Contents Please find out more about us at www.incegd.com Annual Report and Financial Statements 2021 THE INCE GROUP PLC / ANNUAL REPORT AND FINANCIAL STATEMENTS 2021 World Class BUILDING A BUSINESS ADVISORY GROUP Strategic Report Highlights....................................................................2 Group at a glance......................................................4 Investment case.........................................................6 Chairman’s statement...............................................7 CEO report................................................................10 CFO report................................................................16 How we manage our ESG issues.........................22 Delivering on our strategy.....................................28 Principal risks and uncertainties..........................29 Governance Board of Directors...................................................32 Directors’ report......................................................34 Directors’ Remuneration Report..........................36 Independent Auditors Report...............................38 Financial Statements Consolidated Statement of Comprehensive Income.......................................................................44 Statement of Financial Position...........................45 Consolidated Statement of Cash Flows.............46 Consolidated Statement of Changes in Equity.....................................................................47 Company Statements of Changes in Equity......48 Notes to the Financial Statements......................49 Company Information............................................86 www.incegd.com Cyprus Building a world class team SEE MORE ON PAGE 8 Gibraltar SEE MORE ON PAGE 26 Enhancing our service offering London Greater China Elevating our presence SEE MORE ON PAGE 30 Expanding our offer SEE MORE ON PAGE 20 SEE MORE ON PAGE 14 Growing our global reach Abu Dhabi The 2021 fi nancial year has been an active year in delivering on our ambition to build an internationally recognised legal and professional services business. One that can provide global clients everything they need, wherever they are. World Class BUILDING A BUSINESS ADVISORY GROUP 1 T HE I N CE G RO U P P LC / A N N UA L REP O RT A N D F I N A N CI A L STAT EM EN TS 2 0 2 1 2021 Highlights Steady results in face of Covid-19 Revenue from continuing activities £100.2m (2020*: £96.3m) Operating profit before non-underlying items £9.2m (2020*: £9.2m) Operating profit £3.1m (2020*: £7.6m) Adjusted diluted earnings per share (p)** 8.1p (2020*: 14.9p) Diluted earnings per share (p) 0.5p (2020*: 11.4p) Dividend per share (p) n/a (2020*: n/a) Net debt*** £6.6m (2020*: £6.9m) Gross margin (%) 44.3% (2020*: 46.1%) Lock-up (days) 118 days (2020: 96 days) Overhead % of revenue (%) 35.1% (2020: 36.5%) Free cash flow £4.4m (2020: £(16.9)m) Available cash and facilities 31 03 2021 £10.8m (2020: £5.3m) * The comparative results for the twelve months ended 31 March 2020 have been restated for the re-presentation of partners’ remuneration and non-controlling interests and the removal of discontinued activities. Partners’ remuneration and other non-controlling interests are now treated as an expense of the business and are recognised in production staff costs in the Consolidated Statement of Comprehensive Income. The non-controlling interest liability is now presented as a current liability on the Statement of Financial Position as amounts due to partners. See also note 7 to the financial statements. ** Adjusted earnings per share is computed from operating profit before non-underlying items and after deducting taxation as more fully explained in note 11 to the financial statements. Non-underlying items of £6.0 million were charged, being principally impairment of right-of-use assets following the decision not to re-occupy part of Aldgate Tower and settlements with a number of former partners of Ince & Co who did not join (2020: £1.7 million being principally acquisition and on-boarding costs). *** Net debt for 2020 as previously reported was £9.0 million and included a £2.1 million one off in-year operating cost loan in respect of certain insurances. The renewal date for that insurance has changed to 1 April and so the equivalent 2021 figure is nil and this presentation gives a fairer comparison of the Group’s net debt movement. 2 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Well positioned for future growth Highlights – – Operational stability despite Covid-19. – – Further strategic progress: – – New offices in Cyprus and Abu Dhabi. – – Two collaborations established with leading specialists in marine cyber security and real estate KYC. – – Investment in further team and individual lateral fee-earner hires. – – Further operational progress: – – Wholly-owned multi-office, multi- currency practice management system successfully installed in all offices (apart from Asia – expected for late 2021). – – Successful transition to new working practices. – – Decision to move to agile working resulted in reduced space need at main London office. – – Key account management programme fully operational with encouraging initial results. – – New partner recruitment maintained with more than ten new partners recruited since March 2020. – – Board changes were announced prior to this document on 27 July. Financial highlights – – Revenue £100.2 million (2020: £96.3 million) +4%. – – Strong double digit growth in EMEA and Asia. – – UK weaker particularly in disputes as some insolvency laws suspended and access to courts restricted. – – International now 41%, up from 36% last year. – – Results slowed by Covid-19 constraints in the short term. – – Operating profit before non-underlying items £9.2 million (2020: £9.2 million) unchanged. – – Operating profit £3.1 million (2020: £7.6 million) – 59%. – – Diluted earnings per share before non-underlying items 8.1p (2020: 14.9p) -46%, reflecting January 2020 share issue. – – No dividend for the year but commitment to declare a dividend with the announcement of results to 30 September 2021. – – Improved cash generation despite higher lock up. – – Net cash generated by operating activities £21.7 million (2020: £0.8 million absorbed). – – Lock up 118 days (2020: 96 days) as UK collections slowed and Asian lock up built. – – Deferred consideration remaining reduced to £24.5 million (2020: £35.7 million). – – Total comprehensive income for the year £0.3m (2020: £5.0m) Outlook – – First quarter of the year has started positively. – – Reinstatement of guidance (focused on medium-term targets) with the following targets: – – Revenue growth. – – Lock up in the UK targeted at 100 days and overseas to reduce over time. – – Operating profit before non- underlying costs targeted at 10%. – – Practice management system roll out in Asia expected to be completed by the end of the year. – – Positive outlook for our disputes business as courts resume. – – Dividend to resume in 2022 financial year. The Board considers that the Group has the strength, flexibility and commitment to prosper and grow for the benefit of shareholders and colleagues over the coming years. 3 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Group at a glance Building a world class business advisory group Who we are We are an international legal and professional services group dedicated to empowering our clients to seize new opportunities for growth. Through the firms that we have acquired and unified, we tap into over 150 years of experience, insight and relationships, strengthened by our entrepreneurial culture and ‘one firm’ approach. What we do The Ince Group offers a broad range of legal and professional services and has deep sector specialisms making us the partner of choice for all of our clients’ complex legal and strategic needs. Who we work with Ince provides legal advice, strategic guidance and business solutions to clients ranging from sector-leading businesses operating across numerous industries to ultra-high net worth individuals. 700+ colleagues worldwide including support staff 500+ legal and business services professionals 4 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Our global footprint and revenue split by region Hamburg Piraeus Gibraltar Limassol Dubai Abu Dhabi London Cardiff Bristol UK 59% EMEA 16% Where we work We are an international group working across offices in Europe, the Middle East and Asia. We have an in depth understanding of local markets with a heritage going back over 150 years. Singapore Hong Kong Beijing Shanghai Asia 25% 21 offices 9 countries 30 different language capabilities multiple nationalities FINANCIAL STATEMENTS GOVERNANCE STRATEGIC REPORT 5 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 Investment case 1 2 3 Strong sector and geographic base – – The Ince Group has offices in nine countries and more than 700 employees, of whom over 500 are legal and business services professionals. – – We have a market- leading reputation in sectors such as shipping, aviation and insurance. – – We are continually increasing the value of the business from this strong sector and geographical base by extending our expertise into other legal practice areas and expanding our professional and business advisory offering. – – We will achieve this extension and expansion from our existing offices but will, where prudent and possible, add new ones. Clear growth drivers – – Our high performing lawyers and consultants have strong client relationships which underpin organic growth. – – The Ince brand and a transparent approach towards remuneration and career development allow us to attract the highest quality joiners. – – Our structure promotes collaborative selling behaviour between both professionals and offices. – – The halo effect from our world-leading practices enhances our ability to move beyond legal services and into consultancy and business advisory. Scalable business – – Centralised and scalable low-cost back office underpins operational consistency and profitable revenue growth. – – The diversification across geography, sectors and professional service product lines creates significant opportunities to grow organically and by acquisition. – – Our internally developed practice management system allows us to quickly and efficiently integrate a single lateral hire or team hire, or the acquisition of a large firm. 6 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Chairman’s statement Developing our world class advisory business was between 2008 and 2017 International HR Director of DLA Piper, another leading law firm. Carol will provide insights into the recruitment and retention of our people – who are our key asset – which will prove invaluable. Peter Rogan, who has had a long and successful career with the former Ince business and has been a Non-Executive Director of the Company since we acquired the UK business of the former Ince, has stepped down from the Board and I thank him for the support and help he has provided to the Group over the last two and a half years. I believe that these changes deliver, as we planned, a Board which is balanced, diverse and inclusive in terms of area of relevant expertise, background and culture. The Group now has a firmly established global business advisory presence with a very strong brand which we are continuing to build upon through lateral team hires. The last year has been a difficult one, but with the imminent re-opening of all of our main offices, the new financing arrangements announced in March and the new Board appointments described above, I firmly believe the Group is in a great place to continue its growth. Accordingly, I have decided that the Annual General Meeting to be held in September is an appropriate moment for me to step down. Simon Howard, my co-Director since 2017, has agreed to become Chair. Finally, our colleagues are the Group’s most valuable asset and we have worked hard with them to instigate initiatives to increase wellness particularly through this unusual year and improve our diversity and inclusion. I would like to place on record the Board’s thanks to all our colleagues across the Group around the world for their continuing dedication to providing the best service to our clients, particularly this year in often abnormal working conditions. DAVID FURST Chair 26 July 2021 The financial year has been both interesting and challenging. The Group has navigated well the impact of Covid-19 and the diverse restrictions imposed by the various governments on our global advisory business. As normal working conditions are returning, we continue now to be focused on developing our world class advisory business, covering more than pure legal services, and adding profitable lateral hired partners to generate greater revenue while ensuring our international business generates the revenue it is capable of as constraints on international travel ease. The Board is mindful of the importance of dividends to shareholders and has reviewed its previous approach to dividends. It has decided to adopt a medium-term policy of distributing 20% of post-tax earnings to shareholders each year subject to the Group’s overall forecast cash requirements. We believe that this should enable shareholders to earn a good income return on their investment while enabling the Group to retain sufficient cash to support a growing business to generate capital value. In respect of the year just ended, while the balance sheet is now robust with adequate facilities available, there are still a number of liabilities which will unwind over the coming months. Growth will also require funding and, while the Group has an adequate capital base for its current plans without recourse to issuing further shares, the Board has concluded that it would not be prudent to declare a dividend in respect of the year just ended. The Board intends to declare a dividend with the interim results to be announced later this year. I am pleased to announce that we have agreed the appointment of two further Non-Executive Directors, Laurence Milsted and Carol Ashton, to the Board. Laurence has recently retired as Global CFO of Freshfields, a “Magic Circle” law firm, and brings tremendous relevant experience to support and challenge our finance team. Carol is an independent executive coach and HR consultant and The Group now has a firmly established global business advisory presence with a very strong brand. 7 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Building a world class team London World Class 8 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Over the course of this year, we have continued to invest in the quality of our offering to clients by strengthening what were already market-leading teams. How does your expertise position you for this role? During the course of my career I have almost exclusively practised maritime law. Shipping is a global industry, with the range of disputes encountered involving numerous parties, jurisdictions, laws, regulations, customs and cultures. I have had the pleasure and honour of leading legal teams in several jurisdictions, from South Korea to Denmark, and from Nigeria to the United States. What attracted you to Ince? The full service offering was a major attraction. The ability to offer assistance in practically any aspect of clients’ professional and personal lives is a huge advantage. The brand is extremely strong – arguably the strongest in the shipping legal market. What are your initial impressions of Ince? There are some laser-sharp minds here. If this career has taught me one thing, it is that you never stop learning, and working alongside such experts is extremely rewarding. There is a real sense of team and belonging at Ince that exists both across its UK and international offices. I joined during lockdown and, despite not being in the office, truly feel like a member of the Ince family – accepted, supported and welcomed. There is a real buzz around Ince. The firm is going places and I am really excited to be here. ERIC EYO Partner, London 9 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 in acquiring new clients and freely interacting with existing clients. It has also hindered the interactions between colleagues from which business ideas and opportunities arise and the very important development of our trainee and junior lawyers. In the rest of the UK and around the world, our offices are all now open for relatively normal working. We will welcome a return to full normal office working but expect that, particularly in London, there will be a greater degree of working from home for at least the medium term. This will mean that our need for properties from which to work will reduce and to this end we have decided not to re-open one of the two floors we occupy in Aldgate Tower. Unless we can sub-let that space in the meantime, we will exercise our tenant’s break to terminate the lease on that floor in October 2022. Our strategy Our strategy has been and continues to be to grow and acquire revenue through organic growth, lateral hires and, where appropriate, acquisition and to administer that revenue through a single efficient administrative operation in a low-cost environment. We have the ambition to develop a highly profitable and fast growing international legal and professional services group and have the structure and teams in place to achieve this as circumstances allow. Key achievements – – During the year, we continued to drive growth by pursuing this strategy: – – New maritime business in Cyprus: We have established a new business in Cyprus with a team from an established local business led by George Zambartas, offering legal services in the maritime sector with core expertise including shipping funds and yachting transactions. I first want to thank my colleagues around the world for their hard work and flexibility which have enabled this year’s results to be achieved despite the disruption caused by Covid-19 throughout the year. Their working conditions have often been unavoidably much less than ideal and that these robust results have been produced is a testament to their dedication. The year has been another one of steady progress for the Group with work patterns for our clients and for my colleagues periodically severely disrupted by the Covid-19 pandemic and governmental restrictions. Notwithstanding this, we have achieved a small increase in revenues to over £100 million, with growth at the international offices making up for the UK which suffered the greater disruption. Our business is genuinely international now and is increasingly and pleasingly focusing on international disputes and transactions. In the last year and the short term, this valuable and rare focus has been prevented from achieving its full potential by the governmental restrictions on, and discouragement of, international travel. The easing of international travel which is slowly beginning to happen will enable more of this potential to be realised in this and future periods. During the year when Covid-19 reduced activity levels, we consciously retained nearly all of the fee-earner base to enable client service to be maintained as activity rebuilds. In the UK, all of our offices have been completely closed for a number of periods of the year and in particular our main London office has proved impractical to open for working. This has undoubtedly hindered the development of the business Group Chief Executive’s Report We have the ambition to develop a highly profitable and fast growing international legal and professional services group. Steady progress across our expanding practices 10 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 – – New asset finance business in the Middle East: We have established a Middle East consultancy business as a specialist asset finance provider. The business is offering our clients expert consulting services, working closely with our ship and corporate finance teams in the UK, Germany, Dubai and Asia. It will initially focus on the shipping and aviation sectors and is regulated by the Abu Dhabi Global Market’s Financial Services Regulation Authority (FSRA). – – Two new collaborations: We have established two collaborations with well-established international experts to provide new services to our existing and new clients. The joint ventures are an integrated cyber security solution for the maritime sector with Mission Secure and an integrated technology and legal advisory KYC solution for the real estate sector. We believe that the joint ventures will lead to additional business and clients for the Group as well as assisting our existing clients. – – Investment in further lateral hires: As well as internal partner promotions, we have continued to make lateral hires to extend the capabilities of the international offices and also underpinning our top level marine offering. These investments to achieve future growth reduce margin in the short term and typically take up to a year to break even in cash terms and a little longer in current circumstances. – – Integrating private client offerings: We have started to integrate our private client offerings under the leadership of one of our senior lateral hires, Nick Rucker. This will pull together the legal services offerings in the private client and family sectors with our wealth management and employee benefits businesses. We have also achieved an extension of our regulatory permissions which enables us to offer professional trustee services and fund administration in Gibraltar which is an important capability in the private wealth offering. – – Chinese strategic cooperation: We entered a strategic cooperation agreement with W&H Law Firm, one of the largest Chinese law firms with over 25 offices and over 2,000 lawyers, in late 2020. Ince already works closely with W&H on cross border transactions and disputes and we are actively considering various options to deepen the relationship, in particular as travel becomes easier, including the possibility of forming a joint operation in the Free Trade Zone in Shanghai, China. – – Full control of corporate finance business: In October, we took full control of James Stocks & Co Limited, an FCA regulated corporate finance advisory business, and that team is already working closely with the ship financing businesses of the Group as well as continuing its traditional client base in the real estate and SME sectors in the UK and Gibraltar. – – Disposal of White & Black business: In October, having integrated elements of the White & Black specialism and client base into the wider Group, we concluded no further integration could be achieved and disposed of the whole of the share capital of the White & Black Limited entity to its management team. – – Further operational efficiencies: Operationally, by the end of July, we will have rolled out our proprietary practice management system to all our international offices except those in Asia and, subject to international travel being possible, the remaining offices will be transitioned by the end of 2021. This common platform will significantly improve the operating efficiencies of the Group. – – Expanding use of strong Ince brand: We believe that the Ince brand is very valuable to us as confirmed by the £17 million valuation of the purchased brand which was included in the financial statements last year. A valuation of the Ince brand as at this year end was undertaken and this showed a significantly higher value (which has not been incorporated in the accounts). We are therefore extending the use of the Ince name to all of our legal services businesses. We expect to extend this further during the year to other parts of our business. – – Investment in our people: The mental and physical health of our colleagues is very important, particularly when movements and personal contact are restricted. We are placing great emphasis on supporting the team through making appropriate classes available online and providing equipment to ensure an adequate working environment as well as encouraging alternative communication channels between colleagues. 