21 July 2020

Begbies Traynor Group plc

 

Final results

for the year ended 30 April 2020

 

Begbies Traynor Group plc (the 'company' or the 'group'), the business recovery, financial advisory and property services consultancy, today announces its final results for the year ended 30 April 2020.

 

Financial highlights

 

	2020	2019
	£m	£m
Revenue	70.5	60.1
Adjusted profit before tax*	9.2	7.0
Profit before tax	2.9	3.3
Adjusted basic EPS** (p)	5.7	4.8
Basic EPS (p)	0.7	2.0
Proposed total dividend (p)	2.8	2.6
Net debt	2.8	6.0

  

* Profit before tax £2.9m (2019: £3.3m) plus transaction costs £3.2m (2019: £1.3m) and amortisation of intangible assets arising on acquisitions £3.1m (2019: £2.4m)

** See reconciliation in note 5

 

Operational highlights

 

·      Strong financial performance with revenue growth of 17% (5% organic, 12% acquired)

·      All areas of the group performed well:

o  Business recovery: market share (by volume) increased to 10% (2019: 8%) and contributions from current and prior year acquisitions

o  Financial advisory: increase in corporate finance deals compared with the prior year and contribution from current year acquisition

o  Property advisory and transactional services: performance in line with last year, having absorbed COVID impact, reflecting breadth of services and expertise

·      Strong cash flow and funds from the July 2019 share placing enabled reduction in net debt (to £2.8m) and leverage together with the completion of three acquisitions

·      Recommended 8% increase in the total dividend for the year to 2.8p (2019: 2.6p), the third consecutive year of dividend growth

 

COVID-19 impact and response

 

·      Business recovery and financial advisory continued to be appointed on and progress cases, realise assets and complete transactions as usual

·      Majority of property advisory and transactional services teams able to operate remotely; however, commercial property agency and valuations together with business sales agency were disrupted as the lockdown paused activities

·      No claims made under the Government's coronavirus support schemes

Current trading and outlook

 

·      Business recovery and financial advisory start the year in a strong position:

o  Increased order book, benefit of acquisitions and investment

o  Anticipate increase in market activity levels as Government support measures withdrawn

·      Property advisory and transactional services:

o  Majority of service lines operating as expected, including increased CIF funding awards for education team as recently announced

o  Service lines impacted by lockdown have seen increased instruction levels through May, June and July

o  Insolvency-focused areas expected to benefit in line with any increase in insolvencies

·      We will provide a further update on activity levels at the time of our annual general meeting in September

 

Commenting on the results, Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

 

"I am pleased to report a year of strong financial performance with growth in revenue and earnings delivered by our organic and acquisitive strategy.

 

"Our recovery and advisory teams start the new financial year in a strong position to deliver results ahead of last year. This reflects an increased order book, together with the benefit of our recent acquisitions and organic investment and an expectation of an increase in market insolvency levels once the short-term Government support measures for the economy are removed.

 

"In our property and transactional teams, we have seen encouraging improvements in those service lines impacted by the lockdown and we anticipate further recovery in performance over the remainder of the year. Activity levels for our other property teams have remained robust.

 

"With our mix of service lines and activities, combined with our strong financial position, we are well placed to continue delivering medium to long-term growth. We continue to progress acquisition and organic investment opportunities given our strong balance sheet, cash generative businesses and counter-cyclical focus."

 

There will be a webcast or conference call for analysts today at 9:30am. Please contact Florence Mayo via begbies@mhpc.com or on 020 3128 8572 if you would like to receive details.

