing critical mass. We are now
entering the third phase, about
scaling the business model.
The investment in the IPO, our
Board and senior operational
management are some of the
building blocks that are ready
to support the additional scale
that we intend to achieve.”
Financial Performance
Revenues increased by 51% to reach
£52.7m (2018: £34.9m). Of this, £5.3m
reflected organic growth, and £12.5m
was derived from acquisitions in the
period. Our on-going focus on profitabi-
lity enabled us to maintain our underlying
EBITDA* margin at 21.5% (2018: 21.5%),
resulting in a 51% increase in underlying
EBITDA* to £11.3m (2018: £7.5m).
Profit before tax (PBT) for the year incr-
eased by 26% to £5.2m (2018: £4.2m).
Underlying PBT* increased by 104% to
£9.8m (2018: £4.8m), resulting in a 55%
increase in adjusted EPS* to 11.88p
(2018: 7.68p).
External Market Trends
There are three segments of the UK
legal market serving corporate clients.
These are the top 20 global elite, a
further tier of the top 50 firms with
revenues between £100m and £400m
who are facing increasing competition
from the Big 4 accountancy firms, then
a swathe of single office, independent
firms. The independent segment is very
interesting to us. These firms have typ-
ically reached a glass ceiling, are facing
more and more pressure and risk, and
are vulnerable to consolidation. We want
to consolidate that third tier of indep-
endent law firms. We’ve acquired 4 this
year, and will continue to acquire if there
is alignment with our geographical stra-
tegy and cultural fit.
That approach will complement our
organic growth, which is equally imp-
ortant to achieving our ambition.
When it comes to regulation, a lot has
changed in the last decade, and compli-
ance requirements concerning conduct
when dealing with clients, for example,
continue to gain momentum.
Many small independent law firms,
because of a lack of technology and
risk systems, struggle with even the
basics of compliance. There is more and
more pressure for thorough compliance,
not only from the Solicitors Regulation
Authority but also on account of incr-
easing rates of cyberfraud. Many small
firms also face real pressure in regard
to compliance and risk, particularly in
this ever increasing digital commer-
cial environment. They don’t have the
resource or capability to carry out the
required checks for financial transac-
tions, and are consequently approaching
larger businesses for protection. Firms
really need to be robust and have the
resources and investment to protect
their businesses and people.
We have recently reached 700 people
(compared to a typical independent
firm with 50 people), and have the
critical mass where we can invest to
protect ourselves properly.
Note
* See Glossary on pages 131–133
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Investment Case
A strong track record in a highly
attractive market.
Unique client offering -
City quality from a lower cost base
Challenger to the legal services model
in a highly attractive, fragmented market
A proven and compelling platform
for legal professionals
Resilient business with high
earnings quality
One-team approach ensures clients receive
Pioneer in the UK legal sector and the first
the best match for their requirements
commercial law firm to attract external investment
-
-
Early adopters of corporate structure instead of the
partnership model in 2012
Disruptive B2B business model: “People do what they
do best”. Fee earners concentrate on client service.
Professional managers run the business
-
Diverse expertise in senior leadership and Board
outside the legal sector
-
-
-
-
-
Right blend of specialism and experience
Flexibility to flow capacity to meet scale,
speed and peak demands
In tune to tailor advice to match clients wider
commercial objectives and attitude to risk
Deep client relationships deliver service
clients trust
Our down to earth, flexible and friendly
culture fosters mutual trust
Depth and breadth of trusted expertise in disciplines
and industry sectors
-
One provider for all services reduces client effort.
Value for clients
Cost base outside London
(i.e. lower salaries and property costs)
Lower overheads through use of technology
Lower costs by flowing work to the right level
of expertise for the task
-
-
-
-
-
-
-
Quality work and career opportunities
with sustainable balance
No financial risk; partners not exposed to the
ownership risks of equity structures
No politics or distractions, just a supportive
environment to thrive in
Attractive remuneration package with public listing
providing great flexibility for all colleagues to own
shares in the business
-
Recruited 46 fee earners including 11 partners
during the financial year
- Greater than 90% talent retention
-
-
-
-
-
-
Serving over 10,000 clients with low client, sector
and fee earner concentration
Dominant player in most of our markets
Consistent year on year double digit organic growth
- 15% this fiscal year
High client satisfaction: +69 NPS and >10 years
average relationship for top 10 clients
Delivered a 6 year revenue CAGR of 33% and
adjusted profit before tax profit CAGR of 68%
Targeted 75% cash conversion, exceptionally
115% this fiscal year
Flexible and value accretive M&A strategy
-
-
-
-
Proven track record of acquiring then unlocking
value from existing law firm structures
Expert team fully integrates acquisitions; systems,
processes and culture
Knights Operating Platform enables rapid systems
integration in under 2 months
4 successful acquisitions this year; 2 scaling existing
locations and 2 new locations
Recruited
Client Satisfaction
Organic Growth
Regional consolidator with proven track record and high-quality earnings
+69 NPS*
>10 years average relationship
for top 10 clients
15%
Financial year 2019
Cash Conversion*
115%
Financial year 2019
Acquisitions
4
Scaling 2 existing locations
2 new locations
46
Fee earners including
11 partners
Retention*
+90%
Talent retention
Note
* See Glossary on pages 131 - 133
Manchester ‘NEW’
June’18 - Turner Parkinson
Wilmslow
Acquisitions
New Market
Add Scale
Chester
Derby
Stoke
Leicester ‘NEW’
Oct’18 - Spearing Waite
Leicester
Jan’19 - Cummins Solicitors
Cheltenham
Oxford
April’19 - BrookStreet des Roches
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Market Overview
Knights is a dominant player
in most of the chosen markets in
which it operates, outside London,
and is highly successful at winning
and satisfying high quality clients.”
The UK legal
services market
Employment in the
UK legal services market
UK legal and professional
services market drivers
A c.£2bn market outside London
growing at 3–5%.
The UK legal services market is
the largest legal services market
in Europe, and the second largest
globally, behind only the US with
fee revenue estimated at c.£33.4bn
for 2017/20181. The UK legal services
market makes a direct economic
contribution of c.1.5% of the UK’s
GDP2 and contributed £4.4bn in
trade surplus in 2017. It accounts for
around 6.5% of global legal services
fee revenue and around a fifth of the
European legal services revenues.
There are approximately 10,400 legal
services businesses operating in the
UK3 but the top 200 firms have an
estimated c.70% market share.
Revenue growth for the UK legal
services market has been broadly
linked to economic activity. Group
and market sources indicate that
the overall market has exhibited
underlying growth of c.3–4% p.a.
over the past decade. Consistent with
this estimate, the ONS market data
suggests a CAGR across 2010–2016
period of 3.8% p.a.
According to data from the Business
Register and Employment Survey,
the number of people employed in
legal services in the UK is c.342k
(including self-employment). Around
two thirds of these jobs are located
outside London and for every 100
jobs in the Legal Services sector,
67 are supported in other areas of
the economy4. Solicitors account
for c.61% of this total, while
barristers and judges represent
c.16% of employment. Other legal
professionals, including those
working as patent and copyright
agents, make up the remaining 23%
of the employment market. The ONS
data indicates that c.68% of the
market is directly employed, while
c.32% is self-employed.
Significant opportunity for
organic growth within the legal
sector outside London.
Greater levels of
sophistication from clients
Particularly prevalent in the B2B
market, industry surveys suggest
that clients are benefiting from
a greater degree of market
transparency and awareness
of services.
Costs
Cost pressures appear particularly
acute in staffing, with pressure to
increase salaries to attract
new talent into the industry.
While the supply side of trainees
into the profession remains strong,
higher salaries may be required in
private practice to offset the appeal
of in-house legal opportunities.
Technology
The requirement to invest in
technology to enhance efficiency
to remain cost-competitive has
increased. Law Society Research
Unit Firms Survey provides
examples of staff being replaced
with automated/IT-based systems
during the last 3 years.
Knights has
been an active
and successful
acquirer and is
well-placed to
continue with
this strategy.
M&A
Significant corporate activity has
taken place across the UK legal
services market in recent years.
The 2017 merger of CMS (9 on
the top 100 revenue list), Nabarro
(34) and Olswang (41) represented
the largest transaction of the year.
However, according to Jomati
MergerLine UK, there have been
133 publicly reported mergers
involving UK-based law firms in
the Lawyer 100 rankings since
2011. Of these, 54 involved a
UK firm merging with a firm from
another jurisdiction.
UK market trends - the
consolidation opportunity
Industry consolidation remains a
sector theme. 2018 saw significant
consolidation activity in the UK legal
services sector. Acquisitions and
mergers have taken place in both
the listed and private sector as the
industry responds to the changing
dynamics of the market.
The rationale for consolidation
activity focuses on:
Regional consolidation
Buy-out of existing partnerships
with strong client relationships
Bolt-on of additional specialist
or complementary skills
Acceleration of growth to leverage
cost overhead
Other market pressures are also
key drivers of consolidation.
The sector will undergo further
M&A over the medium term and
the intention to take part in market
consolidation is a key strategic aim
of the publicly listed legal services
companies.
TheCityUK. (2018). Legal Excellence, Internationally Renowned UK Legal Services 2018. London.
Notes
1
² Solicitors Regulation Authority. (n.d.). The changing legal services market report.
³ Solicitors Regulation Authority. (n.d.).
4
The Law Society. (2015). The EU and the Legal Sector.
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Our Business Model
We believe great service starts with high employee
morale to drive the real teamwork that's needed to
best meet clients’ needs.
Our delivery service strategy is somewhat unique: Culture driven vs Measure or Process driven.
Career opportunity
and choice lead to
personal success
Better service to
clients is rewarded
by business growth
Real teamwork
driven by high morale
We believe clients are best
served when fee earners are
thriving, by working as fluid teams
to quickly bring the right mix of
expertise, experience and capacity
together to deliver on the client
need. We foster this via:
No fee targets
Single Digital Operating Platform
so tasks can be rapidly flowed
across individuals and offices
and matters can be worked on
collectively
Fee earners working digitally,
without secretaries to leverage
the Platform
Employee NPS* +50
Employee Retention* >90%
We find clients value our
enthusiasm and combined
capabilities to help them achieve
their goals, plus our speed and
quality of delivery. They also enjoy
working with our upbeat, open,
solution-centric people. Business
growth follows in terms of:
Clients using more services
New clients instructing us
New fee earners joining us,
attracted by the high quality
of work, speed of management
decision-making and the
rewarding, low-stress environment
+69 Client NPS*
6 New service specialisms
51% Revenue growth
104% Underlying PBT* growth
We encourage colleagues to
pursue the career and life ambitions
they want. We reward for total
contribution across all 6 value
drivers, encouraging colleagues
to play to their strengths:
Service delivery
Flowing work to the right person
Cash conversion
Winning quality work
Improving behaviour
Developing others
The personal success that follows,
leads to very high morale.
11 New partners
9% Fee earners promoted
24% Work part-time
43% of partners are female
Growth drives opportunity,
greater profitability and
more investment
Financially, as we scale,
our profitability grows as we
dilute fixed costs, such as office
space and operational enablers.
Our PLC model means profits are
reinvested into the business rather
than drawn down by equity partners,
which fuels better depth and breadth
of services and higher morale.
21.5% Adjusted EBITDA margin*
4 Acquisitions consolidated into
Knights’ Operating Platform
Note
* See Glossary on pages 131-133
Our publicly owned corporate structure and the Knights Operating
Platform provide the foundations to fund growth, drive scale and efficiency.
We have broken industry norms such as:
The Market:
Knights:
“Fees trump Behaviour.”
“Fees billed = Contribution.”
Behaviour trumps Fees
We act on this
with conviction.
No Fee Targets
We use judgement
to evaluate
contribution across
all 6 value drivers.
Increasing shareholder return driven by growth
As a regional consolidator we grow shareholder return principally through share price growth,
fuelled by reinvesting increasing profits into selective acquisitions, market and service expansions,
plus service and efficiency improvements to further grow revenue and profit.
95.6% Total Shareholder Return*
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Competitive Advantage
Knights has four sources
of competitive advantage,
which we turn into results via
our distinct business model
which creates a virtuous cycle
of ever-growing value.
Market Positioning
We are the dominant player
in most of our chosen
locations, offering high-quality
services from a lower cost
base outside London.
We operate in markets where there
is limited competition, and are
ideally placed to take advantage of
the pressures facing the mid-tier
law firms over the medium term.
We generally avoid developing a
presence in markets dominated by
institutional firms, where there is
greater competition, and pressure on
both fees and costs. However, where
there is an opportunity or an existing
business operating in a market that
meets our criteria to deliver accretive
value sustainably, we are not averse
to operating in larger markets.
A good example of this is our entry
into Manchester in June 2018 via
the acquisition of Turner Parkinson,
a quality business with excellent
strategic fit in terms of culture,
client relationships, services and
geography.
We are ideally placed to benefit from
the structural changes taking place in
the legal services market. We operate
in a distinct and highly profitable
segment of the legal services market.
We do not compete with the global
and national law firms, or with local
high street firms, which are generally
focused on B2C activity.
We are also better placed than many
regional players in the same locality in
which we operate where competitors
are typically partnerships, sub-scale
and at risk from the structural pressures
facing the legal services market.
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Our culture in our colleagues’ words:
Team Player
Modest
Friendly
Authentic
Enthusiastic
Proactive
Caring
Candid
Our culture in our clients’ words:
”Their lawyers are proactive,
commercial and a pleasure to deal with.
I know I can rely on them to get the job
done efficiently and cost effectively.
A key attribute is that the team
understands our business and approach
to risk and tailors their advice and its
delivery accordingly. This provides real
value and sets them apart from other
legal services providers.”
”Knights plc is my first and only port
of call for employment law matters.
Their advice, and the service that goes
along with that advice, is always first
class, timely, and professional in every
sense of that overused word.”
Amanda Bottaro
Head of Real Estate
McDonald’s
Bob Munro
Group Chief Human Resources Officer
Bet365
Team Based Culture
Culture is often referred to as
a key ingredient of a successful
business. At Knights we regard
it as the primary driver.
We believe if we focus on
behaviours, the service, quality and
financial results will follow. This
belief is supported by our financial
results and soft measures.
Our rationale for choosing to be
culture led, and specifically team
based, is simple. Firstly, as a
professional services business, our
people by definition are our primary
asset so we need them to flourish.
Secondly, we see two significant
streams of untapped value that
result from the industry’s traditional
individual-centric model, where
someone’s contribution is solely
measured by the fees they earn.
1 Clients are better served
by teams than individuals
Provide the right blend
of experience and
specialist expertise
Manage peak demand and
fee earner availability
Operate quickly and efficiently
2 Professionals have significant
untapped potential
Maximise contribution by
rewarding all 6 value drivers;
Service delivery; Flowing work to
the right person; Cash conversion;
Winning quality work; Improving
behaviour; Developing others
Increase productivity through
the greater reward and reduced
stress that comes from being part
of a team
Happy professionals deliver
better service
Develop people faster by flowing
stretching quality work to them
Equally, being culture driven is not
a soft option. It requires colleagues
to commit themselves to be part of
a close knit team with the high
mutual expectations that go with it,
and to have absolute candour with
each other. It is exciting, demanding
and satisfying for people.
We are clear on the traits we
look for and nurture in colleagues,
and are highly selective on cultural
fit, taking inspiration from the
All Blacks ethos.
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Corporate Structure
We operate an Alternative
Business Structure (ABS), rather
than the traditional LLP law firm
model that faces significant
structural challenges over the
medium term.
We have a long-standing,
proven track record operating
as a corporatised entity.
There is a clear separation between
the ownership and management of
the business, enabling colleagues to
focus on what they do best. Partners
enter the business as employees, and
are free to focus on fee generation,
leaving the running of the business and
overall group strategy to professional
management.
The structure also creates an attractive
model for partners in existing law
firms to de-risk their equity, obtain
a competitive salary, focus on client
activity, and promote a culture of
cross-selling across the business.
As a publicly traded business,
individuals have the opportunity
to take an equity position if they
choose, in what is a liquid asset.
The separation of management from
ownership has also allowed us to build
a professional management team and
Board, with skills and experience in
key areas such as financial acumen,
technology exploitation and culture
and talent development, that are
typically in short supply in the legal
sector. This combined with our efficient
management structure, enables rapid
decision-making and a speed to action
that is uncommon in traditional equity
partnership models.
The third benefit of this separation
is financial, in terms of access to
capital and the objectivity of decision-
making. This is particularly important
given the significant investment
opportunities to
Create value by scaling the
business through acquisition; and
Invest in technology to drive scale
and efficiency.
The delivery of 4 acquisitions in
under a year since IPO and a fee
earner to non-fee earner ratio* of
4:1, versus the market average 1.5:1,
are indicators of our success in
exploiting these opportunities.
Note
* See Glossary on pages 131 - 133
Scalable Operating Model
When creating the Knights
model in 2012 we made a
conscious decision to establish
a consistent way of working
across the business.
Looking forward, we believe our
Knights’ Operating Platform, free of
legacy systems, can be a source of
increasing value, both in terms of
its current impact on creating scale
as we grow, and by growing its like
for like impact, by expanding the
scope of processes covered and
functionality of the technology we use.
Our rationale was to quickly help
our fee earners to transition from
the traditional practices of law
firms into those of a client centric,
efficient and agile modern legal and
professional services business.
Since then it has grown into the
Knights’ Operating Platform, a
single backbone of processes, data,
documents and systems that enables:
All our fee earners to work
seamlessly as teams across
disciplines and locations
New recruits to quickly transition
to our modern and efficient way
of working
New acquisitions to be
operationally fully integrated
normally within 2 months of
completion
Our back-office to efficiently
scale rather than grow as the
business grows
Operational improvements
to be applied instantly across
the business
Actionable business intelligence
to be delivered to management.
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Strategy
The Knights’ Business Model, which is
centred on maximising value for all
stakeholder, was established between
2012 and 2014. Our Strategic focus shifted
in 2015–2018 to creating critical mass
in terms of expanding our geographic
footprint and strength in our services;
5 new offices (2 organic, 3 via acquisition)
and c. 300 additional professionals
were added.
This was visibly marked by our IPO and
admission to AIM in June 2018, where we
successfully raised £28m for investment
in the business to give us the financial and
operational flexibility required to pursue
this objective.
Our strategy to scale-up the business has 4 pillars:
1.
2.
3.
Grow
Organically
Selective
Acquisition
Scale the
Operation
4.
Exploit
Technology
and Data
Since mid 2018, our strategic focus has
moved to rapidly scaling-up the business.
AIM listing successfully raised
net proceeds of *
£28m
Grow organically
While the UK legal services
market is forecast to provide
robust underlying growth,
clear opportunities exist
for us to continue to grow
organically much faster by:
More fully serving high-quality
UK clients
-
-
Whilst the number of clients that
buy more than one service from
us has increased by 13% this
year to more than 1000, there is a
significant opportunity to continue
to further grow this year on year.
We continue to attract new clients
as our name and reputation
spreads. We have also invested in
a Sales Director role to accelerate
our ability to find clients in need of
our services.
Developing existing talent
-
As a people powered business,
accelerating people’s development
to their full potential is key to
our success. Our approach is
multifaceted, the backbone of
which is to provide a collegiate
supportive environment, where
quality work flows to people, and
they are coached so they learn
quickly. In parallel we actively use
technology so our people lose their
fear, then learn how to exploit it to
serve them.
-
We actively build practical business
acumen through on the job
coaching, and are expanding our
capability to build our people’s
leadership skills, through training
and mentoring.
Growing attractive
niche specialisms
-
-
We are seeing a number of
attractive new specialisms
emerging, which has led us to
expand our service offering.
By way of example we now
provide expert services in support
of the energy transition underway
in the UK, by a combination of
recruiting experienced individuals
able to support this growth,
together with a low overhead
model that is supportive of
emerging businesses.
Attracting new talent
(be that individuals or teams)
Recruiting new talent is a key
part of our strategy, and given
that our size and reputation has
grown, we are now creating a direct
recruitment capability led by an
experienced recruitment leader,
to make it easier for potential
candidates to understand our
proposition and to apply.
Progress this year 15% Organic Growth
This year saw us
deliver double digit
organic growth for
the 6th year in a row,
aided by all 4 pillars.
15%
Organic Growth. We invested
in new Recruitment Leader and
Sales Director roles to drive growth
going forward
£131,000
Fees per fee earner grew from
£107,000 to £131,000 per annum*
17
46
6
We developed and promoted
17 colleagues to partner and
senior associate
We recruited 46 fee earners (net)
including 11 strategic partner hires
with significant client following
We added new specialisms in Energy,
Regulatory, Healthcare, Information
Technology, Intellectual Property and
Highways and Properties damage
1000+
More than 1000 clients now use more
than one service, a 13% increase
90
We invested in a new modern
office in Manchester to support
expansion with capacity for an
additional 90 colleagues
* back in
the business
Note
* See Glossary on pages 131–133.
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Selective acquisitions
Knights is at the forefront of
consolidation within the mid-
tier UK legal services sector,
building on its successful
acquisition strategy to date.
Growth is achieved through
highly selective, high-quality
acquisitions as a means
to accelerate growth in
existing locations, expand
into new ones or add new
specialisms.
What we look for
- Cultural fit
-
-
-
Attractive regional locations
outside London with limited
competition
£5–£15m turnover to open up
new geographies
£1–£5m turnover to rapidly scale
in established geographies or add
new specialisms
- High-quality commercial focus
-
-
-
Low client/fee earner
concentration
Sticky client base
(confirmed by referencing)
Managed by a limited number
of ‘owner partners’
How we do it
In-house M&A team
(DD, IT, HR, Legal)
Restructure to remove support
service inefficiencies
Swift transition onto Knights’
Operating Platform
-
-
-
- Prioritise full cultural integration
4x 4 acquisitions completed and operationally integrated
Post IPO we have completed
4 acquisitions, expanding both
geographically into Manchester
and Leicester, and adding
complementary skills, services
and scale to existing offices.
We have unlocked significant
value through cost synergies, by
quickly migrating the new firms
to our Knights’ Operating Platform.
-
-
Progress this year
Turner Parkinson
Manchester
Spearing Waite
Leicester
Cummins Solicitors
Leicester
BrookStreet
des Roches
Oxford
29 June 2018
8 October 2018
14 January 2019
1 April 2019
-
One of the top corporate
law firms by deal volume
in the North-West
- £13m acquisition
- 44 fee earners
-
Leading independent
law firm in Leicester
-
£8.5m acquisition
-
59 fee earners
-
High calibre
employment specialist
based in Leicester
-
£1.4m acquisition
-
5 fee earners
-
Highly regarded leading
independent law firm
in Oxford, with a strong
reputation nationally for
its real estate practice
-
Transformational
acquisition for the
existing Oxford office
-
£10m acquisition
-
45 fee earners
Knights’ new Manchester Office - Spring 2019
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Scale the operation - building on strong foundations
Exploit technology and data
Given our current rate of growth and ambitious goals,
scaling up our operational backbone is essential to
ensure it does not become a constraint to growth,
operational efficiency or agility.
We are in an excellent position having created the Knights’
Operating Platform, a single set of processes, systems and
data we use to run the business. We have been successful
in keeping this intact when acquiring businesses, by taking
a highly focused approach of eliminating their processes
and systems in the first few weeks.
Our focus is on four elements:
Operational Leadership
Gearing up the leadership
of each area of our operation,
to be organisationally ready to
run a much larger business.
Operational Capacity
Increasing the capacity of
our teams to be able to deliver
day-to-day operations as the
business grows.
Increased Automation
of the Operating Platform
We see opportunities to enhance
the scale efficiency of the Platform
by automating more financial and
HR processes.
Acquisition Full Integration
Continue to fully integrate
any acquisition.
The rapid advancement in technology and the
abundance and granularity of data, provide significant
opportunity to operate with high efficiency and agility,
accelerate management responsiveness and enhance
core service delivery.
Our strategy has been to establish a common way
of working across the business, then encapsulate it in
our operating platform, as a set of scalable processes,
systems, capability and data.
The core of our platform addresses 2 key areas:
1 Optimising the management
of matters end to end, as it’s the
bedrock required to operate our
team based delivery model, and
largest consumer of capacity.
Being able to use technology is a base expectation of all colleagues. This creates
a steep learning curve for many who join us, who have been used to working with
paper and/or the support of a secretary who used the technology on their behalf.
We provide proactive training and one to one support to help new colleagues
learn the necessary skills.
2 Driving financial performance by
creating actionable management
insights, with a particular focus
on cash conversion.
Looking forward, our direction is to expand the scope of automation to include
more finance and HR processes to improve scalability and optimise operating
costs. The use of predictive analytics will enable delegation of cash conversion
management to less experienced employees, to free up leadership capacity
and improve scalability. Assisted document review and creation will also be
implemented to enhance service delivery by releasing the fee earners’ capacity
to apply their judgement more.
Delivered scale whilst preparing for the future
Successfully leveraged our Platform to grow the business
Sustained a fee earner to
non fee earner ratio* at 4:1
(1.5:1 market average).
4:1
-
-
-
Fully integrated 4 acquisitions
within 2 months.
