The sole director presents the strategic report for the year ended 30 April 2023.
On 31 May 2022, the total issued shares of the Company, then comprising 1,000 ordinary shares, were transferred to Constantine Lusignan-Rizhinashvili and Constantine Lusignan-Rizhinashvili became the sole owner of Dénuo Legal Services International Limited (formerly DLA Piper Rus Limited). Following the change in ownership, Dénuo Legal Services International Limited began providing legal consulting services.
Business performance for the year ended 30 April 2023 was impacted by the ongoing geopolitical tensions in the region. Revenue was $31.5m (2022: $33.9m), a 7.2% decrease on the prior year. Wages and salaries decreased by $4.8m (17.0%) from $26.7m to $21.8m. Other external operating expenses has decreased by $3.5m (42.3%) from $8.3m to $4.8m. The net profit for the year has increased by $5.6m (195.5%) from loss of $2.9m to $2.7m profit. Finance costs decreased by $0.1m (25.0%) from $0.4m to $0.3m and predominately related to interest charged on lease liabilities.
The Company balance sheet changed from a net liability to a net asset position during the year, with an increase in net assets of $32.5m (3035.4%) from $1.1m liabilities to $31.4m assets.
The management of the business and execution of the Company strategy are subject to a number of risks. The business risks are considered to relate to the current geopolitical tensions which include increased economic risks, hyperinflation, the possibility of further international sanctions and foreign exchange losses in the markets in which the Company operates. Pricing remains competitive and the Company will continually review its efficiency to maintain its market position.
The competitive nature of the market also presents ongoing pricing pressures. The Company continuously reviews its operations and cost structure to maintain efficiency and safeguard its market position.
To mitigate concentration and operational risks, the Company has pursued a strategy of geographic diversification, including the establishment of a branch in Tbilisi, Georgia, and an investment in an operating business in the United Arab Emirates. Management believes these measures will help reduce exposure to regional volatility and support long-term stability.
The Company employs various essential metrics to assess and evaluate its business performance. The primary indicators include:
1. Average utilization:
In 2023, the average utilization rate was 74%, which represents a 3% increase compared to the previous year's rate of 71%. This improvement was primarily driven by an extremely busy first half of the year.
2. Work in progress (WIP) per fee earner:
The WIP per fee earner amounted to $0.06 million in 2023, reflecting a 38% decrease from the previous year’s figure of $0.158 million.
3. Turnover per fee earner:
The turnover per fee earner was $0.477 million in 2023, a 5% increase compared with $0.453 million in the prior year. The growth was largely attributable to strong revenue generation during the first half of the year
The sole director has assessed whether the going concern basis of accounting remains appropriate in preparing the financial statements. This assessment has taken into account the Company’s financial results for the year ended 30 April 2023, together with current cash flow forecasts and the availability of financial resources.
Based on this review, the sole director is satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. The diversification strategy implemented to mitigate key risks — including the establishment of new operations and investments in other jurisdictions — provides additional resilience and supports the Company’s ongoing activities.
Accordingly, the financial statements have been prepared on a going concern basis.
On behalf of the board
The director presents his annual report and financial statements for the year ended 30 April 2023.
The results for the year are set out on page 9.
No ordinary dividends were paid. The director does not recommend payment of a final dividend.
The director who held office during the year and up to the date of signature of the financial statements was as follows:
The Company uses financial instruments comprising cash and inter-company balances.
The main risk arising from the Company's financial instruments is liquidity risk. The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs which was primarily achieved through inter-company borrowings.
The Company’s policy is to consult and discuss matters likely to affect employees’ interest at regular meetings between local management and employees.
The Company gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled. All necessary assistance with initial training courses is given. Once employed, a career plan is developed so as to ensure suitable opportunities for each disabled person. Arrangements are made, where possible, for providing continuing employment and retraining employees who become disabled, to enable them to perform work identified as appropriate to their aptitudes and abilities.
There are no undisclosed significant events affecting the Company since the year end.
We have audited the financial statements of Denuo Legal Services International Limited (the 'company') for the year ended 30 April 2023 which comprise the income statement, the statement of financial position, the statement of changes in equity and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the director's 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 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 director with respect to going concern are described in the relevant sections of this report.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The director is responsible for the other information contained within the annual report. 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 our audit:
the information given in the strategic report and the director's report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the director's report have been prepared in accordance with applicable legal requirements.