 

 

Enquiries please contact:

 

Begbies Traynor Group plc                                                                                             0161 837 1700

Ric Traynor - Executive Chairman

Nick Taylor - Group Finance Director

 

Canaccord Genuity Limited                                                                                             020 7523 4588

(Nominated Adviser and Joint Broker)

David Tyrrell / Sunil Duggal / Angelos Vlatakis

 

Shore Capital                                                                                                                     020 7408 4090

(Joint Broker)

Mark Percy / Anita Ghanekar

 

MHP Communications                                                                                                      020 3128 8572

Reg Hoare / Katie Hunt / Florence Mayo                                                                            begbies@mhpc.com

 

 

Notes to editors

Begbies Traynor Group plc is a leading business recovery, financial advisory and property services consultancy, providing services nationally from a comprehensive network of UK locations.  The group has 740 staff and partners and the professional staff include licensed insolvency practitioners, accountants, chartered surveyors and lawyers.

The group's services include:

·      Corporate and personal insolvency - we handle the largest number of corporate insolvency appointments in the UK, principally serving the mid-market and smaller companies.

·      Financial advisory - business and financial restructuring, debt advisory, forensic accounting and investigations, due diligence and transactional support.

·      Corporate finance - buy and sell side support on corporate transactions.

·      Valuations - valuation of property, businesses, machinery and business assets.

·      Property consultancy, planning and management - building consultancy, commercial property management, specialist insurance and vacant property risk management, transport planning and design.

·      Transactional services - sale of property, machinery and other business assets through physical and online auctions; business sales agency; commercial property agency focussed on northern and eastern England.

Further information can be accessed via the group's website at www.begbies-traynorgroup.com/investor-relations.

 
 

CHAIRMAN'S STATEMENT

 

INTRODUCTION

 

I am pleased to report a year of strong financial performance with growth in revenue and earnings.  This reflects the benefit of investment in both organic development and acquisitions in line with our strategy. 

 

Following the introduction of the COVID-19 lockdown restrictions in the final six weeks of our financial year, the majority of the group was able to continue to provide advice and support to our clients by successfully working remotely, albeit a minority of our service lines within property advisory and transactional services were disrupted.

 

Our business recovery and financial advisory activities performed well in the year with an increase in our market share in insolvency to 10% (by volume), a strong performance from our advisory team, and contributions from current and prior year acquisitions.

 

Our property advisory and transactional service teams delivered a solid financial performance for the year with profits in line with last year, having absorbed the impact of the COVID lockdown, reflecting the breadth of services and expertise in the division. The investments in recent years leave the division well-placed as commercial activities resume following the easing of lockdown restrictions.

 

The group has continued to generate strong cash flows in the year, which together with funds raised from a share placing in July 2019, has enabled the group to reduce its net debt, complete three acquisitions, and propose increasing the dividend for the year.

 

Overall, the group is in a very strong position with an increase in our scale and capabilities and a breadth of service lines which generate good margins and are highly cash generative. We have a strong balance sheet with a substantial reduction in leverage in the year and significant headroom in our committed bank facilities, providing resources for organic and acquisitive investment.

 

The increased scale of the group's activities with a focus on counter-cyclical services and our strong financial position leaves the group well placed to continue our track record of revenue and profit growth.

 

RESULTS

 

IFRS 16 'Leases' was adopted from the start of the financial year. All comparative figures included within this announcement have been restated in accordance with the new standard, which has been adopted on a fully retrospective basis. Further details are included in note 1 to this statement.

 

Group revenue in the year increased by 17% to £70.5m (2019: £60.1m), 5% of which was organic. Adjusted* profit before tax** increased by 31% to £9.2m (2019: £7.0m). Statutory profit before tax was £2.9m (2019: £3.3m).

 

Adjusted*** basic earnings per share increased by 19% to 5.7p (2019: 4.8p).  Basic earnings per share was 0.7p (2019: 2.0p).

 

Net debt decreased to £2.8m (2019: £6.0m) with leverage (calculated as net debt to EBITDA****) improving to 0.3 times (2019: 0.7 times).

 

* The board uses adjusted performance measures to provide meaningful information on the operating performance of the business. The items excluded from our adjusted results are those which arise due to acquisitions in accordance with IFRS 3.  They are not influenced by the day-to-day operations of the group.