Consolidated 2 offices into
1 in Oxford.
Invested in a Chief Operating
Officer role, and staffed it with
an individual with expertise in
acquisition integration, technology
exploitation and scaled services
delivery; Richard King. This also
freed up our CEO, to focus on
growing the business.
-
-
Invested in a full-time Compliance
Director role, and staffed it with
an established expert in SRA and
GDPR compliance.
Staffed up significantly in Finance,
Compliance, IT, HR and Training, to
manage the increase in transaction
volumes and new fee earners, and
free up the respective function
Directors’ time to focus on scaling
the operation for the future.
4
93*
200
Acquisitions integrated onto Knights’
Operating Platform.
Financial lockup versus
160 days market.
Fee earners successfully operational
within 2 months of integration.
Note
* See Glossary on pages 131 - 133
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Key Milestones
Establish the Model
2012 – 2014
Critical Mass
2015 – Mid 2018
Scaling Up
Mid 2018 – Onwards
1st acquisition - Stoke
First commercial firm
in the UK legal sector to
attract external investment
and ABS licence granted
Corporate structure replaced
partnership model, separating
management/ownership/service
delivery
Established a ‘one team’ based
culture and eliminated fee targets
Implemented modern paper light
ways of working using one practice
management system, improving
fee earner to support staff ratio’s
2nd acquisition - Chester
Organic expansion - Derby
3rd acquisition - Oxford
Listed on AIM raising £28m
Expanded debt facility to £27m
Organic expansion - Wilmslow
Appointed a COO
4th acquisition - Manchester
Grew capacity and depth
of expertise via acquisitions
and organic recruitment of
120 professionals
Added 3 non legal services
5th acquisition - Leicester
6th acquisition - expanded Leicester
7th acquisition - expanded Oxford
New premises - expanded Manchester
Organic recruitment of 46 professionals
6 new sector specialisms added
Serving more high quality clients
2
£8.7m
Offices
Turnover
150
Employees
5
£34.9m
Offices
Turnover
430
Employees
8
£52.7m
Offices
Turnover
650
Employees
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Corporate and Social Responsibility
4
Our
community
Our programme gives colleagues 4 hours of work time a month to spend
helping their local communities. It also helps them to be expansive
in their thinking.
People Helping Others
When people are thriving their
natural instinct is to help others,
whether inside the business, the
community or the environment.
People Thriving
We empower our talented
conscientious professionals to be
themselves and use their judgement
to do what’s right, then reward them
for doing so.
Healthy Environment
We believe an emotionally
supportive, team based environment
in high-quality physical surroundings
is a critical foundation to CSR.
Our strategy to maximise our positive impact is simple:
Our aspiration to deliver:
Create the healthiest working environment possible so that people
can thrive; and make it as easy as possible for people to have an impact
beyond the business.
30k+
hours to our communities
People
Time
Passion
Our goal is to maximise
the positive impact we
have on colleagues and
our external stakeholders,
including the communities
in which we operate and
the legal services industry.
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Healthy Environment
We are committed to ensuring
that our offices create a
healthy working environment to
encourage our unique culture.
Our new modern office environments
We fit out our premises to a
high specification, to create
a light, clutter free, open plan
environment that fosters wellbeing
and facilitates integration of new
colleagues that have joined through
acquisition or as lateral hires.
We provide a 1759 Lounge, for
colleagues to relax and interact in a
communal environment, and actively
encourage them to take a proper break
to sustain their wellbeing, and foster
interaction.
90+
The Manchester office expansion
has supported over 50 existing
colleagues and can support an
additional 90 colleagues.
Environmental impact
We continuously strive to minimise
our environmental impact with a
primary focus on reducing our use of
consumables. Our number one impact
is paper consumption (and with it
print), in the course of delivering
our services. Whilst we are legally
obliged to produce some documents
on paper, we have invested heavily
in IT training, on the job support and
extra-large screens to enable side
by side document review, as part of
a wider programme to increase our
professionals’ use of digital working
practices. This has led to significant
reductions, of around 500,000 pages
per year, and following a recent
acquisition, we were able to eliminate
over 2,000,000 pieces of paper from
their previous operations.
£2.5m
Reduced pages per year due
to the increased use of digital
working practices.
People Thriving
As highlighted in our Business Model,
a key differentiator for Knights is taking
a team vs. the traditional Individual
based approach to the provision
of legal services. We passionately
believe (backed up by results),
that we can release the significant
untapped potential in legal service
professionals, by removing the high
levels of personal stress and barriers
to best serving clients, caused by
the traditional industry model of
measuring people’s contribution solely
on the basis of individual targets.
We create a positive and supportive
environment to empower our talented
conscientious professionals to be
themselves and use their judgment
to do what’s right.
Different ideas, perspectives and
backgrounds create a stronger and
more collaborative work environment
at Knights. Colleagues are empowered
to share their experiences and ideas
which in turn benefits our clients,
investors and the communities in
which we operate.
We reward our employees based on
behaviours and total contribution as
judged by leaders of the business.
The model requires high mutual trust,
engagement and candour, led by
people with very strong people skills.
The result is we are exceptional at
supporting each other. We deliver
and celebrate together; encouraged
to find a consistent work life balance
which provides the opportunity to
exceed career expectations, by
inspiring, defining and delivering
the future of legal and professional
services in the UK. Collaborative
success brings much more than
financial reward; but also positive
mental health and wellbeing.
The recent addition of Richard King
as COO and Jane Pateman as
Non-Executive Director, both with
strong HR backgrounds, are a
significant investment to rapidly scale
the culture nurtured by our CEO David
Beech as the business continues
its rapid growth.
People Helping Others
Our commitment to ‘do the right
thing’ naturally extends beyond
the workplace. Colleagues make
numerous contributions to the wider
community and to make this easier
we have created 4 Our Community;
where colleagues can come together
and spend 4 hours of work time a
month helping our environment and
local communities.
The 4 hours can be used for
hands-on assistance to organisations
such as charities, schools, care
homes, food banks and youth centres
or any organisation providing a social,
educational, voluntary or charitable
service to the community.
For us this means:
hands-on help for individuals in
need whether it be through talking,
physical assistance or just spending
time with people;
providing assistance to
organisations that need manpower
and/or professional guidance;
bringing people from business and
the social/charitable/educational
sectors together in a coordinated
and organic way which builds
relationships and better
communities.
We are a friendly,
down to earth,
caring business,
with little
organisational
hierarchy, local
decision-making,
and a culture
of positivity and
transparency
throughout.
4hrs
of work time a month on helping our
environment and local communities
Annual Report and Accounts 2019Knights plc 38
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
39
The results: People Thriving
Healthy Foundations
Colleagues Thriving
Over £2M invested in improved working environment
Career progression - 9% of fee earners were promoted,
including 5 to Partner
Gender diversity - 43% of partners are female.
3 of 7 Board attendees are female. 54% of upper
quartile earners are female
Whilst we don’t formally measure it, we see people from
many different socio economic, ethnic and religious
backgrounds thriving at Knights. Our focus is solely
on what people bring to the business, not what labels
society chooses to place on them. This is an outcome of
our relentless focus on fostering a culture of true listening,
real teamwork and adding value, whilst being yourself.
Our approach is in sharp contrast to implementing policies
and managing metrics
Flexibility - 24% of partners work part-time and overall
24% of colleagues work part-time, enabling them to
choose a work/personal life balance that suits their
personal situations
Positive client sentiment, we are proud our clients
gave us a Net Promoter Score (NPS) of 69
Average fees per earner up 22.4%
Over 50% of colleagues have chosen to buy shares
in the business via share plans
Employee turnover <10% with 109 employees having
worked at Knights for more than 5 years
Positive colleague sentiment
Eliminated the use of disposable, cups, cutlery
and crockery in the last 2 years
Reduced paper usage, our number one environmental
impact, by over 2.5 million pages/year
200 colleagues moved from paper based to
predominantly digital working practices
Enhanced Maternity Pay introduced
Discounted Share Incentive Plan and SAYE
share plans introduced to encourage ownership
and sharing in our success
£2m+
Invested in improved working environment
in the last 2 years.
The results:
People
Helping Others
We have included just a few
examples of how our colleagues
help others in our communities:
Netball team
Stoke
Football team
Wilmslow
Employee video case study
Wilmslow
We’re proud of our netball team
who were champions of their
division this season, and even
more proud that the team comprises
colleagues from Stoke on Trent,
Chester and Wilmslow who have
the passion to travel considerable
distances each week to train and
be part of a team.
Our colleagues genuinely work
as a team and have fun together
socially. Having our football team play
and train once a week encourages
this and allows colleagues to
demonstrate our team based culture
out of the office too.
Our colleagues are our best
advocates and testament to our
working culture. We have invested
in enhancing our recruitment platform
and campaigns by creating video
case studies on our colleagues
to genuinely demonstrate life at
Knights and the work/life balance our
colleagues have in their own words.
Knights Big Walk
Oxford
Hospital Garden Tidy Up
Churchill Hospital
Oxford
HSBC UK Charity
Five-A-Side Tournament
Bolton
Prevent Breast Cancer
- Exercise Bike Challenge
Manchester to London
Hospice of The Good
Shepherd Quiz Night
Chester
40
Knights plc
Annual Report and Accounts 2019
41
Financial Review
Revenue Growth
2019
£’000
52,662
2018
£’000
34,869
(30,137)
(20,449)
(12,706)
(9,602)
9,819
(693)
(2,038)
(1,847)
5,241
5.84p
11.88p
4,818
(199)
–
(453)
4,166
6.44p
7.68p
51%
Financial Results
Revenue
Staff costs
Other underlying costs and charges
Underlying profit before tax*
Amortisation of acquisition related intangibles
Non-recurring finance costs*
One-off costs on acquisitions and IPO*
Profit before tax
Revenue (£m)
Reported Profit Before Tax (£m)
Underlying Profit Before Tax* (£m)
EPS
Adjusted EPS
52.7
34.9
32.1
20.2
15.8
60
50
40
30
20
10
0
6
5
4
3
2
1
0
5.2
4.3
4.2
3.0
2.5
12
10
8
6
4
2
0
9.8
5.1
4.8
4.0
2.5
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Adjusted EPS (p)*
Average Number of Fee Earners
Fees per Fee Earner*
2019
2018
11.88
2019
2018
7.68
402
2019
131
327
2018
107
Underlying EBITDA
per Fee Earner*
Underlying EBITDA Margin*
2019
2018
28,201
2019
22,881
2018
21.5
21.5
I am pleased to report that the Group
performed well in its first year as a listed
company. We have continued to build
on our historic strong track record of
growth in both turnover and profitability
over the past 5 years with a 51%
increase in turnover and 104% increase
in underlying Profit Before Tax (PBT)*.
Our continued focus on management
of cash flow has resulted in exceptional
cash conversion* of 115% for the year,
resulting in net debt being lower than
expected, positioning the Group well to
continue with its future growth strategy
via recruitment and carefully selected
acquisitions.”
Note
* See Glossary on page 131–133
Cut-out
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Knights plc
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43
Financial Review continued
Revenue
Reported revenue for the period is
£52.7m compared to £34.9m in 2018
representing a 51% increase.
Of this increase 35.8%, or £12.5m,
was a result of the acquisitions made
during the financial year with the
balance relating to organic growth.
The organic revenue growth of 15.2%
arose due to an increase in the level of
fees per fee earner generated during
the year and net recruitment of 46
additional fee earners during the year.
+51%
2019
£52,662,000
2018
£34,869,000
Staff Costs
Total staff costs represents 57.2%
of revenue compared to 58.6% in 2018.
Fee earner staff costs have fallen
from 51.5% of turnover to 49.6%
of turnover reflecting good control
of staff costs whilst increasing the
fees generated per fee earner.
During the year we have invested
in our support staff function with the
addition of a Chief Operating Officer
and further strengthening of our
management team in all operational
areas to ensure we have the strong
foundations in place to support our
planned future growth.
This, together with the costs of
the Non-Executive Directors, has
increased our support staff costs
from 7.1% of revenue in 2018 to
7.6% of revenue in the current year.
Total Staff Costs
Direct Staff Costs
Support Staff Costs
57.2%
2018: 58.6%
49.6%
2018: 51.5%
7.6%
2018: 7.1%
Reported Profit Before Tax
The reported profit before tax for
the year has increased by 25.8%
to £5.2m. The increase is driven by
increased turnover, and increases in
underlying trading profits offset by
higher non-recurring costs relating to
the listing and non-underlying costs
relating to the recognition of some
contingent payments on acquisitions
and reorganisation costs.
To enable the comparison of the
profitability of the underlying business,
the underlying profit before tax has
been calculated as an alternative
performance measure.
+25.8%
2019
2018
£5,241,000
4,166,000
Underlying Profit Before Tax*
Underlying PBT excludes non-
underlying transaction costs relating
to the IPO and acquisitions made
during the year and contingent
consideration payments required to
be reflected through the Statement of
Comprehensive Income under IFRS.
It also excludes share-based
payments for one-off share awards
made at IPO and as part of the
acquisitions, and the one-off Share
Incentive Plan offered to employees
as a result of the listing. Any share-
based payments charges relating to
ongoing SAYE and LTIP schemes are
recognised as underlying costs of
the Group.
Earnings Per Share (EPS)
The weighted average number of
shares in 2019 was 68,533,094 which
gives a basic earnings per share (Basic
EPS) for the year of 5.84p (2018:
6.44p). Taking into account the number
of share options that the Group has
outstanding at the year end, gives a
diluted EPS of 5.81p (2018: 6.44p). The
2018 figures are illustrative only as the
Group was not listed and did not report
an EPS in 2018.
Note
* See Glossary on pages 131–133
The underlying PBT for 2019
has grown by 103.8% to £9.8m
representing 18.6% of revenue
compared to £4.8m, 13.8% of revenue,
in 2018. The increase is driven by
an increase in fees per fee earner
which has resulted in an increase in
revenue and gross profit, and a £1.4m
reduction in underlying finance charges
as a result of repaying £28.1m of debt
as part of the Groups’ listing.
+103.8%
2019
2018
£9,819,000
18.6%
£4,818,000
13.8%
In order to compare the EPS year
on year, the underlying EPS has been
calculated showing 11.88p in 2019
compared to 7.68p in the prior year.
This measure eliminates the effect of
any non-recurring and non-underlying
costs on the EPS calculation.
Adjusted EPS*
11.88p
2019
2018
11.88p
7.68p
Basic EPS*
5.84p
2019
2018
5.84p
6.44p
44
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45
Financial Review continued
Corporation Tax
The Group’s tax charge for the year is
£1.2m (2018: £0.9m) which is made
up of a current corporation tax charge
of £1.3m offset by a £0.1m credit in
relation to deferred tax.
The deferred tax credit arose largely
from the reversal of the deferred tax
on acquired intangible assets.
Dividend
The Board has adopted a progressive
dividend policy balanced with its
commitment to continue reinvesting
the profits and strong cash generation
of the Group to fund its future
growth plans. Having delivered a
strong maiden performance and
with underlying earnings ahead of
expectations, the Board is pleased,
Balance Sheet
Goodwill and intangible assets
Working capital*
Other net assets/(liabilities)
Cash and cash equivalents
Borrowings
Net debt
Deferred consideration
Net assets
The total effective rate of tax is 24%
based on reported profits before tax.
This has been adversely affected
by non underlying items (largely
amortisation of intangible assets
acquired in the year) that are not tax
deductible. The effective rate of tax on
the underlying profits of the business
is 17%. (see note 16 of the financial
statements).
Effective rate of tax
24%
2018: 23%
subject to approval at the AGM on
24 September 2019, to announce
a final dividend for the year of 1.27p
per share. This together with the
interim dividend of 0.6p per share
brings the total dividend for the year
to 1.87p per share.
Pence per share
1.87p
2018: nil
2019
£’000
46,444
11,762
(1,616)
56,590
4,904
2018
£’000
19,864
8,606
903
29,373
2,118
(19,000)
(28,443)
(14,096)
(26,325)
(3,239)
39,255
(250)
2,798
The Group’s net assets as at 30 April 2019 increased by £36.5m reflecting the shares issued in the year,
profit for the year and reduction in net debt over the year as discussed below and the increase in goodwill
and intangible assets resulting from the four acquisitions during the year.
Note
* See Glossary on pages 131–133
Goodwill and Intangible Assets
Included within intangible assets
and goodwill is £19.8m of intangible
assets, identified on current and
prior acquisitions, such as customer
relationships, brand and computer
software. The balance relates to
goodwill of £26.6m arising from
acquisitions.
Working Capital*
Management of lock up has continued
to be a key focus of the Group over
the period. Lock up days is a measure
of the length of time it takes to convert
work done into cash. It is calculated
as the combined debtor and WIP
days for the Group. This is a key focus
for management and the Board as it
drives the cash generation necessary
to support the growth strategy of the
Group. Lock up days at 30 April 2019
were 93 compared to 77 the previous
year. Management are satisfied with
the level of lock up at the year end
which remains significantly ahead of
the industry average despite being
adversely affected by the acquisitions
during the year that had longer lock
up profiles when acquired.
Net Bank Debt
The Board carries out an impairment
review of goodwill each year to ensure
the carrying value is supportable. As
at 30 April 2019 the Board concluded
that the goodwill and intangible assets
are not impaired.
£46.4m
2018: £19.9m
Average lock up days of acquisitions
was 122 pre acquisition which has
reduced to 99 days at the year end.
The Group’s strong control over
debtors is reflected in a low level
of bad debts. Total bad debt charge
for the year has remained constant at
0.8% of turnover despite the impact
of IFRS 9 which resulted in a provision
of £101,000.
Lock up days*
93
2018: 77
Bad debt
0.8%
of turnover
2018: 0.8%
The exceptionally strong cash
conversion in the period, together
with the funds raised at IPO have
reduced net bank debt to £14.1m
at the year end compared to £26.3m
as at 30 April 2018, £3.7m better
than expectations.
The increased available facility
of £27m gives the Group good
headroom and positions the Group
well to continue its growth strategy
into 2020 through continued organic
recruitment and carefully selected,
culturally aligned acquisitions.
-46.5%
2019
2018
£14,096,000
£26,325,000
46
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47
Financial Review continued
Cash Conversion*
Alternative Performance Indicators
2019
£’000
11,372
(745)
(1,303)
9,324
8,141
115%
2018
£’000
5,902
(1,806)
(1,381)
2,715
3,842
71%
Net cash generated from underlying operating activities*
Interest
Capital expenditure
Free cash flow
Underlying profit after tax*
Cash conversion
The cash conversion percentage
measures the Group’s conversion
of its underlying profit after tax into
free cash flows. Cash conversion of
115% for the year shows a significant
increase from previous periods as a
result of lower interest costs due to
the reduction in net debt as a result
of the IPO, and the exceptional cash
flow benefit of reducing the lock up in
acquired businesses down to a level
in line with the rest of the Group.
Capital Expenditure
During the year the Group continued
to invest in its systems and premises
to ensure our professionals have a
high quality working environment and
consistent systems across the Group
to aid integration and support our
one firm culture. To this end we have
invested over £100k in our existing
Oxford office to expand its capacity.
We also invested £475k in the year,
with a further £425k being incurred
post year end, in the fit out of the new
Manchester premises to provide a
high-quality working environment for
our Manchester team and to support
our strategy of continued recruitment
and growth in this office.
Other one-off expenditure during
the year related to the upgrading
of the telephone system to ensure
consistency across the Group, which
involved an investment of £100k.
Other capital spend relates to general
investment in IT, communications
and infrastructure required for the
increase in the number of employees,
and to support our programme of
rolling IT replacements to ensure our
technology is up to date and sufficient
to meet the needs of the business.
One-off capital projects planned
for 2020 financial year are the
refurbishment of our Leicester office,
and further increase in the capacity
of the Oxford office to support our
growth strategy. Together with the
remaining spend on Manchester the
Board expect to invest c. £1m in
expanding the capacity and improving
our offices during the current financial
year.
Acquisitions
The cash impact of the four
acquisitions completed during
the year and in future years is
summarised below:
Financial year
ended
Total cash
impact (£m)
2019
2020
2021
2022
21.16
3.91
2.21
0.65
The above includes estimated
contingent consideration charged as
remuneration.
With the listing completed, the Board
consider that future acquisitions will
require lower initial cash outlay as the
balance between cash and shares
will change as the market gains
confidence in the share value.
The strong cash and lock up
management systems in the Group
mean that often we generate cash from
the acquired Balance Sheet. For the
acquisitions completed during 2019
we generated approximately £1.5m of
cash inflows from a reduction in lock
up days, hence reducing the cash
impact of acquisitions on the Group.
Corporation Tax - Cash flow impact
Going forward the Group will fall
under the large Quarterly Payments
regime for its corporation tax. This
will have the effect of advancing the
corporation tax payments such that the
full estimated corporation tax is paid
during the year rather than only 50%.
As a growing business with increasing
profits and tax costs this will impact
the post tax cash conversion on an
annual basis by approximately 10%.
Management expect post tax cash
conversion to average out at c.75%
going forward.
115.0%
2018: 71%
As highlighted in note 36 of the accounts, the Group uses a number of key performance indicators (KPIs) to monitor the
Group’s performance against its strategic objectives. These comprise a number of financial and non-financial measures
which are agreed and monitored regularly at Board meetings. The financial indicators are calculated based on underlying
results excluding any one-off transactional and acquisition related costs. The Board is of the opinion that these operational
factors are key drivers for the Group’s financial success.
Number of Fee Earners* / Fees and Underlying EBITDA per Fee Earner*
Top line growth is a combination of the number of fee earners employed and the fees per fee earner that they are generating,
therefore these are two KPIs that the Board monitors closely on a monthly basis.
The increase in fees per fee earner of 22.4% in the year to 30 April 2019 is a result of continued focus and training of our
professionals on client management and efficient use of systems. The Board are pleased with the current improved levels,
however future fees per fee earner may be impacted by a change in the mix of fee earner grades, therefore the Board also
monitors the underlying EBITDA per fee earner alongside fees per fee earner as underlying profitability is a key focus of the
Board. Underlying EBITDA per fee earner increased by 21.7% in the year from £23,000 per fee earner to £28,000.
Average full-time equivalent
Fee Earners during the year*
Fees per Fee Earner*
Underlying EBITDA per Fee Earner*
£131k
£28k
402
2019
£131,000
2019
£28,000
327
2018
£107,000
2018
£23,000
402
2019
2018
Underlying EBITDA*
The Board uses underlying EBITDA
as a measure of its performance
and believes that it is an important
metric for monitoring the profitability
of ongoing operations. Underlying
EBITDA excludes one-off transaction
costs relating to the IPO and
acquisitions made during the year.
It also excludes share-based
payments for one-off share
awards along with contingent
consideration payments required to
be reflected through the Statement
of Comprehensive Income as
remuneration under IFRS accounting
conventions. The underlying EBITDA
for 2019 has grown by 51.5%
over 2018.
Note
* See Glossary on pages 131–133
Underlying EBITDA*
+21.5%
of turnover
2019
£11,337,000
21.5%
2018
£7,482,000
48
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Financial Review continued
Non Fee Earner Staff to Fee Earner Ratio*
The business model and use of IT
systems have been key in enabling
the Group to maintain a fee earner to
non fee earner staff ratio that is much
higher than the average for the sector.
The Board believe that this is one of
the key differentiators in its business
model enabling the Group to generate
such strong EBITDA margins.
As at 30 April 2019 the ratio of 4.0
fee earners to 1 non fee earning
staff is marginally lower than at the
previous period end figure of 4.5 as
the Group has invested in creating the
management and support function
necessary to enable it to meet its
future strategic growth objectives.
4.0
2019
2018
4.0
4.5
In Summary
The Board is pleased with the growth in fee income and profitability during the
year. The investment in 2019 in the strengthening of the management and support
staff function, together with the lower than anticipated levels of net debt, due to
the Group’s excellent cash conversion, places us in a strong position to continue
to grow the business both organically through recruitment, and through selective
acquisition opportunities.
Kate Lewis
Chief Financial Officer
8 July 2019
Note
* See Glossary on pages 131- 133
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51
Principal Risks And Uncertainties
The Board is responsible for
continually reviewing and assessing
the principal risks facing the
Group, both from a financial and
non-financial perspective and to
ensure that controls are put in place
to ensure the Group’s exposure
to these risks is minimised.
Although risks and uncertainties
are formally reviewed annually
by the Board, they are continually
considered by the Board in all
business and strategic decisions.
The principal risks are identified
as follows:
Principal Risk
Description
Mitigation
Professional liability
and uninsured risks
The Group provides, amongst other things, legal and professional services
which give rise to the potential liability for negligence, breach of regulatory
duties or other similar third party claims.
Such claims have the potential to cause financial loss and could also
negatively impact the reputation of the Group which ultimately could
adversely affect the financial performance of the Group.
Regulatory and
compliance risk
Restrictions imposed by the
Legal Services Act 2007 (LSA)
The legal sector is heavily regulated and as a result, in addition to the
normal government guidelines and regulations that a business is subject
to, the Group is also regulated by the Solicitors Regulation Authority (SRA)
and Information Commissioners Office (ICO). Non-compliance with any
regulations could result in reputational damage to the business and may
have financial implications for the Group.
