Gateley Holdings Regulatory News (GTLY)

Gateley (Holdings) Plc

("Gateley" or the "Group")

Half Year Results for the six months ended 31 October 2015

"Solid six months trading performance…."

Gateley, (AIM:GTLY), a leading national full-service commercial law firm, reports its unaudited results for the six months ended 31 October 2015, being the first six months of the business as a Plc following admission of the Group to trading on AIM on 8 June 2015. The comparative period results set out below represent the LLP's results for the six months ended 31 October 2014 on a pro-forma basis.

Financial highlights

· Revenue up 10.9% to £29.6m (2014: £26.7m)

· Adjusted EBITDA* up 40.6% to £4.5m (Pro-forma 2014: £3.2m)

· Profit before tax up 11.5% to £2.9m (Pro-forma 2014: £2.6m)

· Basic EPS up 5% to 2.0p (Pro-forma 2014: 1.9p)

· Initial interim dividend declared of 1.895p

* Adjusted underlying pro-forma EBITDA excludes income or expenses that relate to non-underlying items

Operational highlights

· Successful IPO raised £30m in June 2015

· Advised on 123 (2014: 117) corporate deals with an aggregate value in excess of £970m

· Eight new lateral partner hires since 1st May with overall staff numbers increasing from 604 to 622 over the six month reporting period.

· Utilisation of fee generating staff at 85% (October 2014: 83%)

· Strong balance sheet, strong cash generation and new long term bank facilities provide a robust platform for growth and a smooth transition from the previous LLP to the new Plc corporate structure

Michael Ward, CEO of Gateley, commented:

 "I am delighted with the performance of the business during the six month period to 31 October 2015, a period in which we have achieved and in some cases over-achieved against the targets we set ourselves at the time of our IPO in June 2015.

The Group's ability to deliver a strong first half performance, in an improving but challenging market, whilst at the same time transitioning the business from an LLP to a Plc not only highlights the capabilities of the senior management team but also reconfirms our strategy of using our more flexible Plc status to enhance shareholder value through organic growth and strategic acquisitions.

These results represent a very solid start to our life as a Plc and I believe will serve to further raise our profile, differentiate us from our direct competitors and attract quality staff. As such, the Board looks forward to the remainder of its first year as a Plc with confidence."

Enquiries:

CEO Operational Review

Whilst the legal market remains improving but challenging all of our business groups have increased their turnover when compared to the same period last year. Our Corporate Group saw an increase of over 20% in their revenues thereby maintaining its third position nationally for deal volume in the Experian Corporate Finance - M&A advisor legal table, and first place in the Midlands. The new residential development team which was set up in London at the beginning of the year has made significant steps forward and has been well received by existing national house builder clients who have offices located in the South East.

Since 1 May 2015 we have welcomed eight new lateral partner hires to the business across our offices evidencing our ability to continue to attract and retain talent. Our overall staff numbers have increased from 604 to 622 over the six month reporting period.

We have announced our intention to open a full service office in Reading and the recruitment of staff is proceeding well.

We continue to be successful in maintaining our presence on legal panels and can confirm re-appointment to the national legal panel for Taylor Wimpey for a further three years and to one of our UK clearing bank panels for a further five years.

We are continuing to explore acquisitions of businesses providing complementary professional services to enable us to further diversify our income streams going forward.

We are consulting with all employees about the shape and form of an all staff share ownership scheme which we are committed to delivering before the end of this financial year.

My thanks go to our staff for their continuing support and encouragement.

Finance Director's review

For clarity of understanding and ease of future comparison, we have set alongside our six month trading results for the period to 31 October 2015, Pro-forma financial results for the six months of the prior year as if the Plc structure of the Group had been in place during the prior year. A summary of the corporate structure changes effected in order to move from an LLP to a Plc is included in Note 1 below.