 

** Profit before tax £2.9m (2019: £3.3m) plus transaction costs £3.2m (2019: £1.3m) and amortisation of intangible assets arising on acquisitions £3.1m (2019: £2.4m)

 

*** See reconciliation in note 5

 

**** Calculated as net debt to operating profit before transaction costs, amortisation, depreciation on tangible assets, software amortisation and after finance charge on lease liabilities.

 

 

COVID-19 IMPACT AND RESPONSE

 

Our response to the COVID-19 pandemic focused on the health, safety and well-being of our people and followed HM Government's advice on working practices. We quickly enabled the majority of our staff to work remotely and securely from the commencement of lockdown. The ability to operate remotely has been enhanced by investments made to improve the digital capabilities of the group, including the ability to host on-line auctions for the sale of assets, electronic document management solutions, a robust and flexible IT infrastructure and ongoing investment in our digital marketing activities.

 

The impact of the lockdown was as follows:

 

·      Business recovery and advisory continued to be appointed on and progress cases, realise assets and complete transactions as usual.

·      The majority of property advisory and transactional service lines have been able to operate remotely. However, commercial property agency and valuations together with the business sales agency service lines were disrupted as the lockdown paused activities, which reduced revenue in the financial year by c.£1m, partially mitigated by £0.4m of cost reductions.

 

The group's operating cash generation remained robust throughout the lockdown period and the group has maintained low levels of debt and a strong financial position.  As a result of this we have not made any claims under the Government's coronavirus support schemes.

 

DIVIDEND

 

The board is pleased to recommend (subject to shareholder approval at the company's annual general meeting scheduled for 17 September 2020) an 8% increase in the total dividend for the year to 2.8p (2019: 2.6p), representing our third consecutive year of dividend growth. This comprises the interim dividend already paid of 0.9p (2019: 0.8p) and a proposed final dividend of 1.9p (2019: 1.8p).

 

This reflects the board's confidence in the group's financial position and the resilience of our financial performance. We remain committed to our long-term progressive dividend policy, which takes account of the market outlook, and the group's earnings growth and investment plans.

 

The final dividend will be paid on 5 November 2020 to shareholders on the register on 9 October 2020, with an ex-dividend date of 8 October 2020.

 

STRATEGY

 

We believe that the execution of our strategy will continue to enhance shareholder value through the delivery of strong, sustainable financial performance.

 

Organic growth will be targeted through:

 

·      retention and development of our existing partners and employees;

·      recruitment of new talent;

·      enhanced cross-selling of our service lines and expertise to our wider client base; and

·      investment in technology and processes to enhance working practices and improve the service to our clients.

 

Our acquisition strategy is to target value-accretive acquisitions in any of the following market segments:

 

·      insolvency to increase market share;

·      property services to enhance expertise or geographical coverage; and

·      complementary professional services businesses to continue the development of the group and its service offering.

 

BOARD APPOINTMENT

 

In December 2019, Peter Wallqvist joined the board as a non-executive director.  Peter has spent his career in information technology and in 2010 he co-founded and became CEO at the AI company RAVN Systems, which was acquired in May 2017 by iManage, a leading vendor of document management systems for the legal and professional services industries. Following the acquisition, Peter served as VP of Strategy and Global Practice Director, specifically to serve the professional services sector, until he left the business in October 2019.

 

Peter brings significant experience of the use of information technology in professional services firms, in the context of improving working practices and strategic business development.

 

PEOPLE

 

I would like to thank all of our partners and staff for their valued contribution to the business over the course of this financial year and in particular their commitment and flexibility during the uncertain period of recent months, when we have continued to provide excellent service to our clients in very different circumstances. Our success as a business is reliant on the quality of advice and service which is delivered to our clients by our people.

 

CURRENT TRADING AND OUTLOOK

 

Having started our new financial year six weeks into the lockdown, we are currently seeing the unwinding of these restrictions and resulting increases in economic activity.