11 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Financial performance The financial performance of the Group has been satisfactory in the circumstances the Group has faced in the last year and greater detail is set out in the Chief Financial Officer’s report. I will restrict my comments to revenue. The analysis of revenue below shows that the overseas offices have made good progress as the addition of partners over the last 18 months has started to build revenue in all of these. This progress continues and there will be further growth internationally. The UK business has suffered to a greater extent with Covid-19 restrictions. Transactional mandates (whether in real estate – particularly in the first half – or corporate areas) have seen reduced activity at times during the year. Revenue analysis for the year ended 31 March 2021 Year to 31 March 2021 £m 2020 £m Shipping & trade 60.5 55.7 Dispute resolution 13.9 17.0 Corporate & tax 9.3 9.6 Real estate 6.7 5.7 Family & private client 3.7 3.9 Other 6.1 4.4 100.2 96.3 Geographically, the revenue for the year ended 31 March 2021 analysed by regions: Year to 31 March 2021 £m 2020 £m UK 58.7 61.7 Asia 25.3 21.3 EMEA 16.2 13.3 100.2 96.3 In addition, the restrictions on activities in the English courts, and particularly for insolvencies, have limited our dispute resolution and family business in the period. These trends are starting to ease. An analysis of the revenues for continuing activities for the year ended 31 March 2021 by service line is set out below. As I mention later in my report, the categories in this analysis are expected to evolve over future periods to better reflect how we are managing the business. Operational performance We have continued to integrate all aspects of our operations onto a single administrative platform which can serve all our offices on a basis which enables appropriate regional and departmental management control. Operations are managed across all service lines to enable sensible operational decisions at global and local levels as appropriate. The Group’s proprietary practice management system which is one of, if not the only, independent multi-office, multi-currency practice management systems available to UK based businesses which is not associated with a major data supplier has been developed and tested to the point where it has been installed in all the Group’s UK offices and the last of the EMEA legal services operations will be migrated at the end of July. Plans are in place to complete the installation into the Asian offices by the end of the year provided the practicalities of international travel do not make the ideally required local support during transition impossible. We believe that this will not only increase efficiency and reduce overheads but also enable us to consider whether the system can be profitably sold to other potential users. Our core remuneration model continues to be a magnet for partners in other firms to join us. It focuses on professional practitioners being rewarded both for the billable work they do and for the income generated from their clients. We are undertaking an exercise to refine this model and potentially extend it to a wider group of fee earners as a tool to ensure the retention of non-partners. The refinement will continue to focus on hard work and the generation of fees from clients, the recovery of the full value of the work undertaken and the generation of gross margin from which to cover overheads and to generate profits for shareholders. Group Chief Executive’s Report – continued 12 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 We have placed a lot of emphasis since the Ince acquisition on the development of a culture for the Group. This culture aims to provide an environment of trust for partners and colleagues which is open and transparent and in which everyone can perform to the best of their abilities. The stability of partners and other colleagues is, we believe, vital in delivering the continuing satisfaction of clients and we are, therefore, unsurprised by our clients being open to using the other strengths of the Group where appropriate. Technology has always been a key feature of the Group’s business model and the impact of the pandemic has emphasised how successful our programme has been as remote working has moved from a sometimes used facility to a natural way to work. That this was achieved a year ago when it became critical is a testament to our IT team. This has involved a financial commitment as well and we have spent ahead of budget to ensure the necessary functionality. It will however be key to our success and the minimisation of risk of disruption that we keep up with technological developments and this will involve further spend but not, we believe, at the rate of the last year. The Key Account Management programme which was started during the year with a small number of our larger clients focused on developing and broadening our relationships with key clients. This is a long-term programme and the benefits will accrue progressively rather than immediately, but the initial results are very encouraging and have led us to increase the number of clients in the programme. The current year and the future Very recently, the lift constraints in Aldgate Tower, our London head office, have been removed and we have re-opened our 15th floor offices there. It is clear that agile working is going to be a significant feature of our future operations, particularly in London, and we have concluded that we will not re-open one of the two floors we lease in Aldgate Tower. Our immediate expansion focus is on steady progress through further lateral hires, continuing focus on driving collaboration between offices and business lines to increase the revenue processed through the established base and ensuring we address the range of our clients’ needs with excellent service. As the enlarged Group has settled and our focus on providing a broad range of professional services to our clients continues, we are refining the management structure of the Group to eliminate the separate management of legal and consulting services. Thus our Private Wealth division headed by Nick Rucker will coordinate private client law with our private wealth offerings. This structure is evolving and we expect that the sectoral analysis of revenue will be refined to follow the management structure as it is refined. Our established platform easily absorbs additional partners and we believe that the financing we now have in place enables us to absorb new partners with the time it takes for them to become fully functioning and cash generating. We are as always in discussions with a number of senior lawyers and teams about joining the Group and expect to continue to steadily add partners to the business, with six new partners recruited since 31 March 2021. We continue to develop the collaborative growth of the business from adding service lines supplied by new recruits in an office and from the ability to service additional needs of existing clients. This requires significant trust to be built up between partners and other colleagues across service lines and geographies. This is not an immediate given but we continue to work hard to establish and develop trust between partners and to communicate the specialisms of each individual partner notwithstanding the current lack of face-to-face meetings. I must place on the record my thanks to David for his support over the eight years we have worked together and for his contribution during the not always easy periods through the flotation, the acquisition, and more particularly the integration, of the Ince businesses and the disruption from Covid-19. I am also grateful for his work with Simon Howard in identifying and recruiting our new Non-Executive Directors. I am pleased that Simon Howard, with whom I have been a Director for some four years, has agreed to become Chair of the Company in David’s place from the Annual General Meeting to be held in September and wish David well for the future. We have a fantastic business filled with fantastic people and I am totally committed to the success of the business. We will continue to succeed further and drive value for our shareholders by continuing to provide relevant and expert advice to our clients from understanding their business as a whole or their individual circumstances (rather than the particular legal issue they might expect to consult us on), therefore providing real value to our clients. ADRIAN BILES 26 July 2021 13 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS This new venture will be successful in contributing to the further growth of the Ince network and at the same time will further elevate the global reputation of the legal profession in Cyprus. Why was Cyprus the ideal location for a new opening? Cyprus deserves the presence of a global firm to support its growing importance in the shipping world. The country is a hot bed of activity within the maritime space and it is right that Ince, which has a rich history in the shipping sector, should have a presence here. In addition, we will be able to support a number of infrastructure and other projects and provide clients, both inbound and outbound, with a world class professional business support service. How will this opening strengthen Ince’s position? The Cyprus office is now Ince’s sixth in the region and follows the successful launch of the Gibraltar office last year. We work with our colleagues across the UK, Germany and the wider Ince network to assist our clients. Ince is committed to building the best possible professional services team and increasing its presence internationally allows for not only team expansion, but also the diversification of expertise and service offering. GEORGE ZAMBARTAS Partner, Head of Shipping and Corporate, Cyprus 14 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Growing our global reach Cyprus World Class 15 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 Presentation of financials and alternative performance measures During this financial year, we have continued to refine and improve our financial reporting. Our focus in doing this is on presenting a clear and easily understandable picture of the Group’s performance and the drivers behind this performance. Partners’ costs are now presented as a production cost in the Consolidated Statement of Comprehensive Income. This change in accounting policy is to better present the true profit impact of partner remuneration, taking into account the contractual nature of agreements, and the Board believes the updated presentation gives more relevant information to shareholders. Previously these costs were disclosed as non-controlling interests and presentation was clarified through “Adjusted profits before tax”. As a consequence of this changed treatment, amounts due to partners are now shown as a current liability in the Statements of Financial Position (having previously been shown as non-controlling interests in capital and reserves). Prior year financial information is therefore presented on a restated basis for the above change and for the exclusion of the discontinued White & Black business, which was disposed of in October 2020 (as described in note 2.2 to the accounts). The Group presents three Alternative Performance Measures (“APMs”). These APMs include adjustments for specific Chief Financial Officer’s Report items in order to provide a balanced view of the underlying performance of the Group’s operations: * Operating profit before non-underlying costs is calculated as operating profit after adding back costs which are identified as outside of or related to events outside of the normal scope of operation of the Group’s business which are discussed below. This measure appears in the Consolidated Statement of Comprehensive Income and it replaces Adjusted profit before tax as a profit measure (the difference between the two measures being financing costs as shown in note 11 to the accounts). ** Diluted earnings per share before non-underlying costs is calculated by adjusting profit for the period to add back non-recurring costs and dividing by the weighted average number of shares in issue for the period, on a diluted basis. *** Free cash flow represents the cash flows of the Group excluding draw downs and repayments of external funding facilities, dividends paid to equity holders and proceeds from the issuance of shares and non-recurring acquisition / disposal cash flows. Management uses it as a key measure in assessing the cash performance of the Group, while it continues to unwind the cash costs of the acquisitions made over recent years. Building and delivering value Year to 31 March 2021 £m 2020 (Restated) £m % Movement Revenue 100.2 96.3 +4.0% Operating profit before non-underlying costs * 9.2 9.2 0.0% % margin 9.2% 9.6% (421)bps Profit for the period 0.3 5.0 (93)% Diluted earnings before non-underlying costs (p) ** 8.1 14.9 (46)% Diluted earnings per share (p) 0.5 11.4 (96)% Free cash flow *** 4.4 (16.9) 126% Net debt(1) 6.6 6.9 1. Net debt in 2020 is presented excluding a one-off in-year recurring annual operating cost loan in respect of certain insurances in 2020, which due to timing differences was recognised at 31 March 2020 but, since then, has been recognised and unwound within the relevant financial year. We have continued to refine and improve our financial reporting. 16 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Key Performance Indicators (KPIs) To achieve profits for shareholders, we focus the business on a small number of KPIs which we consider essential business drivers of profit growth. The Group is now in a position that its operating cost base is sufficient to support significant top line growth without any increase. We therefore concentrate on growing revenues profitably, constraining (and, where appropriate, reducing) overheads and converting work done into cash. In simple terms, delivering on these metrics will deliver sustainable profits for shareholders (as measured by operating profit before non-underlying costs) and we therefore monitor the progress of the business through four essential KPIs: – – Revenue (measured net of disbursements and VAT) – – Gross margin percentage – – Overheads as a percentage of revenue – – Lock up Revenue growth year on year was £3.9 million (4%). The Group successfully achieved an uptick in trading in the second half of the year again, which represented 52% of total revenues for the year, and delivered an increase of revenue per fee earner year on year of 5.5%. Further details of the sector / territorial drivers of the Group’s revenue profile and growth are set out in the Group Chief Executive’s report above. Production costs are the profit shares of the equity partners and the employment costs of the other fee earners together with their direct costs (such as travel and marketing) and direct support costs (such as dedicated secretaries) and provision for doubtful and bad debts (where we provide for all unsecured debts over six months old). This also includes the amortisation of client portfolios. Gross margin is the fees charged to clients less direct production costs and is expressed as a percentage of revenue. Gross margin is in the control of the heads of each department or business unit and these individuals are rewarded with a participation in gross margin achieved in excess of 45%. In the current year gross margin of 44.3% is slightly below this target and behind the prior year (46.1% restated). This is attributed to: – – An increase in partner costs from hires made in the latter part of the last financial year, who have not yet been able to market to their client network as effectively as in normal circumstances, in the face of the travel restrictions and social distancing rules in particular for UK partner hires where their practices and clients are based internationally; and – – An increase in lock up levels and accordingly the formulaic doubtful and bad debt charge which rose to 4.1% in the year (prior year of 2.1%) and is the primary driver of increases in Production costs – other. Our policy remains to provide in full for all debtors over 180 days old, even though many of these debtors are likely to be ultimately recoverable. As market conditions improve with the lifting of restrictions, in particular in the UK, we expect these trends to be reversed and, accordingly, margin to improve. Overheads represent the business support staff costs of the Group and all the other costs of running the business – premises, insurance, computing and telephones etc. In the year, overheads as a percentage of fees charged to clients were 35.1% (2020: 36.5%). As noted below, in the year, business support services staff costs included grant income under a number of localised job retention schemes. The cost benefits of this income will be in part replaced by ongoing business efficiencies (reduced heads, floor space and greater centralisation of the Group’s operations). Additional cost reductions achieved through a supplier rationalisation review undertaken during the year were, in part, offset by increased IT infrastructure expenditure, which was required to support our switch to working from home at the beginning of the financial year. Our target is to reduce these costs towards 30% over the medium term. This can be achieved through revenue growth and further synergies – for example in reducing our premises footprint, where there are break clauses in the majority of our UK offices over the next 18-24 months and from the roll out of the Group’s practice management system to the remaining offices. Year to 31 March 2021 £m 2020 Restated £m Revenue 100.2 96.3 Production costs – fee earner / partner costs * (49.9) (48.1) Production costs – other (5.9) (3.8) Gross profit 44.3 44.4 Gross margin % 44.3% 46.1% Administrative salaries and non-productive profit shares (14.8) (14.7) Other overheads (20.4) (20.4) Total overheads as % of revenue 35.1% 36.5% Operating profit before non-underlying costs 9.2 9.2 ** this includes amortisation of client portfolio intangibles of acquired businesses, recognised in line with relevant fee billings / cash collections 17 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Chief Financial Officer’s Report – continued Other profit and loss items The Group incurred non-underlying costs in the year of £6.0 million (2020: £1.7 million), primarily in relation to future costs items. The most significant of these is the recognition of costs in relation to the abandonment of part of our UK office at Aldgate Tower of £3.2 million and details of this and the other non- underlying costs are set out in note 7 to the accounts. Finance income and expense primarily relates to the interest costs of the Group’s financing facilities and a charge levied in applying IFRS 16 on the right-of-use assets it holds for the property and other lease contracts it has entered. (Loss)/profit from discontinued operations of £(0.9) million (2020: £0.3 million) relates to the results and disposal costs of White & Black Limited (including £0.6 million of eliminated goodwill, described below). Covid-19 response In response to the Covid-19 pandemic, the Group took a number of proactive steps to minimise the risk of disruption to business operations: – – Discretionary expenditure across all locations was cancelled or deferred, unless an immediate, business critical requirement was identified. – – As noted on page 17, the Group took advantage of the UK Government’s Coronavirus Jobs Retention Scheme and similar schemes in Singapore and Hong Kong where staff members were unable to effectively work other than in the Group’s offices, although this was gradually reduced from October onwards and ceased in full as at 31 March 2021. Grant income received for this totalled £2.1 million in the year (of which £1.5 million related to the UK scheme). The Group also removed 47 roles during the year, with an associated annual cost saving of £1.2 million. – – All Board and a number of UK colleagues’ salaries were reduced on a temporary basis (in a number of instances for the duration of the financial year) and partners’ drawings have been reduced and profit distributions deferred. Lock up Lock up is defined for our KPI as the value of trade debtors and work in progress compared with fees charged to clients, in each case excluding disbursements and VAT. Lock up days, which represents the time taken from the point work is performed by fee earners to the point the related cash is received, is the key measure of working capital performance of the Group. This measure is under the control of the lead partner (or Matter Partner) for each client and they are guided and assisted in this by our revenue management team. Lock up as at 31 March 2021 was 118 days (96 days at 31 March 2020). The increased level of lock up days is a result of: (i) pressures on collections across the Group in the wake of the pandemic, as clients have attempted to minimise cash outflows while there has been considerable market uncertainty across the sectors / locations in which the Group operates; and (ii) the skew in revenue towards parts of the Group with structurally higher lock up days, in particular in Asia. This lock up remains significantly better than typical industry levels but it remains a focus of management to reduce lock up in the UK-based elements of the business below 100 days, although we recognise overseas office lock up may remain above this level due to the above mentioned structural differences in collection patterns. Some of the recent increase is temporary and will reverse as market conditions continue to improve and, additionally, once travel restrictions ease and we can complete the roll out of the proprietary practice management software across the remaining locations of the Group (including our practices in Asia). External facilities and net debt On 26 March 2021 the Group entered a financing facility of £17 million with Investec plc, comprising a three-year £9.0 million term loan and £8.0 million revolving credit facility, under the UK Government’s Coronavirus Large Business Interruption Loan (“CLBIL”) scheme. Accordingly, the remaining Barclays Bank plc term loan and revolving credit facility (previously entered into by the Group in December 2018) were repaid in full. The new facility increases the available funds for the Group while it continues to experience the temporary effects of Covid-19 upon its trading activity and continues to grow revenues (currently £2.5 million of the revolving credit facility is undrawn). The facility is also designed to be a facility for the full Group and will allow management to more easily implement integrated treasury management across each of its entities and locations. Furthermore, despite the increased size of facility now available to the Group, net debt did not increase through the year and was only £6.6 million at March 2021 (£9.0 million at March 2020, or £6.9 million excluding a one-off in-year operating cost loan as discussed earlier). Cash flow The Group’s cash balance increased by £3.1 million during the financial year to £8.3 million at 31 March 2021 (2020: £5.2 million). It had available cash and undrawn facilities at 31 March 2021 of £10.8 million (2020: £5.3 million). Free cash flow conversion (measured relative to operating profit before non-underlying costs) was 48%. 18 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Year to 31 March 2021 £m 2020 Restated £m Cash generated by operations 23.0 1.1 Lease costs (5.6) (3.3) Payment of contingent and deferred consideration (10.0) (10.1) Purchase of PPE & intangible assets (1.9) (3.1) Net interest received/(paid) (0.8) (0.7) Tax paid (0.3) (0.9) Free cash 4.4 (16.9) As both the recent build-up of lock up (described above) and legacy liabilities from acquisitions and actions taken to respond to Covid-19 unwind, this free cash flow will significantly improve in the medium term. Balance sheet The acquisition of Ince gave rise to intangible assets which have been recognised in three ways – as goodwill, as client portfolio and as trademark, associated to the value of the Ince brand. An external third party valuation of the Ince brand has again been taken this year and the calculated valuation range is significantly in excess of the balance sheet asset value of £17 million, indicating post-acquisition investment efforts in developing the brand and its widening use within the Group is beginning to gain traction. An annual impairment review of goodwill has also been undertaken with no impairment identified (and significant headroom in the relevant CGU valuations), although £0.6 million of goodwill was eliminated with the disposal of White & Black Limited (the method for determining the elimination value is detailed in note 4 (i) to the accounts). The client portfolio value continues to be amortised in line with revenue generated over the three years of the Ince acquisition deal during which the deferred consideration is being earned by the former Ince partners (until December 2021), at an annual charge of some £2 million. In the year, the Group has impaired the right-of-use asset for a floor of our main London office in Aldgate Tower and recognised a provision for future costs, for the remainder of the lease up to its next break date (in October 2022), with a total impact of £3.2 million taken to the profit and loss as a non-underlying cost (as detailed in note 7 to the accounts). Whilst the free cash benefits of exiting this lease will not be seen until the break date, no further costs will be incurred for this lease. Additionally, in order to manage cash flow challenges in the first half of the year, the Group deferred certain liabilities with relevant third party suppliers including rental costs, rates and balances with HMRC. Repayment of these balances began in the second half of the year and will continue during the next financial year, with the outstanding balance totalling c. £5.8 million at 31 March 2021. The effective rate of tax this year is 44.9% (2020: 21.9% restated) which, partly as a result of the disallowance of the amortisation of client portfolios as an expense, is higher than the standard UK rate. As this amortisation reduces over the next financial year, this rate is expected to reduce closer to that standard rate. Future We have been pleased with the ongoing level of engagement and support we have received from colleagues and partners as well as our supplier network since Covid-19 first impacted the Group. We continue to monitor and follow the various national institutes’ policies and advice. Our infrastructure investments over the past year allow us the flexibility to continue our operations in the best and safest way possible for all our stakeholders without jeopardising anyone’s health whether that be through remote working or office-based working. In the immediate future management are focused on working capital management as built up liabilities from the last year are unwound to cash whilst activity levels and collections begin to recover. Q1 of the new financial year has already seen this unwind begin, whilst collection levels are still to fully recover. Therefore cash at the end of June 2021 was £4.7 million and £2.5 million of undrawn RCF remains available to the Group to assist manage short-term working capital needs (available funds of £7.2 million). Additionally, restrictions on commercial litigation activity (in relation to the suspension of elements of the Insolvency Act) in the UK have not reversed and travel restrictions continue to limit our ability to engage with our international clients. Despite this, there are early signs of activity levels starting to improve and Q1 revenue of £25.0 million was 5% ahead of the prior year, in particular after a strong billing month in June 2021. Whilst uncertainty temporarily persists we are cautiously optimistic for this current financial year, in particular for the expected opening up of a number of our UK markets in Q2, which is anticipated to reverse the above-mentioned freeze on commercial litigation activity in the UK, and the easing of international travel restrictions to allow us to travel between our offices (in particular in Asia) and therefore increase our active client