Knights Professional Services Limited is a Licensed Body. The LSA
places restrictions on the holding of ‘restricted interests’ in Licensed Body
law firms. This restricts the maximum shareholding that can be held in
Knights Group Holdings Plc, without prior SRA approval, by a non-lawyer
shareholder to 10 percent of its issued share capital. If a non-authorised
shareholder were to obtain a shareholding in excess of 10 per cent without
prior approval this would be classed as a criminal offence and the SRA
could force divestment or revoke the Licensed Body status of the Group.
Personnel - ability to attract
and retain personnel
The ability to attract and retain suitably qualified and experienced personnel
is critical to the Group’s success as its employees constitute the principal assets
and contributors to its revenue. There is strong competition in the marketplace
for such personnel and any difficulties in attracting and retaining such high-quality
personnel could impact on the Group’s ability to deliver the financial forecasts.
Personnel - succession
planning and dependence
on key personnel
The Group’s future success and strategy is dependent on the performance
and retention of the Executive Directors and senior management team. The
loss of a key individual or the inability to expand the senior management
team as the business grows could negatively impact the reputational and
financial performance of the Group.
The Group maintains comprehensive professional indemnity liability insurance to reduce or mitigate against
any financial claims made and the Board considers the Group to have a good claims history.
Claims are dealt with by a central team that operates separately from fee earners to ensure that they are dealt
with effectively and objectively in line with the Group’s compliance policy with external advice being sought where
necessary.
Our compliance team works closely with the Group’s insurers and regulators to ensure any risks are minimised.
The Board considers compliance to be of paramount importance and feels that it has appropriate processes
in place to ensure that it provides quality expert advice and service to its clients. Procedures are continually reviewed
and amended to take into account up to date guidelines and advice.
The Group has a strong compliance and regulatory team that operates separately from fee earners to ensure
compliance with all necessary regulations and who undertake regular file audits and ensure that training is delivered
externally to the Groups’ employees when there is significant regulatory change. The Board is regularly updated
on any regulatory developments so that it can ensure these are fully considered in all business and strategic
decisions and external advice is taken if required.
Knights adheres to an Information Security policy that draws on best practice from ISO 270001 and Cyber Essentials
plus. This policy is delivered annually to all colleagues and new recruits on induction.
The Board work closely with the SRA to ensure there are no breaches and review shareholdings regularly
and draw investors’ attention to the restrictions imposed by the LSA within investor roadshows and adhoc
investor meetings.
The Group has a dedicated recruitment team led by office leaders and the senior management team.
The Group offers a competitive remuneration package in its current locations, flexible working conditions
(24% work part-time) and operates a ‘no targets team culture’ allowing individuals to maximise their job
satisfaction and work/life balance whilst delivering the best service to their client.
The Group has a low staff turnover rate and the Board considers that there are high levels of engagement
with its employees which mitigates any risk in this regard.
Employee contracts also include restrictive covenant provisions to protect the business where possible in the
event of employee exits, however given the low client/fee earner concentration the risk in this regard is limited.
During the year the Board has been expanded by the appointment of Jane Pateman as Non-Executive Director
and Richard King has moved from a non-executive position to become the Group’s COO.
The Board has also worked to expand and strengthen the management team of the Group to ensure the
management structure in place is sufficient to support future growth.
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53
Principal Risks And Uncertainties continued
Principal Risk
Acquisition risk
Description
Mitigation
A key part of the Group’s strategy is to expand the business through
the acquisition of culturally aligned, earnings enhancing acquisitions.
Detailed financial, legal and cultural fit due diligence is carried out,
however unforeseen or undisclosed issues may adversely affect the
reputation or forecast financial performance of the Group.
If newly acquired businesses are not properly culturally aligned and
integrated this could have a negative impact on the rest of the business
and could cause reputational damage. There is also the financial risk
that the acquired business does not perform as expected.
Macro and micro
economic environment
Reputation and brand risk
Current uncertainty in the market regarding the long-term impact of
Brexit could result in a general economic downturn which may have
a negative impact on the financial performance of the Group.
There are a large number of potential competitors within the legal and
professional services market competing for the Group’s professionals
and clients, any loss of which could impact the financial performance
of the Group.
Knights’ brand and reputation are driving factors behind the success
of the Group. Anything that damages the Group’s brand or reputation
could negatively impact the future success of the business and could
have financial implications for the Group.
Information systems
and data security
The Group is heavily reliant on its information technology systems for
all day-to-day processes. A major IT system failure or a malicious attack,
data breach or virus could impact the ability of the Group to operate
having both reputational and financial implications.
The Group has an experienced in-house acquisitions team who have successfully integrated 7 businesses
into the Group. The in-house acquisitions team undertakes a robust due diligence process with external advice
being sought where necessary. Warranties, disclosures and appropriate protections are obtained from the sellers
as appropriate within the acquisition documentation.
The Board recognises that cultural integration is critical to the success of every acquisition. During the year the
acquisition and integration teams have been strengthened and a full integration best practice developed. This
ensures that all acquisitions are fully integrated onto the Group’s core Operating Platform as soon as possible and
a full training programme is delivered to all new colleagues. The cultural integration of our new colleagues, and
training on how to exploit our business model is key at all stages of the acquisition and integration process. All 4
of the acquisitions undertaken within the year are fully integrated onto the Knights Operating Platform and work
is undertaken by the management team on an ongoing basis to ensure that the Knights’ culture is continuously
reinforced.
The Board believes its exposure to both macro and micro environmental factors including Brexit is limited due to
there being no reliance on any one practice area, client or professional.
The Board continually reviews its strategy and has a solid operational base positioning the Group well to enable
it to evolve its operations as required. The appointment of Richard King as COO is part of the Group’s investment
to ensure that it is able to continue to exploit technological advances and efficiencies within the business.
Management have in place detailed processes to ensure that all work is undertaken by the Group in accordance
with the Code of Conduct and Professional Ethics. Internal audits take place to identify any areas of non-compliance
and provide continued training to colleagues where non-compliance is identified
An open, candid and non-hierarchical culture is nurtured whereby all colleagues are expected to behave
in accordance with the internal processes in place.
The Group takes appropriate steps to protect its intellectual property rights. Corporate profile is a key part
of the Board’s strategy and external public relations advisers are engaged to assist where necessary.
The Group uses commercially available software configured to meet our needs rather than custom development,
to assure continuity of support for the underlying platform, by minimising the risk of single person dependency
and technology obsolescence.
Operationally, the Group’s systems are supported by appropriately qualified and experienced individuals and
third parties in multiple locations. External expert advice and support is sought when necessary. Critical systems
and recovery are regularly tested and no issues have been identified.
The Group uses a 2 prong approach to information security:
- a robust information security systems and processes informed by ISO 270001 and Cyber Essentials plus; and
- education, given that people often represent the highest point of vulnerability. Knights Information Security
Awareness training provides its employees with the tools needed to spot and prevent fraud\misuse of information.
This strategic report and the information referred to herein was approved on behalf of the board on 8 July 2019.
Kate Lewis
Chief Financial Officer
54
55
Corporate
Governance
Introduction
Board of Directors
57
58
60 Corporate Governance Statement
64
Remuneration Committee Report
68
Audit Committee Report
70
Directors’ Report
72
Statement of Directors’ Responsibilities
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 56
Knights plc
Annual Report and Accounts 2019
57
Governance
An Introduction from our
Chairman
The Directors acknowledge the importance of high standards
of corporate governance and with this in mind I’m pleased to present
the Corporate Governance Statement on behalf of the Board.
Jane Pateman brings 17 years’
experience in senior HR roles at
listed businesses including Centrica
and British Gas, and culminating
in her current role as Group HR
Director at Biffa plc where she has
been responsible for developing the
People Strategy for approximately
8000 employees across 4 operating
divisions. As we are a people
business, Jane will bring a wealth of
experience to the strategy for driving
recruitment across the business
and to developing a programme
for employee incentivisation.
There have been some changes in
Board composition during the year
and I would like to welcome Jane
Pateman who joined the board as
an additional Non-Executive Director
on 14 January 2019, as Chair of the
Remuneration Committee and as a
member of the Audit Committee as
a result of Richard King, previously a
Non-Executive Director of the Board,
having made the welcome move to
become our Chief Operating Officer.
Richard King brings a strong
combination of skills and
experience in leading the scaling
up of business services, HR and
sales as well as digitisation and
acquisition integration in both
large-scale global corporations,
including Procter & Gamble and
Shell, and a start-up B2B cloud
services provider, Transora.
His appointment to this Executive
role will enable our Chief Executive
Officer to focus on driving the
continued growth of the Groups
professional services revenue
streams.
As Chairman my
principal role is to
lead the Board to
ensure that it has in
place the strategy,
people, structure
and culture to deliver
value to all of its
stakeholders.
We consider that the
additional blend of
skills provided to the
business as a result
of these changes, in
addition to those skills
already present within
the Board will assist in
the strategic direction
of the Group and the
delivery of shareholder
value.”
Strategic ReportCorporate GovernanceFinancial Statements 58
59
Board of Directors
David Beech
Chief Executive Officer
Richard King
Chief Operating Officer
Kate Lewis
Chief Financial Officer
A corporate lawyer and former
manager of a private equity fund, David
joined Knights in 2011 with the vision
to transform the business into the UK’s
number one legal and professional
services business outside London.
David acquired and remodelled
Knights in 2012 with a clear strategy
to transform the business into a growth
platform. Knights became a pioneer
in the UK legal sector being one of
the first law firms to secure external
funding in 2012 to fully corporatise the
business and create a clear separation
between ownership/ management
and partners.
Richard has extensive experience
of transforming operating models,
integrating acquisitions and
exploiting technology to scale-up
and deliver operational efficiency
in large enterprises such as Procter
& Gamble, Shell and a B2B cloud
services start-up (Transora).
Previously, Richard was European
Commercial Capabilities Director
at Procter & Gamble.
Kate qualified as a Chartered
Accountant and has been a member
of the ICAEW since 1996 having
trained as an accountant at Dean
Statham. Kate spent over 10 years
as an Audit Manager at Baker Tilly
and KPMG.
Kate joined Knights in 2012
as Finance Director, overseeing
the Knights’ corporatisation and
subsequent refinancing with both
Allied Irish Bank and Permira and
the IPO in June 2018.
Balbinder (‘Bal’) Johal
Non-Executive Chairman
Steve Dolton
Senior Independent
Non-Executive Director
Jane Pateman
Non-Executive Director
Bal is CEO of MML Capital Partners,
an international private equity firm
based in London, New York, Paris
and Dublin. Bal has led a number
of investments for MML including
investments into CSI Ltd, PIE/
PSG Group, Banner Group, Arena
Group (now plc), Clean Linen &
Workwear, Instant Offices, Optionis
Group, ParkingEye and The Regard
Partnership and worked on others
including Vanguard, EiC and Redmill
Snack Foods. Bal is a Director on the
Board of most of these companies.
Prior to MML, Bal was Investment
Director at 3i leading a range of
high-profile investments such as
SmartStream, Jungle.com, Workplace
Systems plc, Telecity, Complete
Care and Recognition. Bal started his
career as a Management Consultant
with Accenture later working as a
Financial Analyst at HSBC.
Steve qualified as a Chartered
Accountant and has been a
member of the ICAEW since 1989
having qualified with Grant Thornton.
He has spent over 20 years in senior
financial roles including CFO of NAHL
plc, NSL Services Group, Azzurri
Communications, Safety Kleen
Europe, Walker Dickson Group and
Peek plc (including a 2 year period
in Asia as Regional Controller).
He is also currently Chairman of the
Go Inspire Group and was previously
a Non-Executive Director of Oxford
United Football Club until its sale in
February 2018.
Steve is Chair of the Audit
Committee and sits on the
Remuneration Committee.
Jane brings 17 years’ experience in
senior HR roles at listed businesses
including Centrica and British Gas,
and culminating in her current role
as Group HR Director at Biffa plc
where she has been responsible for
developing the People Strategy for
approximately 8000 employees across
4 operating divisions.
Jane has a strong track record in
driving business benefits through the
development and delivery of human
capital strategies. During her 8 years
at Biffa, she has provided significant
support in delivering solutions during
major growth periods, including during
its IPO as well as driving people and
cultural integration for the multiple
acquisitions Biffa has made over the
past 5 years.
Jane chairs the Remuneration
Committee and also sits on the
Audit Committee.
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60
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
61
Corporate Governance Statement
Board Composition
Operation of the Board
Committees
Audit Committee
Corporate
Governance Codes
Given the Group’s size and the
constitution of the Board, the Board
have chosen to comply with the
principles set out in the Corporate
Governance Code for small and
mid-sized companies published by
the Quoted Companies Alliance in
April 2018 (the QCA Code) as the
basis of the Group’s governance
framework. We believe that the
adoption of the QCA Code is a
pragmatic and proportionate set
of governing guidelines which are
proportionate to the risks, complexity
and operations of the business.
The Board comprises 6 Directors,
3 of whom are Executive Directors
and 3 of whom are Non-Executive
Directors, reflecting a blend of different
experiences and backgrounds further
details of which are set out on page
58 and 59. The Board believes that
the composition of the Board brings a
desirable range of skills and experience
in light of the Group’s challenges and
opportunities as a public company,
while at the same time ensuring that
no individual (or a small group of
individuals) can dominate the Board’s
decision-making.
To leverage Richard King’s vast
experience in scaling operations
the Board chose to appoint Richard
King as an Executive Director and
consequently appointed an additional
Non-Executive Director to ensure that
the appropriate level of independence
is maintained at Board level.
The Board is responsible for delivering
the Group’s strategy and for its overall
management of the business and
meets regularly to review, formulate
and approve the Group’s strategy,
budgets, corporate actions and to
constructively challenge the Executive
Directors who are responsible for the
day-to-day running of the Group. The
operation of the Board is documented
in a formal schedule of matters
reserved for its approval which will
be reviewed annually to ensure that it
remains current in light of changes to
legislation and within the sector that
the Group operates within.
Directors are expected to attend all
meetings of the Board and of the
Committees on which they sit, and
to devote sufficient time to enable
them to fulfil their roles as Directors.
In circumstances where Directors are
unable to attend any meeting they are
provided all papers to be considered
at that meeting and can provide any
comments in advance of any meeting
for consideration by the rest of the
Board. The table below details the
Director’s attendance at scheduled
monthly Board and Committee
meetings since our IPO:
Name
Balbinder Johal
David Beech
Jane Pateman
Kate Lewis
Richard King
Steve Dolton
Board
9/10
10/10
5/51
9/10
10/10
10/10
Remuneration
1/83
–
2/8
–
5/8
8/8
Audit
1/2
2/22
1/2
2/2
Remuneration Committee members: Jane Pateman (Chair), Steve Dolton. Audit Committee members: Steve Dolton (Chair), Jane Pateman.
1 Jane Pateman was appointed on 14 January 2019 as a Director, as a Representative of the Audit Committee and as Chair of the Remuneration Committee. Richard King stepped
down from the Audit Committee and as Chair of the Remuneration Committee on the 14th January 2019.
2 Kate attends audit committee by invitation.
3 Bal Johal is not a member of the Remuneration Committee but attends by invitation as necessary.
The Board also intends to hold annual strategy days to review the strategic priorities and growth opportunities
for the business, outside of the scheduled meetings and the first of those strategy days is scheduled to take place
in September 2019.
The Company Secretary supports the Board with compliance and governance matters and ensures that all Directors are
aware of their right to have any concerns minuted and to seek independent advice at the Group’s expense where appropriate.
Internal Controls
and Risk Management
Internal Control
The Group has implemented policies
on internal control and corporate
governance. These have been
prepared in order to ensure that:
-
-
-
-
-
-
Proper business records are
maintained and reported on,
which might reasonably affect
the conduct of the business.
Monitoring procedures for
the performance of the Group
are presented to the Board at
regular intervals.
Budget proposals are
submitted to the Board no later
than 1 month before the start
of each financial year.
Accounting policies and
practices suitable for the Groups
activities are followed in preparing
the financial statements.
The Group is provided with
general accounting, administrative
and secretarial services as may
reasonably be required.
Interim and annual accounts
are prepared and submitted in
time to enable the Group to meet
statutory filing deadlines.
The Group continues to review its
system of internal controls to ensure
compliance with best practice, whilst
also having regard to its size and the
resources available.
The Group has established an audit
committee (the Audit Committee)
and a remuneration committee (the
Remuneration Committee) with
formally delegated duties, authority,
and responsibilities, and written terms
of reference. These terms of reference
are kept under review to ensure that
they remain appropriate and compliant
with changes to legislation.
Each Committee is comprised of the
Non-Executive Directors (excluding the
Chair) with Steve Dolton chairing the
Audit Committee and Jane Pateman
chairing the Remuneration Committee.
Each Committee has unrestricted
access to employees of the business
or external advisors to meetings, to the
extent that they consider it necessary
in relation to any specific matter under
consideration. Both Committees have
sought to utilise external advice with
the Remuneration Committee liaising
with FIT Remuneration Consultants
LLP for the purposes of advising on
the terms of the performance share
awards granted to Richard King
following his move to an Executive
Director role within the business,
and the Audit Committee meeting
with RSM, the Group’s auditors,
both with and without the presence
of Executive Directors.
Remuneration
Committee
The Remuneration Committee
is responsible for:
-
-
Reviewing the performance
of the Executive Directors and
making recommendations to the
Board on matters relating to their
employment and remuneration.
The granting of share options
under the Group’s Omnibus Plan
or any other share scheme which
it may adopt.
The Audit Committee is
responsible for:
-
-
Ensuring the financial performance
of the Group is properly reported on.
Monitoring the internal controls
of the business.
Each of the Committees meets
regularly and at least 2 times a
year and the Chief Financial Officer
also attends meetings of the Audit
Committee by invitation to discuss
any matters of relevance.
The Board has elected not to
constitute a dedicated nomination
committee, instead retaining such
decision-making with the Board as
a whole, and using external advisors
to introduce any other individuals
with skills that the Board believe
may be required in delivering its
overall strategy.
The Board has also constituted a
disclosure committee (the Disclosure
Committee) to enforce the Knights
Groups’ inside information policy and
ensure compliance with the Market
Abuse Regulation (MAR) and the AIM
Rules for Companies in respect of
inside information.
Board Effectiveness
and Culture
The Board will conduct an internal
review to evaluate its effectiveness
and relevance, and that of its
Committees with the first such review
taking place in the Autumn following
the first anniversary of the IPO. This
review will focus on the effectiveness
of the Board in setting the strategy,
approach to risk management, the
skill sets of the Board members
and their use within the business,
and the balance of decision-making
within the business.
The Board carry a breadth of
experience in sectors outside
of the legal services market with
strengths aligned with enhancing
Knights’ culture.
62
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
63
63
Corporate Governance Statement continued
The Executive Directors meet
with the institutional shareholders
both on an ad hoc basis and on a
more structured basis around the
publication of the Group’s interim
and end of year results. General
information about the Group is
available on the website at
www.knightsplc.com but both the
Chair and Steve Dolton as Senior
Independent Non-Executive Director
are available to discuss any matter
any shareholder may wish to raise
if required.
Relations with Stakeholders
The Board is aware that the
long-term success of the Group is
reliant upon its employees, clients,
shareholders, suppliers and regulators
and as such the Group maintains
consistent communication with
these stakeholders to ensure that
its continued growth in accordance
with its strategy reflects their needs
and expectations as well as those
of the Group.
The Group encourages regular
feedback from its clients and tracks
its net promoter score to indicate the
willingness of clients to recommend
the Group’s services. Based on client
responses of the top 250 clients, the
Group’s net promoter score was 69
out of 100 which is considered above
average amongst its peer group.
As a business we are investigating
automating this process so that the
Group has live information at the end
of each engagement of the level of
client satisfaction although this at
present remains under development.
The Group also endeavours to
ensure that clients are met with
regularly to canvas their opinion
on the service levels received and
provide any feedback as to how these
relationships and/or services can be
improved. The Group has a strong
track record of retaining deep client
relationships with some of these
relationships being in excess of 25
years across a number of service lines
provided within the Group’s business.
The Group’s business places a
strong reliance on technology and
consequently the Group works closely
with its practice management system
provider to enhance the practice
management platform for the benefit
of the Group which in turn benefits
our supplier’s technology.
The Group also has a regular dialogue
with its regulator, the Solicitors
Regulatory Authority (SRA) given its
acquisitive nature and this constant
transparent communication has
enabled the Group to deliver 4
acquisitions within the financial year.
Annual General Meeting (AGM)
The AGM of the Group will take place on the 24th September 2019 and the
Notice of Annual General Meeting which includes the associated resolutions
accompany this Annual Report.
Strategic ReportCorporate GovernanceFinancial Statements 64
65
Jane Pateman
Chair of the
Remuneration
Committee
Dear Shareholder,
I am pleased to present the
Directors’ Remuneration Report
for the year ended 30 April 2019.
I chair the Remuneration
Committee, having taken over
from Richard King when I joined
the Group as an independent
Non-Executive Director in January.
Steve Dolton, who is also an
independent Non-Executive
Director, is the other current
member of the Committee.
Remuneration
Committee Report
Our Performance and Link
to Remuneration
As summarised in the Chairman’s
Statement on page 9, the year was a
transformational year for the Group,
with the Group’s shares being admitted
to trading on AIM and with strong
growth, both organically and through
acquisitions in line with its strategy.
During the year none of the Executive
Directors participated in an annual
bonus arrangement.
As disclosed in the Admission
Document, on 29 June 2018, the
Group granted a Restricted Stock
Award to Kate Lewis. The award
becomes exercisable after 3 years from
grant, subject to continued service.
On 29 March 2019, a Performance
Share Award was granted to Richard
King. The award will ordinarily
become exercisable on 1 July 2022
subject to the grantee’s continued
service and to the extent to which the
performance condition for the award
based on growth in adjusted earnings
per share is satisfied.
No long-term incentives vested during
the year.
Responsibilities
The Remuneration Committee reviews
the performance of the Executive
Directors and makes recommendations
to the Board on matters relating to their
remuneration and terms of service.
The Remuneration Committee also
makes recommendations to the Board
on proposals for the granting of share
options and other equity incentives
pursuant to any employee share option
scheme or equity incentive plans in
operation from time to time.
The Remuneration Committee meet as
and when necessary and met 8 times
during the year.
In exercising their role, the Board
have regard to the recommendations
put forward in the QCA Code
and, where appropriate, the QCA
Remuneration Committee Guide and
associated guidance.
During the year FIT Remuneration
Consultants (FIT) provided the
Committee with external remuneration
advice, including on all aspects of
remuneration policy for the Executive
Directors. The Remuneration
Committee is satisfied that the
advice received was objective and
independent. FIT is a member of the
Remuneration Consultants Group
and the voluntary code of conduct of
that body is designed to ensure that
objective and independent advice is
given to Remuneration Committees.
Executive Director
Remuneration
Each of the Executive Directors
has a service agreement with the
Group. Each service contract may
be terminated by either party serving
6 months’ written notice. At its
discretion, the Group may make
a payment in lieu of such notice
or place the Executive Director on
garden leave. The service contracts
also contain provisions for early
termination in the event of various
scenarios and contain typical
restrictive covenants,
The key remuneration components
of executive packages are
summarised as follows:
Base salary: The salary of an
Executive Director will be reviewed
annually by the Remuneration
Committee without any obligation to
increase such salary. The current base
salaries are:
-
David Beech: £200,000 (effective
from 1 January 2019). The Board
recognise that a market-standard
salary for an equivalent CEO of an
AIM listed company with a similar
market capital of that expected of
the Group is £250,000 (reference
salary).The Group and David
have agreed within his service
agreement that this reference
salary will become payable to
David when the Remuneration
Committee agrees that it has
become appropriate for the
Group to do so (including by way
of gradual increases in salary
over time towards the reference
salary, as warranted by Group
performance).
-
Kate Lewis: £140,000 (effective
from 1 January 2019
-
Richard King: £175,000.
Pension and benefits: Ancillary
benefits include the reimbursement
of all reasonable and authorised out
of pocket expenses, provision of a
private healthcare cover up to £2,000
and 2x salary life cover. The Group
also contributes to pension plans or
as an additional cash supplement in
respect of the Executive Directors at a
rate of 3%* in line with the automatic
enrolment guidelines and which mirrors
the contribution across all employees,
positioned competitively to the market
in which the Group operates.
Annual bonus: No plan was operated
for the 30 April 2019 financial year.
A plan has been introduced for Richard
King for the 30 April 2020 financial year
with a maximum opportunity of 35% of
salary with performance criteria based
on profit-based targets as set by the
Remuneration Committee.
Non-Executive Directors
Bal Johal, was appointed Non-
Executive Chairman of the Group by
letter of appointment dated 1 June
2018. The appointment is subject
to re-election at the Annual General
Meeting and thereafter is terminable
on 3 months’ notice by either the
Group or Bal. The fee payable to the
Chairman is £50,000.
The other Non-Executive Directors
were appointed subject to re-election
at the Annual General Meeting and
are terminable on 1 months’ notice
by either party.