During the six months ended 31 October 2015 the Group delivered solid organic revenue growth of 10.9% with total revenues of £29.6m (Pro-forma 2014: £26.7m). This growth continued the trend in revenue growth seen in the preceding twelve months to 30 April 2015. In the six months to 31 October 2015 the business has seen measured expansion across all of its segmental reporting divisions with fee growth of between 4.8% and 22.3% being achieved across the Group's five divisions operating in six regional locations across the UK, complemented by the expanding Dubai office.

Operating costs rose by 6.8% to £25.3m (Pro-forma 2014: £23.7m). This growth in operating costs has been driven by the Board continuing to invest in the future of the business and its people for the benefit of clients. Fee generating staff rose by 3.5% to 386 (Pro-forma 2014: 373). Personnel costs rose accordingly by 8.1% from £16.7m to £18m, however, as the business continues to scale, this cost fell to 60.8% of revenue (Pro-forma 2014: 62.5%). In addition to expanding the number of fee earners, the business has also increased its efficiency with utilisation of fee generating staff rising to 85% (2014: 83%).

Other operating expenses increased by 4.3% to £7.3m (Pro-forma 2014: £7m). This increase in costs is as a direct result of additional spending incurred to capitalise on the brand-enhancing marketing opportunities post listing together with associated professional costs resulting from the Group's new corporate requirements.

Adjusted EBITDA of £4.5m is up by 40.6% from £3.2m and Pre-tax Profit was up 11.5% to £2.9m (Pro-forma 2014: £2.6m). Adjusted numbers are stated after excluding income or expenses that relate to non-underlying items. Non-underlying items include one-off professional costs in respect of the Group's future strategy together with the costs associated with the IPO in June. The net position of the Group balance sheet has transformed from nil, as is typical with a law firm LLP structure, to £7m (before dividend), positioning the business well for future expansion.

Earnings per share

Reported basic and diluted earnings per share were 2.0p (Pro-forma 2014: 1.9p).

Dividend

The Board intends to adopt a progressive dividend policy to reflect the expectation of future cash flow generation and long-term earnings potential of the Group, paying up to 70 per cent of after tax profits each year. Based on our interim results, the Board is pleased to announce an interim dividend of 1.895p per share which will be paid on 22 January 2016 to shareholders on the register at the close of business on 29 December 2015. The shares will go ex-dividend on 24 December 2015.

Cash flow and financing

Cash generated from operating activities is in excess of profits after tax for the first six months of trading as a Plc.

Closing cash totalled £7.8m arising from the change in funding structure and new debt funding. The Group's net debt position as at 31 October 2015 has changed as a result of replacing former members' capital, otherwise known as "fixed capital", with £10m of new term bank debt, together with the injection of new money from the issue of shares totalling £5m. The total injection of £15m of new cash into the Group balance sheet on admission has been partially used to repay in full all former members' fixed capital and undistributed LLP profits in respect of the year ended 30 April 2014. The remaining undrawn profits of the LLP for the year ended 30 April 2015 were converted into loans from members of the LLP upon admission. The remaining surplus funds continue to assist in the on-going working capital funding of the Group.

Net Debt movement since 30 April 2015

Current trading and outlook

Trading since 31 October 2015 has continued in the same vein as the previous eighteen months in what remains an improving but challenging market. It has been pleasing to see that our new Plc status continues to raise our profile and attract interest from potential acquisition targets and lateral hires, as well as the media. We feel confident the Group can deliver in line with expectations and that it is well placed to do so after a busy first six months.

Gateley (Holdings) Plc

Consolidated income statement and other comprehensive income

For the period ended 31 October 2015

Earnings per share 

The results for the periods presented above are derived from continuing operations. There were no other items of comprehensive income to report.