engagement and collaboration across locations. Therefore we are reintroducing guidance at this stage. The Group has the revenue generating capacity, external financing structure and sustainable, scalable support function in place to achieve these aims and targets and, in so doing, focus on building and delivering value for shareholders. SIMON OAKES 26 July 2021 19 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Expanding our offer Abu Dhabi World Class 20 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Building upon Ince’s global professional services network, offering clients across the world an end-to-end transaction and advisory capability for all their maritime financial needs. Our new asset finance business The new business taps into the wider Ince network and leverages the Group’s experience across other key markets such as the UK, Europe and Asia and will provide clients across the globe access to experts who can support them with a wider range of services. A unique opportunity With previous experience in corporate finance, maritime consulting, ship finance and maritime financial advisory we identified a unique opportunity to launch this new practice from the Middle East. Clients are now able to source bank and alternative finance for their vessels across the full vessel age range, receive maritime transaction support at all stages of the transaction lifecycle, and access specialist financial maritime advice. KNUT MATHIASSEN Managing Director, Abu Dhabi DUNCAN SAW YER Managing Director, Abu Dhabi 21 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 How we manage our ESG issues Our approach to ESG Doing the right thing The Board believes that in pursuit of the Group’s strategy for successful and profitable growth, it is crucial to implement policies within the business which will encourage the “right behaviour” in the ethical and fair treatment of our people and all those we do business with. – – Appointment of two highly experienced non-executive directors in July 2021. – – New Chair of Audit committee independent from Board Chair. – – Carbon emissions amongst the lowest of the UK’s Top 50 law firms*. – – Committed to ensuring that our operations are run sustainably – advocate of “paperlite” and agile working. – – Head office in London, the largest in the Group, is a BREEAM class building with construction completed in 2014 with an excellent rating to ensure high levels of energy efficiency. – – New collaboration tools available to all employees replacing the need for physical attendance at meetings and conferences where possible. – – Cycle to work scheme has been introduced to help in choices of commuting. – – D&I steering committee together with employee led D&I panels helped promote D&I through a variety of initiatives including through training, regular communication, virtual events, updated policies and more. – – The employee led Ince Impact Committee promoted an active CSR programme of opportunities to get involved in our communities resulting in more than 100 employees making an impact during the year. – – First law firm to sign up to the Neptune Declaration on Seafarer Wellbeing and Crew Change. Our policies and procedures identify, monitor and manage risks which are regularly reviewed together with a comprehensive training programme to ensure standards remain high across the Group. As a legal and professional business services firm, our Risk & Ethics team forms an integral part of our work to mitigate risk and embed a culture of ethical behaviour. Our Reputation and Standards Committee meets regularly to consider any risk or ethical issues that may arise and is chaired by the Head of Risk Management and Ethics. Cyber resilience and data security Cyber resilience and data security are essential requirements for any law firm and the Group believes it has robust defences against cyber risks which are regularly reviewed and refined but there can be no absolute guarantee of their effectiveness. An extensive review of our own systems in collaboration with a leading cyber defence provider has resulted in the installation of a new intrusion detection system which is another line of defence for us and our clients. We are also joining the Cyber Essentials Plus scheme set up by the Solicitors Regulation Authority. Our highlights ** A survey by Law.com of the UK Top 50 law firms carbon emissions published in May 2021 ranked Ince amongst the lowest. 22 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Diversity and Inclusion (D&I) We believe diversity drives innovative thinking and makes us smarter and stronger as an organisation. Our D&I steering committee consists of senior management as well as fee earners and support staff and works in partnership with our focused employee led D&I panels to support and review the impact of their work on the Group. Our five key focus areas are: LGBTQ+, mental health, gender balance, racial equality and social mobility. CSR policy and programme Our CSR policy and programme is overseen and coordinated by the employee led Ince Impact Committee. Our corporate social responsibility programme is built around four pillars: – – People means improving the wellbeing of our colleagues by supporting their collective charitable endeavours. – – Industry sectors means supporting charitable events and causes tied into our groups and departments. – – Local community means supporting community groups and academic institutions within our geographic areas. – – Environment means ensuring that we do everything we can to ensure our operations are run sustainably for the future of our planet. How we manage our environmental impact E As predominantly a people business the Group’s environmental impact is low and mainly relates to our energy and paper usage. We are however committed to reducing our impact further. We are an advocate of “paperlite” and have adopted an agile working model. The Ince Group plc is committed to ensuring our operations are run sustainably. Further details about our environmental impact can be found in the Directors’ report on page 35. 23 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Our approach to ESG – continued Our people Our employee engagement strategy has moved from a broader focus on integration following the Ince & Co acquisition to now be more focused on ways to motivate, engage and retain employees. Through our values of Connection, Agility, Clarity and Entrepreneurship we have a common set of principles. Several initiatives were launched during the year and some launched or continued through various national lockdowns in our key markets. Communication became increasingly important early after lockdowns were imposed with employees spending the majority of their time isolated from colleagues. Regular business updates through videos and newsletters from senior management, social media for employees covering a variety of topics, virtual coffee mornings and comedy nights were just some of the ways employees engaged with each other. Examples of our employees’ activities include: Diversity and Inclusion Our employee led D&I panels work alongside each other to ensure that D&I is part of our day-to-day culture. The panels help set diversity priorities, influence policies and drive initiatives, including community involvement. Initiatives include regular communications, awareness campaigns, events, training and an expanded staff benefits scheme. Community The Group encourages improving the wellbeing of our employees by supporting their collective charitable endeavours. Everyone has the opportunity to get involved in activities through CSR Leave, an additional day of annual leave for participation in CSR projects. Whilst The Ince Group Charitable Foundation operates independently of The Ince Group plc the Foundation primarily supports general charitable causes chosen by members and employees of the Group. This includes a focus on funding charitable initiatives to tackle specific community issues important to them. The Foundation cooperates with The Ince Group’s CSR programme, which also provides pro bono and voluntary assistance across a range of initiatives, including pro bono legal advice, non-legal skills training, youth mentoring schemes and projects to improve community wellbeing and other team charitable endeavours. The Ince Impact Through our Corporate Social Responsibility (CSR) policy and programme of CSR activities we aim to ensure that our impact is a positive one. Ince’s CSR programme is overseen and coordinated by the employee led Ince Impact Committee. East London Business Alliance (ELBA) Some 100 employees supported ELBA’s community initiatives benefitting over 550 people directly or indirectly throughout the year. Initiatives included supporting elderly members of the community suffering with dementia or isolation, mentoring students, online skills sessions for furloughed/ unemployed staff, student workshops, CV/LinkedIn profile clinics, interview preparation sessions, career talks, Christmas toy appeal and higher education insight day. Neptune Declaration signatory We were the first law firm to sign up to the Neptune Declaration on Seafarer Wellbeing and Crew Change. More than 800 companies and organisations have now signed this declaration recognising that there is a shared responsibility to resolve the crew change crisis, because of the unprecedented ways in which Covid-19 has impacted the lives and wellbeing of seafarers. Brain Injury Café online Every two weeks employees from our Bristol office with their experience in personal injury and clinical negligence work to offer pastoral support to attendees of the Ince-hosted Brain Injury Café, a social meeting for those who have suffered a brain injury. During the Covid-19 pandemic and in line with the Government guidance for vulnerable people to stay indoors, the team successfully continued hosting Zoom meetings on a weekly basis. How we manage our social impact S 24 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Corporate governance is and has always been an important part of creating a sustainable growing business which should reduce risk to the business while adding value. The Company has adopted the QCA Corporate Governance Code, and a detailed governance statement is available at www.theincegroup.com/investors/ corporate-governance/ The Board is responsible for delivering the Group’s strategy and for the overall management of the Group through the Executive Directors. It meets regularly to review, formulate and approve the Group’s strategy, budgets and developments and to constructively challenge the Executive Directors. Board independence and skillset The Board comprises six Directors, two of whom are executive and their details are set out in the Directors’ Report on page 32 and 33. The four current non- executives are considered independent and have a balance of skills to contribute to the Board. Board committees The Board has established an Audit Committee, a Remuneration Committee and a Nominations Committee. A summary of the terms of reference for the Audit Committee, the Remuneration Committee and the Nominations Committee can be found in the Admission Document available on the Group website. The Remuneration Report on page 36 describes the Committee’s remuneration policies which are aimed at attracting and retaining the right people. In appointing the two new directors, the Nominations Committee followed an exhaustive process of establishing desired skillsets, advertising on Nurole (who supplied a validated long list from the responses) and review of long list CVs to create a short list. This was followed by interviews, independent referencing and meetings with the Executive Directors before presentation to the Board of its recommendations. Ownership The Board encourages ownership of shares in the Company by partners and employees and aims to make opportunities to acquire shares available to them whenever practicable. It is estimated that directors, partners, employees, consultants and their families own approximately 30% of the Company’s issued shares. Building relationships with our stakeholder groups The Board believes it is essential to continue to develop the Group’s relationships with the partners and colleagues in the business and the businesses’ clients, suppliers and regulators. The Board aims always to implement policies within the business which will encourage the “right behaviour” in the ethical and fair treatment of our people and all those we do business with and the delivery of high quality service to our clients. See further details in the section 172 statement on page 28. Risk & ethics A culture underpinned by professional integrity and ethical behaviour is fundamental to managing the Group’s business for the long term. The tone is set by the Board in terms of key measurements for ethical behaviour and our Risk & Ethics team forms an integral part of our work to mitigate risk and embed a culture of ethical behaviour through our policies, training and development. The Board receives regular updates from the Risk & Ethics team and the Head of Risk Management will attend Board meetings. The Group also has a robust risk management framework to identify, monitor and manage risks – see further details about key risks on page 29. Forward looking priorities BOARD REVIEW The Board intends to carry out a review of the effectiveness and culture of the Board and the committees after the further Non-Executive Directors have been in place for a suitable period. How we ensure good governance G 25 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Enhancing our service offering Gibraltar World Class 26 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 With the new services we can leverage the team’s full range of expertise, in order to provide a more holistic offer to existing and new clients. How will the new consultancy offer elevate the Gibraltar offering? The addition of professional trustee and foundation councillor services will expand our service offering to traditional private clients and family offices both in Gibraltar and in conjunction with Ince offices globally. Gibraltar has become a key destination for crypto funds and our fund administration services and expertise in the decentralised blockchain space mean we can assist clients internationally. What makes Gibraltar the right location for this expansion? Gibraltar has a strong history in international structuring and fiduciary services, welcomed by its competitive tax regime and business minded policymakers. The fund regime provides versatile options from private funds to fully regulated vehicles for both professional and retail investors. Gibraltar is a key market for us and our new services will enhance our service offering to both new and existing high-net-worth and financial services clients in the region. HEATHER ADAMSON Head of Fiduciary 27 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 Strategic Report The Directors present their strategic report and the audited financial statements of The Ince Group plc and the Group it heads for the year ended 31 March 2021 in accordance with Section 414A of the Companies Act 2006. Objectives and strategies Our strategy is to grow income profitably as an international business advisory group through adding fee earning partners to a single efficient administration operation. Implementation of this strategy should increase the quality of the intellectual capital of the business and the quality of its client and matter base. The delivery of this strategy includes recruiting high quality personnel, developing new business streams, acquiring complementary businesses and forging strategic alliances where appropriate. Business review Results and dividends The results of the business and the Group’s future development are covered in the Chairman’s, Chief Executive Officer’s and Chief Financial Officer’s statements preceding this report, as is a summary of the activities in the year. As discussed in the Chairman’s statement, the Directors are not recommending the payment of a dividend in respect of the year ended 31 March 2021. Key Performance Indicators The Group regularly refines the KPIs on which it focuses and these are described and quantified in the Chief Financial Officer’s report. Section 172 statement Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors believe, as they always have, that the long-term success of the business depends on their having regard to the interests of its stakeholders in all decisions, as the business will be poorer if those interests are ignored. The Directors consider that, in addition to the Company’s shareholders, the Group’s key stakeholders are its clients, its employees and its partners – without the support and respect of those groups, the results of the Group will progress less well. The Group’s regulators are further important stakeholders in the Group – without their approval or authorisation, much of the Group’s business cannot be undertaken. The Directors therefore continue to have regard to the interests of the Group’s employees and other stakeholders, the impact of its activities on the community, the environment and the Group’s reputation for good business conduct when making decisions and recognises that to ignore one group of stakeholders will inevitably over time damage the Group. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Group for its members in the long term. Set out in this Annual Report, and below, is how the Board engages with stakeholders: – – The Board puts in place processes to ensure that clients are communicated with on a regular basis with general information and through partner contact which is specific to the client. – – The Board regularly reviews the Group’s principal shareholders and how it engages with them. This is achieved through information provided by management and also by direct engagement with shareholders themselves and group presentations available to any interested party on announcement of results or other key matters. – – The Board ensures it engages with staff through regular communications from the CEO and other Directors, through personal contact to the extent practicable and through Group messages. – – The Board encourages the development of staff-led working groups promoting diversity and inclusion awareness within the Group and also supporting charitable interests, generally local to particular offices. – – During the financial year ended 31 March 2020, the Directors established an Executive Committee to represent all the key business units / locations of the Group. Included within the remit of this body are the following activities: enhancing the lines of communication to the workforce in respect of the day-to-day management of the Group; implementing the Board’s strategy within the business; and delivering on change management programmes designed to improve the efficiency and profitability of the Group. – – The Group engages regularly with its major suppliers (including landlords) and has been grateful for this, during the difficult environment over the last year. – – The Group’s policies in respect of risk management in areas such as anti-corruption and whistleblowing are under constant review from its dedicated internal risk function and are designed to drive high standards of behaviours both internally and with all external stakeholders, from clients through suppliers to regulators. Delivering on our strategy 28 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Covid-19 risk In early 2020, this was a new and unpredicted risk for the business which resulted in the shutting for significant periods of all the Group’s offices internationally and the offices of many clients of the Group with a consequent global decrease in economic activity. The Group’s robust disaster recovery plans which were in place proved effective and have enabled remote working to be effective throughout the Group. There is perceived to be a significant risk that further waves will sweep any of the economies in which the Group is active. The Group has demonstrated that it can react rapidly and effectively to such changes and believes that it would be able to react effectively to any future threat but this cannot be guaranteed. Cyber risk In common with all businesses, the Group is dependent on records stored electronically and instructions and communications transmitted electronically. Such storage and transmission can be subject to malicious interception. Such interception has the potential to lead to funds being sent to a wrong destination (which funds would have to be immediately replaced from the Group’s own funds). Data theft is also a significant potential risk which would expose the Group to serious reputational damage and substantial fines. The Group believes it has robust defences against these which are regularly reviewed and refined but there can be no absolute guarantee of their effectiveness. Reputational risk The Group strives to maintain a reputation for delivering high quality service to its clients on a timely and cost effective basis. Failure to achieve this to a significant extent might damage the reputation of the businesses and lead to a loss of client confidence. The Group seeks to maintain those high standards by regular training, communication and internal review processes. In addition and creating the potential for reputational risk, there is a continuous risk that a mistake will be made or bad advice given. The Group has substantial insurance protection against such eventualities but there can be no certainty that this will be adequate for a particular claim. Any such claim will also give rise to reputational damage. Partners and employees The business of the Group is dependent on the continuing efforts of the partners and employees and the loss of a number of colleagues could have a significant impact on the Group’s ability to maintain client confidence and also to grow. The Directors believe that the Group’s remuneration model, which continues to be refined, encourages key revenue generators to remain with the Group and rewards them for doing so. The Group is dependent on a number of key management colleagues and business generators and the loss of one or more of them could be damaging to the business. In addition to the Group’s remuneration structure, the Directors strive to have succession plans in place for key individuals. Fee earner increase pipeline The Group’s strategy is built around increasing the number of fee earning partners by lateral hire or by acquisition. The Directors believe that there is a substantial pool of people and businesses to whom the Group’s standing and remuneration and operating model are attractive and that therefore there will be a continuing pipeline of individuals, teams and businesses which can be added both in the UK and overseas which will improve the Group’s intellectual capital and financial results. There is however a risk that the market will change or that other well-capitalised acquirers will compete with the Group. Execution risk Lateral hires and acquisitions made may not produce the results anticipated for a number of reasons. The Group seeks to mitigate this risk by linking the remuneration of lateral hires to their performance and the consideration for an acquisition to future performance. Regulatory risk The Group is highly regulated with entities regulated by the Solicitors Regulatory Authority (SRA) and overseas equivalent regulators, businesses regulated by the Financial Conduct Authority (FCA) and certain activities regulated by the Institute of Chartered Accountants in England and Wales. The Group seeks to maintain an open relationship with those regulators and to abide by the rules and regulations they publish as failure to do so has the potential to force the closure of a relevant business. It should be noted by all shareholders and potential shareholders that, under the Rules of the SRA, if a non-solicitor comes to hold more than 10% of the voting share capital of the Company without prior approval, the SRA are entitled to withdraw the Group’s authorisation to practice as solicitors. In addition, under law and the rules of the FCA, it is an offence by an investor to acquire 10% or more of the Company’s voting share capital without prior approval. The Directors monitor shareholder concentration closely and seek to ensure that no breach of these limits occurs. Market risk In common with all businesses, an economic downturn or a different pandemic could have a detrimental impact on the Group and its results. The Group does, however, benefit from having a widely spread client list and a wide spread of business sectors and these will react at different times to market conditions which should limit any damage to the Group’s performance. By order of the Board S R OAKES Director Aldgate Tower, 2 Leman Street, London E1 8QN 26 July 2021 Principal risks and uncertainties 29 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Adding top talent to our offices in Greater China allows us to continue to grow. We are determined to provide clients with truly diversified and high quality services. The Asian market I foresee strong opportunities for growth within the Asian market, especially in Greater China. Despite the pandemic, we continue to receive a flurry of instructions. Our very strong setup globally, diversified services in areas such as international disputes, asset finance, corporate work and private wealth coupled with deep roots within Greater China and Asia, enable us to leverage our expertise across different offices and offer excellent services to our clients who expect, demand and deserve nothing less. What attracted you to Ince? For a long time, Ince Hong Kong has been the undisputed market leader in dispute resolution, shipping, energy and international trade. These are some of my practice areas and I have been very fortunate to have the opportunity to service high quality clients from these sectors. It is natural to be attracted to excellence, to want to work with and for the very best. I also relish the challenge of developing new practice areas and offer our clients a greater variety of services. ZHAO RONG OOI Partner 30 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 World Class Elevating our presence Greater China 31 T H E I N CE GRO U P P LC / A N N UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 Directors’ Report Board of Directors* DAVID FURST Non-Executive Chairman David Furst is a chartered accountant and acted as external accountant to Gordon Dadds (a predecessor firm) and financial adviser for ten years before joining Gordon Dadds LLP’s Advisory Board in 2013. Previously, David was a partner in Crowe Clark Whitehill LLP for 30 years and was managing partner and chairman for part of that time. David was President of the Institute of Chartered Accountants in England and Wales in 2008-09 and served on its Council for nine years. ADRIAN BILES Chief Executive Officer Adrian Biles qualified as a solicitor at a large City law firm in the early 1990s. He left to go into business in 1994, since when he has been involved in private equity transactions across a number of business sectors, including insurance broking and underwriting, retail motor distribution and property development. Adrian has a record over 25 years of creating significant value for shareholders. He founded ACR Solicitors LLP in 2007 and was responsible for merging the original legal practice of Gordon Dadds into Gordon Dadds LLP in 2013 when he became managing partner and has since overseen the expansion of the Group by a combination of acquisitions and organic growth from a £2.7 million turnover business in 2013 to the present position. SIMON OAKES Chief Financial Officer Simon Oakes is a chartered accountant. He trained as an auditor with EY before moving to their corporate finance team. In 2013 he joined Deloitte as a director in corporate finance, specialising in financial diligence across a number of sectors and acquisition types (including listed transactions and private equity backed transactions). He joined the Group as Group Financial Controller in October 2018 and was appointed as Chief Financial Officer at the beginning of April 2020 and became a Director in May 2020. ** See the Directors' report on page 34 for a full list of Directors who held office during the period. 