 

In the short term, the Government's financial support measures have helped many companies to continue trading despite the extreme economic downturn caused by the lockdown. Nationally the Insolvency Service reported that numbers of corporate insolvencies dropped in the days immediately after the UK lockdown was applied, and in most cases have not yet returned to pre-lockdown levels. We anticipate that as the support measures are removed in the coming months there will be a significant increase in corporate distress, which is likely to lead to increased insolvencies.

 

Our recovery and advisory teams start the financial year in a strong position to deliver results ahead of last year. This reflects an increased order book of committed future insolvency revenue, together with the benefit of our recent acquisitions and organic investment, and an expectation of an increase in market insolvency levels once the short-term support measures for the economy are removed.

 

Most of our property advisory and transactional service lines have continued to operate remotely and activity levels have remained robust. The insolvency-focused areas of property and asset sales are expected to benefit in line with any increase in insolvencies in due course. The service lines impacted by lockdown are beginning to recover as the economy opens up, with instruction levels having improved through May, June and July to date; we anticipate further recovery in performance over the remainder of the year. In addition, we anticipate increased property auction lot numbers following the expected resumption of in-room auctions from autumn 2020. As a result of the above factors, we anticipate that the division's financial performance is likely to be below last year and weighted towards the second half of the year.

 

Overall, we anticipate that the group's trading for the new financial year will have a greater weighting to the second half than in recent years and we will provide a further update on activity levels at the time of our annual general meeting in September.

 

With our mix of service lines and activities, combined with our strong financial position, we are well placed to continue delivering medium to long-term growth. We continue to progress acquisition and organic investment opportunities given our strong balance sheet, cash generative businesses and counter-cyclical focus.

 

 

Ric Traynor

Executive chairman

21 July 2020

 

BUSINESS REVIEW

 

OPERATING REVIEW

 

Business recovery and financial advisory

 

Financial summary

 

Revenue increased by 15% (8% organic) to £49.6m (2019: £43.3m), reflecting increased insolvency appointments, a strong performance from our advisory team, and contributions from current and prior year acquisitions.

 

Operating costs increased by £3.6m to £38.0m (2019: £34.4m) principally as a result of the addition of costs associated with acquired businesses, together with organic investment and increased people costs. However, these costs reduced as a percentage of revenue, giving improved operating margins of 23.4% (2019: 20.6%).

 

Segmental profits* increased by 30% to £11.6m (2019: £8.9m).

 

COVID-19 impact

 

We quickly enabled our teams to work remotely and securely from the commencement of lockdown, which enabled them to continue to be appointed on and progress cases, realise assets and complete transactions as usual.

 

In the period immediately following lockdown the number of new insolvency cases reduced in line with market trends (as detailed below) and are currently broadly in line with appointment levels from 12 months ago.

 

Operating review

 

The number of people employed in the division has increased to 394 as at 30 April 2020 from 364 at the start of the financial year.  This expansion provides the capacity to deliver growth in revenue and profits and we continue to consider further recruitment to continue to build capacity for long-term growth.

 

Business recovery

We have continued to invest in the business recovery team during the year through recruitment of fee earners, with a focus on business development and increasing capacity, and have also appointed four new partners: two of which were external appointments together with two internal promotions. Subsequent to the year end we have promoted a further two fee earners to partner.

 

In October 2019, we acquired Alexander Lawson Jacobs ("ALJ"), a London-based insolvency and business recovery practice. The team of 24 partners and staff has been integrated into our existing strong network of offices across London and the South East and made a first-time contribution ahead of our expectations.

 

We have had a successful year of new insolvency appointments, which has increased our order book of committed future insolvency revenue by 23% to £19.0m (2019: £15.4m). As a result of this, we have also increased our market share to 10% (by volume) and we continue to take the largest number of corporate insolvency appointments in the UK.

 

Financial advisory

We have continued to invest in our advisory fee earner team with the addition of five new partners: two of which were external appointments and three internal promotions. We also completed additional corporate finance transactions compared with the prior year.