Gateley (Holdings) Plc

Consolidated statement of financial position

at 31 October 2015 

Gateley (Holdings) Plc

Consolidated cash flow Statement

for the unaudited period ended 31 October 2015

The consolidated cash flow statement relates to the Group's transactions for the six month period from 1 May 2015 and 31 October 2015. It is not prepared from the Pro-forma position of the Group as demonstrated elsewhere within this announcement as it purposely displays the exact cash performance of the Group in respect of its conversion period from LLP to Plc. 

Gateley (Holdings) Plc

Consolidated statement of changes in equity

for the unaudited period ended 31 October 2015

The following describes the nature and purpose of each reserve within equity:

Share premium - Amount subscribed for share capital in excess of nominal value.

Merger reserve - Represents the difference between the nominal value of shares acquired by the company in the share for share exchange with the former Gateley Heritage LLP members and the nominal value of shares issued to acquire them.

Treasury reserve - Represents the repurchase of shares for future distribution by Group's Employee Benefit Trust.

Retained earnings - All other net gains and losses and transactions with owners not recognised anywhere else.

 Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

1 Basis of preparation and significant accounting policies

These interim unaudited financial statements for the six months ended 31 October 2015 have been prepared on the basis of the accounting policies expected to be adopted for the period ended 30 April 2016. These are in accordance with the Group's accounting policies as set out in the historical financial information included in the AIM Admission Document.

The recognition and measurement requirements of all International Financial Reporting Standards ('IFRSs'), International Accounting Standards ('IAS') and interpretations currently endorsed by the International Accounting Standards Board ('IASB') and its committees as adopted by the EU and as required to be adopted by AIM listed companies have been applied. AIM-listed companies are not required to comply with IAS 34 'Interim Financial Reporting' and accordingly the Company has taken advantage of this exemption.

The financial information contained in this interim report does not constitute statutory accounts for the six months ended 31 October 2015 and should be read in conjunction with the historical financial information included in the AIM Admission Document. 

The condensed unaudited financial statements for the six months to 31 October 2015 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The Pro-forma adjustments and results, used within the consolidated income statement, have been prepared consistently with information provided on historical results in the Group's Admission Document upon listing. The balance sheet, cash flow statement and related notes include Pro-forma adjustments that demonstrate the inclusion of partners' pay as a personnel cost, a Pro-forma corporation tax charge together with the drawdown of term loans totalling ten million pounds, repayable over five years. The proceeds received from the term loans were used to repay individual members' fixed capital and support working capital after admission. Also included within the Pro-forma changes is the receipt by the Group of net proceeds from the Placing of five million pounds.

Legal status

Gateley (Holdings) Plc was incorporated on 13 November 2014. On 29 May 2015 the Company acquired 100 per cent of the issued share capital of Gateley Plc which had, on the same day, acquired the business assets and liabilities of Gateley Heritage LLP, formerly the partnership of Gateley LLP. Following this Group reorganisation the financial statements for the period ended 31 October 2015 have been prepared on a merger accounting basis as though this Group structure had always been in place and a full six month set of results is therefore presented. The first day of trading of the Group included in this six month interim statement was therefore 1 May 2015. 

On 8 June 2015, Gateley (Holdings) Plc was admitted to the AIM market of London Stock Exchange Plc.

Going concern

The Company and the Group remain cash generative and have sufficient medium term facilities in place, including two unsecured term loans for £5 million each repayable quarterly over five years together with unsecured overdraft facilities of up to £6 million.

On the basis of their assessment of the Group's financial position, forecast and projections, the Group's directors have a reasonable expectation that the Company will be able to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing these initial accounts.

Statement of Directors' responsibilities

The Directors confirm that, to the best of their knowledge, this condensed set of consolidated financial statements have been prepared in accordance with the AIM Rules.

Cautionary statement

This document contains certain forward-looking statements with respect of the financial condition, results operations and business of Gateley. Whilst these statements are made in good faith based on information available at the time of approval, these statements and forecasts inherently involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause the actual results of developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this document should be construed as a profit forecast. 

