Gateley Holdings Regulatory News (GTLY)

Gateley (Holdings) Plc

("Gateley" or the "Group")

Half Year Results for the six months ended 31 October 2017

Gateley (AIM:GTLY), the national commercial law firm and complementary professional services group, is pleased to announce its unaudited results for the six months ended 31 October 2017 ("the Period").

Financial Highlights

· Revenue up 9.8% to £38.6m (2016: £35.2m)

· Adjusted EBITDA* up 6.3% to £5.3m (2016: £5.0m)

· Profit before tax constant at £4.2m following further investment in the business through additional staff and service lines

· Strong and strengthening balance sheet with net assets of £16.4m (2016: £12.6m)

· Basic EPS constant at 3.1p

· Interim dividend of 2.2p per ordinary share (2016: 2.2p)

* Adjusted EBITDA excludes income or expenses that relate to non-underlying items and non-cash charges relating to share based payments

Operational Highlights

· Activity levels remain robust enabling continued investment in the growth of the business

· Total headcount up 6.4% in the Period to 763 including six new legal partner hires

· Continued successful integration of Gateley Capitus and Gateley Hamer acquisitions creating cross sell opportunities

· Investment in new Global Mobility consulting service line

· Further staff share options were issued in the Period under existing SAYE, SARS and CSOP schemes

· Group free float up from 34.0% to 40.3% and institutional shareholder register expanded following the successful and oversubscribed placing of former partner shares in October 2017

Michael Ward, CEO of Gateley, commented:

"I am delighted with the performance of the business in the first half of the financial year. We have seen robust activity levels across the Group yielding a 9.8% increase in revenue enabling us to further invest in the business through additional staff and service lines. Whilst we remain focused on seeking further acquisition opportunities, our ability to achieve organic growth by attracting talent, recruiting into growing service lines and delivering excellent customer service to our growing client base places us in a strong position for the second half of the year.

Our new Global Mobility service line is our latest example of strategic investment which, alongside our existing clients and contacts, will enable us to capitalise on the opportunities which we expect to emerge in an environment of ongoing political and economic uncertainty. Our acquisitions to date, Gateley Capitus and Gateley Hamer, are performing well with a distinctive cross-sell that is proving attractive to new and existing clients.

We continue to invest in our people through the release of further share options and I am delighted that participation remains strong across professional and support staff alike. We were also extremely pleased with the recent institutional placing which was oversubscribed. We saw strong demand from both existing and new institutions, as well as good internal take up from both longstanding employees and recent joiners.

The Board looks forward to the second half of the financial year with continued confidence."

Enquiries:

CEO Operational Review

Introduction

I am pleased to report that the Group has performed well in the first half of its third year as a public company. In a market that continues to be challenging, the Board has remained focused on the execution of its stated strategy of long term organic and acquisitive growth. The Group has made excellent progress since its admission to AIM, all of which continues to be made possible by our excellent staff and continued investment in the business.

Financial Results

Trading in the Period has been robust with increases in activity levels across the Group generating revenue up 9.8% to £38.6m and adjusted EBITDA up 6.3% to £5.3m. We continue to seize growth opportunities as they arise and invest in the long-term future of the business via strategic recruitment and investment in new, complementary service lines. We are pleased to propose an interim dividend of 2.2p per share (2016: 2.2p).

Operational Review

In line with our overall growth strategy, we have continued to take advantage of our brand recognition opportunities, service line enhancements and the delivery of excellent levels of client service. Whilst we remain focused on seeking further acquisition opportunities, our ability to achieve organic growth by attracting talent and recruiting into growing service lines places us in a strong position for the second half of the year.

Our new Global Mobility service line is our latest example of strategic investment. This new service line is a complementary business service focusing on the selection and relocation of employees for international assignments, as well as the logistics, activities and events that occur before, during and after these assignments. Opportunities for this unique client offering exist in a variety of areas including offshoring and nearshoring, Brexit planning and individual senior executive cross-border relocations. Global mobility assignments have increased by 25% in the past decade and forecasters are predicting that this trend will continue with a further 50% increase in assignments by 2020. This new service line, alongside our existing clients and contacts, will enable us to capitalise on the opportunities which we expect to emerge in an environment of ongoing political and economic uncertainty. Gateley Capitus and Gateley Hamer are also performing well with a distinctive cross-sell that is proving attractive to clients.

Whilst the growth in our divisions is encouraging, it is also important to highlight that the Group operates through a diverse and resilient business structure that performs well in both good and more challenging economic environments. Our differentiated model continues to attract excellent talent from around the industry. We continue to secure the best lawyers who are looking for a strong business with a defined and distinctive strategic plan supported by a strengthening balance sheet and continued investment. Since 1 May 2017 we have welcomed a further six new lateral legal partner hires to the Group. In addition, we have also promoted six senior associates to partner. Our overall staff numbers continue to increase as our measured expansion across legal and non-legal complementary business services enhances our offering to new and existing clients. Since April 2017, total staff numbers have increased by 6.4% to 763.

