The directors present the strategic report for the year ended 31 March 2021.
We aim to present a balanced view of the performance of our business during the year and its position as at 31 March 2021. Our review is consistent with the size and nature of our business and is written in the context of the risks and uncertainties we face. The strategic report reflects the board’s view of the group and provides context for the related financial statements.
Section 172 statement
The purpose of the strategic report is to provide information for shareholders and help them to assess how the directors have performed their duty, under section 172 of the Companies Act 2006 (“s172”), to promote the success of the group and company and, in doing so, had regard to the matters set out in that section. This includes considering the interests of other stakeholders which will have an impact on the long-term success of the entity.
History
CS Law Limited is the parent company of the group and was incorporated as a holding company for two trading subsidiaries, TBD Legal Limited and Equilaw Limited, and a third subsidiary whose primary focus has been the development of software, Novex Software Limited.
The group is a provider of conveyancing services specialising in equity release (through Equilaw) and mid to high level residential property transactions particularly concentrated in London and the South West of England (through TBD Legal Limited).
Strategy
The group’s strategy is to:
Consolidate its position as a market leading provider of conveyancing services in the Equity Release market and grow its market share;
Increase its focus of providing residential conveyancing services in London and the South West of England; and
Continue developing a bespoke in-house software platform to facilitate and enhance the efficient processing and delivery of legal conveyancing services.
This strategy will enable the group to offer a unique, tech-enhanced solution to its customers.
The future
The equity release market is anticipated to grow, especially as travel restrictions ease, over the foreseeable future as over 55s look to utilise the equity available in their properties for a variety of borrowing requirements.
The residential property market in and around London and the South West is expected to show growth throughout 2021 and 2022, again as travel restrictions ease and employees move to remote working on a permanent basis.
The group is well positioned, both financially and operationally, to benefit from these strong market conditions.
The group is committed to continue investment in technology in the future as it believes that a combination of technology development, staff retention and training will ensure that the group can offer customers a market leading level of service. This commitment to developing a bespoke in-house system totalled £292,150 in the year ended 31 March 2021, a significant increase on the £101,862 invested in the prior year.
The group statement of comprehensive income on page 10 of the financial statements shows the group’s financial performance for the year to 31 March 2021. Turnover for the year was £10,936,037 (2020: £10,929,017) and earnings before interest, depreciation, amortisation and tax (“EBITDA”) was £1,937,827 (2020: £2,535,542).
The group statement of financial position as at 31 March 2021 shows net assets of £4,671,621 (2020: £6,090,842).
The group uses a number of KPIs to manage the business including revenue growth, return on sales and cash generation as measured by operating cashflow.
For the year ended 31 March 2021, Equilaw Limited and TBD Legal Limited delivered solid financial results in the face of uncertain market conditions, caused by Covid. While all KPIs may not have shown growth trends in the year, the group ended the year in a robust financial position and the directors are confident the group is well positioned to achieve growth in the coming financial year.
Overall impact
The group was impacted by Covid-19 during the first quarter of year ended 31 March 2021, with revenue over that period being much lower than expected. In response to this, the directors of the group took timely and appropriate action. This involved taking advantage of the Government’s Coronavirus Job Retention Scheme in order to offset salary costs while revenue was suppressed, negotiating extended payment terms with third parties and taking out a Coronavirus Business Interruption Loan Scheme (CBILS) loan to provide further cashflow headroom while conditions remained uncertain. Despite taking out the CBILS loan, the group has met all of its financial obligations out of operating cashflows and aims to repay the loan within 12 months of receiving it.
The start of the current financial year has seen trading return to pre-Covid levels with the residential conveyancing market being particularly buoyant as it benefitted from the Government’s Stamp Duty incentive schemes.
The directors have prepared, and approved, budgets for the current year and completed in year reforecasts. These forecasts show that the group is expected to continue as a going concern in the foreseeable future and that it remains appropriate to prepare the financial statements on a going concern basis.
Principal risks and uncertainties
Market risks
The major risk the group faces is the stability of the UK housing market as there clearly is a strong correlation between the health of the housing market and revenue for the group. In addition, Equilaw Limited is focussed on equity release market for its revenue and is therefore subject to changing trends within this specialist market. The group mitigates this risk by ensuring that it plays a full part in the regulatory approach to equity release and ensuring that it has deep relationships with key financial advisors and lenders into the equity release market. It also enjoys the benefit of a substantial introducer base in the general conveyancing market, incorporating both estate agency groups and mortgage advisors.
Liquidity and cash flow risks
The group has been and continues to be cash generative and is in a strong position financially, with no external borrowings outside of the Government or one of its shareholders. The group is therefore not exposed to credit risk, liquidity risk, foreign exchange risk or interest rate risk.
As at 31 March 2021, the group had cash at bank and in hand of £2,781,360 (2020: £1,999,935).
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 March 2021.
The results for the year are set out on page 10.
Ordinary dividends were paid amounting to £1,361,718. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
Saffery Champness LLP were appointed as auditor to the group and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
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, 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.