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

2 Operating segments

The Chief Operating Decision Maker ("CODM") is the Strategic Board. The Group have the following five strategic divisions, which are its reportable segments. These divisions offer different products and services and are managed separately because they report different specialisms from the legal teams in those divisions.

The following summary describes the operations of each reportable segment:

The revenue and operating profit are attributable to the principal activities of the Group. A geographical analysis of revenue is given below:

Six month period to 31 October 2015

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

Operating segments (continued)

Pro-forma six month period to 31 October 2014

No other financial information has been disclosed as it is not provided to the CODM on a regular basis.

3 Other operating income

4 Operating profit

Operating profit is stated after charging the following:

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

Non-underlying items include one-off professional costs in respect of the Group's future strategy, on-going property lease restructuring costs and listing costs in respect of the Group's admission to the AIM market of London Stock Exchange Plc. Additional costs also arose in 2014 resulting from the release of operating lease incentives in accordance with IFRS, whereby lease incentives are now recognised over the full term of the lease.

5 Employee benefit expenses

The average number of persons employed by the Group during the year, analysed by category, was as follows: 

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the company as well as certain Directors of subsidiary companies

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

6 Taxation

The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the United Kingdom applied to profits for the period are as follows:

7 Earnings per share

Pro-forma basic earnings per share, shown on the consolidated income statement, is based on profit after tax divided by 105,274,159, being the weighted average total number of shares in issue during the period.

8 Dividends

An interim dividend of 1.895p per share has been declared on these six month results to 31 October 2015 totalling £1,994,945. This dividend will be paid on 22 January 2016 to shareholders on the register at the close of business on 29 December 2015. The shares will go ex-dividend on 24 December 2015. This dividend has not been recognised as a liability in these interim statements. 

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

9 Trade and other receivables

10 Other interest-bearing loans and borrowings

The contractual terms of the Group's interest-bearing loans and borrowings (including loans from former members of Gateley Heritage LLP), which are measured at amortised cost are described below. 

On 8 June 2015 Gateley Plc entered into two new loan agreements of £5m each. The total £10m of term loans are repayable quarterly over 5 years commencing on 8 December 2015. Interest is chargeable at 2.25% over LIBOR. The injection of cash from these loans is shown on the consolidated cash flow statement.

On 8 June 2015 undrawn surplus profits and tax provisions owed to former members of Gateley Heritage LLP were converted into unsecured loans from members. Interest is chargeable at 0.5% over Bank of England base rate. Current forecasting projections show all such loans as repayable within two years of admission to the AIM market. Fixed capital loans totalling £6.7m represented borrowings from former members which were repaid following admission to the AIM market on 8th June 2015.

The Group has overdraft facilities, repayable on demand, totalling £6 million.

Included within trade and other payables are gross finance lease liabilities.

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

11 Trade and other payables

12 Provisions

Professional indemnity

The professional indemnity provision represents amounts equal to the insurance excesses payable on outstanding claims against the Group which are covered by the Group's professional indemnity insurance policy.

Gateley (Holdings) Plc

Notes

for the unaudited period ended 31 October 2015

13 Share capital

Authorised

Issued and fully paid

The share capital reflects the shares issued to acquire Gateley Plc on 29 May 2015. In line with the requirements of merger accounting the structure and share capital issued has been recorded as though it had always been in place.

On the Group's admission to the AIM market of London Stock Exchange Plc on 8th June 2015 a further 5,274,148 10p ordinary shares were issued and fully paid up.

14 Business combinations

On 19 May 2015, the Company acquired 100% of the share capital of Gateley EBT Limited (formerly Ensco 1133

Limited) for £1.

On 29 May 2015, the Company acquired 100% of the share capital of Gateley Plc (formerly Ensco 1102 Limited)

via a share for share exchange.

On 29 May 2015, the Company acquired 100% of the share capital of Entrust Pension Limited for £1.

On 29 May 2015, the Company acquired the membership interest of Gateley UK LLP for £1.