 

In September 2019, we acquired Regeneratus, an Exeter based advisory practice with particular expertise in restructuring, turnaround and legal issues.  The team has joined our existing South West practice, enhancing the services and advice we can provide to our clients across the region.

 

Insolvency market

 

In the period prior to the COVID-19 outbreak, insolvency volumes** nationally continued to increase, with the underlying number of corporate insolvencies in calendar year 2019 increasing by 7% to 17,224 (2018: 16,105, 2017: 14,630).

 

Nationally the Insolvency Service reported*** that numbers of corporate insolvencies dropped in the days immediately after the UK lockdown was applied on 23 March, and in most cases have not yet returned to pre-lockdown levels.

 

They stated that this was likely to be a result of a combination of factors including:

 

·      HM Courts & Tribunals Service reducing the operational running of the courts and tribunals;

·      HMRC reducing their enforcement activity;

·      The Insolvency Service, insolvency practitioners and Companies House having to adjust to new working arrangements;

·      Delays in documents being provided to Companies House by insolvency practitioners.

 

We also believe that the current Government support initiatives (including the staff furlough arrangements and loan support packages) are deferring some insolvency appointments.

 

* See note 2

** Source: The Insolvency Service quarterly statistics on the number of corporate insolvencies in England and Wales on a seasonally adjusted basis, excluding the one-off effect of 1 (2018: 1,349, 2017: 2,686) bulk insolvencies as identified by The Insolvency Service

*** Source: Insolvency Service Monthly insolvency statistics, May and June 2020

 

Property advisory and transactional services

 

Financial summary

 

Revenue increased by 25% to £20.9m (2019: £16.7m), reflecting the benefit of both current and prior year acquisitions. Organic revenue was broadly in line with the prior year with returns from our growth initiatives offset by the anticipated reduction in revenue following the completion of several property insolvencies (which enhanced margins in the prior year).

 

Revenue in the final six weeks of the financial year was adversely impacted by the COVID-19 lockdown by c.£1m, which was partially mitigated by £0.4m of cost reductions.

 

Operating costs increased to £17.0m (2019: £12.9m), principally due to costs associated with the acquired businesses.

 

Segmental profits* were £3.9m (2019: £3.8m), with operating margins of 18.5% (2019: margin of 22.8% was enhanced by revenue recognised on completion of property insolvencies as referred to above). Operating margins were adversely impacted by the lockdown by c.2%, with the underlying rate of c.20% in line with previous guidance of margins for the division.

 

COVID-19 impact

 

All service lines had performed strongly in the period up to the commencement of lockdown in March and the majority continued to operate remotely during lockdown:

 

·      Consultancy, commercial property agency and property management teams operated as normal from remote locations.

 

·      The plant and machinery and property auction teams continued to trade through our online channels (www.eddisons.com and www.pugh-auctions.com), completing transactions and realising value for our clients together with asset realisations on our group insolvency appointments, albeit property auction lot numbers reduced as detailed in the operating review below.

 

·      Commercial property agency and valuations together with business sales agency experienced reduced activity levels in late March and April as a result of the lockdown. In addition, the Department for Education delayed its awards under the condition improvement fund (CIF), which had been anticipated in April 2020, resulting in a deferral of revenue recognition to the new financial year for our building consultancy team.

 

Operating review

 

Our building consultancy team has continued to develop, notably with further growth in the education and wider public sector. We have continued to invest in and grow the team and its offering, which included the recruitment of a Cambridge-based team in the period. This has further developed our offering in Eastern England following the acquisition of BSM in April 2019. In the announcement of the delayed CIF project awards (as noted above) we increased the funding secured for our clients to £28m, up by 50% compared to last year, which will generate project management and consultancy fees for the group of £2.2m in the new financial year compared to £1.3m last year.