Our approach to identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, was as follows:
The engagement partner ensured that the engagement team collectively had the appropriate competence, capabilities and skills to identify or recognise non-compliance with applicable laws and regulations;
We identified the laws and regulations applicable to the company through discussions with directors and other management, and from our commercial knowledge and experience of the sector;
We focused on specific laws and regulations which we considered may have a direct material effect on the financial statements or the operations of the company, including the Companies Act 2006, taxation legislation, data protection and anti-bribery
We assessed the extent of compliance with the laws and regulations identified above through making enquiries of management and inspecting legal correspondence; and
Identified laws and regulations were communicated within the audit team regularly and the team remained alert to instances of non-compliance throughout the audit.
We assessed the susceptibility of the company's financial statements to material misstatement, including obtaining an understanding of how fraud might occur, by:
Making enquiries of management as to where they considered there was susceptibility to fraud, their knowledge of actual, suspected and alleged fraud; and
Considering the internal controls in place to mitigate risks of fraud and non-compliance with laws and regulations
To address the risk of fraud through management bias and override of controls, we:
Performed analytical procedures to identify any unusual or unexpected relationships;
Reviewed and tested journal entries to identify unusual transactions and other adjustments for appropriateness, and evaluating the business rationale of significant transactions outside the normal course of business;
Assessed whether judgements and assumptions made in determining the accounting estimates set out in note 3 were indicative of potential bias; and
Investigated the rationale behind significant or unusual transactions.
In response to the risk of irregularities and non-compliance with laws and regulations, we designed procedures which included, but were not limited to:
Reviewing and agreeing financial statement disclosures and testing to underlying supporting documentation; and
Enquiring of management as to actual and potential litigation and claims;
No instances of material non-compliance were identified. However, the likelihood of detecting irregularities, including fraud, is limited by the inherent difficulty in detecting irregularities, the effectiveness of the entity's controls, and the nature, timing and extent of the audit procedures performed. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any.
Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or collusion.
As part of an audit in accordance with ISAs (UK), we exercise professional judgment and maintain professional scepticism throughout the audit. we also:
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
There are inherent limitations in our audit procedures described above. The more removed that laws and regulations are from financial transactions, the less likely it is that we would become aware of non-compliance. Auditing standards also limit the audit procedures required to identify non-compliance with laws and regulations to enquiry of the directors and other management and the inspection of regulatory and legal correspondence, if any. Material misstatements that arise due to fraud can be harder to detect than those that arise from error as they may involve deliberate concealment or 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 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 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 company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Denuo Legal Services International Limited is a private company limited by shares incorporated in England and Wales. The registered office is C/O Tmf Group, 13th Floor, One Angel Court, London, EC2R 7HJ. The company's principal activities and nature of its operations are disclosed in the director's report.
Functional currency
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest $'000.
Transactional currency
Transactions in foreign currencies are recorded in local reporting currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into reporting currency using the rates of exchange at the balance sheet date. all exchange gains and losses on translation are included in the income statement. Non-monetary items are recorded at the historic rate and are not subsequently retranslated.
As permitted by FRS 101, the company has taken advantage of the following disclosure exemptions from the requirements of IFRS:
The requirements of IAS 7 to produce a cash flow statement and related notes
The requirements of IAS 8 to present information regarding new or revised standards that have not been adopted
All disclosure requirements of IFRS 7 except for those required by law. This includes presenting information regarding the allowances for expected credit losses, reconciliations, credit risk and hedge accounting
The requirements of IAS 24 to disclose related party transactions entered into between two or more members of the group, provided that any subsidiary party is wholly owned by such a member
The requirements of IAS 24 to disclose the compensation for key management personnel and amounts incurred by an entity for the provision of key management personnel services that are provided by a separate management entity
The requirements of IAS 1 to present comparatives for movements on share capital, PPE and intangible assets
Other requirements of IAS 1, including; making an explicit and unreserved statement of compliance with IFRS standards; the requirement to present comparative information for narrative disclosures; the capital management disclosure requirements of IAS 1
The requirements of IFRS 15 to disclose information regarding disaggregation of revenue recognised from contracts with customers, contract asset and liability reconciliations and unsatisfied performance obligations
The requirements of IFRS 16 to present certain information regarding leases for which the entity is a lessee or a lessor
Where required, equivalent disclosures are given in the group accounts of Denuo International Management Consultancies Ltd. The group accounts of Denuo International Management Consultancies Ltd are available upon request.