32 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 SIMON HOWARD Non-Executive Director Simon Howard became a Non-Executive Director after the reverse takeover in August 2017 having been the founder and Chairman of Work Group plc since 2000. He worked in the UK recruitment industry for over 30 years, 20 of which were in senior executive roles. He wrote the weekly ‘Jobfile’ column on employment issues in The Sunday Times for over 12 years and has been a regular contributor to magazines and speaker on recruitment and HR issues. Despite his long service on the Board, the Board considers him to be independent as it considers that the reverse takeover in 2017 changed the nature of the Group and the personnel on the Board and in the Group to such an extent that his history is irrelevant to the consideration of his independence. CAROL ASHTON Non-Executive Director Carol Ashton is an independent HR consultant and executive coach with over 30 years in corporate HR. She has spent most of her executive career in the professional services sector and was the international HR Director at DLA Piper between 2008 and 2017 where she led the delivery of its first international HR strategy. Previous roles include Chief Human Resources Officer at international accountancy firm Ernst & Young. Carol also holds positions with the Lord Chancellor’s Recruitment Advisory Committee, the Chartered Institute of Marketing and the General Dental Council. LAURENCE MILSTED Non-Executive Director Laurence Milsted has worked with the legal industry throughout his career including 20 years as Global CFO at “Magic Circle” law firm Freshfields where he led a multijurisdictional team across Europe, the US and Asia. Laurence has led, or been involved in, transformation, structural change and performance improvements and has vast experience of working with law firm profitability models and working capital issues and is an experienced Audit Committee Chair. 33 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The Directors present their report and audited financial statements for the year ended 31 March 2021. Principal activities The Ince Group plc is the holding company of a group of entities providing legal and professional services and financial advice internationally and a review of future developments is addressed in the Strategic Report. Going concern The Group has prepared detailed budgets and cash flows for the current year together with high level cash flows for the following year. The Directors expect that the Group has, or is able to obtain, adequate resources to continue to trade for the foreseeable future. Statement of Directors’ responsibilities The Directors are responsible for preparing the Strategic Report, the Directors’ Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. 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 Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements the Directors are required to: – – select suitable accounting policies and then apply them consistently; – – make judgements and accounting estimates that are reasonable and prudent; – – state whether the financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; – – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions, to disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Each of the persons who is a Director at the date hereof has confirmed that: – – so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is not aware; and – – he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company is aware of that information. Directors The Company’s Articles of Association contain provisions for the appointment and replacement of Directors. In summary, the Board has the power to appoint Directors to the Board at any time whether to fill a vacancy or to increase the number of Directors. In accordance with the statute, any Director can be removed at any time by an ordinary resolution of the Company and there are provisions which disqualify a Director from continuing to hold office, such as bankruptcy or insanity. The Directors who held office during the period from 1 April 2020 were: – – DA Furst – – AJ Biles – – SR Oakes (appointed 26 May 2020) – – SJ Howard – – LJ Milsted (appointed 26 July 2021) – – CC Ashton (appointed 26 July 2021) – – PJ Rogan (resigned 26 July 2021) – – AJ Edwards (resigned 1 April 2020) – – CJ Yates (resigned 1 April 2020) Corporate governance The Company has decided to adopt the QCA’s Corporate Governance Code and the Group’s Statement of Compliance may be accessed from the Group’s website at: http://www. https://www.theincegroup. com/investors/corporate-governance/. Donations During the period the Group made no charitable donations (2020: £Nil) and no political contributions (2020: £Nil). Employees The Group continues to give full and fair consideration to applications for employment made by disabled persons, having regard to their respective aptitudes and abilities. The Group’s policy includes, where applicable, the continued employment of those who may become disabled during their employment. Equal training facilities are provided for disabled and other employees. The Group has continued its policy of employee involvement by systematically making information available to employees on a regular basis and encouraging their participation in schemes which are related to the Group’s progress and profitability. Policy on payments to creditors It is the Group’s policy to agree terms and conditions under which business is to be transacted and to make the supplier aware of these before business is contracted. It is the Group’s policy to ensure payments are made when they fall due in accordance Directors’ Report – continued 34 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 with the terms and conditions agreed, except where the supplier fails to comply with those terms and conditions. The average number of days purchases included in trade payables at the date of the statement of financial position for the Group was 114 (2020: 113). Financial instruments The Company’s financial risk management objectives and risk exposure are disclosed in the notes to the financial statements. Liquidity The Group’s policy is always to ensure continuity of funding for both the long and short term. Short-term flexibility has to be managed within the Group’s own cash resources. Longer-term funding may be used to finance assets over their appropriate life and in appropriate circumstances. Acquisitions are usually funded by a partial deferment of consideration which is related to the future performance of the acquired business. The development of new ventures within the Group is funded initially from existing resources. Where the Directors identify major opportunities which are outside existing resources shareholders in the Company would normally be invited to participate. Interest rates Finance would be obtained when needed through bank borrowing, medium-term loans and lease and hire purchase contracts. Generally, borrowings and medium-term loans are obtained at variable rates of interest and lease and hire purchase contracts are on fixed interest terms. It is the Group’s policy when borrowing to minimise the effects of its exposure to interest rate fluctuations by borrowing at fixed rates for the long term and variable rates for the short term where possible. Energy and emissions report As a people business our environmental impact is low and mainly to do with our energy and paper usage. Our head office in London, the largest office in the Group, is a BREEAM class building with construction completed in 2014 with an excellent rating to ensure high levels of energy efficiency, including modular lighting fitted with DALI control gear and all other lighting are LED, all computer equipment and photocopiers go into sleep mode upon a period of non-use, and the air conditioning is a comfort cooling system consisting of fan coils monitored and adjusted by in-house BMS system. A survey of the UK Top 50 firms’ carbon emissions in the UK, published in May 2021, ranked Ince as amongst the lowest of the UK Top 50 law firms. We are also committed to ensuring that our operations are run sustainably and are an advocate of “paperlite” and agile working. UK energy use covers all legal and professional services and other activities across entities based in the UK. Energy used has been calculated based on gas and electricity meter readings extrapolated where readings were not available. Total mileage for petrol reimbursed has been taken from employee expense claims and extrapolated where data was not available. The 2020 Government emission conversion factors for greenhouse gas company reporting have been used. UK Energy and Emissions 2021 2020 UK energy use (kWh) 775,366 1,330,382 Associated greenhouse gas emissions (tonnes CO2 equivalent) 172,621 291,201 Intensity ratio (emissions per £’000 revenue) 2.92 4.56 Articles of Association The Company’s Articles of Association may be varied in any way permitted by law if approved by a special resolution of the members of the Company. By order of the Board S R OAKES Director Aldgate Tower, 2 Leman Street, London E1 8QN 26 July 2021 35 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Directors’ Remuneration Report The committee The Remuneration Committee is responsible for implementing the Board’s policy relating to the remuneration and emoluments of the Executive Directors and also reviews the remuneration of the senior management. The remuneration of the Non-Executive Directors is determined by the Board. The Remuneration Committee is chaired by Simon Howard and David Furst is a member. Carol Ashton is intended to become a member of the Committee following her appointment to the Board. The Board considers the composition of the Remuneration Committee following Carol Ashton’s appointment to be appropriate for the size of the Group and given the size of the Board. This will be reviewed with the appointment of any further Director. General policy The Group’s policy is to provide remuneration packages to attract, retain and motivate Directors and senior managers with a view to encouraging commitment to the development of the Group for the long-term enhancement of value to shareholders. The remuneration of partners in the business is generally through the sharing of revenues on a basis which should ensure a contribution to the Group’s overheads. Remuneration packages for employees comprise competitive basic salaries and benefits and may include performance-related bonuses. The Board has the facility to provide long-term incentives in the form of share options to align personal reward with enhanced shareholder value. Salaries are reviewed annually with effect from 1 April although the review due at 1 April 2020 was postponed. Limited reviews of salaries were effective from 1 April 2021 and a normal pattern of reviews is planned going forward. Performance targets, upon which bonuses are based, are established annually as part of the planning process and are linked to the annual budget approved by the Board, again aligning personal reward with enhanced shareholder value. Covid-19 With effect from 1 April 2020, as part of the prudence measures taken as the lockdown started, all the salaries of Directors were reduced by 30% while senior managers within the Group took a 20% reduction (these reductions were applied to the contractual salaries listed below). These measures remained in place until 31 March 2021. Pensions The Group contributes to group personal pension plans. Pension contributions payable by the Group are based upon basic salaries. Service contracts It is the Group’s policy that Directors’ contracts should normally be for a period of not more than 12 months and not entitle the Director to any payment on termination to which he would not have been entitled at that time had he remained with the Group. AJ Biles and SR Oakes each have a service contract with the Company which became effective on 4 August 2017 and 1 April 2020 respectively. AJ Biles receives a salary of £70,000 per annum and through a performance-related arrangement is entitled to participate in the profits of the major part of the business (£366,000 in the year). For FY21 he also had a one-off short-term incentive linked directly to share price performance in the period which totalled £500,000. His contract is terminable on 12 months’ notice by either party. SR Oakes receives a salary of £160,000 per annum and his contract is terminable on six months’ notice by either party. DA Furst and SJ Howard each received a letter of appointment from the Company which took effect on 4 August 2017 and have current salaries of £80,000 and £50,000 respectively. Each of the non-executive appointments are terminable on three months’ notice by either party. LJ Milsted and CC Ashton have received a letter of appointment on the same terms as the existing Non-Executives at an initial annual salary of £50,000. 36 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 The remuneration of the Directors by members of the Group during the year to 31 March was: Basic salary and/or Director’s fees 2021 £’000 Profit share, bonus and fees 2021 £’000 Pension contributions 2021 £’000 Benefits 2021 £’000 Total 2021 £’000 Total 2020 £’000 AJ Biles 49 866 - 1 916 521 DA Furst 56 - - - 56 50 SJ Howard 35 - - - 35 50 SR Oakes 128 - 5 - 133 - P Rogan 82 34 - - 116 161 AJ Edwards 20 - 1 - 21 80 CJ Yates - - - - - 138 370 900 6 1 1,277 1,000 All the Directors are remunerated by the Group. The Directors’ fees and salaries disclosed above were paid in the period. Benefits in kind include private medical insurance and a contribution to a pension plan. The Group was charged rent and service charges (including rates) for office accommodation of £51,000 and £170,000 respectively (2020: £62,000 and £145,000) by Juratone Limited, a company of which AJ Biles is a director. During the year, the Group was charged £467,000 (2020: £240,000) for professional services by, and reimbursed expenses of £9,000 (2020: £Nil) to, ACR Professional Services LLP, an entity of which AJ Biles is a member. The professional services were in respect of services provided by members of that LLP other than AJ Biles. Fees and reimbursed expenses of £10,000 (2020: £20,000) were charged from the Group to ACR Professional Services LLP during the year. At 31 March 2021, the Group was owed £125,000 (2020: £291,000) by ACR Professional Services LLP. During the period, apart from the above, no Director has had any material interest in any contract with the Company or its subsidiaries requiring disclosure under the provisions of the Companies Act 2006. On behalf of the Board S J HOWARD Director Aldgate Tower, 2 Leman Street, London E1 8QN 26 July 2021 37 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Independent auditor’s report to the members Opinion We have audited the financial statements of The Ince Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2021 which comprise the Consolidated Statement of Comprehensive Income, Statements of Financial Position, Company Statement of Financial Position, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity, Company Statement of Changes in Equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and international accounting standards (IAS) in conformity with the requirements of the Companies Act 2006. In our opinion the financial statements: – – give a true and fair view of the state of affairs of the group and of the parent company as at 31 March 2021 and of the group’s profit for the period then ended; – – have been properly prepared in accordance with IAS in conformity with the requirements of the Companies Act 2006; and – – have been prepared in accordance with the requirements of the Companies Act 2006. 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 listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and the parent company’s ability to continue to adopt the going concern basis of accounting included: – – obtaining, critically appraising and assessing for arithmetical accuracy the directors’ profit and loss and cash flow forecasts supporting their formal going concern assessment; – – consideration of the cash flow forecasts against the loan agreement secured in the year, with particular attention to the timetable of repayments and covenant reviews over the period of 12 months from the date of signing this report; – – performing a sensitivity analysis on key assumptions underlying the directors’ going concern assessment, including the level of revenue growth, gross profit margin and debt recovery; – – reverse stress testing to understand the likelihood of covenant breaches occurring, and; – – discussion of events after the reporting date with the directors to assess their impact on the going concern assumption, including comparison of the post year end cash balances to forecast positions. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group or the parent company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Our approach to the audit We tailored the scope of our audit to ensure that we obtained sufficient evidence to support our opinion on the financial statements as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. 38 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 The group consists of the parent company and its subsidiaries, which include UK companies, UK limited liability partnerships, overseas companies, overseas limited liability partnerships and overseas partnerships. Materiality and the risks of material misstatement were assessed at subsidiary level for our audit procedures on the subsidiaries, both in the UK and overseas. We performed an assessment to determine which components were significant to the Group. Significant components were deemed to be those which financially contributed greater than 5% of the Group’s revenue. Overseas entities which generate material revenue and are remote from group central management were also considered significant, particularly in light of the potential impact Covid travel restrictions could have on the group’s ability to monitor overseas subsidiaries. Five UK components were identified as significant, and were subject to a full scope audit by the group engagement team. Significant overseas components, including group entities in Germany, Dubai, Greece, Hong Kong, Singapore and branches in China, were subject to a full scope audit by component auditors under the instruction of the group engagement team. The results of this audit work were reviewed by the group engagement team and, where relevant, supported by remote auditing procedures on key risk areas undertaken from the UK. For all other components, reliance is placed on audit testing completed on significant risk areas together with analytical procedures. Key audit matters KEY AUDIT MATTER HOW OUR SCOPE ADDRESSED THIS MATTER Carrying value of goodwill At 31 March 2021, the group is carrying £56.1m of goodwill which is subject to an annual impairment review under international accounting standards. The directors’ assessment of goodwill impairment includes significant estimates and assumptions particularly around: – – Allocation of the group’s assets and operations into cash-generating units (CGUs), and in particular the allocation of goodwill to CGUs and groupings thereof. – – Identifying future cash flows generated by each CGU based on management’s view of future business prospects. – – Allocation of goodwill to operations upon disposal. – – Estimating future growth and discounting rates. The significance of goodwill to the group’s financial statements, alongside the inherent uncertainty of management judgements in identifying applicable CGUs and calculating impairment have led us to determine that this is a key audit matter. We have examined goodwill impairment reviews prepared by management and have performed procedures including: – – Determining whether CGUs on which the review was based satisfied the requirements of IAS 36. – – Determining whether changes to the CGU groupings and allocation of goodwill to CGUs at the year-end were reasonable and justifiable. – – Reviewing managements’ proposed CGUs and the allocation of goodwill between them in order to conclude on whether these are in line with IAS 36 and reflect the underlying substance of the business structure. – – Testing management forecasts for arithmetical accuracy and for comparison with post year end information. – – Identifying and challenging key assumptions, including growth rates and discount rates, and benchmarking them against expectations. – – Comparing forecast cash flows for each CGU with departmental forecasts. – – Challenging management estimates and underlying calculations for goodwill associated with operations disposed of in the year. We have performed sensitivity analysis to assess the risk of material misstatement arising from potential changes in the key underlying assumptions, including: – – Reorganisation of the CGU groupings during the period; – – Discount rate of 7.9% used in the impairment review calculations; – – Growth rate of 0.09% applied for all CGUs; and – – 10-year period of future cash flows generated by each CGU, in excess of the 5-year period suggested by IAS 36 Based on our procedures performed we are satisfied that the assumptions and judgements made by management in assessing the potential for impairment of goodwill are reasonable. We have not identified any material misstatement arising in the carrying value of goodwill. 