 

Revenue from the property valuation team grew in the year, reflecting our recruitment of experienced surveyors, which has improved our geographical coverage and service to our clients.  The restrictions of lockdown impacted on activity levels at the end of the financial year; however, we are encouraged by the increase in the level of new instructions we are receiving from lenders as the UK exits its lockdown restrictions and anticipate that this will progressively increase over the course of the new financial year.

 

The property transactional teams (agency and auctions) have performed well in the year with an increase in agency revenue, largely from the integration of the BSM team acquired in April 2019.

 

Commercial property auctions performed well in the period pre lockdown with lot numbers and revenue broadly in line with the prior year. We converted our usual in-room auctions to an on-line auction from April as a result of the lockdown restrictions and have continued to offer this service to clients in the new financial year, which has been a positive development enabling the team to continue servicing clients' requirements and realising value. However, across the industry, lot numbers are currently c.60% lower than normal levels.  We currently anticipate that we will be able resume in-room auctions from autumn 2020 which we believe will result in a recovery in lot numbers.

 

In October 2019, we acquired Ernest Wilson, a Leeds-based business sales agent with 24 employees, which provides agency services for the sale of small businesses across the UK. The team operate across a broad range of sectors ranging from food outlets and convenience stores to care homes, restaurants and hotels. The acquisition enhances our transactional support services and is also complementary to the BTG Advisory and corporate finance offerings. Activity levels were impacted during the lockdown period, but as with the property valuations business, we are encouraged by the increase in transaction levels we have experienced since the lockdown restrictions were eased. We anticipate that transactional activity will progressively increase over the course of the new financial year.

 

The number of people employed in the division has increased to 281 as at 30 April 2020 from 245 at the start of the financial year. 

 

* See note 2

 

 

FINANCE REVIEW

 

Financial summary*

	2020	2019
	£'000	£'000
Revenue	70,503	60,058
Operating profit (before transaction costs and amortisation)	10,119	7,999
Finance costs	(968)	(1,006)
Adjusted profit before tax	9,151	6,993
Transaction costs	(3,163)	(1,283)
Amortisation of intangible assets arising on acquisitions	(3,104)	(2,361)
Profit before tax	2,884	3,349
Tax	(1,953)	(1,102)
Profit for the year	931	2,247

 

* IFRS 16 'Leases' was adopted from the start of the financial year and all comparative figures have been restated in accordance with the new standard. Further details are included below and in note 1 to this statement.

 

Operating result (before transaction costs and amortisation)

 

Revenue in the year increased by £10.4m to £70.5m (2019: £60.1m), an overall increase of 17%, of which 5% was organic and 12% was acquired*. Operating profit increased by 27% to £10.1m (2019: £8.0m). These results include the impact of the COVID-19 lockdown in the final six weeks of the financial year, which impacted property services revenue by c.£1m, partially mitigated by £0.4m of cost reductions.

 

The financial performance by operating segment (as detailed in the operating review) is summarised in the table below:

 

	Revenue (£'000)			Profit (£'000)
	2020	2019	growth	2020	2019	growth
Business recovery and financial advisory	49,630	43,313	15%	11,588	8,889	30%
Property advisory and transactional services	20,873	16,745	25%	3,860	3,826	1%
Shared and central costs	-	-	-	(5,329)	(4,716)	13%
Total	70,503	60,058	17%	10,119	7,999	27%

 

 

Margins improved to 14.4% (2019: 13.3%), principally due to profit growth and margin enhancement in business recovery and financial advisory, together with shared and central costs reducing as a percentage of group revenue to 7.6% (2019: 7.9%).  These margin enhancements were partially offset by property advisory and transactional services as detailed in the operating review.

 

Adjusted profit before tax increased by 31% to £9.2m (2019: £7.0m), as a result of the increased operating profits detailed above, with finance costs in line with the prior year.

 

* part year contribution from acquisitions in the year and full year contribution of prior year acquisitions

 

Transaction costs

 

Transaction costs (as detailed in note 3) increased to £3.2m (2019: £1.3m) as a result of increased deemed remuneration charges resulting from current and prior year acquisitions.