The current fee payable for services
as a Non-Executive Director is
£40,000 with an additional £5,000
payable to the senior independent
Non-Executive Director.
As it is listed on AIM, the Group
is not required to provide all of
the information included in this
Report. However, in the interests
of transparency this has been
included as a voluntary disclosure.
The Report is unaudited, unless
otherwise stated. I do hope that this
Report clearly explains our approach
A discretionary share plan,
the Omnibus Plan: Share-based
awards may be granted in 3 forms
as considered appropriate by the
Remuneration Committee:
-
-
-
Restricted Stock Awards:
Awards granted in the form of nil
or nominal cost share options,
subject to time-based vesting
requirements and continued
employment within the Group.
No performance conditions will
apply to Restricted Stock Awards.
Performance Share Awards:
Awards granted in the form of nil
or nominal cost share options,
whereby vesting is subject to
satisfaction of performance
conditions and continued
employment within the Group.
Share Options: Awards granted in
the form of a share option with an
exercise price equal to the market
value of an Ordinary Share at the
time of grant, subject to continued
employment within the Group.
Share options may or may not be
subject to performance conditions.
* 2% up to 31 March 2019
to remuneration and enables you
to appreciate how it underpins our
business growth strategy.
Jane Pateman
Chair of the Remuneration Committee
July 2019
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66
Strategic Report
Corporate Governance
Financial Statements
67
67
Directors’ Emoluments
Executive Directors
David Beech
Kate Lewis
Richard King1
Non-Executive Directors
Balbinder Johal
Steve Dolton²
Jane Pateman³
Aggregate
Fees/
Basic Salary
(2019)
Benefits
(2019)
Bonus
(2019)
LTIP
Pension
(2018)
2019 Total
2018 Total
£’000
£’000
£’000
£’000
£’000
£’000
£’000
142
123
82
43
41
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
3
1
–
–
–
143
126
83
43
41
13
449
–
116
–
6
–
–
122
Note
1
2
3
Richard King was appointed a Non-Executive Director of the Group on 1 June 2018 and subsequently appointed Chief Operating Officer on 15 January 2019.
Steve Dolton was appointed a Non-Executive Director of the Group on 1 June 2018.
Jane Pateman was appointed a Non-Executive Director of the Group on 15 January 2019.
The directors remuneration comparative information for 2018 relates to the directors remuneration in Knights 1759 Limited
for the 2018 financial year
Long-term Incentives
Type
of Award
Date
of Grant
Number
of Shares
Exercise
Price per
Share
Fair Value
at Grant
Performance
Conditions
Vesting
Date
£’000
Kate Lewis
Richard King1
Restricted
Stock Award
Performance
Share Award
29 June
2018
29 March
2019
241,379
£0.002
350.00¹
N/A
June 2021
63,352
£0.002
183.75²
EPS3
July 2022
Note
1
2
3
Based on IPO price of £1.45
Based on 3-day average share price] of £2.900482
3-year performance period with vesting dependent on adjusted EPS performance in financial year 30 April 2022 EPS. 25% vesting for EPS of 20p and increasing on a straight-line
basis to 100% vesting for EPS of 25p.
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Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
69
69
Steve Dolton
Chair of the
Audit Committee
I am pleased to present the
Audit Committee report for
the year ended 30 April 2019.
The Audit Committee is
responsible for ensuring that the
financial performance of the Group
is properly reported and reviewed.
Its role includes monitoring
the integrity of the financial
statements (including annual
and interim accounts and results
announcements), reviewing risk
management and internal control
systems, reviewing any changes
to accounting policies, reviewing
and monitoring the extent of the
non-audit services undertaken by
and overseeing the relationship
with the external auditors.
Audit Committee Report
Members of the Audit Committee and Attendance
The Committee consists
of two independent Non-Executive
Directors:
Steve Dolton (as Chair) and Jane
Pateman. Jane replaced Richard King
on the Audit Committee following
her appointment as a Non-Executive
Director and Richard’s appointment as
an Executive Director on 14 January
2019. Steve has recent and relevant
experience as a result of his financial
positions held and qualifications. Jane
provides different but relevant skills
and experience which support the
Committee in meeting its objectives.
Kate Lewis, the Chief Financial Officer
and other Executive Directors may
attend the Committee meetings by
invitation. The Committee met twice
during the period and ensures that
sufficient time is set aside to meet
with the external auditors, RSM,
without Executive Directors being
present to discuss any issues arising
from their audit work. Neither the
Group nor its Directors have any
relationships that impair the external
auditor’s independence.
Duties
The main duties of the Audit
Committee during the year included:
value that will eventually be
recovered on all of its contracts.
Monitoring the integrity
of financial statements
The Committee reviewed both the
interim and the annual financial
statements as well as related results
announcements made as part of their
disclosure. This process included
a review of any estimations made
by management in preparing the
results. The Committee ensured
sufficient attention was given to
matters where significant estimation
was involved. This includes revenue
recognition, impairment of goodwill
and the use of alternative performance
measures which are used to enhance
shareholders understanding of the
Group’s financial performance.
The significant accounting judgements
considered by the Committee are set
out below.
The Committee has considered and
reviewed any relevant papers from the
finance function and the findings report
of the external auditors on these areas.
The key areas are:
Revenue recognition policy
The Group recognises revenue on legal
and professional services provided
based on the methodology set out
in IFRS 15 Revenue from Contracts
with Customers. There is estimation
involved in establishing the
Management use the expected
outcomes as at the period end to
establish the estimated value and
compare to historic outcomes to
ensure reasonableness. Estimates
are updated as work progresses and
any changes in revenue recognition as
a result of a change in circumstances
is recognised in the Statement of
Comprehensive Income for that year.
In relation to any contingent items,
no profit element is taken until the
liability is admitted. The Committee
considers the approach adopted
by management is prudent and
minimises the risk of overstatement
of income resulting in future revenue
write-offs.
Accounting for Acquisitions
During the year the Group acquired
four separate entities. Accounting for
these acquisitions involves a significant
amount of management judgement
to determine the allocation of
purchase price, treatment of deferred
consideration, assess the requirement
for any fair value adjustments, identify
and value the intangible assets arising,
and estimate the useful lives of these
assets. Having reviewed the working
papers and resulting accounting
treatment, the Committee are satisfied
that the approach adopted by
management is reasonable and fairly
represents the underlying transactions.
Use of alternative
performance measures
The Board uses a number of alternative
performance measures. As the key
driver for income is the number of fee
earners employed, a number of these
measures are based on fee earner
numbers, ratios and fees generated by
fee earners. Another key focus for the
Board is management of its net debt
position, therefore cash conversion
and lock up days are closely monitored
as these are key drivers of the resulting
net debt position.
The Audit Committee is satisfied
that these are the correct measures
to use as they monitor the inputs
that underpin the trading and cash
performance of the Group. These
measures are discussed in detail in
the CFO’s Review on pages 41–48.
Risk management
and internal controls
As described on page 50 of the
Strategic Report and page 61 of the
Corporate Governance Statement, the
Board has established a framework of
risk management and internal control
systems, policies and procedures. The
Committee is responsible for reviewing
the risk management and internal
control framework, ensuring that it
operates effectively. The Committee
is satisfied that the internal controls
currently in place are sufficient and
operating effectively for a business
of this size.
At present the Group does not have
an internal audit function and the
Committee believes that in view of the
current size and nature of the Group’s
business, management is able to
derive sufficient assurance as to the
adequacy and effectiveness of the
internal controls and risk management
procedures without a formal internal
audit function. This will be kept under
review as the business evolves.
Changes to accounting policies
The Group has applied International
Financial Reporting Standards when
preparing its accounts. Although
this does not represent a change in
basis of preparation for the holding
company, it does represent a change
in basis for the subsidiary companies.
The impact was not significant
and affected only the amortisation
of goodwill and capitalisation of
transaction costs. The implications
of each of these changes is fully
disclosed in the relevant note in the
subsidiary accounts.
The Committee is satisfied that there
are no other changes in accounting
policies impacting the reported results
for the year.
Reviewing the extent of non-
audit services provided by RSM
The Committee monitors the
provision of non-audit services by
the external auditor to ensure this has
no impact on their independence. A
breakdown of the fees between audit
and non-audit services is provided in
note 15 to the financial statements.
The non-audit fees relate to one-off
work on the IPO and due diligence
assistance on certain acquisitions.
This work was conducted by
individuals independent of the audit
team and therefore the Committee
are satisfied the provision of these
non-audit services does not impact
the independence of the audit team.
Overseeing the relationship
with the external auditors
The Committee considers a number
of areas when reviewing the external
auditor relationship, namely their
performance in discharging the audit,
the scope of the audit and terms of
engagement, their independence and
objectivity and remuneration.
The external auditor prepares a plan
for its audit of the full year financial
statements which is presented to the
Committee before the commencement
of the audit. The plan sets out the
scope of the audit, areas of perceived
significant risk where work will be
focused and the audit timetable. This
plan is reviewed and agreed by the
Committee in advance of the detailed
audit work taking place.
Following its external audit process,
the auditor presented its findings to
the Committee for discussion. No
major areas of concern were identified
by the external auditor during the year.
The Committee has confirmed that
it is satisfied with the independence,
objectivity and effectiveness of RSM
UK Audit LLP and has recommended
to the Board that the auditors be
reappointed. There will be a resolution
to reappoint the auditors at the
forthcoming AGM.
Application of IFRSs, and new
and forthcoming standards
These are the first statutory accounts
for the Group as it became following
the IPO. The use of predecessor
accounting means that the
comparatives for 2018 are those from
the pre-existing Knights business,
before the new plc holding company
was put in place to facilitate the IPO.
They have been prepared under
International Financial Reporting
Standards (IFRS) as if those
standards had always applied.
The two new standards most relevant
to the Group are IFRS 9 Financial
Instruments and IFRS 15 Revenue
and Contracts with Customers.
The Committee has reviewed the
implementation of these accounting
standards and has reviewed the
external auditors assessment on
the application of these standards.
The Committee is satisfied with the
application of IFRS 9 and IFRS 15 in
the financial statements.
The Group has adopted IFRS 16
Leases with effect from 1 May 2019,
although this standard was not
effective for the year ended 30 April
2019 and so is not reflected in the
financial statements. Management
have conducted an impact
assessment of this standard and
the results are reported in note 3 to
the financial statements on page
91. In summary, this standard is not
expected to have a material impact
on the Statement of Comprehensive
Income for the year ended 30 April
2019 but the impact of bringing
the Group’s operating leases onto
the Balance Sheet will require the
recognition of a right-of-use asset
of £18.7m and a lease liability of
£20.4m. This change in accounting
treatment will not have any impact
of the Group’s financial covenants
associated with its borrowing facility.
Steve Dolton
Chair of the Audit Committee
8 July 2019
Strategic ReportCorporate GovernanceFinancial Statements
70
70
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
71
71
Directors’ Report
The directors have pleasure
in submitting their report and
the financial statements of
Knights Group Holdings plc.
Principal activities and business review
The principal activity of the Group is that of the provision
of legal and professional services. The principal activity
of the Company is that of a holding company. The results
for the year and the financial position of the Group are
disclosed in the detailed financial statements included
on pages 75–130.
A review of the performance of the business during
the year and potential future developments is included
in the Chairman’s report, CEO’s report and the
financial review.
Dividends
The directors recommend a final dividend of 1.27p per
ordinary share to be paid on 30 September 2019 to
ordinary shareholders on the register on 30 August 2019
which, together with the interim dividend of 0.6p per share
paid on 15 March 2019, makes a total of 1.87p per share
for the year. The final dividend has not been included within
creditors as it was not approved before the end of the
financial year.
Future developments
The Board plans to continue to invest in technology,
recruitment and acquisitions within both the legal and
non-legal sectors to support the Group’s strategy of
becoming the leading legal and professional services
business outside London. Further details of the Group’s
future strategy can be found in the Strategic Report on
pages 50–53.
Post Balance Sheet Events
As at the date of signing the accounts there are no
significant Post Balance Sheets Events that require
any further disclosure.
Directors and their interest in the shares of the
parent company
The following directors have held office since 4 April 2018.
DA Beech
(appointed 4 April 2018)
KL Lewis
(appointed 9 May 2018)
RA King
(appointed 1 June 2018)
BS Johal
(appointed 1 June 2018)
S Dolton
(appointed 1 June 2018)
J Pateman
(appointed 14 January 2019)
Number of
Shares
32,500,000
2,801
63,926
1,000,000
61,724
–
%
44.32
–
0.08
1.36
0.08
–
Director’s remuneration payable in the year ended
30 April 2019 is set out in the Remuneration Committee
report on page 64–65.
Substantial shareholdings
As far as the directors are aware the only notifiable
holdings equal to or in excess of 3% of the total issued
share capital as at 3 May 2019 were as detailed below:
David Beech
Merian Global Investors
Gresham House Asset
Management
Canaccord Genuity Wealth
Management (inst)
Fidelity Management &
Research
Invesco
Legal & General Investment
Management
Kames Capital
Royal London Asset
Management
Number of
Shares
32,500,000
5,914,868
3,169,968
3,000,000
2,519,402
2,453,404
2,427,586
2,395,924
2,323,000
%
44.32
8.07
4.32
4.09
3.44
3.35
3.31
3.27
3.17
Directors’ Indemnity Provisions
Employee consultation
During the period, and up to the date of approval of the
financial statements, the Group purchased and maintained
Directors and Officers Liability Insurance for all of the
Directors and Officers to indemnify them from any losses
that may arise in connection with the execution of their
duties and responsibilities to the extent permitted by the
Companies Act 2006.
Risk management
The Board manages financial risk on an ongoing basis.
The key financial risks relating to the Group are discussed
in more detail in note 32 to the financial statements.
The Group’s other principal risks and uncertainties are
outlined in the Strategic Report.
Political donations
The Group has not made any political donations.
Disabled persons
The Group will employ disabled persons where they
appear to be suitable for a particular vacancy and every
effort is made to ensure that all candidates are given
full consideration when any vacancies arise within the
business. Should any employee become disabled during
their employment full training will be provided and relevant
adaptations to their working environment made, where
possible, to ensure that they can continue their employment
within the Group. The Group works with all employees to
ensure that their working environment is appropriate and
to ensure that all employees are provided with sufficient
training, development and support to enable them to
develop to their full potential.
The Group places considerable value on the involvement
of its employees in the future success of the Group.
Although the overall strategic direction of the Group is
managed by the Board, the Group manages its day to day
operations with the assistance of its central management
team. Local supervision is provided in each office by
the involvement of office and team leaders who assist in
ensuring a common culture and working practice across
the Group as a whole.
The management team regularly liaise with all employees
to ensure they are fully aware of any key matters that
impact the Group. As well as regular informal meetings
between management and employees, the Group holds
an annual conference where the strategy of the Group is
discussed through presentations and open discussion.
Auditor
Each of the persons who is a director at the date of
approval of this annual report confirms that:
So far as the director is aware, there is no relevant
audit information of which the Company’s auditor
is unaware
The director has taken all the steps that he/she ought to
have taken as a director in order to make himself/herself
aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of s418 of the Companies
Act 2006.
RSM UK Audit LLP have expressed their willingness
to continue in office as auditor and a resolution to
reappoint them will be proposed at the forthcoming
Annual General Meeting.
The Directors’ Report was approved by the board
of directors on 8 July 2019 and signed on its behalf by:
David Beech
Chief Executive Officer
8 July 2019
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
72
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
73
73
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain
the group’s and the company’s transactions and disclose
with reasonable accuracy at any time the financial position
of the group and 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 group and the company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included
on the Knights Group Holdings plc website.
Legislation in the United Kingdom governing the
preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Statement of
Directors’ Responsibilities
The Directors are responsible for preparing the
Strategic Report and the Directors’ Report and the
financial statements in accordance with applicable
law and regulations.
Company law requires the directors to prepare group
and company financial statements for each financial year.
The directors are required by the AIM Rules of the London
Stock Exchange to prepare group financial statements
in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union
(“EU”) and have elected under company law to prepare
the company financial statements in accordance with
United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable
law) including FRS101 ‘Reduced disclosure Framework.
The Group’s financial statements are required by law and
IFRS adopted by the EU to present fairly the financial
position and the financial performance of the group. The
Companies Act 2006 provides in relation to such financial
statements that references in the relevant part of that
Act to financial statements giving a true and fair view are
references to their achieving a fair presentation.
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 of the group
and the company and of the profit or loss of the group for
that period.
In preparing each of the group and company financial
statements, the directors are required to:
a. Select suitable accounting policies and then apply
them consistently;
b. Make judgements and accounting estimates that are
reasonable and prudent;
c. State whether they have been prepared in accordance
with IFRSs adopted by the EU;
d. Prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
group and the company will continue in business.
Strategic ReportCorporate GovernanceFinancial Statements 74
75
Financial
Statements
76
80
Independent Auditors’ Report
Consolidated Statement of
Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flow
Notes to the Consolidated Financial Statements
81
82
83
84
124 Company Statement of Financial Position
125 Company Statement of Changes in Equity
126 Notes to the Company Financial Statements
131 Glossary of Terms
134 Notice of Annual General Meeting
138
Shareholder Information
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
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Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
77
Independent Auditor’s Report
to the Members of Knights Group Holdings plc
Opinion
We have audited the financial statements of Knights Group
Holdings plc (the ‘parent company’) and its subsidiaries
(the ‘group’) for the year ended 30 April 2019 which
comprise the Consolidated Statement of Comprehensive
Income, the Consolidated Statement of Financial Position,
the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows, the Company
Statement of Financial Position, the Company Statement
of Changes in Equity and notes to the financial statements,
including a summary of significant accounting policies. The
financial reporting framework that has been applied in the
preparation of the group financial statements is applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
parent company financial statements is applicable law and
United Kingdom Accounting Standards, including Financial
Reporting Standard 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).
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 2019 and of the group’s profit for the year
then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
-
-
-
-
the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us
to report to you where:
-
-
the directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is not appropriate; or
the directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the group’s or the
parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at
least twelve months from the date when the financial
statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the group financial statements of the current period
and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified,
including those 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
group financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion
on these matters.
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Group key audit matters
Revenue recognition and contract assets
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 and the parent company 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 SME listed entities
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that
(Refer to note 2.5, regarding the accounting policy in
respect of revenue recognition, note 4 in respect of critical
judgements and estimates applied by the Directors note 5
to the financial statements for revenue recognition and note
22 for contract assets).
The risk
There is a risk that revenue could be materially misstated
due to recognising revenue in the wrong amount. Revenue
is materially impacted by changes in the contract assets
balance which is subject to judgemental decisions by
management. The Group has recognised revenue of
£52.7m in respect of fees billed and accrued in the year.
The Group’s contract assets balance at the year-end is
£11.1m.
The contract assets are valued on a line by line basis using
an estimated recovery rate at a point in time. The process
of valuing contract assets and, in particular, estimating
recovery rates, is judgemental and therefore considered
to be a key audit matter.
Our response to the key audit matter included:
assessing the reasonableness of the revenue figure
in relation to both office and fee-earner numbers in
comparison to prior financial years
performing analytical review procedures to assess
the change in recovery rates during the year and
also to assess whether recovery rates applied in
the assessment of the contract assets balance are
consistent and reasonable
comparing recovery rates used to estimate the value
of contract assets at a month end during the financial
year with subsequent actual recovery rates on bills
reviewing the recovery rates for the year as recorded
in the team sheets on a monthly basis and testing the
integrity of the team sheets by agreeing the inputs back
to source documents
-
-
-
-
-
Our response to the key audit matter included:
-
-
-
-
-
-
obtaining copies of purchase documentation and
considering which party has control, the date of
acquisition, the date sale and control exchanged, the
percentage acquired, the consideration offered and
details of any deferred consideration
confirming that the accounting treatment applied
for each transaction is in accordance with relevant
accounting standards
confirming the value of material fair value adjustments
to supporting evidence
reviewing and challenging the appropriateness of
the assumptions used in the fair value calculations
to value the customer relationships and agreeing
these to supporting evidence, including the growth
rate, customer attrition rate and discount rate applied
considering whether there are any other intangible
assets which should be recognised as part of the
fair value exercise
checking the calculations of the customer attrition
rates used to determine the useful life of the customer
relationship assets
agreeing the accuracy of the balance of unbilled revenue
to post year end billing and cash receipts,
and where billing has not yet occurred, challenging
fee-earners about the expected recovery
Parent company key audit matters
We did not identify any key audit matters for the
parent company.
Acquisitions
(Refer to note 2.4 regarding the accounting policy in
respect of business combinations and note 20 to the
financial statements on page 105–110).
The risk
During the year the group acquired four separate entities.
There are significant intangible assets arising as a result
of each acquisition, including customer relationships
of £12.9m and goodwill of £14.4m. In addition, there is
deferred consideration arising of £4m. The determination
and allocation of the purchase price, the fair value
adjustments made to the assets and liabilities acquired,
the identification and valuation of the intangible assets
arising, and the useful lives of these assets, particularly the
customer relationships, involve the exercise of a significant
degree of management judgement and this is therefore
considered to be a key audit matter.
78
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
79
Independent Auditor’s Report continued
to the Members of Knights Group Holdings plc
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 their 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.
Our application of materiality
When establishing our overall audit strategy, we
set certain thresholds which help us to determine
the nature, timing and extent of our audit procedures.
When evaluating whether misstatements, both
individually and on the financial statements as a
whole, could reasonably influence the economic
decisions of the users we take into account the
qualitative nature and the size of the misstatements.
During planning materiality for the group financial
statements as a whole was calculated as £500,000,
which was not significantly changed during the course of
our audit. Materiality for the parent company financial
statements as a whole was calculated as £65,000, which
was not significantly changed during the course of our
audit. We agreed with the Audit Committee that we would
report to them all unadjusted differences in excess of
£25,000, as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our group audit scope included the full scope audit of
all components requiring a statutory audit. In aggregate,
components not subject to full scope audit contributed
to less than 10% of group revenue and group profit before
tax and had no net assets at the period end. Analytical
procedures at group level were performed for these
non-significant components.
Other information
The directors are responsible for the other information.
The other information comprises the information included
in the annual report, other than the financial statements
and our auditor’s report thereon. Our opinion on 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.
In connection with our audit of the financial statements,
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
Responsibilities of directors
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.
Geoff Wightwick,
Senior Statutory Auditor
For and on behalf of RSM UK Audit LLP, statutory auditor
Chartered Accountants
Festival Way
Festival Park
Stoke on Trent
ST1 5BB
As explained more fully in the directors’ responsibilities
statement set out on page 72, 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 the
aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of
these financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
80
81
Consolidated Statement of
Comprehensive Income
For the year ended 30 April 2019
Consolidated Statement
of Financial Position
As at 30 April 2019
Revenue
Other operating income
Staff costs
Depreciation and amortisation charges
Impairment of trade receivables and contract assets
Other operating charges
Non-underlying operating costs
Operating profit
Finance costs
Profit before tax
Taxation
Profit and total comprehensive income for the year attributable to equity
owners of the parent
Earnings per share
Basic earnings per share
Diluted earnings per share
Year
ended
30 April
2019
£’000
52,662
415
(30,137)
(1,473)
(439)
(11,164)
(1,847)
8,017
(2,776)
5,241
(1,240)
Year
ended
30 April
2018
£’000
34,869
287
(20,449)
(635)
(290)
(6,935)
(453)
6,394
(2,228)
4,166
(947)
4,001
3,219
Pence
5.84
5.81
Pence
6.44
6.44
Note
5
7
8
11
12
13
14
16
17
17
Assets
Non-current assets
Intangible assets and goodwill
Property, plant and equipment
Current assets
Contract assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Merger reserve
Retained earnings
Equity attributable to owners of the parent
Non-current liabilities
Borrowings
Deferred consideration
Deferred tax
Current liabilities
Trade and other payables
Deferred consideration
Contract liabilities
Corporation tax liability
Provisions
Total liabilities
Total equity and liabilities
30 April
2019
£’000
30 April
2018
£’000
Note
19
21
22
23
24
25
26
26
27
28
29
30
28
22
31
46,444
3,319
19,864
2,448
49,763
22,312
11,112
13,671
4,904
7,447
7,277
2,118
29,687
16,842
79,450
39,154
147
32,486
(3,536)
10,158
39,255
19,000
1,611
3,488
100
–
(3,536)
6,234
2,798
28,443
–
1,384
24,099
29,827
12,105
1,628
120
796
1,447
16,096
5,522
250
102
494
161
6,529
40,195
36,356
79,450
39,154
The financial statements were approved by the board and authorised for issue on 8 July 2019 and are signed
on its behalf by:
Kate Lewis
Director
Registered No. 11290101
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
82
83
Consolidated Statement of Changes in Equity
For the year ended 30 April 2019
Consolidated Statement of Cash Flows
For the year ended 30 April 2019
At 1 May 2017
Profit for the period and total comprehensive income
Balance at 30 April 2018
Profit for the period and total comprehensive income
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments
Issue of shares
Dividends
100
–
100
–
–
47
–
9
18
Share
capital
£’000
Share
premium
£’000
Merger
reserve
£’000
Retained
earnings
£’000
Note
–
–
–
–
(3,536)
–
(3,536)
–
3,015
3,219
6,234
4,001
Total
£’000
(421)
3,219
2,798
4,001
–
32,486
–
–
–
–
356
–
(433)
356
32,533
(433)
Balance at 30 April 2019
147
32,486
(3,536)
10,158
39,255
Operating activities
Cash generated from operations
Non-underlying operating costs paid
Interest received
Tax paid
Net cash from operating activities
Investing activities
Acquisition of subsidiaries
Purchase of intangible fixed assets
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment of deferred consideration
Net cash used in investing activities
Financing activities
Proceeds from issue of share capital
Proceeds of new borrowings
Repayment of borrowings
Repayment of debt acquired with subsidiaries
Interest and other finance costs paid
Dividends paid
Net cash generated from/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at end of period
Note
34
20
19
21
20
Year
ended
30 April
2019
£’000
Year
ended 30
April 2018
£’000
11,706
(1,443)
142
(1,076)
9,329
(15,625)
(90)
(1,214)
1
(1,095)
(18,023)
28,582
14,750
(24,940)
(4,443)
(2,036)
(433)
11,480
2,786
2,118
4,904
6,523
(453)
112
(733)
5,449
–
(101)
(1,281)
1
(200)
(1,581)
–
–
(1,270)
–
(1,806)
–
(3,076)
792
1,326
2,118
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 84
85
Notes to the Consolidated Financial Statements
For the year ended 30 April 2019
1. General information
Knights Group Holdings plc (“the Company”) is a public company limited by shares and is registered, domiciled and
incorporated in England.