39 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS KEY AUDIT MATTER HOW OUR SCOPE ADDRESSED THIS MATTER Presentation in group accounts of member interests in LLPs treated as subsidiaries The board have reviewed the presentation of amounts due to the members of the affiliate LLPs, and concluded that as these amounts arise as a result of contractual arrangements they should be presented as a current liability in the Consolidated Statement of Financial Position. Economic outflows arising from these arrangements have similarly been shown as partner remuneration within the Statement of Comprehensive Income rather than as profit due to Non Controlling Interests. The comparative figures have also been restated for consistency of presentation. The appropriateness of this presentation is subject to judgement in interpretation of the members’ agreements, defining the nature and hence the accounting treatment of partner balances and remuneration. Given the level of judgement in assessing whether this presentation is reflective of the substance of the agreements, and the materiality of the presentation changes to users of the financial statements, this is considered a key audit matter. We have performed the following procedures to address this risk during our year-end audit: – – Reviewed management’s accounting for members’ remuneration and amounts owed to members in the group’s financial statements against the new policy. – – Examined members’ agreements to understand the contractual position. – – Considered the availability of additional information, including trends and precedents in published financial information of comparable businesses. – – Challenged management on the justification for the proposed change of presentation. – – Reviewed the accuracy and completeness of IAS 8 restatement workings and financial statements disclosures. Based on our procedures we are satisfied that the presentation of amounts due to partners as a contractual liability is appropriate, and that the presentation of these in the financial statements, along with the restatement of comparative figures, has not led to a material misstatement. Presentation of the Consolidated Statement of Comprehensive Income On the face of the Consolidated Statement of Comprehensive Income, the group makes use of subtotals additional to those required by IAS 1. Prominence is given to the alternative performance measure (APM) “Operating profit before non-underlying costs”. International accounting standards require that such subtotals be clearly labelled, be consistent from year to year, be made up of amounts recognised in accordance with International Accounting Standards, and not be shown with undue prominence. The presentation of the Consolidated Statement of Comprehensive Income requires judgement in respect of the following matters: – – Categorisation of transactions, in particular with respect to terms not defined in the standard including operating and non-underlying. – – Adequacy and completeness of disclosures around APMs to ensure clarity and understandability for the users of the financial statements. The presentation of the Consolidated Statement of Comprehensive Income thus requires significant judgement on the part of management, and the APM is likely to be highly material to users of the financial statements. As such, the presentation of the Income Statement is considered a key audit matter. We have performed the following procedures to address this risk: – – Reviewed the Consolidated Statement of Comprehensive Income against the requirements of IAS 1 to ensure compliance. – – Considered the nature and amount of “non-underlying costs” and vouched a sample of these items to supporting documentation to ensure they are allocated appropriately. – – Reviewed items not included in operating profit, challenging management where necessary to ensure classification is in line with the substance of the transactions. – – Critically assessed management judgements relating to classification of costs recorded in the Statement of Comprehensive Income for evidence of management bias. – – Reviewed other information included in the accounts to ensure consistency with the financial statements. Based on our procedures we have concluded that the use of alternative performance measures in the Statement of Comprehensive Income, and their presentation, is consistent with the requirement of International Accounting Standards. Independent auditor’s report to the members – continued 40 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 KEY AUDIT MATTER HOW OUR SCOPE ADDRESSED THIS MATTER Carrying value of trade receivables and accrued income There is a risk that trade receivables are overstated if the group cannot successfully convert these balances into cash settlements from clients, or if the expected credit loss allowance (bad debt provision) is understated. There is also a risk that accrued income is similarly overstated if the group cannot subsequently convert these balances into recoverable client bills after the year-end, or if the accrued income provision is understated. The group’s assessment of the valuation of trade receivables and accrued income requires significant estimates and assumptions in respect of the following matters: – – Management’s assessment that the group’s policy for measurement of trade receivables and accrued income provisions continues to be a reasonable approximation of the 12-month expected credit loss allowance as calculated in accordance with IFRS 9. – – That there has been no significant increase in the credit risk of financial instruments since initial recognition which would require measurement of a loss allowance equivalent to the full lifetime credit losses. – – Sensitivity of the trade receivables and accrued income provisions to changes in the underlying assumptions. Given the significance of the carrying value of these assets to the financial statements, and the level of judgement required in assessing impairment thereof, this is considered a key audit matter. Our work on this key audit matter included: – – Substantively testing a sample of trade receivables selected from the aged receivables listings, by reference to after date cash receipts. Where client settlements had not been receipted at the time of our work we sought alternative corroborating evidence over the recoverability of trade receivables, including making enquiries with the credit controller. – – Substantively testing a sample of matters where accrued income is reported at 31 March 2021 by reference to bills raised post year-end. Where bills were not observed to have been raised at the time of our work we sought alternative corroborating evidence over the recoverability of accrued income, through reconciliation of accrued income to timesheet postings and discussions with relevant fee earners to understand intentions for billing. – – Prior year accounting estimates relating to provisions for trade receivables and accrued income were reviewed against financial records for the year. Where management estimates from the prior year differed from performance in the year, the implications of that on management estimates for the current year were considered. – – Assessment of the adequacy of trade receivables and accrued income provisions. Based on our procedures performed we are satisfied that the assumptions and judgements made by management in assessing the valuation of trade receivables and accrued income are reasonable and we have not identified any material misstatement in these balances. Our application of materiality We apply the concept of materiality in planning and performing our audit, in evaluating the effect of any identified misstatements and in forming our opinion. Our overall objective as auditor is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error. We consider a misstatement to be material where it could reasonably be expected to influence the economic decisions of the users of the financial statements. We also separately considered whether uncorrected misstatements, individually or in aggregate, resulted in change from a statutory loss to a statutory profit in the group’s Consolidated Statement of Comprehensive Income. We determined an overall group materiality of £500,000 (2020: £567,000) which has also been applied to the parent company. This is based on 0.5% of group revenues for the year ended 31 March 2021. This is an important measure of performance for the group and consistent with current expectations of the users of the financial statements. Performance materiality was set at £350,000 (2020: £397,000) for both group and parent company, representing 70% of overall materiality. We agreed with the audit committee to report all individual audit differences in excess of £25,000 (2020: £28,000), being 5% of group materiality, as well as any other identified misstatements that warranted reporting on qualitative grounds. 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. 41 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. Responsibilities of directors As explained more fully in the Directors’ Responsibilities Statement set out on page 34, 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 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 group and parent 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. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The specific procedures for this engagement and the extent to which these are capable of detecting irregularities, including fraud, are detailed below. Identifying and assessing risks related to irregularities: We assessed the susceptibility of the group and parent company’s financial statements to material misstatement and how fraud might occur, including through discussions with the directors, discussions within our audit team planning meeting, updating our record of internal controls and ensuring these controls operated as intended. We evaluated possible incentives and opportunities for fraudulent manipulation of the financial statements. We identified laws and regulations that are of significance in the context of the group and parent company by discussions with directors, communication with component auditors and by updating our understanding of the sectors in which the group and parent company operate. Independent auditor’s report to the members – continued 42 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Laws and regulations of direct significance in the context of the group and parent company include the Companies Act 2006, the AIM Rules for Companies and UK Tax legislation as well as similar laws and regulations prevailing in each country in which we identified a significant component. Solicitors Regulation Authority Standards and Regulations and Financial Conduct Authority Legal Instruments are applicable to certain subsidiaries as a result of their registrations with the respective authorities. Audit response to risks identified: We considered the extent of compliance with these laws and regulations as part of our audit procedures on the related financial statement items including a review of group and parent company financial statement disclosures. We reviewed the parent company’s records of breaches of laws and regulations, minutes of meetings and correspondence with relevant authorities, including the SRA and FCA where relevant, to identify potential material misstatements arising. We discussed the parent company’s policies and procedures for compliance with laws and regulations with members of management responsible for compliance. During the planning meeting with the audit team, the engagement partner drew attention to the key areas which might involve non- compliance with laws and regulations or fraud. We enquired of management whether they were aware of any instances of non-compliance with laws and regulations or knowledge of any actual, suspected or alleged fraud. We addressed the risk of fraud through management override of controls by testing the appropriateness of journal entries and identifying any significant transactions that were unusual or outside the normal course of business. We assessed whether judgements made in making accounting estimates gave rise to a possible indication of management bias. At the completion stage of the audit, the engagement partner’s review included ensuring that the team had approached their work with appropriate professional scepticism and thus the capacity to identify non-compliance with laws and regulations and fraud. As group auditors, our assessment of matters relating to non-compliance with laws or regulations and fraud differed at group and component level according to their particular circumstances. Our communications with component auditors included a request to identify instances of non-compliance with laws and regulations and fraud that could give rise to a material misstatement of the group financial statements in addition to our risk assessment. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. A further description of our responsibilities is available on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. MICHAEL STRONG (Senior Statutory Auditor) for and on behalf of Saffery Champness LLP Chartered Accountants Statutory Auditors 71 Queen Victoria Street London EC4V 4BE 26 July 2021 43 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income Note Year ended 31-Mar-21 £’000 Restated Year ended 31-Mar-20 £’000 Continuing operations Fees and commissions 5 100,202 96,330 Production staff and partner costs 6 (49,939) (48,113) Other production costs (5,920) (3,841) Gross profit 44,343 44,376 Administrative staff and partner costs 6 (14,768) (14,742) Other operating expenses (14,960) (14,666) Depreciation of property, plant and equipment (1,422) (1,473) Depreciation of right-of-use assets (4,179) (4,556) Amortisation (290) (83) Other operating income 445 354 Operating profit before non-underlying costs 9,169 9,210 Non-underlying costs 7 (6,036) (1,657) Operating profit 8 3,133 7,553 Finance income 9 410 351 Finance expense – right-of-use assets 9 (515) (483) Finance expense – other 9 (1,090) (1,057) Share of profit/(loss) of associates 18 (140) Profit before income tax 1,956 6,224 Income tax expense 10 (690) (1,530) Profit from continuing operations 1,266 4,694 (Loss)/profit from discontinued operations 16 (919) 268 Profit for the period 347 4,962 Attributable to: Equity holders of the Company 326 4,952 Non-controlling interests 21 10 Profit for the period 347 4,962 Other comprehensive income Items that may be reclassified subsequently to profit or loss: Translation of foreign operations (67) 35 Other comprehensive income for the period (67) 35 Total comprehensive income for the period 280 4,997 Attributable to: Equity holders of the Company 259 4,987 Non-controlling interests 21 10 Total comprehensive income for the period 280 4,997 Earnings per share Basic earnings per share (pence) 11 0.48 11.78 Basic earnings per share before non-underlying costs (pence) 11 8.36 15.35 Diluted earnings per share Diluted earnings per share (pence) 11 0.46 11.42 Diluted earnings per share before non-underlying costs (pence) 11 8.11 14.88 There is no tax on any component of other comprehensive income or expense. The attached notes are an integral part of these consolidated financial statements. 44 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Statements of Financial Position The Ince Group plc (Registered number: 03744673) Note Group 31-Mar-21 £’000 Restated Group 31-Mar-20 £’000 Company 31-Mar-21 £’000 Company 31-Mar-20 £’000 ASSETS Non-current assets Property, plant and equipment 13 2,813 3,761 52 90 Right-of-use assets 14 10,562 17,441 496 696 Intangible assets 15 79,612 80,825 – – Investments 16 – 470 47,607 47,607 92,987 102,497 48,155 48,393 Current assets Trade and other receivables 17 46,131 44,412 36,264 38,886 Corporation tax – – – – Cash in hand and at bank 18 8,307 5,250 1 3 54,438 49,662 36,265 38,889 Total assets 147,425 152,159 84,420 87,282 EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 19 686 686 686 686 Share premium 20 24,126 24,126 24,126 24,126 Reverse acquisition reserve 20 (24,724) (24,724) – – Foreign exchange translation reserve 20 (32) 35 – – Other reserves 20 785 634 3,611 3,460 Distributable reserves 20 41,853 41,527 12,570 18,894 42,694 42,284 40,993 47,166 Non-controlling interest 50 29 – – Total equity 42,744 42,313 40,993 47,166 LIABILITIES Non-current liabilities Trade and other payables 21 14,536 22,453 – – Borrowings 22 13,092 10,400 13,045 10,400 Provisions 23 2,377 2,189 40 – Lease liabilities 14 7,774 13,284 151 370 37,779 48,326 13,236 10,770 Current liabilities Trade and other payables 21 41,664 39,325 28,316 27,756 Corporation tax 1,787 1,372 295 – Borrowings 22 1,804 3,829 1,200 1,200 Provisions 23 2,838 2,407 – – Lease liabilities 14 4,863 5,552 380 390 Amounts due to partners 13,946 9,035 – – 66,902 61,520 30,191 29,346 Total liabilities 104,681 109,846 43,427 40,116 Total equity and liabilities 147,425 152,159 84,420 87,282 The Company has taken advantage of the exemption contained in S408 Companies Act 2006 and has not presented a separate income statement for the Company. The Company recorded a loss of £6,324,000 for the 12-month period ending 31 March 2021. The financial statements were approved and authorised for issue by the Board of Directors and were signed on its behalf on 26 July 2021 by SR Oakes – Director. The attached notes are an integral part of these consolidated financial statements. 45 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Consolidated Statement of Cash Flows Group 12 months to 31-Mar-21 £’000 Restated Group 12 months to 31-Mar-20 £’000 Company 12 months to 31-Mar-21 £’000 Company 12 months to 31-Mar-20 £’000 Cash flows from operating activities Profits before tax from continuing operations 1,956 6,224 (5,966) (9,269) (Loss)/profits before tax from discontinued operations (978) 281 – – Adjustments for: Finance income (410) (352) (56) – Finance expense 1,619 1,571 292 – Non-underlying costs 6,036 1,657 – 391 Depreciation, amortisation and impairment 9,070 8,279 367 294 Share options expense 151 172 151 172 Loss/(gain) on sale of discontinued operations 757 (51) – – Share of (loss)/profit of associates (18) 140 – – Net exchange differences 266 (323) – – Changes in operating assets and liabilities (net of acquisitions): (Increase)/decrease in trade and other receivables (717) (9,616) 12 (731) (Decrease)/increase in trade and other payables 6,522 (466) 348 292 (Decrease)/increase in provisions (1,254) (6,380) 40 – Cash generated by operations 23,000 1,136 (4,812) (8,851) Interest and other finance costs paid (1,082) (1,054) (272) (370) Tax paid (257) (896) (63) – Net cash generated/(absorbed) by operating activities 21,661 (814) (5,147) (9,221) Cash flows from investing activities Cash paid on acquisitions (net of cash acquired) 449 2,078 – – Payment of contingent and deferred consideration (9,985) (10,126) – – Payment of acquisition related costs (2,250) (1,657) – – Purchase of PPE (825) (1,436) – (116) Proceeds from disposal of PPE – 2 – – Purchase of intangible assets (1,123) (1,627) – – Disposal of a subsidiary, net of cash disposed of (127) (191) – – Interest received 238 352 56 – Net cash absorbed by investing activities (13,623) (12,605) 56 (116) Cash flows from financing activities Proceeds from new borrowings 14,886 9,630 14,500 6,500 Repayment of borrowings (13,975) (3,497) (11,855) (900) (Advances to)/repayments by subsidiaries – – 2,822 (8,073) Proceeds from issuance of shares – 14,046 – 14,048 Transaction costs relating to issue of shares – (800) – (800) Dividends paid – (2,197) – (2,197) Direct cost of leases (30) (24) – (17) Payment of lease liabilities (5,534) (3,268) (378) (208) Net cash absorbed from financing activities (4,653) 13,890 5,089 8,353 Net increase/(decrease) in cash and cash equivalents 3,385 471 (2) (984) Cash and cash equivalents at beginning of period 5,191 4,720 3 987 Effects of exchange rate changes on cash (271) – – – Cash and cash equivalents at end of period (note 18) 8,305 5,191 1 3 The attached notes are an integral part of these consolidated financial statements. 46 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Consolidated Statement of Changes in Equity Share capital £’000 Share premium £’000 Reverse acquisition reserve £’000 Foreign exchange translation reserve £’000 Other reserves £’000 Distributable reserves £’000 Non- controlling interest £’000 Total equity £’000 Balance at 1 April 2019 (restated) 370 11,192 (24,724) – 48 38,787 19 25,692 Profit for the period – – – – – 4,952 10 4,962 Other comprehensive income – – – 35 – – – 35 Dividend paid – – – – – (2,212) – (2,212) Shares issued in period 316 13,734 – – 414 – – 14,464 Credit to equity for equity-settled share-based payments – – – – 172 – – 172 Share issue transaction costs – (800) – – – – – (800) Balance at 31 March 2020 (restated) 686 24,126 (24,724) 35 634 41,527 29 42,313 Balance at 1 April 2020 686 24,126 (24,724) 35 634 41,527 29 42,313 Profit for the period – – – – – 326 21 347 Other comprehensive income – – – (67) – – – (67) Credit to equity for equity-settled share-based payments – – – – 151 – – 151 Balance at 31 March 2021 686 24,126 (24,724) (32) 785 41,853 50 42,744 The attached notes are an integral part of these consolidated financial statements. 47 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Share capital £’000 Share premium £’000 Other reserves £’000 Distributable reserves £’000 Total equity £’000 Balance at 1 April 2019 370 11,192 2,874 30,543 44,979 Profit/(loss) and total comprehensive income/ (expense) for the period – – – (9,437) (9,437) Dividend paid – – – (2,212) (2,212) Shares issued in period 316 13,734 414 – 14,464 Credit to equity for equity-settled share-based payments – – 172 – 172 Share issue transaction costs (800) – – (800) Balance at 31 March 2020 686 24,126 3,460 18,894 47,166 Balance at 1 April 2020 686 24,126 3,460 18,894 47,166 Profit/(loss) and total comprehensive income/ (expense) for the period – – – (6,324) (6,324) Credit to equity for equity-settled share-based payments – – 151 – 151 Balance at 31 March 2021 686 24,126 3,611 12,570 40,993 The attached notes are an integral part of these consolidated financial statements. Company Statement of Changes in Equity – continued 48 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Notes to the Financial Statements 1. General information The Ince Group plc (the Company) and its subsidiaries (together “The Ince Group” or “the Group”) provide legal & professional services and independent financial advisory services to businesses and high net worth individuals. The Company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Aldgate Tower, 2 Leman Street, London E1 8QN. These consolidated financial statements have been approved for issue by the Board of Directors on 26 July 2021. 2. Summary of significant accounting policies 2.1 Basis of preparation These consolidated financial statements of The Ince Group plc are for the 12-month period to 31 March 2021. The financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have been prepared on the going concern basis. In deciding this, the Directors have considered the detailed budgets for the current financial year and high-level budgets for the succeeding two years including in both cases cash flows. The Group secured new funding facilities in March 2021 which are considered to be sufficient for the Group’s purposes based on current projections. Financial forecasts project the Group to be fully compliant with the covenants associated with these facilities. They have also considered the impact of adverse changes resulting from the major risks and uncertainties they consider apply to the Group. At the date of this report, the Group continues to take the Covid-19 threat to its clients, vendors, staff and overall business very seriously. The Group is taking proactive action and has activated business continuity plans, where required across the jurisdictions in which the Group operates, to minimise the risk of disruption to business operations. In doing this, the Group has taken account of government advice in the jurisdictions in which it operates and the need to safeguard the health of our clients. We will continue to follow the various locations’ national policies and advice and in parallel will do our upmost to continue our operations in the best and safest way possible without jeopardising anyone’s health. Consequently, the Board of Directors has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the next 12 months. The financial statements have been prepared in accordance with those IFRS standards and IFRIC interpretations issued and effective or issued and early adopted as at the time of preparing these statements. The policies set out below have been consistently applied to all the periods presented. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4. 2.2 Restatement of prior year Previously, remuneration under partner profit share arrangements was classified as non-controlling interests and excluded as a cost item in the Consolidated Statement of Comprehensive Income and classified within Equity in the Statements of Financial Position. Remuneration earned under these arrangements represents a contractual cost of operation of the Group and, in this year’s financial statements these costs have been presented in the Consolidated Statement of Comprehensive Income (included within Production staff and partner costs and Administrative staff and partner costs) and as a liability in the Statements of Financial Position (included within Current liabilities under the heading Amounts due to partners) with an according restatement of the prior year comparatives for this reclassification. Prior year comparatives have also been re-stated for the impact of discontinued operations (note 16.3). 49 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The affected financial statement line items for the prior period have been restated as follows: Consolidated Statement of Comprehensive Income extract: Group 2020 £’000 Reclassification £’000 Partner remuneration presentation change £’000 Discontinued operation restatement* £’000 Restated Group 2020 £’000 Fees and commissions 98,478 – – (2,148) 96,330 Production staff and partner costs – (31,536) (17,493) 916 (48,113) Other production costs – (4,180) – 339 (3,841) Administrative staff and partner costs – (13,617) (1,387) 262 (14,742) Staff costs (45,153) 45,153 – – – Other operating expenses (19,182) 4,180 – 336 (14,666) Depreciation of property, plant and equipment (1,487) – – 14 (1,473) Depreciation of right-of-use assets (4,663) – – 107 (4,556) Amortisation (2,129) – 2,046 – (83) Other operating income 354 – – – 354 Operating profit before non-underlying costs 26,218 – (16,834) (174) 9,210 Non-underlying costs – (1,657) – – (1,657) Operating profit 26,218 (1,657) (16,834) (174) 7,553 Finance income 352 – – (1) 351 Finance expense – right-of-use assets (514) – – 31 (483) Finance expense – other (1,057) – – – (1,057) Non-recurring costs (1,657) 1,657 – – – Share of loss of associates (140) – – – (140) Profit before income tax 23,202 – (16,834) (144) 6,224 Income tax expense (1,543) – – 13 (1,530) Profit from continuing operations 21,659 – (16,834) (131) 4,694 Profit from discontinued operations 137 – – 131 268 Profit for the period 21,796 – (16,834) – 4,962 Attributable to: Equity holders of the Company 4,952 – – – 4,952 Non-controlling interests 16,844 – (16,834) – 10 Profit for the period 21,796 – (16,834) – 4,962 Basic earnings per share (pence) 11.78 – – – 11.78 Diluted earnings per share (pence) 11.42 – – – 11.42 Details of the change in alternative performance measures are included in note 11. Details of non-recurring costs and non-underlying costs are included in note 7. Notes to the Financial Statements – continued 50 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Statement of Financial Position extract: Group 2020 £’000 Partner remuneration presentation change £’000 Discontinued operation restatement* £’000 Restated Group 2020 £’000 Non-controlling interest 9,064 (9,035) – 29 Amounts due to partners – 9,035 – 9,035 Total 9,064 – – 9,064 Consolidated Statement of Cash Flows extract: Group 2020 £’000 Partner remuneration presentation change £’000 Discontinued operation restatement* £’000 Restated Group 2020 £’000 Profits before tax from continuing operations 23,202 (16,834) (144) 6,224 Profits before tax from discontinued operations 137 – 144 281 (Decrease)/increase in trade and other payables (1,787) 1,321 – (466) Transactions with non-controlling interests (15,513) 15,513 – – Total 6,039 – – 6,039 Consolidated Statement of Changes in Equity extract: Group 2020 £’000 Partner remuneration presentation change £’000 Discontinued operation restatement* £’000 Restated Group 2020 £’000 Total equity – balance at 1 April 2019 31,480 (5,788) – 25,692 Profit for the period 21,796 (16,834) – 4,962 Transferred to members (13,587) 13,587 – – Total equity – balance at 31 March 2020 51,348 (9,035) – 42,313 *As noted above, further details of this change are included in note 16.3. 