 

Tax

 

The overall tax charge for the year was £2.0m (2019: £1.1m) as detailed below:

 

	2020				2019
	Profit before tax	Tax	Profit after tax	Effective rate	Profit before tax	Tax	Profit after tax	Effective rate
	£'000	£'000	£'000		£'000	£'000	£'000
Adjusted	9,151	(1,928)	7,223	21%	6,993	(1,551)	5,442	22%
Transaction costs	(3,163)	-	(3,163)	-	(1,283)	-	(1,283)	-
Amortisation	(3,104)	590	(2,514)	19%	(2,361)	449	(1,912)	19%
Change in rate*	-	(615)	(615)	-	-	-	-	-
Statutory	2,884	(1,953)	931	68%	3,349	(1,102)	2,247	33%

 

* Deferred tax charge of £0.6m resulting from an increase in deferred tax liabilities as a result of the UK corporation tax rate now remaining at 19% rather than reducing to 17% as previously announced.

 

Earnings per share

 

Adjusted basic earnings per share* increased by 19% to 5.7p (2019: 4.8p). Basic earnings per share decreased to 0.7p (2019: 2.0p).

 

* See reconciliation in note 5

 

Partners and employees

 

The average number of full-time equivalent (FTE) partners and staff working in the group increased over the year as a result of acquisitions and organic investment.

 

	2020				2019
	Business recovery and financial advisory	Property advisory and transactional services	Shared and support teams	Total	Business recovery and financial advisory	Property advisory and transactional services	Shared and support teams	Total
Partners	60	-	-	60	52	-	-	52
Staff	234	237	-	471	217	173	-	390
Fee earners	294	237	-	531	269	173	-	442
Support teams	44	6	61	111	43	6	60	109
Total	338	243	61	642	312	179	60	551

 

The ratio of our support teams to fee earning partners and staff improved to 4.8 (2019: 4.1) reflecting the increased efficiency of our operations as the group continues to grow, which has been reflected in the improved operating margins in the year.

 

IFRS 16

 

IFRS 16 'Leases' was adopted from the start of the financial year and seeks to align the presentation of leased assets more closely to owned assets. All comparative figures have been restated in accordance with the new standard, which has been adopted on a fully retrospective basis.

 

The adoption of IFRS 16 had the following impact on the group's financial results for the year ended 30 April 2019:

·      Reduction in profit before tax of £0.1m (increase in operating profit of £0.4m offset by an increase in finance costs of £0.5m);

·      Reduction in net assets of £1.5m at 30 April 2019;

·      No impact on total cash flow; however net cash from operating activities increased by £2.1m and net cash used in financing activities increased by £2.1m.

 

Further details are included in note 1 to this statement.

 

Acquisitions

 

During the year, the group completed three acquisitions:

 

·      Alexander Lawson Jacobs on 24 October 2019 for initial consideration of £2.35m (£2.1m in cash and the issue of 296,195 new ordinary shares) with a maximum additional cash payment of £4.0m subject to financial performance in the five year period following the acquisition. In its financial year ended 30 June 2019, the business reported annual revenue of £3.1m and pre-tax profits of £0.9m, when reported on the same basis as the group.

·      Ernest Wilson on 18 October 2019 for initial consideration of £4.0m (£3.0m in cash and the issue of 1,163,874 new ordinary shares) with a maximum additional cash payment of £1.63m subject to financial performance in the three year period following the acquisition. In its financial year ended 31 July 2019, the business reported annual revenue of £2.2m and pre-tax profits of £0.7m, when reported on the same basis as the group.

·      Regeneratus on 23 September 2019 for initial consideration of £0.5m (in cash) with a maximum additional cash payment of £1.1m subject to financial performance in the four year period following the acquisition. In its financial year ended 31 March 2019, the business reported annual revenue of £0.6m and pre-tax profits of £0.2m, when reported on the same basis as the group.