The Company was incorporated in England as Knights Group Holdings Limited on 4 April 2018 as a private company
limited by shares (registered no. 11290101) and subsequently acquired Knights 1759 Limited (the previous parent
company in the group) and its subsidiaries on 18 June 2018 through a share for share exchange. The Company was
re-registered as a public limited company on 20 June 2018 and became Knights Group Holdings plc.
The Group consists of Knights Group Holdings plc and all of its subsidiaries.
The principal activity and nature of operations of the Group is the provision of legal and professional services.
The address of its registered office is:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
2. Accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards
adopted by the European Union (IFRSs).
Applying IFRSs requires the directors to exercise judgement and use certain critical accounting estimates,
the judgments and estimates that the directors deem significant in the preparation of these financial statements
are explained in note 4.
The financial statements have been prepared on the historical cost basis unless IFRSs requires an alternative
treatment. Historical cost is generally based on the fair value of the consideration given in exchange for goods
and services.
Monetary amounts are presented in sterling, being the functional currency of the Group, rounded to the nearest
thousand except where otherwise indicated.
The principal accounting policies adopted are set out below. These policies have been consistently applied
to all periods presented in the financial statements, unless otherwise stated.
2.2 Going concern
The accounts are prepared on a going concern basis as, at the time of approving the financial statements, the directors
have a reasonable expectation that the Group and Company has adequate resources to continue in operational existence
for the foreseeable future. The Group has a strong trading performance, is cash generative and has banking facilities of
£27,000,000 available until June 2023. The Group’s forecasts show sufficient cash generation, and headroom in banking
and covenant facilities, in relation to anticipated future requirements to support the directors’ decision to continue to adopt
the going concern basis of accounting in preparing the financial statements.
2.3 Basis of consolidation
The consolidated financial statements incorporate the results of Knights Group Holdings plc and all of its subsidiaries.
Subsidiaries results are consolidated in the financial statements from the earlier date that economic benefit is obtained
or control commences until the date that control ceases.
On 18 June 2018, the whole of the share capital of Knights 1759 Limited was acquired by the Company via a share for
share exchange agreement. The acquisition is outside the scope of IFRS 3 because Knights Group Holdings Limited did
not meet the definition of a business. In the absence of specific guidance in IFRS, the group has selected an appropriate
accounting policy using the hierarchy described in paragraphs 10 to 12 of IAS 8, which permits the consideration of other
Financial Reporting Standards. The Group has adopted the principles of merger accounting from FRS 102. Accordingly,
the consolidated financial statements for the Group have been presented as if Knights 1759 Limited has been owned by
Knights Group Holdings plc throughout the current and preceding periods. The comparative figures include the results of
the merged entity, the assets and liabilities at the previous balance sheet dates and the shares issued by Knights Group
Holdings Limited as consideration as if they had always been in issue.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable.
The acquisition date is the earlier date on which economic benefit or control is transferred to the acquirer. The financial
statements of subsidiaries are included in the consolidated financial statements from the earlier date that economic
benefit is obtained or control commences until the date that control ceases.
Transactions eliminated on consolidation
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated
on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
Where necessary, adjustments are made to the financial information of subsidiaries to bring the accounting policies
used into line with those used by the Group.
Audit exemption of subsidiaries
The following subsidiaries are exempt from the requirements of the UK Companies Act 2006 relating to the audit
of individual accounts by virtue of s479A of the Act.
Name
Turner Parkinson LLP
Spearing Waite LLP
Cummins Solicitors Limited
Registered number
OC312799
OC361998
07403259
The outstanding liabilities at 30 April 2019 of the above named subsidiaries have been guaranteed by the Company
pursuant to s479A to s479C of the Act. In the opinion of the directors, the possibility of the guarantee being called upon
is remote since the trade, assets and liabilities of these subsidiaries were transferred to Knights Professional Services
Limited before 30 April 2019.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 86
87
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
2. Accounting policies continued
2.4 Business combinations
The cost of a business combination is the fair value at the acquisition date, of the assets given, equity instruments
issued and liabilities incurred or assumed.
The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent
liabilities acquired is recognised as goodwill.
The Group has determined that no significant financing component exists in respect of the provision of legal and
professional services because the period between when the entity transfers its services to a client and when
the client pays for that service will generally be one year or less.
Consideration for services provided under contingent or variable fee arrangements may be paid after a longer period.
In these cases, no significant financing component exists because the consideration promised by the client is variable
subject to the occurrence or non-occurrence of a future event that is not substantially within the control of the client
or the Group.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed
as incurred.
A receivable is recognised when a bill has been issued to the client, as this is the point in time that the consideration
is unconditional because only the passage of time is required before the payment is due.
2.5 Revenue
The Group earns revenue from the provision of legal and professional services. Revenue for these services is recognised
over time in the accounting period when services are rendered.
Fee arrangements for legal and professional services include fixed fee arrangements, unconditional fee-for-service
arrangements (“time and materials”), and variable or contingent fee arrangements.
For fixed fee arrangements, revenue is recognised based on the stage of completion with reference to the actual
services provided as a proportion of the total services expected to be provided under the contract. The stage of
completion is tracked on a contract-by-contract basis using the hours spent by fee-earners providing the services.
Unbilled revenue is recognised as contract assets. Costs incurred in fulfilling the future performance obligations
of a contract are recognised as contract assets if the costs are expected to be recovered.
Contract liabilities are recognised in respect of consideration billed in advance of satisfying the performance obligation
under the contract.
2.6 Taxation
The tax expense represents the sum of the current tax expense and the deferred tax expense. Current tax assets are
recognised when the tax paid exceeds the tax payable. Current tax is based on taxable profit for the year. Current tax
assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the reporting date.
In fee-for-service contracts, revenue is recognised up to the amount of fees that the Group is entitled to bill for services
performed to date based on contracted rates.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability
is settled based on tax rates that have been enacted or substantively enacted by the reporting date.
Under variable or contingent fee arrangements, fees may be earned only in the event of a successful outcome of
a client’s claim. Fees under these arrangements may be fixed or may be variable based on a specified percentage
of damages awarded under a claim.
For variable or contingent fee arrangements management makes a detailed assessment of the amount of revenue
expected to be received and the probability of success of each case. Variable consideration is recognised only to the
extent that it is highly probable that the amount recognised will not be subject to significant reversal when the matter
is concluded. In such circumstances, a level of judgement is required to determine the likelihood of success of a given
matter, as well as the estimated amount of fees that will be recovered in respect of the matter. Where the likelihood of
success of a contingent fee arrangement is less than highly probable, the work in progress recognised in contract assets
is limited to the costs incurred, which are expected to be recoverable in respect of the matter.
Certain contingent fee arrangements are undertaken on a partially funded basis. In such arrangements, the funded portion
of fees is not contingent on the successful outcome of the litigation and in these instances the revenue is recognised
up to the amount of fees that the Group is entitled to bill for services performed to date based on contracted rates. The
remaining consideration is variable and conditional on the successful resolution of the litigation. The variable consideration
is included in revenue only to the extent that it is highly probable that the amount recognised will not be subject to
significant reversal when the uncertainty is resolved.
The Group’s contracts with clients each comprise of a single distinct performance obligation, being the provision of legal
and professional services in relation to a particular matter and the transaction price is therefore allocated to this single
performance obligation.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting
increases or decreases in estimated revenues or costs are reflected in Statement of Comprehensive Income in the period
in which the circumstances that give rise to the revision become known by management.
Deferred tax liabilities are recognised in respect of all timing differences that exist at the reporting date. Timing differences
are differences between taxable profits and total comprehensive income that arise from the inclusion of income and
expenses in tax assessments in different periods from their recognition in the financial statements. Deferred tax assets
are recognised only to the extent that it is probable that they will be recovered by the reversal of deferred tax liabilities
or other future taxable profits.
Deferred tax is recognised on differences between the value of assets (other than goodwill) and liabilities recognised
in a business combination and the amounts that can be deducted or assessed for tax. The deferred tax recognised
is adjusted against goodwill.
Current tax assets and current tax liabilities and deferred tax assets and deferred tax liabilities are offset, if and only
if, there is a legally enforceable right to set off the amounts and the entity intends either to settle on a net basis or to
realise the asset and settle the liability simultaneously.
2.7 Intangible assets – Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of
acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated
impairment losses. Goodwill is tested annually by the directors for evidence of impairment.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 88
89
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
2. Accounting policies continued
2.8 Intangible assets – Other than goodwill
Intangible assets purchased, other than in a business combination, are recognised when future economic benefits
are probable and the cost or value of the asset can be measured reliably.
Intangible assets arising on a business combination, such as customer relationships, are recognised at estimated fair
value, except where the asset does not arise from legal or contractual rights, and there is no history or evidence of
exchange transactions for the same or similar assets and estimating the assets fair value would depend on immeasurable
variables. The fair value represents the directors best estimate of future economic benefit to be derived from these assets
discounted at an appropriate rate.
Intangible assets are initially recognised at cost (which for intangible assets acquired in a business combination is the
fair value at acquisition date) and are subsequently measured at cost less accumulated amortisation and accumulated
impairment losses.
Intangible assets are amortised to the Statement of Comprehensive Income on a straight-line basis over their estimated
useful lives, as follows:
Purchased computer software
Customer relationships
Brand
–
–
–
4 years
12–25 years
100 years
Purchased computer software is amortised over a period of 4 years, being the minimum period expected to benefit
from the asset.
Customer relationships are amortised over a period of 12–25 years being the average length of relationship with
key clients for acquired entities.
Brand value is amortised over a period of 100 years based on the directors’ assessment of the future life of the
brand. This is supported by a trading history dating back to 1759. Brand value relates to the ‘Knights’ brand only.
Other acquired brands are not recognised as an asset as the acquired entities are rebranded as Knights and the
impact of such recognition would not be material.
2.9 Property, plant and equipment
Property, plant and equipment are stated at cost net of depreciation and any provision for impairment.
Depreciation is provided on property, plant and equipment at rates calculated to write each asset down to its estimated
residual value over its expected useful life, as follows:
Expenditure on short leasehold property
Office equipment
Furniture and fittings
Motor vehicles
–
–
–
–
10% on cost
25% on cost
10% on cost
25% on cost
Residual value is calculated on prices prevailing at the reporting date, after estimated costs of disposal, for the asset
as if it were at the age and in the condition expected at the end of its useful life.
2.10 Impairment of non-current assets
An assessment is made at each reporting date of whether there are indications that non-current assets may be
impaired or that an impairment loss previously recognised has fully or partially reversed. If such indications exist,
the Group estimates the recoverable amount of the asset or, for goodwill, the recoverable amount of the
cash-generating unit.
Shortfalls between the carrying value of non-current assets and their recoverable amounts, being the higher of fair
value less costs to sell and value-in-use, are recognised as impairment losses. All other impairment losses are recognised
in Statement of Comprehensive Income.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply.
Reversals of impairment losses are recognised in the Statement of Comprehensive Income. On reversal of an impairment
loss, the depreciation or amortisation is adjusted to allocate the asset’s revised carrying amount (less any residual value)
over its remaining useful life.
2.11 Provisions
In common with comparable practices, the Group is involved in a number of disputes in the ordinary course of business
which may give rise to claims. Provision is made in the financial statements within provisions (transferred from accrued
expenses on 1 May 2018), for all claims where costs are likely to be incurred. This represents the cost of defending
and concluding claims and any excesses that may become payable. The Group carries professional indemnity insurance
and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice
the position of the Group.
2.12 Leases
Where assets are financed by leasing agreements that give rights approximating to ownership (“finance leases”),
the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the
minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as
obligations to the lessor.
Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the Statement
of Comprehensive Income in proportion to the remaining balance outstanding.
All other leases are “operating leases” and the annual rentals are charged to the Statement of Comprehensive Income
on a straight line basis over the lease term.
2.13 Retirement benefits
The Group operates a defined contribution scheme. The amount charged to the Statement of Comprehensive Income
in respect of pension costs is the contributions payable in the year. Differences between contributions payable in the
year and contributions actually paid are shown as either accrued expenses or prepayments and other receivables.
2.14 Share Based Payments
The cost of providing share based payments to employees is charged to the Statement of Comprehensive Income
over the vesting period of the awards. The cost is based on the fair value of awards at the date of grant of the award
using an appropriate valuation model. The amount recognised as an expense will be adjusted to reflect differences
between the expected and actual vesting levels. Further details of the schemes are included in note 9.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
90
91
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
2. Accounting policies continued
3. Accounting developments
2.15 Financial instruments
Financial instruments are recognised on the date when the Group becomes a party to the contractual provisions
of the instrument. Financial instruments are recognised initially at fair value. Financial instruments are derecognised
when the Group is no longer party to the contractual provisions of the instrument.
Financial assets
Contract assets and trade receivables
Contract assets and trade receivables which are receivable within one year are initially measured at fair value.
These assets are subsequently measured at amortised cost, being the transaction price less any amounts settled
and any impairment losses.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses (‘ECL’) on contract assets and trade receivables.
The expected credit losses on trade receivables includes specific provisions against known receivables and an estimate
using a provision matrix by reference to past experience and an analysis of the debtor’s current financial position on the
remaining balance. The expected credit losses on contract assets and other receivables is assessed based on historical
credit loss experienced on these types of assets adjusted for known foreseeable estimated losses.
Financial liabilities and equity
Financial instruments are classified as liabilities and equity instruments according to the substance of the contractual
arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities.
Trade and other payables
Trade and other payables due within one year are initially measured at fair value and subsequently measured
at amortised cost, being the transaction price less any amounts settled.
Deferred consideration
Deferred consideration is initially recognised at the fair value of the amounts payable and subsequently at amortised
cost of the agreed payments in accordance with the agreement. Any interest payable on the balance is reflected
in the value of the liability and charged monthly to the Statement of Comprehensive Income as it arises.
Borrowings
Borrowings are initially recognised at the fair value of the consideration received net of issue costs associated
with the borrowings. Borrowings are subsequently measured at amortised cost using the effective interest method.
Interest expense is recognised on the basis of the effective interest method and is included in interest payable and
other similar charges.
Derecognition of financial assets and liabilities
A financial asset is derecognised only when the contractual rights to cash flows expire or are settled, or substantially
all the risks and rewards of ownership are transferred to another party. A financial liability (or part thereof) is derecognised
when the obligation specified in the contract is discharged, cancelled or expires.
New and revised IFRSs in issue but not yet effective
At the date of authorisation of these financial statements, The Group has not applied the following new and revised
IFRSs that have been issued but are not yet effective and in some cases had not yet been adopted by the EU:
Revised IFRS
IFRS 16
IFRIC 23
IFRS 9 (amendments)
IFRS 3
IFRS 17
Leases
Uncertainty over Income Tax Treatments
Prepayment Features with Negative Compensation
Business Combinations
Insurance Contracts
Effective date
1 January 2019
1 January 2019
1 January 2019
1 January 2020
1 January 2021
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, except as noted below:
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments
for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and the
related interpretations when it becomes effective for accounting periods beginning on or after 1 January 2019.
The date of initial application of IFRS 16 for the Group will be 1 May 2019.
The Group has chosen the simplified application of IFRS 16.
IFRS 16 will change how the Group accounts for leases previously classified as operating leases under IAS 17,
which were off-balance sheet.
On initial application of IFRS 16, for all leases (except as noted below), the Group will:
a) Recognise right-of-use assets and lease liabilities in the Consolidated Statement of Financial Position, initially
measured at the present value of the future lease payments;
b) Recognise depreciation of right-of-use assets and finance costs on lease liabilities in the Consolidated Statement
of Comprehensive Income;
c) Separate the total amount of cash paid into a principal portion and finance costs in the Consolidated Statement
of Cash Flows.
Lease incentives (e.g. rent-free periods) will be recognised as part of the measurement of the right-of-use assets and
lease liabilities whereas under IAS 17 they resulted in the recognition of a lease liability incentive, recognised in accruals
and amortised as a reduction of rental expenses on a straight-line basis.
Under IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets.
This will replace the previous requirement to recognise a provision for onerous lease contracts.
For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers
and office furniture), which are exempt under IFRS16, the Group will continue to expense these costs in the Statement
of Comprehensive Income as they arise.
As at 30 April 2019, the Group has non-cancellable operating lease commitments of £26,240,000. The Group will
recognise an adjusted right-of-use asset of £18,868,000 and a corresponding lease liability of £20,419,000 in respect
of all these leases, being the present value of future lease payments.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 92
93
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
3. Accounting developments continued
The derecognition of prepayments of £185,000, lease incentive accruals of £1,759,000 and a £159,000 provision
for onerous lease contracts will reduce the carrying amount of right-of-use asset and offset against the lease liability.
The expected impact on profit or loss in the year ended 30 April 2020 is to decrease other operating charges
by £2,084,000, to increase depreciation by £1,632,000, to reduce non-underlying costs by £126,000 and to increase
finance costs by £594,000.
Under IAS 17, all lease payments on operating leases are presented as part of cash flows from operating activities.
The impact of the changes under IFRS 16 would be to increase the cash generated by operating activities
by £2,084,000 and to increase net cash used in financing activities by the same amount.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the directors are required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and future periods.
Critical accounting judgements
The following are the critical judgements, apart from those involving estimations (which are dealt with separately below),
that the directors have made in the process of applying the Group’s accounting policies and that have the most significant
effect on the amounts recognised in the financial statements.
Amounts recoverable on contracts – contingent fee arrangements
A level of judgement is required to determine the likelihood of success of a given matter for contingent fee arrangements.
This is determined on a contract-by-contract basis after considering the relevant facts and circumstances surrounding
each matter. The valuation exercise is conducted by experienced fee earners with detailed understanding of the cases.
The carrying value of contingent fee arrangements work in progress at 30 April 2019 was £2,201,000 (2018: £1,613,000).
Share issue and IPO
The directors consider that the issue of shares in Knights Group Holdings plc prior to its IPO was unrelated to the
subsequent IPO. The directors considered carefully which costs should be allocated to the issue of the new share capital.
Where costs covered both the issue of new share capital and the IPO, the directors applied judgement in determining a
fair method of apportionment of these costs between the share premium account and the Statement of Comprehensive
Income. The method used allocated joint costs to share premium in proportion to the percentage of the new shares issued
compared to the total number of shares. A different method of apportionment may have resulted in a different allocation
to the share premium account and a different expense being charged to the Statement of Comprehensive Income.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty in the reporting period that
may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
next financial year, are discussed below.
Amounts recoverable on contracts – recoverable amounts
The valuation of amounts recoverable on contracts (“AROC”) involves the use of estimates of the likely recovery rate which
will be made on the gross value of chargeable time recorded to each matter.
This percentage represents management’s best estimate of future value following a line by line review of the matters by fee
earners. The estimation process has to take into account the progress of the case at the reporting date, and the estimated
eventual fee payable by the client and the amount of time which will be incurred by fee earners in bringing the matter to a
successful conclusion. The amount recognised in AROC at the year end was £8,911,000 (2018: £5,836,000), A 5% change
in the estimated recovery of all matters would impact the profit for the period by approximately £570,000.
Accounting for business combinations and valuation of intangibles
Business combinations are accounted for at fair value. The valuation of goodwill and acquired intangibles is calculated
separately on each individual acquisition. In attributing value to intangible assets arising on acquisition, management has
made certain assumptions in relation to the expected growth rates, profitability, length of key customer relationships and
the appropriate weighted average cost of capital.
The value attributable to the intangible assets acquired on acquisitions also impacts the deferred tax provision relating
to these items.
The total carrying value of acquired intangible assets arising from business combinations in the year is £27,247,000.
In order to assess the impact of the key assumptions on the values disclosed in the accounts the directors have applied
the following sensitivities:
Key assumption
Long term growth rate
WACC
Length of customer relationships
Profitability
Rate applied in the
financial statements
Sensitivity
tested
Profit/(loss)
impact
£’000
Value of intangible
assets
£’000
3%
16%
12–25 years
-
1%
5%
10%
5%
17
207
62
(97)
(35)
479
(132)
(132)
The growth rate was determined using independent surveys of future growth rates in the legal profession in real, inflation
adjusted terms.
The length of customer relationships is estimated by considering the length of time the acquiree has had its significant
client relationships up to the date of acquisition and historic customer attrition rates as appropriate.
The directors consider the resulting valuations used give a reasonable approximation as to the value of the intangibles
acquired and that any reasonably possible change in any one of the estimations in isolation would not have a material
impact on the financial statements. The directors undertake an annual impairment review of goodwill to assess the
carrying value is still supported by the cash flows from the CGU.
5. Revenue
All revenue is derived from contracts with clients and is recognised over time. As more fully explained in note 6, the
Group’s legal and professional services business operates as a single business unit so there are no relevant categories
into which revenue can be disaggregated.
The transaction price allocated to unsatisfied performance obligations of contracts at 30 April 2019 is not required
to be disclosed because it is comprised of contracts that are expected to have a duration of one year or less.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 94
95
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
6. Segmental reporting
Their aggregate remuneration comprised:
The Board of Directors, as the chief operating decision-making body, reviews financial information for and makes
decisions about the Group’s overall legal and professional services business and has identified a single operating
segment, that of legal and professional services operating entirely in the UK.
The legal and professional services business operates through a number of different service lines and in
different locations; however, management effort is consistently directed to the firm operating as a single segment.
No segmental reporting disclosure is therefore provided as all revenue is derived from this single segment.
7. Other operating income
Other income
Bank interest
8. Staff costs
The average monthly number of employees (including executive directors) of the Group was:
Fee earners
Other employees
Year
ended
30 April
2019
£’000
253
162
415
Year
ended
30 April
2018
£’000
166
121
287
Year
ended
30 April
2019
Number
430
123
553
Year
ended
30 April
2018
Number
349
86
435
Wages and salaries
Social security costs
Other pension costs
Other employment costs
Aggregate remuneration of employees
One off redundancy costs analysed as non-underlying costs (note 13)
Movement in contract assets relating to staff costs
Members’ costs
Underlying staff costs in income statement
Year
ended
30 April
2019
£’000
26,284
2,792
614
628
30,318
(712)
(73)
604
Year
ended
30 April
2018
£’000
18,376
1,960
327
273
20,936
(119)
(368)
–
30,137
20,449
Members’ costs relate to the remuneration of members of the Group’s LLPs.
Directors’ remuneration
Companies Act disclosures
The total amounts for directors’ remuneration in accordance with Schedule 5 to the Accounting Regulations
were as follows:
Salaries, fees, bonuses and benefits in kind
Money purchase pension contributions
Year
ended
30 April
2019
£’000
444
5
449
Year
ended
30 April
2018
£’000
110
12
122
The number of directors to whom benefits are accruing under money purchase pension schemes is 3 (2018: 3).
The remuneration of the highest paid director was:
Salaries, fees, bonuses and benefits in kind
Money purchase pension contributions
Year
ended
30 April
2019
£’000
142
1
143
Year
ended
30 April
2018
£’000
104
12
116
The comparatives above relate to the directors of Knights 1759 Limited, the former parent company of the Group.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 96
97
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
9. Share-based payments
The Group issues equity-settled share-based payments to its employees. The Group recognised total expenses
of £356,000 (2018: £nil) relating to equity-settled share-based payment transactions in the year.
Any charges relating to schemes introduced as one-off schemes as part of the listing are included in non-underlying
costs because the directors view these schemes as a reward to employees for their past performance prior to the IPO.
All charges relating to other recurring LTIP or SAYE schemes are included as a normal operating expense.
The following schemes were in place during the period.
Omnibus plan
The Omnibus Plan is a discretionary share plan, which is administered, and the grant of awards is supervised by,
the Remuneration Committee.