51 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2.3 Adoption of new and revised standards During the financial year, the Group has adopted the following new IFRSs (including amendments thereto) and IFRIC interpretations that became effective for the first time. Standard Effective date, annual period beginning on or after Conceptual Framework and Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020 Amendments to IFRS 3 Business Combinations 1 January 2020 Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020 Interest Rate Benchmark Reform: amendments to IFRS 9, IAS 39 and IFRS 7 1 January 2020 Their adoption has not had any material impact on the disclosures or amounts reported in the financial statements. 2.4 Standards issued but not yet effective The Group has not adopted any standards or interpretations in advance of the required implementation dates. At the date of authorisation of these financial statements, the following standards and interpretations relevant to the Group, and which have not been applied in these financial statements, were in issue but were not yet effective. In some cases, these standards and guidance have not been endorsed for use in the European Union. Standard Effective date, annual period beginning on or after Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) 1 January 2021 Covid 19-Related Rent Concessions (Amendment to IFRS 16 Leases) 1 April 2021 (previously 1 June 2020) Updating a Reference to the Conceptual Framework (Amendments to IFRS 3 Business Combinations) 1 January 2022 Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) 1 January 2022 Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets) 1 January 2022 Annual improvements 2018-2020 cycle 1 January 2022 Classification of Liabilities as Current or Non-Current: amendments to IAS 1 1 January 2023 IFRS 17 – Insurance Contracts 1 January 2023 2.5 Consolidation Subsidiaries are entities controlled by the Company. 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences to the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Costs directly attributable to the acquisition are expensed in the period. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets and contingent liabilities acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the Statement of Comprehensive Income. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. The Company’s accounting period date 31 March is in line with its subsidiaries. Notes to the Financial Statements – continued 52 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 2.6 Investments in subsidiaries Investments in subsidiaries are included at cost less provision for impairment in value. 2.7 Investments in associates Associates are those entities over which the Group has significant influence, but neither control nor joint control over the financial and operating policies. Associates are accounted for using the equity method and are initially recognised at cost. The financial statements include the Group’s share of total comprehensive income and equity movements of associates from the date when significant influence commences to the date the significant influence ceases. 2.8 Business combinations The Group applies the acquisition method of accounting to account for business combinations in accordance with IFRS 3 (R), ‘Business Combinations’. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. All transaction related costs are expensed in the period they are incurred. If the consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in the Statement of Comprehensive Income. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that are deemed to be an asset or liability are recognised in accordance with IFRS 9 in the Statement of Comprehensive Income. 2.9 Intangible assets Intangible assets include the cost of acquiring client portfolios and the Ince brand. Client portfolios are carried at cost less accumulated amortisation losses and impairment losses. Amortisation of the cost is being provided for in line with the fees billed and cash collections being generated by the client portfolio acquired. The Ince brand is carried based on an independent external valuation which applied a discounted cash flow model under the relief from royalty method. The brand has existed for 150 years and it has been confirmed as part of the independent valuation that it has an indefinite useful economic life. Intangible assets also include internally generated software and intellectual property, which are held at cost less subsequent amortisation and impairment. These intangible assets are amortised at rates in order to write off the assets on a straight-line basis over their estimated useful lives of between 3 and 10 years. Internally generated software is amortised at the point from which the software is considered fully functional. The remaining amortisation period of these assets varies from 1 year to 5.5 years. 2.10 Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is initially measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquired entity and the fair value of the acquirer’s previously held equity interest (if any) in the entity over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. The Company tests annually whether goodwill has suffered any impairment. The carrying value of the goodwill is dependent on the future income stream from that asset. Goodwill recognised in a business combination does not generate cash flows independently of other assets or groups of assets. As a result, the recoverable amount, being the value in use, is determined at a cash-generating unit (CGU) level. The determination of a CGU is judgemental. The identification of CGUs involves an assessment of whether the asset or group of assets generate independent cash flows. Where goodwill can be allocated to a single CGU, impairment is tested at the CGU level. Otherwise, goodwill is allocated across a group of CGUs and tested for impairment in aggregate. This was carried out at 31 March 2021. The carrying value of goodwill and the key assumptions used in performing the annual impairment assessment are disclosed in note 15. 53 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2.11 Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised where the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). CRITICAL ESTIMATES AND ASSUMPTIONS MADE In assessing the value in use of each CGU, our calculations required estimates in relation to uncertain items, including management’s expectations of future growth, operating costs, profit margins, operating cash flow and the discount rate for each CGU. Future cash flows used in the value in use calculations are based on the latest approved financial plans extrapolated for future periods expected to benefit from the goodwill for each CGU. The future cash flows are discounted using a post-tax discount that reflects current market assessments of the time value of money. 2.12 Financial instruments The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised on trade date when the Group becomes a party to the contractual provisions of the instrument. Financial instruments are recognised initially at fair value plus, in the case of a financial instrument not at fair value through profit and loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Financial instruments are derecognised on trade date when the Group is no longer a party to the contractual provisions of the instrument. Financial assets are included on the Statement of Financial Position as trade and other receivables and cash and cash equivalents. Financial liabilities are included on the Statement of Financial Position as trade and other payables and borrowings. a. Trade receivables Trade receivables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash receipts over the short credit period is not considered to be material. The Group recognises a provision against receivables being an estimate based on prior experience of credit losses for irrecoverable amounts adjusted for known foreseeable estimated losses. b. Trade payables Trade payables are stated at their original invoiced value, as the interest that would be recognised from discounting future cash payments over the short payment period is not considered to be material. c. Interest-bearing borrowings Interest-bearing borrowings are stated at amortised cost using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability. 2.13 Foreign currency translation a. Functional and presentation currency The consolidated financial statements are presented in pounds sterling, which is the Company’s functional and presentation currency. b. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income. Notes to the Financial Statements – continued 54 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 c. Subsidiary accounts denominated in foreign currency On consolidation, assets and liabilities of non-sterling entities are translated to sterling at year-end rates of exchange, while their statements of income, other comprehensive income and cash flows are translated at monthly average rates. The resulting translation differences are recognised as currency translation differences within other comprehensive income. 2.14 Property, plant and equipment Property, plant and equipment (“PPE”) is shown at cost less subsequent depreciation and impairment. Cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset less its residual value over its estimated useful life, as follows: Computer equipment 3-10 years Office equipment and fixtures and fittings 3-5 years Leasehold improvements 3-5 years Land and freehold buildings Indefinite useful life The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each Statement of Financial Position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. Write downs and gains and losses on disposals are included in the Statement of Comprehensive Income. 2.15 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the Statement of Financial Position. 2.16 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Statement of Comprehensive Income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the Statement of Financial Position date. 2.17 Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated and company financial statements. The deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit/loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the Statement of Financial Position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, joint ventures and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future employee benefits. 55 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2.18 Pension obligations The Group operates a pension scheme which is a defined contribution plan. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. 2.19 Profit-sharing and bonus plans The Group recognises a liability and an expense for bonuses and profit-sharing, based on a formula that takes into consideration the profit attributable to that part of the Group for which the employee is profit responsible. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. This includes amounts due to partners in respect of their remuneration model. 2.20 Provisions Provisions for clawback of indemnity commission, pensions review, unpaid salaries and other claims are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation at the Statement of Financial Position date. 2.21 Revenue recognition Revenue comprises the fair value of the sale of services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. Revenue from the sale of professional services is recognised as follows: a. Legal and professional services Revenue from the provision of legal and professional services is recognised over time in the accounting period in which services are rendered. Contracts for the provision of legal and professional services may include fixed fee arrangements, variable fee arrangements based on time and materials or contingent fee arrangements. For fixed fee arrangements, revenue is recognised based on the actual services provided to the end of the reporting period as a proportion of the total services to be provided. For variable fee contracts based on time and materials, revenue is recognised at the amount of fees that the Group has a right to invoice for services provided, based on the fee rates agreed with the client. For conditional fee arrangements, fees are billed on completion depending on the outcome of the matter (e.g. Personal Injury or Clinical Negligence cases on a ‘no win, no fee’ basis). Revenue in respect of contingent fee assignments, over and above any agreed minimum fee, is included in revenue only to the extent that it is highly probable that the amount will not be subject to significant reversal when the uncertainty is resolved. This is generally when the matter is resolved and the outcome is known. Contingent fee income includes revenue earned as a result of dispute resolution activity undertaken in the turnaround of businesses acquired out of administration, including debt collection. A receivable is recognised when a bill has been invoiced as this is the point in time that the consideration is considered unconditional because only the passage of time is required before payment is due. Where income has not been billed at the reporting date, it is included in accrued income. No element of financing is deemed to exist as payment is typically due within one year of the service being performed. Notes to the Financial Statements – continued 56 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 b. Employee benefits and financial advisory Revenue relating to the employee benefits and financial advisory business represents fees and life and pension commission and is recognised at a point in time. Fees are recognised when invoiced and commissions are recognised when confirmation is received from the underwriters that payment is being made to the Group. A provision is made for clawback of commission which is deducted from revenue. c. Interest income Interest income is recognised on a time-proportion basis using the effective interest method. d. Government grants During the year, the Group has received Government support. A Government grant is recognised in the Statement of Financial Position within other receivables when there is a reasonable assurance that it will be received and that the Group will comply with the conditions attached to it. Grants are netted off against the related costs in the income statement at a point in time to match the timing of the recognition of the related expenses for which they are intended to compensate. 2.22 Leases Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the lease asset is available for use by the Group. Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any re- measurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. Lease liabilities are initially measured at the net present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Extension and termination options are included in a number of the property leases across the Group. The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any period covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group applies judgement in evaluating whether it is reasonably certain to exercise an option to renew or terminate a lease. Management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise, or not to exercise, the option to renew or terminate the contract. If a lease modification increases the given lease’s scope by adding the right to use of an asset then this modification is treated as a new lease. Payments associated with short-term leases and leases of low-value assets (with a value of less than £10,000) are recognised on a straight-line basis as an expense in the Statement of Comprehensive Income. Short-term leases are leases with a lease term of 12 months or less. 2.23 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. Interim dividends are recognised when paid. 57 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 2.24 Share-based payments The fair value at the date of grant of the equity instrument is recognised as an expense, spread over the vesting period of the instrument. The total amount to be expensed is determined by reference to the fair value of the awards, excluding the impact of any non-market vesting conditions. At each Statement of Financial Position date, the Group revises its estimate of the number of equity instruments which are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the Statement of Comprehensive Income and a corresponding adjustment is made to equity. On vesting or exercise, the difference between the expense charged to the Statement of Comprehensive Income and the actual cost to the Group is transferred to retained earnings. Where new shares are issued, the proceeds received are credited to share capital and share premium. 3. Financial risk management 3.1 Financial risk factors The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk, cash flow risk and fair value interest-rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Further details are set out in notes 27 to 32. Risk management is carried out by the Board of Directors. The Board identifies, evaluates and hedges financial risks in close co- operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use of convertible loan stock and non- convertible loan stock, and investing excess liquidity. a. Credit risk Because the Group has a wide range of clients, in different market sectors, it has no significant concentrations of credit risk. It has policies in place to ensure that if customers do not settle their accounts within the agreed terms then the transaction is cancelled minimising the credit exposure. b. Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, and the availability of funding through an adequate amount of committed credit facilities. The Group aims to maintain flexibility in funding by keeping committed credit lines available. c. Cash flow and fair value interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The interest rates of finance leases to which the Group is lessee are fixed at inception of the lease. These leases expose the Group to fair value interest rate risk. The Group’s cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group aims to maintain the majority of its borrowings in variable rate instruments. At March 2021, 97% of borrowings were at variable rates and 3% were at fixed rates. 4. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that 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. a. Estimated impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated and a key judgement is the determination of the associated allocation of goodwill to these cash-generating units. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate. Further details are included in note 15. Notes to the Financial Statements – continued 58 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 b. Accrued income Accrued income represents unbilled amounts for client work and is measured initially at fair value and held at amortised cost less provisions for foreseeable losses that are estimated based upon current observable data and historical trend. Further details are included in note 17. c. Impairment of receivables Receivables are held at cost less provisions for impairment. Provisions for impairment represent an allowance for doubtful debts that is estimated, based upon current observable data and historical trend. Details of receivables are included in note 17. d. Valuation of intangible assets 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 judgements in relation to expected growth rates, profitability, length of key customer relationships and the appropriate discount rate. Intangible assets relating to brands and trademarks, which the Group has acquired, are assessed for impairment on an annual basis. The value of intangible assets at 31 March 2021 was £79,612,000 (2020: £80,825,000). e. Brand valuation The valuation of the Ince brand is a key estimate due to judgement involved in the assumptions used to value the asset. Further details can be found in note 15. f. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured using management’s best estimate of the expenditure required to settle the obligation at the reporting date and are discontinued to present value where the effect is material. The value of provisions at 31 March 2021 was £5,215,000 (2020: £4,596,000). Further details can be found in note 23. g. Amortisation of intangible assets other than goodwill The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management’s judgement of the period over which economic benefit will be derived from the asset. Further details are included in note 15. h. Classification of non-controlling interests As described in note 2.2, non-controlling interests related to partner profit share arrangements have been presented as a cost within the Consolidated Statement of Comprehensive Income and as a liability within the Statements of Financial Position to better represent the commercial nature of these arrangements. i. Goodwill valuation of discontinued operation During the year the Group disposed of White & Black Limited, an operation within the Legal & Business Services CGU group. Management considered the retained value of the business of ongoing technical expertise, integrated services and clients and concluded that goodwill could not be non-arbitrarily allocated to White & Black Limited. In assessing the impact of the disposal management considered the relative value of the operation against the value of the remaining CGUs, using judgement in identifying appropriate valuations, and allocated goodwill to the disposal in line with these valuations (as disclosed in note 16.3). 59 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 5. Segmental reporting Group The Board of Directors, as the chief operating decision-making body, reviews financial information for and makes decisions about the Group’s overall business and has identified a single operating segment, that of legal and professional services. 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. Revenue by region In the following table, revenue from contracts with customers is disaggregated by primary geographical market: 2021 £’000 Restated 2020 £’000 UK 58,734 61,712 Europe, Middle East & Africa 16,189 13,328 Asia 25,279 21,290 Total revenue 100,202 96,330 Non-current assets other than financial instruments and deferred tax assets by geographical areas are not presented as this information is not provided to the chief operating decision maker of the Group. 6. Staff and partner costs Group The average number of persons employed by the Group (including Directors) during the period, analysed by category, was as follows: No. of employees 2021 Restated 2020 Fee earners 349 333 Direct support staff 114 134 Support staff 238 251 Total 701 718 The aggregate employment costs of these persons were as follows: 2021 £’000 Restated 2020 £’000 Wages and salaries 35,349 37,266 Social security costs 3,409 3,368 Employee benefits costs 2,643 2,088 Pension costs 1,323 1,253 Redundancy costs 216 – Total staff costs 42,940 43,975 Partner remuneration 20,334 16,834 Deferred consideration revaluation (1,472) – Amortisation – relating to partner payments 3,121 2,046 Total staff and partner costs 64,923 62,855 Wages and salaries include a material credit of £2,106,000 (2020: £Nil) in connection with the UK Coronavirus Job Retention Scheme Government grants and other similar grants in Singapore and Hong Kong received in the period. Notes to the Financial Statements – continued 60 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Company The Company has no employees (excluding Directors) (2020: none); all personnel are employed by subsidiary entities. Directors’ remuneration Total Directors’ remuneration was as follows: 2021 £’000 2020 £’000 Salaries, fees, bonuses and benefits in kind 1,271 1,000 Pension costs 6 – 1,277 1,000 The number of Directors to whom benefits are accruing under money purchase pension schemes is two (2020: none). Further details of the remuneration of and transactions with Directors are included in the directors’ Remuneration Report accompanying these financial statements. Key management personnel comprise the Board of Directors. 7. Non-underlying costs Group 2021 £’000 Group 2020 £’000 Property abandonment costs 3,197 – Litigation 1,560 95 Restructuring 485 – Acquisition/onboarding costs 440 1,437 Refinancing costs 354 – Equity fund raise – 125 Total non-underlying costs 6,036 1,657 Costs and income are assessed by management as non-underlying where they are considered outside of or related to events outside of the normal scope of operation of the Group’s business, non-recurring in nature in the financial period: – – Property abandonment costs relate to costs for the lease of one floor of Aldgate Tower (the Group’s head office), which as a result of restrictions resulting from Covid-19 has not been usable since March 2020. This floor is not planned for re-use before the next break clause in its lease which is in October 2022 (note: the other floor in that premises, separately leased by the Group, is expected to be re-opened as restrictions ease during this financial year). As a result of this restriction on access, the right-of-use asset for the lease is identified as impaired and accordingly associated rate and service charge costs to the break clause date have been provided in full. – – Litigation relates to the final settlement (and associated legal fees) of disputes with former partners of Ince & Co Singapore LLP and Herring Parry Khan Giomelakis Le-Du Law Office (the Group’s Greek entity), who did not join the Group as part of the Ince acquisition. – – In the year, Covid-19 caused significant disruption to the Group’s business. As a result, various non-recurring restructuring costs were incurred, including a redundancy programme undertaken across September to November 2020 which reduced UK head count by 47, and additional costs for the back-office support to the old Ince practice management system were incurred as travel to overseas offices was restricted, delaying the planned overseas roll out of the Group’s proprietary practice management system. – – Acquisition/onboarding costs include principally certain costs relating to the merger of Ince & Co Singapore LLP and Incisive Law LLC (Singapore), which took place in May 2020. – – Refinancing costs relate to various advisory and other costs incurred as part of the Group’s refinancing with Investec Bank Plc (undertaken in March 2021). Items set out above for the prior financial year were classified as non-recurring costs and disclosed in a different position on the Consolidated Statement of Comprehensive Income. These items all meet the criteria set out above for inclusion as non-underlying costs (in line with changes in presentation of alternative performance measures for profits, outlined in note 11). Note 2.2 shows the impact of this reclassification. 