 

A proportion of the consideration payable for these acquisitions requires post-acquisition service obligations to be performed by the selling shareholders. These amounts are accounted for as deemed remuneration and charged to the consolidated statement of comprehensive income over the period of the service obligation.

 

The net cash outflow as a result of these acquisitions in the year was £4.7m, comprising the cash consideration of £5.6m (including £4.2m accounted for as deemed remuneration), completion accounts payments of £2.5m (including £0.9m accounted for as deemed remuneration) offset by cash acquired of £3.4m.

 

In addition, deferred consideration payments of £4.4m (including £3.7m accounted for as deemed remuneration) were made in the year.

 

The value of net assets acquired exceeds the accounting value of consideration (as a result of the majority of consideration being accounted for as deemed remuneration) and consequently a gain of £2.2m has been recognised within transaction costs in the year.

 

Liquidity

 

The group is in a strong financial position. At the year end the group had cash balances of £7.2m (2019: £4.0m) together with undrawn, committed borrowing facilities of £15.0m (2019: £15.0m) providing significant liquidity entering the new financial year.

 

Our borrowing facilities mature in August 2023 and comprise a £25m unsecured, committed revolving credit facility and a £5m uncommitted acquisition facility.

 

Net debt at 30 April 2020 was £2.8m (2019: £6.0m), represented by cash balances (as noted above) of £7.2m (2019: £4.0m) net of drawn borrowing facilities of £10.0m (2019: £10.0m). As a result of the reduced levels of debt together with increased profits, our leverage* reduced to 0.3 times (2019: 0.7 times). All bank covenants were comfortably met during the year.

 

* Calculated as net debt to operating profit (before transaction costs, amortisation, depreciation on tangible assets, software amortisation and after finance charge on lease liabilities).

 

Cash flow

 

Net debt reduced by £3.2m (2019: £1.5m) due to strong levels of free cash flow of £7.7m and net proceeds from the share placing* of £7.8m which funded acquisition and deferred consideration payments of £9.1m and dividends of £3.2m.

 

Cash flow in the year is summarised as follows:

	2020	2019
	£'000	£'000
Net cash from operating activities (before deemed remuneration)	10,428	9,475
Capital expenditure	(789)	(1,000)
Capital element of lease payments	(1,934)	(2,148)
Free cash flow	7,705	6,327
Net proceeds from share issues	7,818	10
Acquisition payments	(4,710)	(1,167)
Deferred consideration payments	(4,390)	(1,030)
Dividends	(3,185)	(2,649)
Reduction in net debt	3,238	1,491

 

* Share placing of 11,041,440 new ordinary shares completed on 26 July 2019.

 

Net assets

 

At 30 April 2020 net assets were £65.6m (2019: £58.1m). The movement in net assets reflects an increase of £4.0m, from post-tax adjusted earnings of £7.2m net of dividends of £3.2m; £9.8m from the issue of new shares (resulting from the placing and acquisition consideration in the period); offset by the post-tax impact of acquisition-related transaction and amortisation costs of £6.3m.

 

Going concern

 

The group is in a strong financial position and has significant liquidity as detailed above.  The majority of the group's service lines have operated remotely during the period of the COVID-19 lockdown.

 

In carrying out their duties in respect of going concern, the directors have completed a review of the group's financial forecasts for a period exceeding 12 months from the date of approving this statement. This review included sensitivity analysis and stress tests to determine the potential impact on the group of reasonably possible downside scenarios, including those arising from the COVID-19 pandemic and the resultant increase in risks for the group. Under all modelled scenarios, the group's banking facilities were sufficient and all associated covenant measures were forecast to be met.

 

As such, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the financial information in this statement is prepared on the going concern basis.

 

 

       

Ric Traynor                                                                          Nick Taylor

Executive chairman                                                           Group finance director

21 July 2020                                                                        21 July 2020