A fundamental feature of our business model is the equity incentivisation of our staff, enabling them to share in the success of the business as it grows. Our SARS, CSOP and SAYE schemes form a key part of our incentivisation strategy, enabling all our staff to obtain equity ownership in the business.

Acquisitions

The Board remains focused in its search to acquire businesses offering complementary professional and other specialist services which will assist in further expanding and diversifying our income streams. We are pleased with how well our first two acquisitions of non-legal complementary professional businesses have integrated with the existing legal business. Importantly we are very encouraged by how cross selling opportunities from these acquisitions are starting to feed through into our pipeline of new work.

Current trading and outlook

Trading is robust and we anticipate this will continue into the second half of the current financial year. We are confident that our business is well balanced and resilient and we remain focused on delivering another year of growth in our core services and exploiting synergies between all Group companies whilst looking to continue to enhance our offering to clients through further acquisitions. We look forward to the second half of the year with confidence and anticipate revenues in the second half to deliver Group performance for the full year in line with market expectations.

Michael Ward

CEO

5 December 2017

Finance Director's Review

Activity levels within the Group remain ahead of current revenue growth. The Board continues to invest in the business through additional staff hires and enhanced service lines so as to take advantage of compelling market growth opportunities. Revenue for the Period is up 9.8% to £38.6m (2016: £35.2m).

Transactional advisory activity services across our Corporate, Property, Banking and Financial Services lines have delivered double digit revenue growth together with improved divisional profitability from the expansion of those teams below partner level. Revenue was further enhanced by improved contributions from our complementary professional services businesses of Gateley Capitus and Gateley Hamer as their revenues totalled £1.3m (2016: £0.8m) representing 1.4% of the aforementioned 9.8% growth at the half year.

Operating costs have also increased by £3.4m, including a £2.9m increase in personnel costs, the majority of which arose from new recruitment resulting in operating profit for the Period of £4.4m (2016: £4.3m). Adjusted EBITDA1 increased by 6.3% from £5.0m to £5.3m for the Period. This has been achieved through tight control of Group operating expenses as the business continues to expand.

The Group continues to strive to deliver value both to investors and clients alike as we invest in the expansion of professional and support staff across the business that is critical to meeting client demands. The Group is well positioned to capitalise on emerging opportunities in the second half of the year. The Group is adept at meeting the challenge common within legal service businesses, whereby we expect to show a strong second half to the financial year with transactional activity remaining prominent. The Group is performing in line with historical activity levels between the first and second half of the year.

Our average number of legal and professional staff numbers rose by 7.2% to 490 during the Period (2016: 6.9% to 419). Personnel costs rose accordingly by 13.6% to £24.3m (2016: £21.4m). Personnel costs as a percentage of revenue rose 2.1% from 60.8% to 62.9% as a result of increased annual pay awards together with enhanced staff recruitment including key appointments in Business Development, Global Mobility Services and other key professional positions. New and existing staff have generated a 16% increase in Group work in progress in the Period, flowing through into H2 18 continued fee growth. Utilisation of fee generating staff has also improved to 85% (2016: 83%).

A constant interim dividend in line with EPS performance continues to reward both internal and external investors. When considering the increased investment in staff during the Period we are pleased to have maintained adjusted EPS at 3.1p (2016 3.1p) at the half year end. 

Balance sheet, cash flow and financing

The Group continues to focus on strengthening its balance sheet as net assets increased to £16.4m (2016: £12.6m). Total net debt has reduced to £7.1m (2016: £7.4m) following the final repayment of loans due to former partners in May 17. Bank overdrafts totalled negative £1.2m (Cash and cash equivalents 2016: £2.2m) as cash generation in certain service lines was behind initial budgeted expectations at the half year. Collection of debts remains a key focus for the Group as we head into the second half of the year. Whilst net debt continues to reduce the Group awaits settlement on certain litigation cases. Whilst this work is part of our broad-based service offering there can be delays in settlement of these long term projects which impacts on current working capital levels.

Further deferred consideration totalling £0.125m was paid in October in respect of the successful recruitment of a successor to Charles Hamer within Gateley Hamer. A further £0.8m of deferred consideration remains payable on achievement of agreed earn out targets.

Earnings per share and dividend

Basic earnings per share were 3.1p (2016: 3.1p). Diluted earnings per share reduced to 2.95p (2016: 3.09p). The Board today declares an interim dividend of 2.2 pence per share which will be paid in early March 2018 to shareholders on the register at the close of business on 16 February 2018. The shares will go ex-dividend on 15 February 2018.