61 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 8. Operating profit Operating profit is stated after charging/ (crediting): Group 2021 £’000 Group 2020 £’000 Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 75 70 Fees payable to the Company’s auditor and its associates for other services: • audit of the accounts of subsidiaries 201 241 • audit fees in respect of the prior year 95 – • audit-related assurance services 99 47 • other assurance services – 33 Depreciation of tangible fixed assets • continuing operations 1,422 1,473 • discontinued operations 5 14 Depreciation of right-of-use assets • continuing operations 4,179 4,556 • discontinued operations 53 107 Amortisation/impairment of intangible assets: • turnover related 3,121 2,046 • other 290 83 Bad debt expense 4,116 2,041 Hire of plant and equipment 102 94 Employee benefits (note 6) 42,940 43,975 Share-based payment expense 151 172 Fees payable to the Company’s auditor for audit-related assurance services includes non-underlying costs of £82,000 (2020: £54,000). Notes to the Financial Statements – continued 62 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 9. Finance income and expense Group 2021 £’000 Restated Group 2020 £’000 Finance income Bank interest receivable 25 346 Net change in fair value of contingent deferred consideration liabilities 172 – Other finance income 213 5 410 351 Finance expense Bank interest payable (2) (11) Hire purchase (1) (3) Finance charge on leases (515) (483) Loan interest (393) (519) Other interest (43) (8) Unwind of discounting on financial liabilities (539) (516) Other finance expense (112) – (1,605) (1,540) Net finance income/(expense) (1,195) (1,189) 10. Taxation i. Analysis of charge in the period: Group 2021 £’000 Restated Group 2020 £’000 The charge for taxation comprises: Taxation charge for the current period 879 1,362 Adjustment in respect of prior periods (189) 168 690 1,530 ii. Factors affecting the tax charge for the period: Group 2021 £’000 Restated Group 2020 £’000 Profit on ordinary activities before taxation 1,956 6,224 Less: (profit)/loss arising in partnerships, on which tax is payable by the members personally (111) 807 Profit on ordinary activities of corporate entities before taxation 1,845 7,031 Profit on ordinary activities multiplied by the standard rate of corporation tax of 19% (2020: 19%) 351 1,336 Effects of: Impact of tax-exempt items 470 (98) Losses (utilised) / carried forward 8 – Difference in overseas tax rates 50 124 Total taxation charge for the current period 879 1,362 63 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 11. Earnings per share Earnings per share are based on the weighted average number of shares of the Company in issue or issued as consideration for the entities whose results are reported in the period. The number of shares and periods are as follows: 1 April 2019 36,976,730 Being the Company’s issued shares at that date 27 November 2019 37,326,730 Being the Company’s issued shares following new shares issued as consideration on acquisition of Ince Compliance Solutions Limited 3 February 2020 68,540,912 Being the Company’s issued shares following new shares issued as part of an equity placing exercise The calculation of the basic and diluted earnings per share is based on the following data: Group 2021 £’000 Restated Group 2020 £’000 Earnings from continuing operations for the purpose of basic and diluted earnings per share 1,245 4,684 Earnings from discontinued operations for the purpose of basic and diluted earnings per share (919) 268 Earnings from all operations for the purpose of basic and diluted earnings per share 326 4,952 Number Number Weighted average number of ordinary shares for the purposes of basic earnings per share 68,540,912 42,043,732 Effect of dilutive potential ordinary shares: Future exercise of share awards and options 2,143,044 1,335,472 Weighted average number of ordinary shares for the purposes of diluted earnings per share 70,683,956 43,379,204 Earnings from continuing operations per share attributable to the owners of the parent: Basic earnings per share (pence) 1.82 11.14 Diluted earnings per share (pence) 1.76 10.80 Earnings from discontinued operations per share attributable to the owners of the parent: Basic earnings per share (pence) (1.34) 0.64 Diluted earnings per share (pence) (1.30) 0.62 Earnings from all operations per share attributable to the owners of the parent: Basic earnings per share (pence) 0.48 11.78 Diluted earnings per share (pence) 0.46 11.42 Basic earnings before non-underlying costs is calculated as follows: Group 2021 £’000 Group 2020 £’000 Profit for the period attributable to equity holders of the Company 326 4,952 Add back: non-underlying costs (note 7) 6,036 1,657 Deduct: tax impact of non-underlying costs (629) (155) Basic earnings before non-underlying costs 5,733 6,454 Notes to the Financial Statements – continued 64 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Previously the Group disclosed Adjusted profit before tax in this note. This profit measure is no longer used by management but a bridge from Operating profit before non-underlying costs (disclosed in the Consolidated Statement of Comprehensive Income) is set out below: Group 2021 £’000 Group 2020 £’000 Operating profit before non-underlying costs 9,169 9,210 Finance income 410 351 Finance expense – right-of-use asset (515) (483) Finance expense – other (1,090) (1,057) Share of (loss)/profit of associate 18 (140) Non-controlling interests (21) (10) Adjusted profit before tax 7,971 7,871 White & Black discontinued items 144 Adjusted profit before tax per prior year financial statements (before restatement) 8,015 Accordingly Adjusted basic earnings per share (15.39p) and Adjusted diluted earnings per share (14.92p) reported in the prior year, which were calculated with reference to the above figure, are superseded respectively in presentation by Basic earnings per share before non-underlying costs (15.35p) and Diluted earnings per share before non-underlying costs (14.88p) disclosed below the Consolidated Statement of Comprehensive Income. 12. Share-based payment arrangements The Group has established the Ince Group Share Option Plan 2017 (“Plan”) for the grant of share options to certain eligible employees to acquire shares in the capital of the Company in order to reward such eligible employees for their contribution to the Company’s success and to provide an incentive going forward. As part of the consideration for the acquisition of the members’ interests of Ince & Co LLP, the members of Ince & Co LLP were collectively granted 2,392,846 ordinary shares of 1p each in the Group as part of the Plan on 31 December 2018. The options have a vesting period of three years from issue and a contractual life of ten years. The fair value of the employee share options has been measured using the Black-Scholes formula. Service and non-market conditions attached to the arrangements were not taken into account when measuring fair value. At 1 April 2020 the brought forward number of ordinary shares of 1p at an exercise price of 140p was 2,178,562. During the year, 142,856 ordinary shares of 1p at an exercise price of 140p were forfeited by resigning members of Ince & Co LLP. At 31 March 2021 the carried forward number of ordinary shares of 1p at an exercise price of 140p was 2,035,706. The inputs used in measurement of the fair values at grant date of the shares were as follows: Fair value 0.24 Share price 1.79 Exercise price 1.40 Risk-free interest rate (based on government bonds) 0.59% Expected volatility (weighted average) 1.14% Dividend yield 3.35% Expected life (weighted average) 3 years 65 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 13. Property, plant and equipment (“PPE”) Group Land and buildings £’000 Furniture, fittings and equipment £’000 Leasehold improvements £’000 Total £’000 Cost Balance at 1 April 2020 230 4,771 3,439 8,440 Acquisition of subsidiary (note 16.2) – 29 – 29 Additions – 403 251 654 Disposals – (174) – (174) Exchange differences – (242) (261) (503) Balance at 31 March 2021 230 4,787 3,429 8,446 Depreciation Balance at 1 April 2020 – 3,134 1,545 4,679 Acquisition of subsidiary (note 16.2) – 29 – 29 Disposals – (158) – (158) Exchange differences – (218) (126) (344) Charge for the period – 760 667 1,427 Balance at 31 March 2021 – 3,547 2,086 5,633 Carrying value At 31 March 2020 230 1,637 1,894 3,761 At 31 March 2021 230 1,240 1,343 2,813 The figures for the previous period are as follows: Land and buildings £’000 Furniture, fittings and equipment £’000 Leasehold improvements £’000 Total £’000 Cost Balance at 1 April 2019 230 1,137 – 1,367 Acquisition of subsidiary – 2,960 2,488 5,448 Additions – 572 864 1,436 Disposals – (57) – (57) Exchange differences – 159 87 246 Balance at 31 March 2020 230 4,771 3,439 8,440 Depreciation Balance at 1 April 2019 – 185 – 185 Acquisition of subsidiary – 2,007 947 2,954 Disposals – (55) – (55) Exchange differences – 64 44 108 Charge for the period – 933 554 1,487 Balance at 31 March 2020 – 3,134 1,545 4,679 Carrying value At 31 March 2019 230 952 – 1,182 At 31 March 2020 230 1,637 1,894 3,761 Notes to the Financial Statements – continued 66 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Company Furniture, fittings and equipment £’000 Leasehold improvements £’000 Total £’000 Cost Balance at 1 April 2020 and 31 March 2021 2 114 116 Depreciation Balance at 1 April 2020 1 25 26 Charge for the period 1 37 38 Balance at 31 March 2021 2 62 64 Carrying value At 31 March 2020 1 89 90 At 31 March 2021 – 52 52 14. Leases 14.1 Right-of-use assets Group Land and buildings £’000 Furniture, fittings and equipment £’000 Total £’000 Balance at 1 April 2019 9,958 283 10,241 Additions 5,734 292 6,026 Acquisition of subsidiaries 5,945 – 5,945 Disposals (297) – (297) Exchange differences 189 – 189 Depreciation charge for the year (4,563) (100) (4,663) Balance at 31 March 2020 16,966 475 17,441 Additions 1,045 129 1,174 Revaluation (345) (345) Disposals (775) – (775) Impairment losses (1,916) – (1,916) Transfer/reclassification (89) – (89) Exchange differences (696) – (696) Depreciation charge for the year (4,102) (130) (4,232) Balance at 31 March 2021 10,088 474 10,562 67 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Company Land and buildings £’000 Furniture, fittings and equipment £’000 Total £’000 Balance at 1 April 2019 – – – Additions 964 – 964 Depreciation charge for the year (268) – (268) Balance at 31 March 2020 696 – 696 Additions – 129 129 Depreciation charge for the year (322) (7) (329) Balance at 31 March 2021 374 122 496 14.2 Lease liabilities 2021 £’000 Restated 2020 £’000 Maturity analysis – contractual undiscounted cash flows Less than one year 5,200 5,968 One to five years 7,827 12,804 More than five years 353 1,583 Total undiscounted lease liabilities at 31 March 13,380 20,355 Effect of discounting (743) (1,519) Lease liabilities included in the Statements of Financial Position at 31 March 12,637 18,836 Current 4,863 5,552 Non-current 7,774 13,284 12,637 18,836 14.3 Amounts recognised in profit or loss 2021 £’000 2020 £’000 Interest on lease liabilities 515 514 Expenses relating to short-term leases 287 336 Expenses relating to leases of low-value assets 102 94 Total cash outflow for leases in the year was £5,564,000. Termination options are included in a number of property leases across the Group. As at 31 March 2021, potential future cash outflows of £22,876,000 (2020: £24,072,000) (undiscounted) have not been included in the lease liability because it is not reasonably certain that the lease will not be terminated. The impairment recognised during the year relates to the right-of-use asset associated to part of the Aldgate Tower offices (occupied under a discrete lease agreement), which as a result of the Covid-19 pandemic is now deemed not operable for the ongoing business use of the Group. Impairment of £1,916,386 is recognised in non-underlying costs on the Statement of Comprehensive Income. Notes to the Financial Statements – continued 68 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 15. Intangible assets Group Goodwill £’000 Client portfolio £’000 Brand & trademarks £’000 Internally generated software £’000 Intellectual property £’000 Total £’000 Cost At 1 April 2020 55,047 15,467 17,000 2,284 189 89,987 Acquisition of subsidiary 1,698 – – – – 1,698 Additions – – – 1,123 – 1,123 Effect of movements in exchange rates (3) – – – – (3) Disposal of subsidiary (620) – – – – (620) At 31 March 2021 56,122 15,467 17,000 3,407 189 92,185 Amortisation and impairment At 1 April 2020 – 8,864 – 232 66 9,162 Charge for period – 3,121 – 271 19 3,411 At 31 March 2021 – 11,985 – 503 85 12,573 Carrying value At 31 March 2020 55,047 6,603 17,000 2,052 123 80,825 At 31 March 2021 56,122 3,482 17,000 2,904 104 79,612 Client portfolio represents the acquisition of the business and certain assets from other professional services firms. The client portfolio intangible asset is carried at cost less accumulated amortisation. Amortisation is provided for in line with the fees billed and cash collections generated by the client portfolio acquired. Amortisation of client portfolio intangibles of £3,121,000 (2020: £2,046,000) is recognised in production staff and partner costs on the Statement of Comprehensive Income. Brands and trademarks of £17,000,000 (2020: £17,000,000) relate to the value attributed to the Ince brand that the Group acquired on 1 January 2019. This was determined on acquisition based on an external valuation report, as detailed in note 2.9. The carrying value of the brand is subject to annual impairment reviews on the reporting date. These reviews are similarly undertaken based on external valuations. The above valuations are performed by a third party who use a discounted cash flow model based on the relief from royalty method. Assumptions for value calculations of the Ince brand on this basis include forecast revenues for Ince to 31 March 2024, forecast revenues after 31 March 2024 increasing at 1.5% per annum indefinitely, royalty rate of 2%, corporation tax of initially 19% then increasing to 25% and a discount rate of 7.3% after tax. Internally generated software includes development costs relating to development of software applications. The Directors have considered the carrying value of internally generated software of £2,904,000 (2020: £2,052,000) as appropriate as it is expected to create future economic benefit. Intellectual property carrying amount includes £104,000 (2020: £123,000) of intellectual property acquired on the acquisition of certain assets and liabilities of Prolegal Limited from its administrator. 69 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The intangible assets of the Group for the prior year were as follows: Goodwill £’000 Client portfolio £’000 Brand & trademarks £’000 Internally generated software £’000 Intellectual property £’000 Total £’000 Cost Balance at 1 April 2019 (restated) 50,820 12,219 17,000 1,248 189 81,476 Acquisition of subsidiary 4,227 3,248 – – – 7,475 Additions – – – 1,036 – 1,036 Balance at 31 March 2020 55,047 15,467 17,000 2,284 189 89,987 Amortisation and impairment Balance at 1 April 2019 – 6,818 – 168 47 7,033 Charge for the period – 2,046 – 64 19 2,129 Balance at 31 March 2020 – 8,864 – 232 66 9,162 Carrying value At 31 March 2019 50,820 5,401 17,000 1,080 142 74,443 At 31 March 2020 55,047 6,603 17,000 2,052 123 80,825 Goodwill Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units (CGUs), or group of units that are expected to benefit from that business combination and is analysed below. CW Energy £’000 Legal & Business Services £’000 Total goodwill £’000 Cost At 1 April 2020 6,464 48,583 55,047 Acquisitions – 1,698 1,698 Effect of movements in exchange rates – (3) (3) Disposal of subsidiary – (620) (620) Balance at 31 March 2021 6,464 49,658 56,122 Impairment At 1 April 2020 and 31 March 2021 – – – Carrying value At 31 March 2020 6,464 48,583 55,047 At 31 March 2021 6,464 49,658 56,122 The Directors believe that the increasingly inter-connected nature of the business units means the majority of operations benefit from the synergies of the various business combinations and therefore the goodwill now spans the entire Group (2020: allocated over six CGUs or groups of CGUs), except in the case of CW Energy where more operational separability exists. The value in use of each CGU or group of CGUs is determined using cash flow projections derived from financial plans. This reflects management’s expectations of future revenue growth, operating costs and cost reductions due to synergies, profit margins, operating cash flows based on past performance and future expectations of business performance. The cash flows have then been extended for five years or longer where the expected duration of the client relationships of the CGU supports it. In respect of the above, income budgets are based on historic results adjusted for experience and capacity level of fee earning staff and known changes in circumstances. These are reviewed with the heads of department for each fee earning area. An average annual growth rate of 0.09% has been applied as a prudent precaution based on past performance during the recent pandemic. Notes to the Financial Statements – continued 70 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Costs are largely fixed staff and establishment costs and are forecast based on the current structure of the business, adjusting for inflationary increases but not reflecting any future restructurings or cost saving measures. The future cash flows have been discounted using a post-tax discount rate of 7.9%. Company There are no intangible assets held by the Company (2020: None). 16. Investments The carrying value of investments held by the Group and Company were as follows: Group 2021 £’000 Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Investments in Group undertakings – – 47,607 47,607 Interests in associates – 470 – – – 470 47,607 47,607 16.1 Investments in Group undertakings Company Investments in Group undertakings £’000 Cost Balance at 1 April 2020 51,125 Additions – Balance at 31 March 2021 51,125 Impairment and provisions Balance at 1 April 2020 3,518 Impairment – Balance at 31 March 2020 3,518 Carrying value At 31 March 2020 47,607 At 31 March 2021 47,607 71 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS On 31 March 2021, The Ince Group plc had control for the purposes of IFRS 10 of the following subsidiary undertakings which are included in the consolidated financial statements. UK companies Principal activity Interest held Registered office Ince Wealth Limited Intermediate holding company Note 1 (b) Ince Consulting Holdings Limited Intermediate holding company Note 1 (b) Culver Financial Management Limited Independent financial advisor Note 1 (b) Hanover Financial Management Limited Independent financial advisor Note 1 (b) Hanover Employee Benefits Limited Independent financial advisor Note 1 (b) Ince Gordon Dadds Services Limited Management services Note 1 (b) Hanover Pensions Limited Professional services Note 1 (b) Ince Gordon Dadds MAP Limited Legal services Note 1 (b) GDGS (Alen-Buckley) Limited Legal services Note 1 (b) GDGS (Metcalfes) Limited Legal services Note 1 (b) e.Legal Technology Solutions Limited IT services Note 2 (b) James Stocks & Co Limited Professional services Note 1 (a) James Stocks & Co (Services) Limited Management services Note 1 (a) Ince Gordon Dadds Professional Services Limited Professional services Note 1 (b) Ince GD Corporate Services Limited Corporate services Note 1 (a) Ince Gordon Dadds Talent Services Limited Professional services Note 1 (b) Ince Process Agents Limited Legal services Note 1 (a) Culver Finance Limited Intermediate holding company Note 1 (b) IGD (Cardiff) Limited Legal services Note 1 (b) Ince Private Office Limited Legal services Note 1 (d) Ince Compliance Solutions Limited Professional services Note 1 (b) UK Limited Liability Partnerships Principal activity Interest held Registered office Ince Gordon Dadds Holdings LLP Intermediate holding LLP Note 3 (b) Ince Private Wealth LLP Professional services Note 3 (a) Ince Gordon Dadds LLP Legal services Note 3 (a) Ince Gordon Dadds AP LLP Professional services Note 4 (b) Ince Gordon Dadds CP LLP Professional services Note 4 (b) CW Energy LLP Professional services Note 3 (b) IGD International LLP Professional services Note 3 (b) Notes to the Financial Statements – continued 72 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 Overseas companies Location Principal activity Interest held Registered office Ince (Gibraltar) Limited Gibraltar Legal services Note 1 (e) IGD (Company) Limited Guernsey Professional services Note 1 (f) Ince Consultancy (Gibraltar) Limited Gibraltar Professional services Note 1 (e) G. Zambartas LLC Cyprus Legal services Note 1 (k) Ince Consulting Hong Kong Limited Hong Kong Professional services Note 1 (g) Incisive Law LLC (Singapore) Singapore Legal services Note 4 (h) Incisive Limited Hong Kong Management services Note 1 (g) Ince Consultancy Cyprus Limited Cyprus Professional services Note 1 (k) Ince Consulting Middle East Limited Abu Dhabi Professional services Note 1 (l) James Stocks & Co (Holdings) Limited Gibraltar Intermediate holding company Note 1 (c) Ince Germany Rechtsanwaltsgesellschaft mbH Germany Legal services Note 4 (m) Ince Consultancy UG Germany Professional services Note 4 (m) UK Limited Liability Partnerships operating overseas Location Principal activity Interest held Registered office Ince & Co Middle East LLP Dubai Legal services Note 4 (a) Ince & Co Germany LLP Germany Legal services Note 4 (a) Ince Consultancy LLP Germany Professional services Note 4 (b) Overseas LLPs and partnerships Location Principal activity Interest held Registered office Ince & Co Singapore LLP Singapore Legal services Note 4 (h) Ince & Co (Hong Kong) Hong Kong Legal services Note 4 (g) Herring Parry Khan Giomelakis Le-Du Law Office Greece Legal services Note 4 (i) Ince & Co Monaco SARL (Monaco) Monaco Legal services Note 4 (j) Note 1. The Group holds 100% of ordinary share capital. Note 2. The Group holds 60% of ordinary share capital. Note 3. The Group has 100% interest as the sole economic member. Note 4. Profit sharing and voting control of these entities is held by the local members, directors or shareholders. The entities are subject to regulation by the regulator in the jurisdictions in which they operate. Registered offices of all subsidiaries: (a) Aldgate Tower, 2 Leman Street, London, United Kingdom, E1 8QN (b) Llanmaes, Michaelston Road, St Fagans, Cardiff, United Kingdom, CF5 6DU (c) 57/63 Line Wall Rd, PO Box 199, Gibraltar (d) Leconfield House, Curzon Street, London, United Kingdom, W1J 5JA (e) 6.20 World Trade Center, 6 Bayside Road, Gibraltar (f) P.O. Box 661, St. Peter Port, Guernsey, GY1 3PW (g) Suites 4404-10, 44/F, One Island East, 18 Westlands Road, Taikoo Place, Hong Kong (h) 5 Shenton Way #19-01, V on Shenton, Singapore (068808) (i) The Livanos Building, 47-49 Akti Miaouli, Piraeus 18536, Greece (j) Gildo Pastor Center, 7 Rue du Gabian, 98000 Monaco (k) 82 Spyrou Kyprianou Street, Euro House, 1st Floor, Limassol, 4042, Cyprus (l) 35th Floor, Office No. 3252, Al Maqam Tower, ADGM Square, Abu Dhabi (m) Grosse Elbstrasse 47, Hamburg, 22767, Germany 73 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 16.2 Business combinations and acquisitions The details set out below provide the information required under IFRS 3 ‘Business Combinations’ for the acquisitions that occurred during the year ended 31 March 2021. The total amount of revenue and associated profit derived from acquired entities in the year was £5,673,000 and £1,469,000. An estimate of the annualised revenue and associated profit/(loss) (based on pro-rated figures) had the acquisitions occurred at the start of the year is £7,219,000 and £1,753,000. Incisive Law LLC (Singapore) On 1 June 2020, Incisive Law LLC, a law firm based in Singapore, became a Group company for the purposes of IFRS 10. Debt instruments consideration of £1,001,000 and goodwill of £1,000,000 was recognised in accounting for the acquisition. James Stocks & Co On 7 October 2020, the Group increased its shareholding in James Stocks & Co (Holdings) Limited which resulted in a change of ownership from an associate to a subsidiary. Debt instruments consideration of £249,000 and goodwill of £698,000 was recognised in accounting for the acquisition. 