Three forms of award are available under the Omnibus Plan, as considered appropriate by the Remuneration Committee,
as follows:
a) “Restricted Stock Awards”: Awards granted in the form of nil or nominal cost share options, subject to time-based
vesting requirements and continued employment within the Group. No performance targets will apply to Restricted
Stock Awards.
The options outstanding at 30 April 2019 had a weighted average exercise price of 0.2p and a weighted average
remaining contractual life of 2.1 years. In the period, 379,308 options were granted on 29 June 2018, 68,210 options
were granted on 30 November 2018, 4,327 on 1 February 2019 and 63,352 on 29 March 2019.
The aggregate of the estimated fair values of the options granted on these dates is £861,000. The inputs into the
Black-Scholes model are as follows:
Weighted average share price
Weighted average exercise price
Weighted average expected volatility
Weighted average expected life
Risk-free rate
Expected dividend yield
169p
0.2p
28.1%
2.7 years
1.5%
1.1%
Expected volatility on 29 June 2018 was determined by using the historical data of comparable quoted companies
because there was no historical data for the Company at that date. Expected volatility at 30 November 2018,
1 February 2019 and 29 March 2019 was determined by using historical share price data of the Company since
it listed on 29 June 2018. The expected life used in the model has been based on management’s best estimate
after considering exercise restrictions and behavioural considerations.
b) “Performance Share Awards”: Awards granted in the form of nil or nominal cost share options, whereby vesting
is subject to satisfaction of performance conditions and continued employment within the Group.
Share Incentive Plan (“SIP”)
c) “Share Options”: Awards granted in form of a share option with an exercise price equal to the market value of an
Ordinary share at the time of grant, subject to continued employment within the Group. Share Options may or may
not be subject to performance conditions.
The SIP is an “all employee” scheme under which every eligible employee within the Group was invited to participate.
Eligible employees could apply to invest up to £1,800 from pre-tax income in partnership shares; matching shares were
awarded on the basis of 2 free matching shares for each partnership share purchased. The matching shares are forfeited
if the employee leaves within 3 years of the grant date.
Outstanding at 1 May 2017 and 30 April 2018
Granted during the period
Outstanding at 30 April 2019
Exercisable at 30 April 2019
Outstanding at 1 May 2017 and 30 April 2018
Granted during the period
Outstanding at 30 April 2019
Exercisable at 30 April 2019
Restricted
stock awards
Weighted
average
exercise
price
Pence
–
0.2
0.2
–
Number
–
451,845
451,845
–
Performance
share awards
Weighted
average
exercise
price
Pence
–
0.2
0.2
–
Number
–
63,352
63,352
–
Outstanding at 1 May 2017 and 30 April 2018
Granted during the period
Withdrawn during the period
Forfeited during the period
Outstanding at 30 April 2019
Unrestricted at 30 April 2019
Partnership
Shares
Number
–
219,244
(15,071)
–
Matching
Shares
Number
–
438,488
–
(30,141)
204,173
408,347
204,173
–
The aggregate fair value of the matching shares was calculated at £846,000 using the observed share price at the
grant date with regard to the non-vesting requirement of holding the partnership shares.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 98
99
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
9. Share-based payments continued
Sharesave Scheme (“SAYE”)
This is an HMRC approved scheme and is open to any person that was an employee or officer of the Group at
the launch date in November 2018. Under the scheme, members save a fixed amount each month for three years.
Subject to remaining in employment by the Group, at the end of the three-year period they are entitled to use these
savings to buy shares in the Company at 80% of the market value at launch date.
Outstanding at 1 May 2017 and 30 April 2018
Granted during the period
Forfeited during the period
Outstanding at 30 April 2019
Exercisable at 30 April 2019
SAYE options
Weighted
average
exercise
price
Pence
–
162
–
–
–
Number
–
900,785
(4,350)
896,435
–
The options outstanding at 30 April 2019 had a weighted average exercise price of 162p and a weighted average
remaining contractual life of 3 years. In the period, 900,785 options were granted on 21 December 2018. The aggregate
of the estimated fair values of the options granted is £500,000. The inputs into the Black-Scholes model are as follows:
Exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
162p
39.2%
3.1 years
1.4%
1.1%
Expected volatility was determined by using historical share price data of the Company since it listed on 29 June
2018. The expected life used in the model has been based on management’s best estimate after considering exercise
restrictions and behavioural considerations.
Warrants
Warrants were issued to Numis Securities Limited on Admission in respect of their services and shall be exercisable
for a period of five years.
Outstanding at 1 May 2017 and 30 April 2018
Granted during the period
Outstanding at 30 April 2019
Exercisable at 30 April 2019
Warrants
Weighted
average
exercise
price
Pence
–
1.7
1.7
–
Number
–
706,897
706,897
–
This transaction results in no change to profit, assets, liabilities or overall equity of the Group.
10. Retirement benefit schemes
The Group operates a defined contribution pension scheme for employees. The total cost charged to income of £614,000
(2018: £327,000) represents contributions payable to the scheme by the Group. As at 30 April 2019, contributions of
£207,000 (2018: £95,000) due in respect of the reporting period had not been paid over to the schemes.
11. Depreciation and amortisation charges
Depreciation
Amortisation
Loss on disposal of property, plant and equipment
12. Other operating charges
Establishment costs
Other overhead expenses
Year
ended
30 April
2019
£’000
702
757
14
Year
ended
30 April
2018
£’000
406
199
30
1,473
635
Year
ended
30 April
2019
£’000
3,184
7,980
Year
ended
30 April
2018
£’000
2,007
4,928
11,164
6,935
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 100
101
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
13. Non-underlying operating costs
15. Auditor’s remuneration
Redundancy costs
Transaction costs
Share based payment charges
Contingent consideration
Year
ended
30 April
2019
£’000
712
602
300
233
Year
ended
30 April
2018
£’000
119
334
–
–
1,847
453
Non-underlying costs relate to redundancy costs to streamline the support function of the Group; transaction costs
in respect of acquisitions, the placing of existing shares during the period and share based payment charges relating
to one off share schemes offered to employees as part of the IPO.
Contingent consideration is included in non-underlying costs as it represents payments agreed under the terms
of the sale and purchase agreements with vendors of certain businesses acquired which are contingent on the
continued employment of those individuals with the Group. The payments extend over periods of one to three years
and are designed to preserve the value of goodwill and customer relationships acquired in the business combinations.
IFRS requires such arrangements to be treated as remuneration and charged to the Statement of Comprehensive
Income. The individuals also receive market rate salaries for their work, in line with other similar members of staff
in the Group. The contingent earnout payments are significantly in excess of these market salaries and would distort
the Group’s results if not separately identified.
14. Finance costs
Interest on borrowings
Exit and release of arrangement fees arising on the repayment of debt at the IPO
Interest on deferred consideration
Other interest payable
Year
ended
30 April
2019
£’000
734
1,924
114
4
2,776
Year
ended
30 April
2018
£’000
2,228
–
–
–
2,228
Fees payable to the parent company’s auditor and their associates for the audit of the parent company’s
annual accounts
Fees payable to the auditor and their associates for other services to the Group:
– The audit of the Company’s subsidiaries
Total audit fees
– Audit-related assurance services
– Taxation advisory services
– Corporate finance services
– Other advisory services
Total non-audit fees
Year
ended
30 April
2019
£’000
Year
ended
30 April
2018
£’000
21
38
59
21
7
80
63
171
14
10
24
7
–
–
2
9
In addition to the above, £95,000 of non audit costs relating to corporate finance services have been charged to the share
premium account in the year.
Fees payable to the auditor and its associates for non-audit services to the Company are not required to be disclosed
because the consolidated financial statements disclose such fees on a consolidated basis.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 102
103
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
16. Taxation
17. Earnings per share
Corporation tax:
Current year
Adjustments in respect of prior years
Deferred tax:
Origination and reversal of temporary differences
Tax expense for the year
Year
ended
30 April
2019
£’000
Year
ended
30 April
2018
£’000
1,327
–
1,327
(87)
1,240
955
(8)
947
–
947
Basic and diluted earnings per share have been calculated using profit after tax and the weighted average number
of ordinary shares in issue during the period.
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of dilutive potential ordinary shares:
Share options
Warrants
Year ended
30 April
2019
Number
Year ended
30 April
2018
Number
68,533,094 50,000,000
194,389
117,350
–
–
Weighted average number of ordinary shares for the purposes of diluted earnings per share
68,844,833 50,000,000
The charge for the period can be reconciled to the profit in the Statement of Comprehensive Income as follows:
Profit before tax
Tax at the UK corporation tax rate of 19% (2018: 19%)
Expenses that are not deductible in determining taxable profit
Adjustment in respect of prior years
Effect of changes in tax rates
Tax expense for the year
Year
ended
30 April
2019
£’000
5,241
995
245
–
–
1,240
Year
ended
30 April
2018
£’000
4,166
792
179
(8)
(16)
947
Profit after tax
Earnings per share
Basic earnings per share
Diluted earnings per share
£’000
4,001
Pence
5.84
5.81
£’000
3,219
Pence
6.44
6.44
The denominators for the purposes of calculating both basic and diluted earnings per share have been adjusted
to reflect the group reorganisation with Knights 1759 Limited and the subdivision of ordinary shares in the period ended
30 April 2019.
Adjusted earnings per share is calculated as an alternative performance measure in note 36.
The impact of non-underlying costs on the effective rate of tax is set out below :
18. Dividends
Profit before tax
Tax expense
Effective rate of tax
Year ended 30 April 2019
Year ended 30 April 2018
Total
Underlying
£’000
5,241
1,240
24%
£’000
9,819
1,678
17%
Non-
Underlying
£’000
(4,578)
(438)
(10%)
Total
Underlying
£’000
4,166
947
23%
£’000
4,818
976
20%
Non-
Underlying
£’000
(652)
(29)
(4%)
Amounts recognised as distributions to equity holders in the year:
Interim dividend for the year ended 30 April 2019 of 0.6p per share
Proposed final dividend for the year ended 30 April 2019 of 1.27p per share
Year
ended
30 April
2019
£’000
Year
ended
30 April
2018
£’000
433
433
931
–
–
–
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been
included as a liability in these financial statements. The proposed dividend is payable to all shareholders on the Register
of Members on 30 August 2019. The total estimated dividend to be paid is 1.27p per share. The payment of this dividend
will not have any tax consequences for the Group.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
104
105
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
19. Intangible assets and goodwill
20. Acquisitions
Cost
As at 1 May 2017
Additions
As at 30 April 2018
Acquisitions of subsidiaries
Additions
As at 30 April 2019
Amortisation and impairment
As at 1 May 2017
Amortisation charge
As at 30 April 2018
Amortisation charge
As at 30 April 2019
Carrying amount
At 30 April 2019
At 30 April 2018
At 1 May 2017
Goodwill
£’000
12,244
–
12,244
14,363
–
26,607
–
–
–
–
–
26,607
12,244
12,244
Brand
£’000
5,401
–
5,401
–
–
5,401
108
54
162
54
216
5,185
5,239
5,293
Customer
relationships
£’000
Purchased
computer
software
£’000
2,496
–
2,496
12,884
–
15,380
168
100
268
639
907
14,473
2,228
2,328
155
101
256
–
90
346
58
45
103
64
167
179
153
97
Total
£’000
20,296
101
20,397
27,247
90
47,734
334
199
533
757
1,290
46,444
19,864
19,962
The carrying amount of goodwill has been allocated to the single cash generating unit (CGU) present in the business,
which is the provision of legal and professional services.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management
for the next 3 years and extrapolates cash using a terminal value calculation based on an estimated growth rate of 3%
(2018: 3%). This rate does not exceed the expected average long-term growth rate for the UK legal services market.
The key assumptions for the value in use calculations are those regarding the discount rates and growth rates for legal and
professional services. Management estimates discount rates using pre-tax rates that reflect current market assessments
of the time value of money and the risks specific to the CGU. The growth rates are based on UK economic growth
forecasts for the legal services market.
The rate used to discount the forecast cash flows is 16.6% (2018: 20%).
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.
Acquisitions summary
During the year the Group has completed four acquisitions, the table below summarises the consideration paid
and the net cash flow arising on all acquisitions in the period.
Total identifiable assets and liabilities acquired
Goodwill
Total consideration
Satisfied by:
Cash
Less: cash consideration treated as remuneration
Equity instruments (1,978,031 ordinary shares of Knights Group Holdings plc)
Deferred consideration arrangement
Retention and settlement payment
Total consideration transferred
Net cash outflows arising on acquisition:
Cash consideration
Net investing cash out flow arising on acquisition
Repayment of loans net of cash acquired
Net financing cash outflow arising on acquisition
Details for the individual acquisitions are included below.
Total
£’000
10,712
14,363
25,075
16,225
(600)
15,625
3,950
4,000
1,500
25,075
15,625
15,625
4,443
4,443
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 106
107
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
20. Acquisitions continued
Turner Parkinson LLP
On 18 May 2018, the Group exchanged contracts to acquire Turner Parkinson LLP, with economic benefit from
1 May 2018, through the agreement to purchase the controlling membership interests of the entity. The acquisition
completed on 29 June 2018. Turner Parkinson LLP is a law firm based in Manchester and it was acquired to assist
the Group in entering the Manchester legal and professional services market.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the
table below.
Identifiable assets
Identifiable intangible assets
Property, plant and equipment
Contract assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings
Members' interests classified as a liability
Provisions
Deferred tax
Total identifiable assets and liabilities
Goodwill
Total consideration
Satisfied by:
Cash
Equity instruments (689,655 ordinary shares of Knights Group Holdings plc)
Deferred consideration arrangement
Total consideration transferred
Net cash outflow arising on acquisition:
Cash consideration
Repayment of loans net of cash acquired
Net cash outflow arising on acquisition
Carrying
amount
£’000
Fair value
adjustment
£’000
43
562
491
1,725
1,059
(673)
(101)
(3,106)
–
–
4,100
(387)
–
–
–
(163)
–
–
(95)
(704)
–
2,751
Total
£’000
4,143
175
491
1,725
1,059
(836)
(101)
(3,106)
(95)
(704)
2,751
8,180
10,931
5,931
1,000
4,000
10,931
5,932
2,148
8,080
The goodwill of £8,180,000 arising from the acquisition consists of the assembled workforce. None of the goodwill
is expected to be deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the IPO
admission price.
Future payments under the deferred consideration arrangement are £4,000,000. This deferred consideration attracts
interest at a rate of 3.5% per annum. £875,000 of the deferred consideration was paid in the year, £1,562,500 is due
on 1 May 2019 and the remaining £1,562,500 on 1 May 2020.
Economic benefit was attained as at 1 May 2018 therefore a full year’s revenue and profit is represented within the
accounts. Turner Parkinson LLP contributed £7,555,000 of revenue to the Group’s Statement of Comprehensive Income
for the period 1 May 2018 to 30 April 2019. The profit contributed is not separately identifiable due to the hive-up of its
trade and assets being incorporated into Knights Professional Services Limited from 22 August 2018.
Spearing Waite LLP
On 8 October 2018, the Group obtained control of Spearing Waite LLP through the agreement to purchase the
controlling membership interests of the entity. Spearing Waite LLP is a law firm based in Leicester and it was acquired
to assist the Group in entering the Leicester legal and professional services market.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the
table below.
Identifiable assets
Identifiable intangible assets
Property, plant and equipment
Contract assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings
Members' interests classified as a liability
Provisions
Deferred tax
Total identifiable assets and liabilities
Goodwill
Total consideration
Satisfied by:
Cash
Equity instruments (97,208 ordinary shares of Knights Group Holdings plc)
Total consideration transferred
Net cash outflow arising on acquisition:
Cash consideration
Repayment of loans net of cash acquired
Net cash outflow arising on acquisition
Carrying
amount
£’000
Fair value
adjustment
£’000
–
209
795
1,455
2,053
(639)
(478)
(3,263)
(132)
–
3,091
(25)
–
–
–
(162)
–
–
–
(525)
–
2,379
Total
£’000
3,091
184
795
1,455
2,053
(801)
(478)
(3,263)
(132)
(525)
2,379
3,071
5,450
5,250
200
5,450
5,250
1,669
6,919
The goodwill of £3,071,000 arising from the acquisition consists of the assembled workforce. None of the goodwill
is expected to be deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume
weighted average share price for the five days prior to completion.
A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers
remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the
Statement of Comprehensive Income on a straight line basis over the 3 year post acquisition period. The maximum
undiscounted amount of all potential future payments under the contingent consideration arrangement is £1,065,000.
Economic benefit was attained as at 1 October 2018. Spearing Waite LLP contributed £4,089,000 revenue to the Group’s
Statement of Comprehensive Income for the period 1 October 2018 to 30 April 2019. The profit contributed is not
separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services
Limited from 1 December 2018.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 108
109
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
20. Acquisitions continued
Cummins Solicitors Limited
On 14 January 2019, the Group obtained control of Cummins Solicitors Limited through the agreement to purchase
the shares of the entity. Cummins Solicitors Limited is an employment law firm based in Leicester and was acquired
to enable the Group to expand its offering in the Leicester legal and professional services market.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the
table below.
BrookStreet des Roches LLP
On 1 April 2019, the Group obtained control of BrookStreet des Roches LLP through the agreement to purchase
the controlling membership interests of the entity. BrookStreet des Roches LLP is a leading independent commercial
law firm in Oxford with a strong reputation nationally for its real estate practise. It was acquired so the Group could
expand its offering in the Oxford legal and professional services market.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the
table below.
Identifiable assets
Identifiable intangible assets
Property, plant and equipment
Contract assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings
Corporation tax liability
Provisions
Deferred tax
Total identifiable assets and liabilities
Goodwill
Total consideration
Satisfied by:
Cash
Equity instruments (125,318 ordinary shares of Knights Group Holdings plc)
Contingent consideration
Total consideration transferred
Net cash outflow arising on acquisition:
Cash consideration
Repayment of loans net of cash acquired
Net cash outflow arising on acquisition
Carrying
amount
£’000
Fair value
adjustment
£’000
–
6
3
134
223
(82)
(29)
(51)
–
–
204
764
(6)
–
–
–
(4)
–
–
(45)
(130)
579
Total
£’000
764
–
3
134
223
(86)
(29)
(51)
(45)
(130)
783
190
973
1,323
250
(600)
973
722
(201)
521
The Group has the right to claw-back up to £600,000 of this cash consideration transferred if the seller voluntary
resigns from his employment in the Group within a two year period post acquisition. Since this is contingent on the seller
remaining in employment, IFRS 3:B55(a) requires this to be excluded from the consideration of the business combination
and this is expensed as remuneration for post-combination services and is recognised as a non-underlying operating cost.
The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume
weighted average share price for the five days prior to completion.
Economic benefit was attained as at 1 January 2019. Cummins Solicitors Limited contributed £222,000 revenue to the
Group’s Statement of Comprehensive Income for the period 1 January 2019 to 30 April 2019. The profit contributed is
not separately identifiable due to the hive-up of its trade and assets being incorporated into Knights Professional Services
Limited from 1 February 2019.
Identifiable assets
Identifiable intangible assets
Property, plant and equipment
Contract assets
Trade and other receivables
Cash and cash equivalents
Liabilities
Trade and other payables
Borrowings
Members interest classed as a liability
Provisions
Deferred tax
Carrying
amount
£’000
Fair value
adjustment
£’000
–
20
588
1,971
530
(1,753)
(213)
(1,143)
–
–
4,886
(5)
–
–
–
980
–
–
(231)
(831)
Total identifiable assets and liabilities
–
4,799
Goodwill
Total consideration
Satisfied by:
Cash
Retention and settlement payments payable
Equity instruments (1,065,850 ordinary shares of Knights Group Holdings plc)
Total consideration transferred
Net cash outflow arising on acquisition:
Cash consideration
Repayment of loans net of cash acquired
Net cash outflow arising on acquisition
Total
£’000
4,886
15
588
1,971
530
(773)
(213)
(1,143)
(231)
(831)
4,799
2,922
7,721
3,721
1,500
2,500
7,721
3,721
827
4,548
The goodwill of £2,922,000 arising from the acquisition consists of the assembled workforce. None of the goodwill
is expected to be deductible for income tax purposes.
The fair value of the ordinary shares issued as part of the consideration was determined on the basis of the volume
weighted average share price for the five days prior to exchange.
A contingent consideration arrangement was entered into as part of the acquisition. This is contingent on the sellers
remaining in employment by the Group so it has been excluded from the consideration and will be recognised in the
Statement of Comprehensive Income on a straight line basis. The maximum undiscounted amount of all potential future
payments under the contingent consideration arrangement is £2,500,000.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 110
111
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
20. Acquisitions continued
22. Contract assets and liabilities
£500,000 was retained from the completion monies as a retention in accordance with the completion mechanism and
is payable on agreement of Completion accounts. As part of the acquisition agreement for BrookStreet des Roches LLP,
the vendors agreed to settle the costs of surrendering the lease on the office premises occupied by the firm which the
Group was not prepared to acquire. The lease surrender settlement was agreed at £2 million, of which £1 million was
settled by the vendors from the consideration they received on completion, with the remaining £1 million to be paid by the
Group, and included as deferred consideration in the fair value of consideration payable, over a period of up to three years.
BrookStreet des Roches LLP contributed £542,000 revenue to the Group’s Statement of Comprehensive Income for the
period 1 April 2019 to 30 April 2019. The profit contributed is not separately identifiable due to the hive-up of its trade and
assets being incorporated into Knights Professional Services Limited from 1 April 2019.
21. Property, plant and equipment
Cost
As at 1 May 2017
Additions
Transfers
Disposals
As at 30 April 2018
Acquisitions of subsidiaries
Additions
Disposals
As at 30 April 2019
Depreciation and impairment
As at 1 May 2017
Depreciation charge
Eliminated on disposal
As at 30 April 2018
Depreciation charge
Eliminated on disposal
As at 30 April 2019
Carrying amount
At 30 April 2019
At 30 April 2018
At 1 May 2017
Expenditure
on short
leasehold
property
£’000
Office
equipment
£’000
Furniture
and fittings
£’000
Motor
vehicles
£’000
790
770
(148)
(11)
1,401
9
603
(7)
2,006
85
87
(3)
169
238
(1)
406
1,600
1,232
705
946
227
19
–
1,192
155
585
–
1,932
400
243
–
643
307
–
950
982
549
546
444
284
129
(32)
825
210
26
(12)
1,049
91
76
(9)
158
157
(3)
312
737
667
353
5
–
–
–
5
–
–
–
5
5
–
–
5
–
–
5
–
–
–
Total
£’000
2,185
1,281
–
(43)
3,423
374
1,214
(19)
4,992
581
406
(12)
975
702
(4)
1,673
3,319
2,448
1,604
As at 30 April 2019
As at 30 April 2018
As at 1 May 2017
Contract
assets
£’000
11,112
7,447
5,908
Trade
receivables
£’000
10,720
5,732
5,843
Contract
liabilities
£’000
(120)
(102)
(110)
Contract assets
Contract assets consist of unbilled revenue in respect of legal and professional services performed to date.
Contract assets in respect of fee-for-service and fixed fee arrangements are billed at appropriate intervals, normally
on a monthly basis, in line with the performance of the services. Where such matters remain unbilled at the period
end the asset is valued on a contract by contract basis at its expected recoverable amount.
The Group undertakes some matters based on contingent fee arrangements. These matters are billed when the claim
is successfully settled. For matters ongoing at the period end, each matter is valued based on it’s specific circumstances.
If the matter has agreed funding arrangements in place, then it is valued based on the estimated amount recoverable
from the funding depending on the stage of completion of the matter.
If the matter has been admitted and performance obligations satisfied, such that it is no longer contingent, these
matters are valued based on the expected recoverable amount. Due to the complex nature of these matters, they can
take a considerable time to be finalised therefore performance obligations may be settled in one period but the matter
not billed until a later financial period. The amount of contingent fee work in progress at 30 April 2019 was £2,201,000
(2018: £1,612,000)
If the performance obligations for contingent matters have not been satisfied at the reporting date, these assets
are valued on a contract by contract basis taking into account the expected recoverable amount and the likelihood
of success. Where the likelihood of success of a contingent fee arrangement is less than highly probable, the amount
recognised in contract assets is limited to the costs incurred which are expected to be recoverable.
During the year, contract assets of £1,877,000 (2018:£nil) were acquired in business combinations.
An impairment loss of £57,000 has been recognised in prepayments (relating to contract assets) in the year
(2018: £nil). This is based on the historical credit loss experience of these types of assets. The contract asset loss
is estimated at 0.55% of the balance.
Trade receivables
Trade receivables are recognised when a bill has been issued to the client, as this is the point in time that
the consideration is unconditional because only the passage of time is required before the payment is due.
Trade receivables also includes disbursements.
Bills are payable within thirty days unless otherwise agreed with the client.