Neil Smith

Finance Director

5 December 2017

Gateley (Holdings) Plc

Consolidated income statement and other comprehensive income (Unaudited)

For the 6 months ended 31 October 2017

Statutory earnings per share (pence) 

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 2017 

Gateley (Holdings) Plc

Consolidated cash flow Statement

for the 6 months ended 31 October 2017

Gateley (Holdings) Plc

Consolidated statement of changes in equity

for the 6 months ended 31 October 2017

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.

Other reserve - Represents the difference between the actual and nominal value of shares issued by the company in the acquisition of subsidiaries.

Treasury reserve - Represents the repurchase of shares for future distribution by the 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 year ended 30 April 2017

1 Basis of preparation and significant accounting policies

These interim unaudited financial statements for the six months ended 31 October 2017 have been prepared in accordance with the accounting policies set out in the Annual Report and Financial statements of the Group for the year ended 30 April 2017.

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 2017 or 31 October 2016 and should be read in conjunction with the statutory accounts for the 30 April 2017 and 30 April 2016. The auditors have reported on those accounts.

The condensed unaudited financial statements for the six months to 31 October 2017 have not been audited or reviewed by auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

Going concern

These interim accounts are prepared on a going concern basis as the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group remains cash generative, with a strong on-going trading performance. On 1 June 2015 the Group acquired two unsecured term loans for £5m each repayable quarterly over five years. These term loan facilities contain financial covenants which the Group is forecast to comply with for the foreseeable future. Additional overdraft facilities of up to £8m in total are also available to the Group.

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 the Group. 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.

2 Operating segments

The Chief Operating Decision Maker ("CODM") is the Strategic Board. The Group has 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:

31 October 2017

31 October 2016

30 April 2017

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

3 Employees

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

4 Earnings per share

Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

5 Dividends

The Board has approved an interim dividend of 2.2p (2016: 2.2p) per share. This dividend will be paid in early March 2018 to shareholders on the register at the close of business on 16 February 2018. The shares will go ex-dividend on 15 February 2018. This dividend has not been recognised as a liability in these final statements.

6 Intangible assets

Goodwill

Goodwill is allocated to the following cash generating units

7 Trade and other receivables

8 Other interest-bearing loans and borrowings

The contractual terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost are described below.

The unsecured overdraft facilities totalling £8m (31 October 2016 £7m, 30 April 2017 £5m) are repayable on demand.

The unsecured term loans are repayable quarterly over five years commencing on 8 November 2015. Interest is chargeable at 2.25% over LIBOR.

The loans from former members were repayable quarterly over a period of not less than two years commencing, May 2015 and all loans were repaid in May 2017.

9 Trade and other payables

(a) £0.054m of contingent consideration represents the balance of consideration payable to the sellers of Gateley Capitus Limited (formerly Capitus Limited) upon collection of acquired assets.

(b) £0.833m of contingent consideration represents the earn-out sums payable to the sellers of Gateley Hamer Limited (formerly Hamer Associates Limited). It has been calculated based on the Group's expectation of what it will pay in relation to the earn-out clause of the sale and purchase agreement. The earn-out targets are based on the annual results of the acquired business. The fair value of the earn-out consideration is calculated by weighting the probability of achieving these targets to give an estimate of the final obligation. In accordance with the terms of the sale and purchase agreement the total earn-out cannot exceed £1.083m.

10 Share based payments

Group

At the period end the Group has three share based payment schemes in operation.

Stock Appreciation Rights Scheme ('SARS')

This SARS is a discretionary executive reward plan which allows the Group to grant conditional share awards or nil cost options to selected executives at the discretion of the Remuneration Committee.

The awards vest after a 3 year performance period. On exercise, participants will receive the growth in value of the share options between the date of grant and the date of exercise in excess of the hurdle rate. The hurdle rate is currently set at 115.765% of the market value of the underlying shares on the date of grant.

Save As You Earn Scheme (SAYE)

The Group operates a HMRC approved SAYE scheme for all staff. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary shares at a discount of 20% of the market price determined at the grant date.

Company Share Option Plan (CSOP)

The group operates a HMRC approved CSOP scheme for associates, senior associates, legal directors, equivalent positions in Gateley Group subsidiary companies and senior management positions in our support teams. Options under this scheme will vest if the participant remains employed for the agreed vesting period of three years. Upon vesting, each option allows the holder to purchase the allocated ordinary share at the price on the date of the grant.

The annual awards granted under the schemes are summarised below:

Fair value calculations

The award is accounted for as equity-settled under IFRS 2. The fair value of awards which are subject to non-market based performance conditions is calculated using the Black Scholes option pricing model. The inputs to this model for awards granted during the financial period are detailed below: 

As the Group had only limited share price history at the date of grant, expected volatility was based on a proxy volatility determined from the median volatility of a group of appropriate comparator companies. For the same reason, a similar approach was followed to derive the dividend yield. Expected life has been taken to be between the minimum and maximum exercise period of 3 and 3.5 years, respectively.

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