16.2.1 Identifiable assets acquired and liabilities assumed The fair values of the identifiable assets and liabilities at the date of acquisition were as follows: Incisive Singapore £’000 James Stocks & Co £’000 Total acquisitions £’000 Trade and other receivables 1,887 323 2,210 Cash and cash equivalents 49 400 449 Trade and other payables (1,935) (680) (2,615) Borrowings – (25) (25) Net identifiable assets and liabilities 1 18 19 Goodwill 1,000 698 1,698 Non-controlling interest in the recognised amounts of identifiable assets and liabilities – (50) (50) Fair value of previously held interest at acquisition date – (417) (417) Total consideration 1,001 249 1,250 Satisfied by: Debt instruments 1,001 249 1,250 Total consideration transferred 1,001 249 1,250 Net cash outflow arising on acquisition: Cash consideration – – – Less: cash and cash equivalent balances acquired (49) (400) (449) Net cash outflow/(inflow) (49) (400) (449) Notes to the Financial Statements – continued 74 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 16.3 Discontinued operations On 22 October 2020, the Group sold 100% of its shareholding in White & Black Limited for consideration of £416,000. Financial information relating to the discontinued operation for the period to the date of disposal is set out below: White & Black 2021 £’000 Results of discontinued operation: Revenue 595 Production staff and partner costs (366) Other production costs (83) Gross profit 146 Administrative staff and partner costs (121) Operating expenses (174) Depreciation of property, plant and equipment (5) Depreciation of right-of-use asset (53) Operating loss (207) Finance income – Finance expense – right-of-use asset (14) Loss before tax (221) Income tax expense 59 Loss after tax of discontinued operation (162) Loss on disposal of the subsidiary after income tax (757) Loss from discontinued operation (919) Consideration received or receivable: Cash 416 Total consideration 416 Less: carrying amount of net assets sold (553) Less: goodwill eliminated on disposal (620) Add back: non-controlling interest – Loss on disposal of the subsidiary after income tax (757) Consideration received, satisfied in cash 416 Cash and cash equivalents disposed of (543) Net cash outflow (127) 75 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Restated financial information relating to discontinued operations for the prior period is set out below: White & Black 2020 £’000 Allium Law 2020 £’000 GD Financial Markets 2020 £’000 Total discontinued operations 2020 £’000 Results of discontinued operation: Revenue 2,148 – 1,052 3,200 Production staff and partner costs (916) – (247) (1,163) Other production costs (339) – (493) (832) Gross profit 893 – 312 1,205 Administrative staff and partner costs (262) – (129) (391) Operating expenses (336) – (97) (433) Depreciation of property, plant and equipment (14) – – (14) Depreciation of right-of-use asset (107) – – (107) Operating profit 174 – 86 260 Finance income 1 – – 1 Finance expense – right-of-use asset (31) – – (31) Profit before tax 144 – 86 230 Income tax expense (13) – – (13) Profit/(loss) after tax of discontinued operation 131 – 86 217 Profit/(loss) on disposal of the subsidiary after income tax – 84 (33) 51 Profit from discontinued operation 131 84 53 268 16.4 Interests in associates On 7 October 2020 The Ince Group plc increased its shareholding in James Stocks & Co group from 30.0% to 97.2%, which resulted in a change of ownership from an associate to a subsidiary. As a result of this, the carrying value of the Group’s interest in the associate was disposed of and it was reacquired as a subsidiary under IFRS 3. The fair value gain/(loss) impacting the Statement of Comprehensive Income for this disposal can be seen below: Group 2021 £’000 2020 £’000 Cost of investment in associate 549 621 Share of post-acquisition loss net of dividends received (132) (151) Disposal of interest in associates during the year (417) – Carrying value of interests in associates – 470 Summarised financial information in respect of James Stocks & Co (Holdings) Limited is set out below: 2021 £’000 2020 £’000 Net profit/(loss) 50 (467) Net assets 153 192 Fair value gain/loss on disposal of interest in associate: £’000 Fair value of interest held in JSC Group at disposal 417 Less: carrying amount of interest held in JSC Group at disposal (417) Fair value gain/(loss) charged to Statement of Comprehensive Income – Notes to the Financial Statements – continued 76 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 17. Trade and other receivables Group 2021 £’000 Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Trade receivables 26,933 26,870 – – Accrued income 12,436 5,925 – – Other receivables 3,208 4,033 546 518 Amounts due from subsidiaries – – 35,367 37,977 Prepayments 3,554 7,584 351 391 46,131 44,412 36,264 38,886 Trade receivables are stated including £3,651,000 (2020: £3,481,000) of VAT and £3,274,000 (2020: £3,412,000) of disbursements. 18. Cash and cash equivalents Group 2021 £’000 Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Cash in hand and at bank 8,307 5,250 1 3 Total 8,307 5,250 1 3 Cash and cash equivalents include the following: Cash as above 8,307 5,250 1 3 Bank overdrafts (2) (59) – – Total 8,305 5,191 1 3 19. Share capital % 2021 Number 2021 £’000 2020 £’000 Authorised Ordinary shares of 1p each 100 68,540,912 686 686 686 686 % 2021 Number 2021 £’000 2020 £’000 Allotted, called up and fully paid Ordinary shares of 1p each 100 68,540,912 686 686 686 686 Ordinary shares rank equally as regards to dividends, other distributions and return on capital. Each ordinary share carries the right to one vote. 2021 Number 2021 £’000 Ordinary shares of 1p each At 1 April 68,540,912 686 Shares issued during the year – – At 31 March 68,540,912 686 Details of share options issued in the year are set out in note 12. 77 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 20. Reserves Share premium represents the difference between the amount received and the par value of shares issued less transaction costs. The reverse acquisition reserve has arisen under IFRS 3 ‘Business Combinations’ following the acquisition of The Ince Group. Other reserves represent the impact of the valuation of share options issued in the year, details of which are set out in note 12, and the difference between fair value and nominal value of shares issued in share-for-share exchanges. Foreign exchange translation reserve includes gains or losses in translating overseas operations into GBP sterling. 21. Trade and other payables Group 2021 £’000 Restated Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Current: Trade payables 13,012 12,263 709 524 Amounts due to subsidiaries – – 27,258 27,046 Other taxes and social security 8,925 3,445 118 36 Other payables 2,553 3,133 1 – Deferred consideration 11,054 14,608 – – Unpaid dividends 15 15 15 15 Accruals 6,105 5,861 215 135 41,664 39,325 28,316 27,756 Non-current: Other payables 1,045 1,391 – – Deferred consideration 13,491 21,062 – – 14,536 22,453 – – Total 56,200 61,778 28,316 27,756 Deferred consideration relates to business combinations and the purchase of client lists and relationships. 22. Borrowings Group 2021 £’000 Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Bank overdrafts 2 59 – – Bank loans 14,460 11,651 14,245 11,600 Other loans 434 2,519 – – Total borrowings 14,896 14,229 14,245 11,600 Current 1,804 3,829 1,200 1,200 Non-current 13,092 10,400 13,045 10,400 Total 14,896 14,229 14,245 11,600 The Group has a secured bank loan with Investec Bank Plc with a carrying value of £9,000,000 at 31 March 2021. The loan was entered into on 26 March 2021, has a term of three years (to be repaid in quarter end instalments which will commence in September 2021) and carries interest at bank base rate + 3.50% per annum. A £8,000,000 revolving credit facility was also entered into with Investec Bank Plc at 26 March 2021, of which £5,500,000 has been drawn down. The loan and the revolving credit facility are both secured against certain entities within the Group and are subject to covenants which are assessed each quarter starting in September 2021 (no current or forecast breaches have been identified). Notes to the Financial Statements – continued 78 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 The Group has a secured bank loan with Commerz Bank with a carrying value of £27,000 at 31 March 2021. The Group acquired the loan through the acquisition of Ince & Co Germany LLP. The loan was entered into on 1 October 2016, has a term of four years (to be repaid in monthly instalments which commenced from June 2017) and carries interest at 1.65% per annum. During the year the loan term has been extended to 30 November 2021. The Group has a £188,000 credit line with Bank of China, with a carrying value of £188,000 at 31 March 2021. The loan was drawn down on 8 January 2021 (to be repaid over 18 months in monthly instalments which commenced from March 2021) and carries interest at 2.25% per annum. Other loans of £434,000 (2020: £2,519,000) are unsecured and carry interest at between 3.0% and 10% per annum. Other loans are repayable within 12 months. 23. Provisions Group Onerous property related contracts & dilapidations £’000 Legacy acquisition costs & employment contracts £’000 Uninsured excess on potential claims £’000 Other provisions £’000 Total £’000 Balance at 31 March 2019 423 8,969 723 20 10,135 Provisions made – – 562 – 562 Subsidiaries joining the Group 325 504 – – 829 Unwinding of discount – 12 – – 12 Utilised during the year (340) (3,787) (208) – (4,335) Amounts released – (2,494) (113) – (2,607) Balance at 31 March 2020 408 3,204 964 20 4,596 Provisions made 1,198 1,118 120 – 2,436 Unwinding of discount – 33 – – 33 Utilised during the year (16) (1,147) (248) – (1,411) Amounts released (72) (291) (93) (4) (460) FX gains/(losses) 24 – (3) – 21 Balance at 31 March 2021 1,542 2,917 740 16 5,215 Current 486 1,596 740 16 2,838 Non-current 1,056 1,321 – – 2,377 Company Onerous property related contracts & dilapidations £’000 Balance at 31 March 2020 – Provisions made 40 Balance at 31 March 2021 40 Current – Non-current 40 79 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Provisions categorised as current liabilities represent provisions for liabilities which have the possibility of being settled within one year. Provisions for onerous property related contracts and dilapidations includes provisions for rates and service charges up to break clause on the Aldgate Tower 14th floor lease; and dilapidation reserves for office premises occupied by the Group. Further details are included in note 7. Provisions for legacy acquisition costs and employment contracts relate to contractually agreed payments to third parties, including vendors, primarily in relation to the Ince acquisition; and the expected settlement of disputes with former partners of Ince & Co Singapore LLP and Herring Parry Khan Giomelakis Le-Du Law Office. Provisions for uninsured excess on potential claims relates to potential claims brought against the Group in relation to work performed for clients. These provisions are quantified based on the estimated cost of settlement. 24. Pensions The Group participates in a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in a fund administered by Options Corporate Pensions UK. Contributions from employers and employees totalling £150,000 (2020: £176,000) were payable to the fund at the year end and are included in payables. 25. Ultimate controlling party The Ince Group plc is owned by its shareholders and there is no ultimate controlling party. 26. Related party transactions Group In addition to the transactions disclosed in the Directors’ Remuneration Report the Group has entered into the following transactions with related parties: The Group occupies office accommodation at Llanmaes, St Fagans, Cardiff under arrangements with Juratone Limited, a company of which A J Biles is a director. Rent and service charges of £221,000 (2020: £207,000) were charged during the year under these arrangements and the Group charged Juratone Limited amounts of £20,000 (2020: £23,000). At the Statement of Financial Position date an amount due to Juratone Limited of £15,000 (2020: £Nil) is included in payables and an amount due from Juratone Limited of £127,000 (2020: £104,000) is included in receivables. A J Biles is a designated LLP member of ACR Professional Services LLP. Professional services of £467,000 (2020: £240,000) and reimbursed expenses of £9,000 (2020: £Nil) were charged from ACR Professional Services LLP to the Group during the year in respect of services supplied by other members of that LLP. Fees and reimbursed expenses of £10,000 (2020: £20,000) were charged from the Group to ACR Professional Services LLP during the year. At the Statement of Financial Position date, the Group was owed £125,000 (2020: £291,000) from ACR Professional Services LLP. The Group charged Stann Marine Limited, a company in which a former designated member of Ince Gordon Dadds AP LLP is a Director, fees under a management agreement totalling £Nil (2020: £211,000). The Group charged fees to James Stocks & Co Group of £48,000 (2020: £49,000) and were charged fees of £Nil (2020: £Nil) during the year. At the Statement of Financial Position date, the Group was owed £8,000 (2020: £119,000) from James Stocks & Co Group. Company In addition to the transactions disclosed in the Directors’ Remuneration Report the Company has entered into the following transactions with related parties: The Company charged reimbursed expenses of £439,000 (2020: £692,000) to subsidiary undertakings during the year. At the Statement of Financial Position date an amount due from subsidiary undertakings of £Nil (2020: £Nil) is included in trade receivables. The Company was charged fees and reimbursed expenses of £933,000 (2020: £910,000) by subsidiary undertakings during the year. At the Statement of Financial Position date an amount due to subsidiary undertakings of £Nil (2020: £Nil) is included in trade payables. Notes to the Financial Statements – continued 80 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 27. Financial risk management The Company’s operations expose it to a number of financial risks. A risk management programme has been established to protect the Group and the Company against the potential adverse effects of these financial risks. There has been no significant change in these financial risks since the prior year. Fair value of financial instruments Financial instruments comprise cash and cash equivalents, trade and other receivables, including sums due from subsidiaries, bank and other loans, obligations under lease contracts and trade and other payables. In the Directors’ opinion the carrying value of the financial instruments approximates their fair value. Note Group 2021 £’000 Restated Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Loans and receivables: Trade receivables 17 26,933 26,870 – – Accrued income 17 12,436 5,925 – – Cash and cash equivalents 18 8,307 5,250 1 3 Other receivables 17 3,208 4,033 546 518 Amounts due from subsidiaries 17 – – 35,367 37,977 Total financial assets 50,884 42,078 35,914 38,498 Financial liabilities measured at amortised cost: Borrowings 22 14,896 14,229 14,245 11,600 Lease liabilities 14 12,637 18,836 531 760 Trade payables 21 13,012 12,263 709 524 Other payables 21 3,598 4,524 1 – Deferred consideration 21 6,339 8,494 – – Amounts due to subsidiaries 21 – – 27,258 27,046 Amounts due to partners 13,946 9,035 – – 64,428 67,381 42,744 39,930 Financial liabilities measured at fair value: Deferred consideration 21 18,206 27,176 – – Total financial liabilities 82,634 94,557 42,744 39,930 Total financial instruments (31,750) (52,479) (6,830) (1,432) The aggregate gain on financial instruments held at fair value in the year was £1,644,000 (2020: £Nil). 28. Credit risk Customers are assessed for credit worthiness and credit limits are also imposed on customers and reviewed regularly. The maximum exposure to credit risk is the carrying value of its financial receivables, trade and other receivables and cash and cash equivalents as disclosed in the notes. The Group holds no collateral or other credit enhancements. The receivables’ age analysis is also evaluated on a regular basis for potential doubtful debts. It is management’s opinion that no further provision for doubtful debts is required. 81 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Cash and cash equivalents are invested with banks with a credit rating of no less than A-1.4 Analysis of trade receivables: 30 days or less £’000 31-60 days £’000 61-90 days £’000 90-180 days £’000 >180 days £’000 Total gross £’000 Bad debt provision £’000 Total carrying amount £’000 2021 13,605 4,599 3,415 5,314 13,119 40,052 (13,119) 26,933 2020 15,105 5,544 2,836 3,385 9,653 36,523 (9,653) 26,870 2019 10,435 2,889 1,606 668 5,351 20,949 (5,351) 15,598 The Group allows an average trade receivables payment period of 30 days after invoice date. It is the Group’s policy to assess receivables for recoverability on an individual basis and to make provision where it is considered necessary. In assessing recoverability, the Group considers any indicators of impairment up until the reporting date. The application of this policy generally results in debts between 31 and 180 days not being provided for unless individual circumstances indicate that a debt is impaired. Receivables over 180 days are provided for except in circumstances where the Group has security in respect of the debt or has other arrangements which satisfy the Group that the debtor is in a position to pay and is intending to pay but is stopped until an event occurs (such as the grant of probate). The Directors have considered whether there is an overall change in the economic environment which changes the expected lifetime credit loss on its trade receivables and consider that the existing policy does not need varying at this year end. Trade receivables that are neither impaired nor past due are made up of 1,678 receivables’ balances (2020: 2,832). The largest individual debtor corresponds to 4.3% (2020: 3.8%) of the total balance. Historically these receivables have always paid balances when due. The average age of these receivables is 98 days (2020: 100 days). No receivables’ balances have been renegotiated during the year or in the prior year. The Group individually impaired no net balances (2020: £Nil). The Group does not hold any collateral over any balances. 29. Interest rate risk Interest rate risk is the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that we use. Interest bearing assets including cash and cash equivalents are considered to be short-term liquid assets. Our interest rate liability risk arises primarily from borrowings issued at floating interest rates which exposes the Group to cash flow interest rate risk. It is the Group’s policy to settle trade payables within the credit terms allowed and the Group does therefore not incur interest on overdue balances. Borrowings are sourced from local financial markets, covering short and long-term funding. The Group manages interest rate risk on borrowings by ensuring access to diverse sources of funding and reducing risks of refinancing by establishing and managing borrowings in accordance with target maturity profiles. Interest rate exposure and sensitivity analysis: The following sensitivity analysis has been determined based on the exposure to interest rates 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. An increase of 50 basis points in interest rates and all other variables held constant would result in the Group’s profit for the year ended 31 March 2021 decreasing by £72,000 (2020: £58,000). This is attributable to the Group’s exposure to interest rates on its variable rate borrowings. A decrease of 50 basis points in interest rates would have the equal but opposite effect to the amounts shown above. The Group’s sensitivity to interest rates has increased during the current year mainly due to the increase in the borrowings of the Group. Notes to the Financial Statements – continued 82 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 30. Foreign currency risk Foreign currency risk refers to the risk that the value of a financial commitment or recognised asset or liability will fluctuate due to changes in foreign currency rates. Foreign exchange risk arises when individual Group entities enter into transactions denominated in a currency other than their functional currency. The Group has overseas operations in Europe, Middle East and Asia and is therefore exposed to changes in the respective currencies in these territories. The Group maintains bank balances in each of the entity’s local currency and in other currencies as required. Cash positions are monitored and are converted to local currency at appropriate times, minimising the exposure to exchange fluctuations. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into GBP at the closing rate: Functional currency of individual entity GBP EUR HKD 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Net foreign currency financial assets/(liabilities) GBP – – (115) (44) 6 (76) EUR 127 434 – – (20) (2) AED 216 – – – – – HKD (30) (115) – – – – CNY 8 574 – – 15 – USD 886 1,901 141 129 2,517 3,254 Other 145 11 (1) (1) 1 – 1,352 2,805 25 84 2,519 3,176 Functional currency of individual entity CNY AED SGD 2021 £’000 2020 £’000 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Net foreign currency financial assets/(liabilities) GBP 1 (1) (199) (23) 552 187 EUR 13 18 1 (5) – – AED – – – – – – HKD 361 399 – – – – CNY – – – – – – USD 557 647 679 325 1,330 287 Other 37 18 (19) (4) 13 (9) 969 1,081 462 293 1,895 465 83 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS The following table illustrates the sensitivity of profit and equity in relating to the Group’s financial assets and financial liabilities to a reasonably possible change in exchange rates, with all other variables held constant and no further foreign exchange risk management actions taken. Increase/(decrease) in income before taxation Increase/(decrease) in net assets Change in rate 2021 £’000 2020 £’000 2021 £’000 2020 £’000 Appreciation against GBP of: EUR 4% 17 30 75 75 HKD 8% (3) (4) 217 137 CNY 3% – 41 (193) (92) AED 8% 3 – 23 – SGD 4% (308) – 36 – USD 8% 104 151 (5) – The above sensitivity information was calculated by reference to carrying amounts of assets and liabilities at 31 March only. The effect on income before taxation arises in connection with monetary balances denominated in currencies other than an entity’s functional currency; the effect on net assets arises principally from the translation of assets and liabilities that are not sterling functional. 31. Liquidity risk The Group seeks to maintain sufficient cash balances. Management reviews cash flow forecasts on a regular basis to determine whether the Group has sufficient cash reserves to meet future working capital requirements and to take advantage of business opportunities. The average creditor payment period is 114 days (2020: 113). Trade and other payables and amounts due to subsidiaries are due within 12 months; the maturity of financial liabilities is set out below. The following table sets out the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Less than 3 months £’000 Between 3 and 12 months £’000 Between 1 and 2 years £’000 Between 2 and 5 years £’000 Total contractual cash flows £’000 31 March 2021 Variable interest bearing 46 1,321 2,247 10,846 14,460 Fixed interest rate instruments 88 213 118 15 434 Lease liabilities 1,216 3,647 3,998 3,776 12,637 1,350 5,181 6,363 14,637 27,531 31 March 2020 Variable interest bearing 300 951 1,200 9,200 11,651 Fixed interest rate instruments 1,061 1,458 – – 2,519 Lease liabilities 1,381 4,140 5,508 7,807 18,836 2,742 6,549 6,708 17,007 33,006 Interest bearing financial liabilities carry interest at between 3% and 10% per annum. Notes to the Financial Statements – continued 84 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021 The Group has also access to financing facilities of £8,250,000 (2020: £250,000) as described below. Unsecured bank overdraft facility (£250,000 of which £Nil was drawn down at 31 March 2021), reviewed annually and payable at call, and a revolving credit facility (£8,000,000 of which £5,500,000 was drawn down at 31 March 2021), described in note 22. Group 2021 £’000 Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Amount used 5,500 – – – Amount unused 2,750 250 – – 8,250 250 – – 32. Capital management The Company’s objectives when managing capital are: – – to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and – – to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. The Company sets the amount of capital in proportion to risk. The Company manages the capital structure and adjusts it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. The Company monitors capital on the basis of the debt-to-adjusted capital ratio. This ratio is calculated as net debt ÷ adjusted capital. Net debt is calculated as total debt (as shown in the Statement of Financial Position) less cash and cash equivalents. Adjusted capital comprises all components of equity. Debt-to-adjusted capital ratios The debt adjusted capital ratios at 31 March 2021 were as follows: Group 2021 £’000 Restated Group 2020 £’000 Company 2021 £’000 Company 2020 £’000 Total debt 14,896 14,229 14,245 11,600 Less: cash and cash equivalents (8,307) (5,250) (1) (3) Net debt 6,589 8,979 14,244 11,597 Total equity 42,744 42,313 40,993 47,166 Add: subordinated debt instruments – – – – Adjusted capital 42,744 42,313 40,993 47,166 Debt-to-adjusted capital 1:6.5 1:4.7 1:2.9 1:4.1 33. Reconciliation of liabilities arising from financing activities Group 2020 £’000 Cash flows £’000 Non-cash changes Group 2021 £’000 Acquisitions £’000 Disposals £’000 Other £’000 Borrowings 14,229 911 25 (250) (19) 14,896 Lease liabilities 18,836 (5,564) – (859) 224 12,637 33,065 (4,653) 25 (1,109) 205 27,533 85 T H E I N CE GRO U P P LC / A NN UA L R EP O RT A ND FINANCIAL STATE M E NTS 2021 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Company Information Directors DA FURST Non-executive Chairman AJ BILES Chief Executive Officer SR OAKES Chief Financial Officer (appointed 26 May 2020) SJ HOWARD Non-executive Director LJ MILSTED Non-executive Director (appointed 26 July 2021) CC ASHTON Non-executive Director (appointed 26 July 2021) Secretary Ince GD Corporate Services Limited Registered office Aldgate Tower, 2 Leman Street LONDON E1 8QN Registered number 03744673 Auditors Saffery Champness LLP 71 Queen Victoria Street LONDON EC4V 4BE Nominated adviser and broker Arden Partners plc 125 Old Broad Street London EC2 1AR 86 TH E INCE GROUP PLC / ANNUAL RE PORT AND FINANCIAL STATE M E NTS 2021