Contract liabilities
When matters are billed in advance or on the basis of a monthly retainer, this is recognised in contract liabilities
and released over time when the services are performed.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 112
113
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
23. Trade and other receivables
Trade receivables
Impairment provision – Trade receivables
Prepayments and other receivables
Impairment provision – Prepayments and other receivables
30 April 2019
£’000
30 April 2018
£’000
10,960
(240)
3,008
(57)
13,671
5,806
(74)
1,545
–
7,277
Trade receivables
The average credit period taken on sales is 38 days as at 30 April 2019. No interest is charged on trade receivables.
The Group measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses
(‘ECL’). The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which permits the use of the lifetime expected loss provision for all trade receivables. As the Group's historical credit
loss experience does not show significantly different loss patterns for different client segments, the provision for loss
allowance is based on past due status.
The following table details the risk profile of trade receivables (excluding disbursements) based on the Group's
provision matrix.
30 April 2019
Expected credit loss rate
Estimated total gross carrying amount £’000
Lifetime ECL £’000
Not past
due
31-60
days past
due
61-90
days past
due
91-120
days past
due
>120
days past
due
0.66%
5,412
36
0.66%
2,584
17
2.30%
826
19
1.60% 17.36%
720
250
4
125
Total
2.05%
9,792
201
In addition to the above on trade receivables a further £39,000 (2018: £nil) impairment loss has been recognised
against disbursement balances. This is based on 100% impairment against all disbursements with no activity on
the matter for over 12 months and 0.8% against the remainder of the balance based upon the historical credit loss
experience of this type of asset.
An impairment loss of £57,000 has been recognised on contract assets in the year (2018: £nil). This is based
on the historical credit loss experience of these types of assets. The contract asset loss is estimated at 0.55%.
Other receivables
As at 30 April 2019 other receivables includes £513,000 (2018: £nil) of consideration paid in advance relating
to the acquisition of Cummins Solicitors Limited which is contingent on continued employment over a two year
period. This is being released to the Statement of Comprehensive Income over the two year period.
24. Share capital
As at 1 May 2017
Changes during the period
As at 30 April 2018
Changes during the period
Ordinary shares of £1 each issued in respect of the share-for-share acquisition of Knights 1759 Limited
(see note below)
Subdivision of 100,000 ordinary shares of £1 each into 50,000,000 ordinary shares of 0.2p each
Ordinary shares of 0.2p each issued at Initial Public Offering
Ordinary shares of 0.2p each issued in respect of the Share Incentive Plan (see note 9)
Ordinary shares of 0.2p each issued as consideration in the purchase of subsidiaries
At 30 April 2019
Ordinary shares
Number
100,000
–
100,000
–
49,900,000
20,689,656
657,732
1,978,031
73,325,419
£’000
100
–
100
–
–
41
2
4
147
The comparative figure in the Statement of Financial Position relates to the 100,000 shares issued by the Company
in exchange for the entire issued share capital of Knights 1759 Limited in accordance with the merger accounting
policy explained in note 2.
25. Share premium
As at 1 May 2017 and 30 April 2018
Premium arising on issue of equity shares
Expenses of issue of equity shares
At 30 April 2019
26. Reserves
At 1 May 2017
Profit for the period and total comprehensive income
Balance at 30 April 2018
Profit for the period and total comprehensive income
Credit to equity for equity-settled share-based payments
Dividends
Balance at 30 April 2019
£’000
–
34,327
(1,841)
32,486
Merger
reserve
£’000
(3,536)
–
(3,536)
–
–
–
Retained
earnings
£’000
3,015
3,219
6,234
4,001
356
(433)
(3,536)
10,158
The merger reserve of £3,536,000 arose on the share for share exchange by Knights 1759 Limited and Knights
Professional Services Limited. The reserve is the difference between the nominal value of Knights 1759 Limited share
capital and amounts paid to the shareholders as part of the group reorganisation in October 2016 and the share capital,
share premium value and capital redemption of the shares acquired in Knights Professional Services Limited.
Retained Earnings represents cumulative profits and losses of the Group net of distributions to members.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 114
115
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
27. Borrowings
Secured borrowings at amortised cost:
Bank loans
Other loan
Total borrowings
Amount due for settlement within 12 months
Amount due for settlement after 12 months
30 April
2019
£’000
30 April
2018
£’000
19,000
–
5,750
22,693
19,000
28,443
–
–
19,000
28,443
All of the Group’s borrowings are denominated in sterling.
The Group has a credit facility of £27,000,000 in total (2018: £10,000,000) compromising term debt and revolving credit
facilities. The current facility was initially taken out on 25 June 2018 and amended on 27 March 2019. The revolving credit
facility is renewed each month and is due for final repayment on 25 June 2023. The term debt is due for repayment on
25 June 2023 or earlier if the agreed covenants are breached. The facility is secured by a fixed and floating charge over
the Group’s assets. The facility carries an interest margin above LIBOR of between 1.85% and 2.45% depending on the
leverage level. A commitment fee of 35% of the applicable margin is payable on the undrawn amounts.
The other loan of £22,693,000 held at 30 April 2018 was due for repayment on 6 October 2023. Cash interest was payable
on the other loan in quarterly instalments at a rate of 5% above LIBOR. Payment in kind interest accrued at a rate of 1.9%
annually. If not paid quarterly, the payment in kind interest was capitalised and due for repayment on 6 October 2023.
This loan was secured by a fixed and floating charge over the assets of the Group. This loan was repaid in the year ended
30 April 2019.
28. Deferred consideration
Non-current liabilities
Deferred consideration
Current liabilities
Deferred consideration
30 April
2019
£’000
30 April
2018
£’000
1,611
1,611
1,628
1,628
–
–
250
250
The deferred consideration balance of £250,000 at 30 April 2018 related to the Group restructure and refinancing
exercise completed in October 2016. This was settled during the year ended 30 April 2019.
Deferred consideration as at 30 April 2019 relates to the acquisition of Turner Parkinson LLP and is not contingent.
The total deferred consideration was £4,000,000 of which £875,000 was paid during the year ended 30 April 2019.
In addition the Group has £146,000 of contingent consideration accrued and included within trade and other payables
relating to the acquisition of Spearing Waite LLP. This is contingent based upon continued employment and is being
accrued on a monthly basis in the Statement of Comprehensive Income in accordance with the terms of the agreement.
29. Deferred tax
The following are the major deferred tax liabilities and (assets) recognised by the Group and movements thereon during
the current and prior reporting period.
As at 1 May 2017
Charge/(credit) for the year
As at 30 April 2018
Acquisitions of subsidiaries
Charge/(credit) for the year
As at 30 April 2019
Accelerated
capital
allowances
£’000
79
30
Intangible
assets
£’000
1,305
(30)
Share-
based
payments
£’000
–
–
109
–
92
201
1,275
2,190
(118)
3,347
–
–
(60)
(60)
Total
£’000
1,384
–
1,384
2,190
(86)
3,488
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following
is the analysis of the deferred tax balances after offset for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
30. Trade and other payables
Trade payables
Other taxation and social security
Other payables
Accruals
30 April
2019
£’000
(60)
3,548
3,488
30 April
2018
£’000
–
1,384
1,384
30 April
2019
£’000
1,442
3,511
1,868
5,284
30 April
2018
£’000
985
1,531
1,153
1,853
12,105
5,522
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
The average credit period taken for trade purchases is 26 days. No interest is charged on the trade payables.
The directors consider that the carrying amount of trade payables approximates to their fair value.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 116
117
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
31. Provisions
As at 1 May 2017
Additional provision in the year
As at 30 April 2018
1 May 2019 – Transferred in from accruals
Acquisitions of subsidiaries
Additional provision in the year
Utilisation of provision
As at 30 April 2019
Dilapidation
provision
£’000
151
10
Onerous
contract
provision
£’000
–
–
Professional
Indemnity
provision
£’000
–
–
161
–
231
81
–
473
–
–
272
202
(39)
435
–
284
–
284
(29)
539
Total
£’000
151
10
161
284
503
567
(68)
1,447
The dilapidations provision relates to the potential rectification of leasehold sites upon expiration of the leases.
This has been based on a surveyor’s valuation of the schedule of works included in the lease, or in absence
of a surveyor’s estimate, is based on the directors’ estimate of potential liabilities.
The onerous contract provision relates to vacant offices where the Group is the lessee. The Group is actively marketing
these leases for reassignment. The provision represents the directors’ estimate of the future lease payments to be paid
by the Group prior to reassignment of the leases. The onerous contracts provision also includes contracts acquired via
acquisition that are non-cancellable. The provision represents the remaining payments under the terms of the lease.
Future lease payments are offset against the provision.
The professional indemnity provision (transferred from accrued expenses on 1 May 2018), relates to a number
of disputes in the ordinary course of business for all claims where costs are likely to be incurred and represents the
cost of defending and concluding claims and any excess that may become payable. The Group carries professional
indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so
could seriously prejudice the position of the Group.
32. Financial instruments
Categories of financial instruments
Financial assets
Amortised cost
Contract assets
Trade and other receivables (excluding prepayments)
Cash and cash equivalents
Financial liabilities
Amortised cost
Borrowings
Deferred consideration
Trade and other payables
Fair value
Trade and other payables
30 April
2019
£’000
30 April
2018
£’000
11,112
11,706
4,904
7,447
5,732
2,118
19,000
3,239
8,448
28,443
250
3,991
146
–
Financial risk management objectives
The Group's finance function monitors and manages the financial risks relating to the operations of the Group.
These risks include market risk (interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.
Market risk
The Group's activities expose it primarily to the financial risks of changes in interest rates (see below).
Market risk exposures are measured using sensitivity analysis.
There has been no change to the Group's exposure to market risks or the manner in which these risks are
managed and measured.
Interest rate risk management
The Group is exposed to interest rate risk because the Group borrows funds at floating interest rates. The risk
is managed by the Group by keeping the level of borrowings at a manageable level.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for financial
instruments at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the
amount of the liability outstanding at the end of the reporting period was outstanding for the whole year.
If interest rates had been 0.5% higher/lower and all other variables were held constant, the Group's profit for
the year ended 30 April 2019 would decrease/increase by £95,000 (2018: decrease/increase by £146,000).
This is attributable to the Group's exposure to interest rates on its variable rate borrowings.
The Group's sensitivity to interest rates has decreased during the current year mainly due to the reduction
in the borrowings of the Group.
Credit risk management
Note 23 details the Group's maximum exposure to credit risk and the measurement bases used to determine
expected credit losses.
The risk of bad debts is mitigated by the Group having a policy of performing credit checks or receiving payments
on account for new clients when practical and ensuring that the Group's exposure to any individual client is tightly
controlled, through credit control policies and procedures.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 118
119
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
32. Financial instruments continued
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the financial charges on its debt instruments
and repayments of principal. There is a risk that the Group will encounter difficulty in meetings its financial obligations
as they fall due or not meet its required covenants. The Group manages this risk and its cash flow requirements through
detailed annual and monthly cash flow forecasts. These forecasts are reviewed regularly to ensure that the Group has
sufficient working capital to enable it to meet all of its short term and long-term cash flow needs.
The tables below analyse the Group’s financial liabilities into relevant maturity groupings based on their contractual
maturities. The amounts disclosed in the table are the contractual undiscounted cash flows.
Significant accounting policies
Details of the significant accounting policies and methods adopted (including the criteria for recognition, the basis
of measurement and the bases for recognition of income and expenses) for each class of financial asset, financial
liability and equity instrument are disclosed in note 2.
33. Capital commitments
As at 30 April 2019 there is a capital commitment of £425,000 (2018: £278,000) in relation to an ongoing
office refurbishment.
Contractual maturities of financial liabilities
34. Reconciliation of profit to net cash generated from operations
30 April 2019
Borrowings
Deferred consideration
Trade and other payables
30 April 2018
Borrowings
Deferred consideration
Trade and other payables
< 1 year
£’000
1–2 years
£’000
2–5 years
£’000
–
1,628
8,594
–
1,611
–
19,000
–
–
< 1 year
£’000
–
250
3,991
1–2 years
£’000
–
–
–
2–5 years
£’000
28,443
–
–
Total
£’000
19,000
3,239
8,594
Total
£’000
28,443
250
3,991
The Group has met its covenant tests during the year.
Capital management
The capital structure of the Group consists of borrowings (as disclosed in note 27) and equity of the Group
(comprising issued capital, reserves, and retained earnings as disclosed in the Statement of Changes in Equity).
In managing its capital, the Group’s primary object is to provide a return for its equity shareholders through capital
growth and future dividend income. The Group seeks to maintain a gearing ratio that balances risk and returns at an
acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and
strategic investment needs and objectives.
Gearing ratio
The gearing ratio at the year end is as follows:
Profit before taxation
Adjustments for:
Amortisation
Depreciation
Loss on disposal of equipment
Contingent consideration not payable
Contingent consideration expense
Non-underlying operating costs
Share based payments
Interest income
Interest expense
Operating cash flows before movements in working capital
Increase in contract assets
(Increase)/decrease in trade and other receivables
Increase in provisions
Increase/(decrease) in contract liabilities
Increase in trade and other payables
Cash generated from operations
35. Changes in liabilities arising from financing activities
Year
ended
30 April
2019
£’000
5,241
Year
ended
30 April
2018
£’000
4,166
757
702
14
(30)
233
1,314
356
(162)
2,776
11,201
(1,788)
(1,171)
782
18
2,664
199
406
30
–
–
453
-
(121)
2,228
7,361
(1,539)
325
9
(8)
375
11,706
6,523
Borrowings (note 27)
Cash and cash equivalents
Net debt
Equity
Net debt to equity ratio
30 April
2019
£’000
19,000
(4,904)
30 April
2018
£’000
28,443
(2,118)
14,096
26,325
39,255
2,798
%
36
%
941
The table below details changes in the Group’s liabilities arising from financing activities, including both cash and
non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows
will be, classified in the Group’s Consolidated Statement of Cash Flows as cash flows from financing activities.
As at 1 May 2018
Repayment of borrowings
New loans taken out
Non-cash changes:
Release of arrangement fee
As at 30 April 2019
Borrowings
£’000
28,443
(24,940)
14,750
747
19,000
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
120
121
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
36. Alternative performance measures
This Annual Report contains both statutory measures and alternative performance measures.
In management’s view the underlying performance of the business provides a more meaningful comparison
of how the Group’s business is managed and measured on a day-to-day basis.
The Group’s alternative performance measures and key performance indicators are aligned to the Group’s strategy
and together are used to measure the performance of the business.
Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and provide
supplementary information to assist with the understanding of the Group’s financial results and with the evaluation
of operating performance for all the periods presented. Alternative performance measures, however, are not a measure
of financial performance under International Financial Reporting Standards (‘IFRS’) as adopted by the European Union
and should not be considered as a substitute for measures determined in accordance with IFRS. As the Group’s
alternative performance measures are not defined terms under IFRS they may therefore not be comparable with
similarly titled measures reported by other companies.
Reconciliations of alternative performance measures to the most directly comparable measures reported
in accordance with IFRS are provided below.
a) Underlying EBITDA
Underlying EBITDA is presented as an alternative performance measure to show the underlying operating performance
of the Group excluding the effects of depreciation, amortisation, and non-underlying items.
Operating profit
Depreciation and amortisation charges
Non-underlying costs (note 13)
Underlying EBITDA
Year
ended
30 April
2019
£’000
8,017
1,473
1,847
Year
ended
30 April
2018
£’000
6,394
635
453
11,337
7,482
b) Underlying profit before tax (PBT)
Underlying PBT is presented as an alternative performance measure to show the underlying performance of the
Group excluding the effects of amortisation of intangible assets, and non-underlying items.
Profit before tax
Amortisation (adjusted for amortisation on computer software)
Non-underlying costs (note 13)
Non-recurring finance costs
Underlying profit before tax
Year
ended
30 April
2019
£’000
5,241
693
1,847
2,038
9,819
Year
ended
30 April
2018
£’000
4,166
199
453
–
4,818
Non-recurring finance costs relate to exit fees and arrangement fees expensed due to the refinancing of the Group
during the year and accrued interest on deferred consideration.
c) Underlying profit after tax (PAT) and adjusted earnings per share (EPS)
Underlying PAT and adjusted EPS are presented as alternative performance measures to show the underlying performance
of the Group excluding the effects of amortisation of intangible assets, and non-underlying items.
Profit after tax
Amortisation (adjusted for amortisation on computer software)
Non-underlying operating costs
Non-recurring finance costs
Tax in respect of the above
Underlying profit after tax
Adjusted earnings per share
Basic adjusted earnings per share
Diluted adjusted earnings per share
Year
ended
30 April
2019
£’000
4,001
693
1,847
2,038
(438)
8,141
Year
ended
30 April
2018
£’000
3,219
199
453
–
(29)
3,842
Pence
11.88
11.83
Pence
7.68
7.68
Tax has been calculated at the corporation tax of 19% or deferred tax rate of 17% on the relevant adjusting items.
d) Free cash flow and cash conversion %
Free cash flow measures the Group’s underlying cash generation. Cash conversion % measures the Group’s conversion
of its adjusted PAT into free cash flows. Free cash flow is calculated as the total of net cash from operating activities,
interest paid and net cash flows on capital expenditure after excluding cash flows in respect of non-underlying costs.
Cash conversion % is calculated by dividing free cash flow by adjusted profit after tax, which is reconciled to profit after
tax above.
Cash generated from operations (note 34)
Adjustment for contingent earn out consideration paid in advance
Interest received
Tax paid
Net cash from underlying operating activities
Interest paid
Net capital expenditure
Free cash flow
Adjusted profit after tax
Cash conversion (%)
Year
ended
30 April
2019
£’000
11,706
600
142
(1,076)
11,372
(745)
(1,303)
9,324
8,141
115%
Year
ended
30 April
2018
£’000
6,523
-
112
(733)
5,902
(1,806)
(1,381)
2,715
3,842
71%
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
122
123
Notes to the Consolidated Financial Statements
continued
For the year ended 30 April 2019
37. Operating lease arrangements
The Group as lessee
Lease payments under operating leases recognised as an expense in the year
Year
ended
30 April
2019
£’000
2,104
Year
ended
30 April
2018
£’000
1,172
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under
non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth year inclusive
After five years
30 April
2019
£’000
2,302
9,408
14,530
30 April
2018
£’000
1,627
5,683
13,855
26,240
21,165
Operating lease payments represent rentals payable by the Group for office properties, motor vehicles and
office equipment.
38. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note. Transactions between the Group and its other related parties
are disclosed below.
KPV Propco Ltd is a Company controlled by Mr DA Beech, a person with significant influence over the Group and
a member of key management personnel.
The Group leases a property from KPV Propco Ltd. During the year rents of £343,000 (2018: £343,000) were charged
by KPV Propco Ltd to the Group.
The Group received a contribution for repair work in the year from KPV Propco Ltd of £nil (2018: £86,000).
During the year, the Group received cash of £nil (2018: £616,000) from KPV Propco Ltd. At 30 April 2019, there was
an amount of £128,000 (2018: £127,896) owed to KPV Propco Ltd by the Group.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, is set out below in aggregate for each
of the categories specified in IAS 24 Related Party Disclosures.
Short-term employee benefits
Pension costs
Share-based payments
Key management personnel includes board members and directors.
Transactions with directors
Dividends totalling £202,000 (2018: £nil) were paid in the year in respect of ordinary shares held by the
Company’s directors.
Year
ended
30 April
2019
£’000
829
14
106
949
Year
ended
30 April
2018
£’000
244
21
–
265
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
124
125
Company Statement of Financial Position
As at 30 April 2019
Company Statement of Changes in Equity
For the period ended 30 April 2019
Other
reserve
£’000
Retained
earnings
£’000
–
–
–
1,796
–
–
(100)
–
(100)
–
–
–
(433)
Total
£’000
–
1,796
356
32,633
(100)
(433)
1,363
34,252
At 4 April 2018
Profit for the period and total comprehensive income
Transactions with owners in their capacity as owners:
Credit to equity for equity-settled share-based payments
Issue of shares
Other Reserve (IAS 27:13)
Dividends paid
Balance at 30 April 2019
Share
capital
£’000
Share
premium
£’000
Share-
Based
Payments
£’000
–
–
–
147
–
–
147
–
–
–
32,486
–
–
32,486
–
–
356
–
–
–
356
Assets
Non-current assets
Investments in subsidiaries
Amounts receivable from subsidiaries
Current assets
Trade and other receivables
Total assets
Equity and liabilities
Equity
Share capital
Share premium
Share based payment reserve
Other reserve
Retained earnings
Equity attributable to owners of the Company
Current liabilities
Trade and other payables
Corporation tax liability
Total liabilities
Total equity and liabilities
Note
42
43
44
44
45
45
45
30 April
2019
£’000
356
34,010
34,366
14
34,380
147
32,486
356
(100)
1,363
34,252
1
127
128
34,380
Under section 408 of the Companies Act 2006 the company is exempt from the requirement to present its own Statement
of Comprehensive Income. The Company reported a profit for the 392 day period ended 30 April 2019 of £1,796,000.
The financial statements were approved by the board and authorised for issue on 8 July 2019 and are signed
on its behalf by:
Kate Lewis
Director
Registered No. 11290101
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 126
127
Notes to the Company Financial Statements
39. Accounting policies
41. Profit for the year
As permitted by s408 of the Companies Act 2006, no separate profit and loss account or Statement of Comprehensive
Income is presented in respect of the parent Company. The profit attributable to the Company is disclosed in the
footnote to the Company’s Statement of Financial Position.
The auditor’s remuneration for audit and other services is disclosed in note 15 to the consolidated financial statements.
The average monthly number of employees comprised of the executive and non-executive directors and was 6.
Their aggregate remuneration borne by the Company was £nil.
42. Investments in subsidiaries
Cost and net book value
At 4 April 2018
Capital contribution in respect of equity-settled share-based payments
At 30 April 2019
£’000
–
356
356
Further information about share-based payment transactions is provided in note 9 to the consolidated financial statements.
The separate financial statements of the Company are presented as required by the Companies Act 2006.
The Company meets the definition of a qualifying entity under FRS 100 ‘Application of Financial Reporting
Requirements’ issued by the FRC. Accordingly, these financial statements were prepared in accordance with
Financial Reporting Standard 101 ‘Reduced Disclosure Framework’.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that
standard in relation to share-based payments, financial instruments, capital management, presentation of comparative
information in respect of certain assets, presentation of a cash-flow statement, standards not yet effective and
certain related party transactions.
Where required, equivalent disclosures are given in the consolidated financial statements.
The financial statements have been prepared on the historical cost basis. The principal accounting policies
adopted are the same as those set out in note 2 to the consolidated financial statements except as noted below.
Investments in subsidiaries
Investments in subsidiaries and associates are stated at cost less, where appropriate, provisions for impairment.
On 18 June 2018, the whole of the share capital of Knights 1759 Limited was acquired by the Company via a share
for share exchange agreement. This was a Group reorganisation satisfying the criteria of IAS 27:13. The investment
cost is measured at £nil because the carrying amount of the equity items shown in the separate financial statements
of Knights 1759 Limited was negative at the date of the reorganisation.
Investments in subsidiaries includes capital contributions to subsidiaries as a result of the issue of equity-settled
share-based payments to employees of subsidiaries. The accounting policy for share-based payments is set out
in note 2.14 to the consolidated financial statements.
40. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 39, the directors are required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
There are no major accounting judgements or key sources of estimation uncertainty at the end of the reporting period
that have a significant risk of resulting in a material adjustment to the carrying amounts of the Company’s assets and
liabilities within the next financial year.
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc
128
129
Notes to the Company Financial Statements
continued
42. Investments in subsidiaries continued
Details of the Company’s subsidiaries at 30 April 2019 are as follows:
Place of business and
registered office address
Principal
activity
Class
of shares
Proportion
of
ownership
interest %
Proportion
of voting
power held
%
Holding company
Ordinary
100%*
100%*
Provision of legal and
professional services
Ordinary
100%
100%
Dormant
Dormant
Dormant
Dormant
N/A
N/A
N/A
N/A
99.9%**
99.9%**
99.9%**
99.9%**
99.9%**
99.9%**
100%
100%
Dormant
Ordinary
100%
100%
Dormant
N/A
99.9%**
99.9%**
Dormant
Ordinary
100%
100%
Name
Knights 1759 Limited
Knights Professional Services
Limited
Turner Parkinson LLP
Spearing Waite LLP
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
Darbys Solicitors LLP
Midland House West Way,
Botley, Oxford, OX2 0PH
Knights Solicitors LLP
Cummins Solicitors Limited
BrookStreet des Roches LLP
BSDR Limited
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
K&S Secretaries Limited
Knights Trustee Company No 1
Limited
Knights Trustee Company No 2
Limited
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
K&S Directors Limited
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
Dormant
Ordinary
100%
100%
Turner Parkinson Nominees Limited The Brampton,
Dormant
Ordinary
100%
100%
Turner Parkinson Solicitors Ltd.