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.
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.
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' r eport 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.
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 identifie d material misstatements in the strategic report and the directors' r eport .
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
As explained more fully in the directors' r esponsibilities s tatement, 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 parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the group and parent company 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 and by updating our understanding of the sector in which the group and parent company operates.
Laws and regulations of direct significance in the context of the group and parent company include The Companies Act 2006, UK Tax legislation and SRA Accounts Rules.
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 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.
The group is regulated by the SRA. We discussed SRA compliance with the group ’s Compliance Office r for Finance and Administration (COFA) and Compliance Office r for Legal Practice (COLP). We obtained additional evidence over compliance by reviewing correspondence with the SRA where applicable, the COLP and COFA breaches register and the results of the SRA Accounts Rules Reporting Accountant assignment which is a separate assurance assignment.
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: https://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.
As permitted by s408 Companies Act 2006, the c ompany has not presented its own profit and loss account and related notes. The c ompany’s profit for the year was £1,669,726 (2020 - £1,119,372 )
CS Law Limited (“the company”) is a private company limited by shares incorporated in England and Wales . The registered office is 1330 Montpellier Court, Gloucester Business Park, Gloucester, GL3 4AH.
The group consists of CS Law Limited and all of its subsidiaries.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £ 1 .
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements for parent company information presented within the consolidated financial statements:
- Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
- Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instrument Issues’ : Interest income/expense and net gains/losses for each category of financial instrument; basis of determining fair values; details of collateral, loan defaults or breaches, details of hedges, hedging fair value changes recognised in profit or loss and in other comprehensive income ;
- Section 33 ‘Related Party Disclosures’ : Compensation for key management personnel .
The group financial statements incorporate those of CS Law Limited and all of its subsidiaries (ie entities that the g roup controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year are consolidated using the purchase method. Their results are incorporated from the date that control passes.
All financial statements are made up to 31 March 2021 . Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the g roup. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation.
At the time of approving the financial statements, the Coronavirus pandemic has created inherent uncertainty in the economy. The directors have closely monitored the company's cash flows and have taken actions to protect these. The directors therefore have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.
Revenue from contracts for the provision of legal services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by reference to milestone reached in the legal services provided. Where the outcome cannot be estimated reliable, revenue is recognised only to the extent of the expenses recognised that is it probable will be recovered.
Software being developed is not yet amortised.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement .
I n the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss .
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Financial assets, other than those held at fair value through profit and loss , are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors , bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method .
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits .
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised . Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets .
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease d asset are consumed.
The company applies the accruals model for grants receivable. Grants towards capital expenditure are released to the profit and loss account over the expected useful life of the assets. Grants towards revenue expenditure are released to the profit and loss account as the related expenditure is incurred.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
Key areas of judgments in the financial statements include:
The market rate of interest applied to long term financing, which has been estimated by the directors to be 5%.
The fair values applied to net assets in the group reconstruction, accounted for using the purchase method.
The value attributed to unbilled revenue arising from the provision of services, for which the directors use historical data and contracted milestones in the legal process.
Capitalisation of employee wages in relation to software development.
During the year, the group received government grants totaling £ 137,241 (2020: £nil) in relation to the Coronavirus Job Retention Scheme and £6,600 (2020: £nil) of interest covered under the Coronavirus Business Interruption Loan Scheme . Th ese amounts have been classified as other income in the accounts. N o amounts were outstanding at the reporting date.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2020 - 3).
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
After the reporting date, dividends totalling £360,720 (2020: £240,480) were declared and paid by the company.
Included within Software are development costs totalling £394,012 (2020: £101,862) which are not yet amortised.
Details of the company's subsidiaries at 31 March 2021 are as follows:
The investments in subsidiaries are stated at cost.
NatWest hold debentures over all the assets of the company.
Bank loans consist of an amount held under the Coronavirus Business Interruption Loan Scheme. This loan has a term of 6 years from draw down and accrues an interest rate of 1.88% above base rate. The interest for the first 12 months is covered by the UK government.
Loans from related parties consists of an interest free loan with a capital balance of £2,000,000. This has been discounted at a market rate of interest which the directors have assessed at 5%. The balance of the interest has been recognised as a capital contribution in reserves.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
T he majority of the deferred tax liability set out above is expected to reverse within 12 months and relates to accelerated capital allowances.
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
20,060 Ordinary share have full voting, dividend and capital distribution rights.
10,000 Ordinary A shares have voting, dividends and capital distribution rights. Voting rights are limited to 40% of the voting rights of all shares. These shares also confer the right to receive a dividend in preference to the holders of the ordinary shares.
396 Ordinary B shares have capital distribution rights but carry no voting or dividend rights.
Share premium brought forward related to the issue of 10,000 Ordinary A shares issued on 19 February 2019. The increase in the period related to the issue of 60 Ordinary shares on 26 June 2019.
The capital contribution reserve arose from the discounting of the interest free loan, referred to in note 18.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
Dividends paid to the directors during the period were £908,718 (2020: £399,017).