T.P.D.D Limited
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
Dormant
Ordinary
100%
100%
Dormant
Ordinary
100%
100%
Darbys Director Services Limited Midland House West Way,
Dormant
Ordinary
100%
100%
K&S (Nominees) Limited
K&S (560) Limited
Charden Enterprises Limited
Four Below Zero Limited
Endzin Limited
DDB Consulting Limited
Wingelock Limited
Botley, Oxford, OX2 0PH
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
Knights Plc, The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
The Brampton,
Newcastle-under-Lyme,
Staffordshire, ST5 0QW
Dormant
Ordinary
100%
100%
Dormant
Ordinary
100% 100%***
Dormant
Ordinary
100% 100%***
Dormant
Ordinary
100% 100%***
Dormant
Ordinary
100% 100%***
Dormant
Ordinary
100% 100%***
Dormant
Ordinary
100% 100%***
BSDR Corporate Services Limited The Brampton,
Dormant
Ordinary
100%
100%
Dormant
Ordinary
100%
100%
* Held directly by Knights Group Holdings plc
** The group holds 99.9% ownership interest with David Beech owning the remaining 0.01% to allow these entities to retain their LLP status
*** Legal title held on behalf of a nominee
Dormant
Ordinary
100%
100%
The acquired entities, as detailed in note 20, were active during the financial year, but all dormant as at 30 April 2019.
Dormant
Ordinary
100%
100%
Strategic ReportCorporate GovernanceFinancial StatementsAnnual Report and Accounts 2019Knights plc 130
Knights plc
Annual Report and Accounts 2019
Financial Statements
Strategic Report
Corporate Governance
Additional Information
131
Notes to the Company Financial Statements
continued
Glossary of Terms
43. Amounts receivables from subsidiaries
Amounts receivable from subsidiaries
30 April
2019
£’000
34,010
Amounts receivable from subsidiaries are repayable on demand. Interest is charged at a rate of 3.5% per annum and
is payable annually on 30 April each year. Unpaid interest on 30 April each year is added to the principal of the loan.
The balances are considered recoverable from the future cash flows of profitable trading subsidiaries. They are classified
as non-current assets because they are not expected to be realised within 12 months of the reporting period.
The Company measures the loss allowance for intra-group receivables at lifetime expected credit losses (‘ECL’). The ECL
is estimated using a probability-weighted analysis of all possible outcomes with reference to the debtors’ financial position
and forecasts of future economic conditions. The resultant estimated ECL is not considered material to the financial
statements, therefore the Company has recognised a loss allowance of £nil against amounts receivable from subsidiaries.
44. Share capital and share premium account
The movements on these items are disclosed in notes 24 and 25 to the consolidated financial statements.
45. Reserves
The Share-Based Payment Reserve is a non-distributable reserve representing the total credits to equity in respect
of equity-settled share-based payment charges recognised as capital contributions within investments.
The Other Reserve arose as a result of applying the requirements of IAS 27:13 to the share-for-share exchange
acquisition of Knights 1759 Limited because the total equity of Knights 1759 Limited was less than the nominal
value of the shares issued by the Company as consideration.
Retained Earnings represents cumulative profits and losses of the Company net of distributions to members.
46. Related party transactions
During the year, the Company issued 65,000 of its ordinary £1 shares to acquire 65,000 ordinary £1 shares
of Knights 1759 Limited from Mr DA Beech, a person with significant influence over the Company and a member
of key management personnel.
Alternative Financial Performance Measure
Non-recurring finance costs
This document contains certain financial measures that are not
defined or separately recognised under IFRS. These measures
are used by the Board and other users of the accounts to
evaluate the Group’s underlying trading performance excluding
the impact of any non-recurring items and items that do not
reflect the underlying day-to-day trading of the Group. These
measures are not audited and are not standard measures of
financial performance under IFRS. There are no generally accepted
principles governing the calculation of these measures and the
criteria upon which these measures are based can vary from
company to company. Accordingly these measures should be
viewed as supplemental to, not as a substitute for, the financial
measures calculated under IFRS.
Underlying EBITDA
Underlying EBITDA is presented as an alternative performance
measure to show the underlying operating performance of the
Group excluding the effects of depreciation, amortisation, and
non-underlying items.
Non recurring finance costs relate to the exit fees and release
of arrangement fees arising on the repayment of debt at the IPO
and interest on deferred consideration payable as part of the
consideration on acquisitions,
Exit fees and release of
arrangement fees
Interest on deferred
consideration
Non-recurring finance costs
Year ended
30 April 2019
£’000
Year ended
30 April 2018
£’000
1,924
114
2,038
–
–
–
Underlying Profit After Tax (PAT) and Adjusted Earnings
per Share (EPS)
Year ended
30 April 2019
£’000
Year ended
30 April 2018
£’000
Underlying PAT and adjusted EPS are presented as alternative
performance measures to show the underlying performance
of the Group excluding the effects of amortisation of intangible
assets and non-underlying items.
Operating profit
Depreciation and amortisation
charges
Non-underlying costs (note 13)
Underlying EBITDA
8,017
1,473
1,847
11,337
6,394
635
453
7,482
Underlying Profit Before Tax (PBT)
Underlying PBT is presented as an alternative performance
measure to show the underlying performance of the Group
excluding the effects of amortisation of intangible assets, and
non-underlying items.
Year ended
30 April 2019
£’000
Year ended
30 April 2018
£’000
5,241
693
1,847
1,924
114
9,819
4,166
199
453
–
–
4,818
Profit before tax
Amortisation
Non-underlying costs
Non-underlying finance
costs
Effective interest on
deferred consideration
Underlying profit
before tax
Year ended
30 April 2019
£’000
Year ended
30 April 2018
£’000
4,001
693
1,847
1,924
114
(438)
8,141
Pence
11.88
11.83
3,219
199
453
–
–
(29)
3,842
Pence
7.68
7.68
Profit after tax
Amortisation on acquisition
related intangibles
Non-underlying
operating costs
Non-underlying
finance costs
Effective interest on
deferred consideration
Tax in respect of the above
Underlying profit after tax
Adjusted earnings per
share
Basic adjusted earnings
per share
Diluted adjusted earnings
per share
132
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Additional Information
133
Non Fee Earners/Support Staff
This includes all employees that are not fee earning.
Recurring Revenue
This is calculated based on the amount of revenue in a year
that reoccurs in the following year from the same clients.
Lock Up
This is calculated as the combined debtor and WIP days
as at a point in time.
Debtor days are calculated on a count back basis using the gross
debtors at the period end and compared to the total fees raised
over prior months.
WIP (work in progress) days are calculated based on the gross
work in progress (excluding that relating to clinical negligence
claims) and calculating how many days billing this relates to
based on average fees (again excluding clinical negligence fees)
per month for the last 6 months.
Total Shareholder Return (TSR)
Total shareholder return is calculated as:
Share price at 30 April 2019
Share price at listing
Dividend paid in period
Gain on shares in period
As a percentage of opening price
£2.830
(£1.450)
£0.006
£1.386
95.6%
Glossary of Terms continued
Free Cash Flow and Cash Conversion %
Other Definitions
Free cash flow measures the Group’s underlying cash generation.
Cash conversion % measures the Group’s conversion of its
adjusted PAT into free cash flows. Free cash flow is calculated
as the total of net cash from operating activities, interest paid and
net cash flows on capital expenditure after excluding cash flows in
respect of non-underlying costs. Cash conversion % is calculated
by dividing free cash flow by adjusted profit after tax, which is
reconciled to profit after tax above.
Year ended
30 April 2019
£’000
Year ended
30 April 2018
£’000
11,706
6,523
Colleague/Talent Retention/Employee Turnover
Churn is calculated based on the number of qualified fee earners
who had been employed by the Group for more than one year.
Churn is calculated taking the number of leavers in the above
group over the financial year as a percentage of the average
number of colleagues for the year. Retention is 100% less the
churn rate.
Fee Earner Concentration
This is calculated taking the largest fees allocated to an individual
fee earner as a percentage of the total turnover for the year and
demonstrates the Group’s reliance on the fee earning potential
of an individual fee earner.
Cash generated from
operations (note 34)
Adjustment for contingent
earn out consideration
paid in advance
Interest received
Tax paid
Net cash from underlying
operating activities
Interest paid
Net capital expenditure
Free cash flow
Adjusted profit after tax
Cash conversion (%)
Working Capital
Working capital is calculated as:
Current assets
Contract assets
Trade and other
receivables
Current liabilities
Trade and other
payables
Contract liabilities
Corporation tax liability
600
–
Client Concentration
142
(1,076)
11,372
(745)
(1,303)
9,324
8,141
115%
112
(733)
5,902
(1,806)
(1,381)
2,715
3,842
71%
30 April 2019
£’000
30 April 2018
£’000
11,112
13,671
24,783
12,105
120
796
13,021
11,762
7,447
7,277
14,724
5,522
102
494
6,118
8,606
On an individual basis this is calculated as the percentage
of total turnover for the financial year that arises from fees
of the largest client.
For the top 10 client concentration calculation this takes the
fee income from the 10 largest clients for the year as a percentage
of the total turnover for the year.
Client Satisfaction
Net Promoter Score (NPS) measures the loyalty of a client to
a company and can be used to gauge client satisfaction. NPS
scores are measured with a single question survey and reported
with a number from -100 to +100, the higher the score, the higher
the client loyalty/satisfaction.
Colleague Satisfaction
Employee Net Promoter Score (ENPS) measures the loyalty of
employees to a company and how likely they are to recommend
their employer as a place to work, which can also be used to
gauge employee satisfaction. ENPS scores are measured with
a single question survey and reported with a number from -100
to +100, the higher the score the higher the employee loyalty.
Fee Earners
When referring to the number of fee earners in the Group we
include all individuals working in the Group on a mainly fee earning
basis. This includes professionals (legal and non-legal) of all levels
including paralegals, trainees and legal assistants.
When referring to the number of fee earners in the business
this will refer to the absolute number of individuals working
in the Group.
When using the number of fee earners to calculate the average
fees or profit per fee earner or the ratio of fee earners to support
staff these calculations are based on the number of full-time
equivalent (FTE) individuals to reflect that a number of individuals
choose to work on a part-time basis.
134
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Additional Information
135
Notice of Annual General Meeting
12.2 comprising equity securities (as defined in section
560(1) of the Act) up to a further aggregate nominal
amount of £48,881.6573 in connection with an
offer by way of a rights issue:
record dates, legal or practical problems in or under
the laws of any territory or the requirements of any
regulatory body or stock exchange; and
15.
Notice is given that the first Annual General Meeting of
the above named Company will be held at the Group’s
registered offices of The Brampton, Newcastle-under-
Lyme, Staffordshire ST5 0QW on 24 September 2019 at
9.30am for the following purposes.
Ordinary Business
To consider and, if thought fit, pass the following
resolutions as ordinary resolutions:
1.
2.
3.
4.
5.
6.
7.
8.
9.
To receive the Group’s audited accounts for the
financial year ended 30 April 2019 together with
the report of the Directors, the Strategic Report
and the Auditors’ Report of those accounts.
To approve the Directors’ Remuneration Report for
the financial year ended 30 April 2019, which is set
out in the Group’s Annual Report for the financial
year ended 30 April 2019.
To declare a final dividend for the year ended
30 April 2019 of 1.27p per Ordinary Share in the
capital of the Group, to be paid on 30 September
2019 to shareholders whose names appear on the
register of members at the close of business on
30 August 2019.
To re-elect Balbinder Johal as a Director of the
Group.
To re-elect David Beech as a Director of the Group.
To re-elect Steve Dolton as a Director of the Group.
To re-elect Kate Lewis as a Director of the Group.
To re-elect Richard King as a Director of the Group.
To re-elect Jane Pateman as a director of the Group.
10.
To reappoint RSM UK Group LLP as auditors of the
Group to hold office until the conclusion of the next
Annual General Meeting of the Group at which the
accounts are laid before the Group.
13.
11.
To authorise the Audit Committee to determine
the remuneration of the auditors of the Group.
Special Business
12.
To consider and, if thought fit, pass the following
resolution as an ordinary resolution, THAT, in
substitution for all existing and unexercised
authorities and powers, the Directors of the Group
be generally and unconditionally authorised for the
purpose of section 551 of the Companies Act 2006
(Act) to exercise all or any of the powers of the Group
to allot shares of the Group or to grant rights to
subscribe for, or to convert any security into, shares
of the Group (such shares and rights being together
referred to as Relevant Securities):
12.1 up to an aggregate nominal value of £48,881.6573;
and
(a) to holders of Ordinary Shares in the capital of
the Group in proportion (as nearly as practicable)
to the respective numbers of Ordinary Shares
held by them; and
(b) to holders of other equity securities in the
capital of the Group, as required by the rights
of those securities or, subject to such rights,
as the Directors otherwise consider necessary,
but subject to such exclusions or other arrangements
as the Directors may deem necessary or expedient
in relation to treasury shares, fractional entitlements,
record dates or any legal or practical problems
under the laws of any territory or the requirements
of any regulatory body or stock exchange, provided
that these authorities, unless previously renewed,
varied or revoked by the Group in general meeting,
to expire at the conclusion of the next Annual
General Meeting of the Group or 24 December 2020
whichever is the earlier, save that the Directors of the
Group may, before the expiry of such period, make
an offer or agreement which would or might require
Relevant Securities to be allotted after the expiry
of such period and the Directors of the Group may
allot Relevant Securities in pursuance of such offer
or agreement as if the authority conferred by this
resolution had not expired.
To consider and, if thought fit, pass the following
resolutions as special resolutions:
THAT, subject to the passing of resolution 12 and
pursuant to sections 570 and 573 of the Act, the
Directors be and are generally empowered to allot
equity securities (as defined in section 560 of the
Act) for cash under the authority conferred by that
resolution and/or to sell Ordinary Shares held by
the Group as treasury shares as if section 561(1)
of the Act did not apply to any such allotment or
sale, provided that such authority shall be limited to:
13.1 the allotment of equity securities or sale of treasury
shares in connection with an offer of equity securities
(whether by way of a rights issue, open offer or
otherwise):
(a) to the holders of Ordinary Shares in the capital
of the Group in proportion (as nearly as may be
practicable) to their respective holdings; and
(b) to holders of other equity securities in the
capital of the Group as required by the rights of
those securities or, subject to such rights, as the
Directors otherwise consider necessary,
but subject to such exclusions or other arrangements
as the Directors may deem necessary or expedient
in relation to treasury shares, fractional entitlements,
THAT, for the purposes of section 701 of the Act,
the Group be and is generally and unconditionally
authorised to make market purchases (within the
meaning of section 693(4) of the Act) of Ordinary
Shares of £0.002 each in the capital of the Group
(Ordinary Shares) provided that:
15.1 the maximum number of Ordinary Shares which may
be purchased is 7,332,541 (representing 10% of the
current issued share capital of the Group);
15.2 the minimum price (excluding expenses) which may
be paid for each Ordinary Share is £0.002;
15.3 the maximum price (excluding expenses) which may
be paid for each Ordinary Shares shall not be more
than 5% above 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 5 business days immediately preceding the
day on which the Ordinary Share is contracted to
be purchased;
15.4 unless previously renewed, varied or revoked by
the Group in general meeting, this authority shall
expire at the end of the next Annual General Meeting
of the Group (or, if earlier, at the close of business
on 24 December 2020); and
15.5 the Group may enter into a contract or contracts
to purchase Ordinary Shares under the authority
conferred by this resolution prior to the expiry of
such authority which will or may be executed
wholly or partly after the expiry of such authority
and, notwithstanding such expiry, make a purchase
of Ordinary Shares in pursuance of such contracts
as if the power conferred hereby had not expired.
16.
That the period of notice required for general
meetings of the Group (other than annual general
meetings) shall be no less than 14 clear days’ notice.
By Order Of The Board
13.2 the allotment of equity securities or sale of treasury
shares (otherwise than pursuant to clause 13.1 of this
resolution) to any person up to an aggregate nominal
amount of £7.332.5419 (representing 5% of the
current issued share capital of the Group).
The authority granted by this resolution will expire
at the conclusion of the Group’s next Annual General
Meeting after the passing of this resolution or, if
earlier, at the close of business on 24 December
2020, save that the Group may, before such expiry
make offers or agreements which would or might
require equity securities to be allotted (or treasury
shares to be sold) for cash after the authority expires
and the Directors may allot equity securities (or sell
treasury shares) in pursuance of any such offer or
agreement as if the authority had not expired.
This power is in substitution for all existing powers
under sections 570 and 573 of the Act (which, to
the extent unused at the date of this resolution, are
revoked with immediate effect).
14.
THAT, subject to the passing of resolution 12, the
Directors be and are generally empowered in addition
to any authority granted under resolution 13 to allot
equity securities (as defined in section 560 of the Act)
for cash under the authority conferred by resolution
12 and/or to sell Ordinary Shares held by the Group
as treasury shares as if section 561 of the Act did not
apply to any such allotment or sale, provided that this
power shall be:
(a) limited to the allotment of equity securities
or sale of treasury shares up to an aggregate
nominal amount of £7.332.5419 (representing 5%
of current issued share capital of the Group); and
(b) used only for the purpose of financing (or
refinancing, if the authority is to be used within 6
months after the original transaction) a transaction
which the Directors 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.
The power granted by this resolution will expire at
the conclusion of the Group’s next Annual General
Meeting after this resolution is passed or, if earlier,
at the close of business on 24 December 2020, save
that the Group may, before such expiry make offers
or agreements which would or might require equity
securities to be allotted (or treasury shares to be sold)
for cash after the authority expires and the directors
may allot equity securities (or sell treasury shares) in
pursuance of any such offer or agreement as if the
authority had not expired.
Lisa Bridgwood
Company Secretary
Date: 8 July 2019
Registered Office:
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
136
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Additional Information
137
Notice of Annual General Meeting
4.
5.
6.
Notes:
1.
2.
3.
Pursuant to regulation 41 of the Uncertificated
Securities Regulations 2001, the Group specifies that
only those shareholders on the register of members
of the Group as at 6.00pm on 20 September 2019
(or, if the meeting is adjourned, not later than close of
business on the date which is 2 business days before
the date of the adjourned meeting) will be entitled to
attend or vote at the AGM and they may only vote in
respect of the number of shares registered in their
name at that time. Changes to entries on the register
of members after 6.00pm on 20 September 2019 (or,
if the meeting is adjourned, after close of business
on the day which is 2 business days before the date
of the adjourned meeting) will be disregarded in
determining the rights of any person to attend or vote
at the meeting.
A member of the Group entitled to attend and vote
at the AGM is entitled to appoint one or more proxies
to exercise all or any of his/her rights to attend
and to speak and vote at the meeting. A member
may appoint more than one proxy in relation to the
meeting provided that each proxy is appointed to
exercise the rights attached to a different share or
shares held by that member. Failure to specify the
number of shares each proxy appointment relates to
or specifying a number which when taken together
with the numbers of shares set out in the other proxy
appointments is in excess of the number of shares
held by the shareholder may result in the proxy
appointment being invalid. A proxy need not be a
member of the Group, but must attend the AGM to
represent the member. Appointment of a proxy will
not prevent members from attending this meeting
and voting in person.
A form of proxy is enclosed with this Notice. If you
do not have a form of proxy and believe that you
should have one, or if you require additional forms
please contact Computershare on +44 (0370) 703
0065 by 18th September 2019. Should you wish
to appoint more than one proxy, please photocopy
the form indicating on each copy the name of the
proxy you wish to appoint, the number of Ordinary
Shares in respect of which the proxy is appointed
and the way in which you wish them to vote on the
resolutions that are proposed. You should send all
pages together to Computershare in accordance with
the instructions below.
To be valid, the form of proxy must be lodged with
Computershare not later than 48 hours before the
time fixed for the meeting, along with any power
of attorney or other authority under which the proxy
is appointed (or a notarially certified copy of such
power or authority) to Computershare Investor
Services PLC, The Pavilions, Bridgwater Road,
Bristol BS99 6ZY.
You can lodge your vote electronically, by logging
onto the Computershare website at
www.investorcentre.co.uk/eproxy. An identifying
Control Number, together with your unique
Shareholder Reference Number (SRN) and PIN (all of
which are printed on your attendance card/form of
proxy) will be required. Full details of the procedure
are given on the website. The proxy appointment
and/or voting instructions must be received by the
Group’s registrars not later than 09.30 a.m. on
20 September 2019.
CREST members who wish to appoint a proxy
or proxies through the CREST electronic proxy
appointment service may do so by using the
procedures described in the CREST manual
(available via www.euroclear.com). 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 or instruction made
using the CREST service to be valid, the appropriate
CREST message (CREST Proxy Instruction) must be
properly authenticated in accordance with Euroclear
UK & Ireland Limited’s (Euroclear UK & Ireland)
specifications and must contain the information
required for such instructions, as described in the
CREST manual. The message, regardless of whether
it constitutes the appointment of a proxy or an
amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be
transmitted so as to be received by the issuer’s
agent Computershare Investor Services PLC (under
CREST ID number 3RA50), no later than 09.30am
on 20th September, or by not later than 2 business
days prior to the time appointed for the holding of
any adjourned meeting. 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. After this time any
change of instructions to proxies appointed through
CREST should be communicated to the appointee
through other means.
CREST members and, where applicable, their
CREST sponsors or voting service providers should
note that Euroclear UK & Ireland 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 (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 the CREST system by any particular time. In this
connection, CREST members and, where applicable,
their CREST sponsors or voting service provider(s)
are referred, in particular, to those sections of the
CREST manual concerning practical limitations of
the CREST system and timings.
The Group may treat as invalid a CREST Proxy
Instruction in the circumstances set out in Regulation
35(5)(a) of the Uncertificated Securities Regulations
2001.
To change your proxy instructions, simply submit a
new proxy appointment using the methods set out
above. Note that the cut-off time for receipt of proxy
appointments (see note 4 above) also applies in
relation to amended instructions, any amended proxy
appointment received after the relevant cut-off time
will be disregarded.
11.
12.
13.
14.
Copies of all Directors’ service contracts with the
Group and letters of appointment of Non-Executive
Directors are available for inspection during normal
business hours at the registered office of the Group
(public holidays excluded) and will also be available
for inspection at the AGM.
You may not use any electronic address provided
either in this Notice of Annual General Meeting or in
any related documents (including the form of proxy)
to communicate with the Group for any purposes
other than those expressly stated.
Biographical details of all those Directors who are
offering themselves for reappointment at the meeting
are set out on pages 58-59 of the enclosed Annual
Report and Accounts.
Members who have general queries about the
Annual General Meeting should contact the Group’s
Registrars, Computershare on 0370 703 0065. From
overseas +44 (0370) 703 0065. Calls outside the
United Kingdom will be charged at the applicable
international rate. Computershare are open between
08.30am-17.00pm, Monday to Friday excluding
public bank holidays in England and Wales). You may
not use any electronic address provided either:
14.1 in this notice; or
14.2 any related documents (including the proxy form),
to communicate with the Group for any purposes
other than those expressly stated.
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.
15
A corporation which is a member can appoint one or
more corporate representatives who may exercise, on
its behalf, all of its powers as a member, provide that
no more than one corporate representative exercises
powers over the same share. A certified copy of the
board resolution appointing the relevant person(s) as
the representative of that corporation in connection
with the meeting must be deposited at the address
set out at note 4 above for Computershare prior to
the commencement of the meeting.
10.
As at 8 July 2019 (being the last practicable date
before the publication of this notice), the Group’s
issued share capital consists of 73,325,419 Ordinary
Shares of £0.002 each, carrying one vote each. The
Group does not hold any Ordinary Shares in treasury.
Therefore, the total voting rights in the Group as at 8
July 2019 are 73,325,419.
Notice of general meetings. The notice period
required by the Act for general meetings of traded
companies is 21 days unless shareholders approve
a shorter notice period, which cannot, however, be
less than 14 clear days. The Company is not a traded
company for the purposes of the Act but is choosing
to put Resolution 16 to Shareholders to comply with
best practice. Annual General Meetings will continue
to be held on at least 21 clear days’ notice. The
authority granted by Resolution 12, if passed, will be
effective until the Company’s next Annual General
Meeting, when it is intended that a similar resolution
will be proposed. The shorter notice period afforded
by Resolution 16 would not be used as a matter
of routine for such meetings, but only where the
flexibility is merited by the business of the meeting
and is thought to be to the advantage of shareholders
as a whole.
7.
8.
9.
138
Knights plc
Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Additional Information
139
Shareholder information
Directors
DA Beech (appointed 4 April 2018)
KL Lewis (appointed 9 May 2018)
RA King (appointed 1 June 2018)
BS Johal (appointed 1 June 2018)
S Dolton (appointed 1 June 2018)
J Pateman (appointed 14 January 2019)
Bank
Allied Irish Bank (GB)
Vantage Point
Hardman Street
Spinningfields
Manchester
M3 3PL
Registrar
Computershare Investor Services
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
Legal
DLA Piper UK LLP
160 Aldersgate Street
London
EC1A 4HT
Secretary
L Bridgwood (appointed 1 June 2018)
Registered Office
The Brampton
Newcastle-Under-Lyme
Staffordshire
ST5 0QW
Registered Number
11290101
Independent Auditor
RSM UK Audit LLP
Chartered Accountants
Festival Way
Stoke-on-Trent
Staffordshire
ST1 5BB
Nomad and Broker
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M
Financial Public Relations
MHP
6 Agar Street
London
WC2N 4HN
Registered Office
The Brampton
Newcastle-Under-Lyme
Staffordshire
ST5 0QW
Tel: 01782 619225