The nature, timing of satisfaction of performance obligations and significant payment terms of the company's major sources of revenue are as follows:
Depreciation is recognised so as to write off the cost or valuation of assets less their residual values, on a straight-line basis over their useful lives on the following bases:
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.
Assets not yet available for use are not depreciated.
Repairs and maintenance costs are charged to the income statement as incurred.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
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, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
Trade and other payables are initially recognised at fair value and held at amortised cost.
The tax expense represents the sum of the tax currently payable and deferred tax.
The Company assesses whether a contract is or contains a lease at inception of a contract. The Company recognises a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company recognises the lease payments as an operating expense on a straight-line basis over the term of the lease.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the incremental borrowing rate. An incremental borrowing rate is estimated for each property by adding a risk premium to a risk free rate. The risk premium is calculated using the average office rental yield in the region less a long term risk free rate, based on the 15 year government bond data for the region. The risk free rate is determined from government bond rates, with the duration of the bonds being the weighted average remaining lease term, from commencement of the lease or 1 May 2019 for leases that existed at that date. Credit and country risks are also considered.
The lease liability is presented as a separate line in the balance sheet.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
the lease term has changed, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
the lease payments change due to changes in an index or rate, in which cases the lease liability is measured by discounting the revised lease payments using the initial discount rate; or
a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs, less any lease incentives receivable. They are subsequently measured at cost less accumulated depreciation.
Whenever the Company incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37. The costs are included in the related right-of-use asset.
The right-of-use assets are presented as a separate line in the balance sheet.
Right-of-use assets are depreciated from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset and the end of the lease term.
Financial Instruments
The Company classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual agreement.
Financial instruments are recognised on the balance sheet at fair value when the Company becomes a party to the contractual provisions of the instrument, with movements reflected in the income statement.
Contract assets and liabilities
Contract assets
Contract assets are recognised when the Company has satisfied the performance obligations in the contract and either has not recognised a receivable to reflect its unconditional right to consideration or the consideration is not due. Contract assets are treated as financial assets for impairment purposes. The calculation of contract assets also reflects current and forward-looking economic factors affecting clients including international sanctions and the on-going conflict in Ukraine.
Contract liabilities
Contract liabilities are recognised when a client pays consideration, or when the Company recognises a receivable to reflect its unconditional right to consideration (whichever is earlier), before the Company has provided the legal services to the client. The liability is the Company’s obligation to provide legal services to a client from which it has received consideration.
Professional indemnity claims
The Company may be involved in disputes in the ordinary course of business, which may give rise to claims. The Group maintains a captive insurance cell which is consolidated within the Group financial statements. A liability is provided in the financial statements on a prudent basis for all known claims where costs are likely to be incurred, and represents an assessment of the cost of defending and concluding claims. To the extent that claims are covered by professional indemnity insurance, an equivalent insurance recoverable is recognised within receivables.
No separate disclosure is made of the cost and nature of claims covered by insurance, as to do so could seriously prejudice the position of the Company. No amounts are included in liabilities in respect of claims where the liability is possible but not considered likely, or in respect of claims incurred but not reported.
In the application of the company’s accounting policies, the director is 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, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are outlined below.
There is uncertainty regarding the amount which will ultimately be recovered from clients in respect of work that has been performed but not billed at the year end. The fair value of contract assets is estimated on the basis of recorded time at the year end and expected recovery rates. It is reasonably possible, based on existing knowledge, that outcomes within the next financial year that are different from assumptions could require a material adjustment to the carrying amount of the affected balances.
A 1% variance in the recovery rate applied to work in progress at year end would result in a change in the fair value of contract assets at year-end of $0.1m.
The calculation of the expected credit loss allowance incorporates estimates of the likelihood of default over a given time horizon based on the analysis of historical data trends, the application of assumptions and consideration of current and expected future economic conditions.
If the expected credit loss rates were increased by 1%, the total loss allowance on receivables would have been $ 0.1m higher.
Revenue relates wholly to the principal activity of the Company and originates predominantly in Russia.
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
There is only one director whose emoluments for the year ended 30 April 2023 totalled $1.92mil which included no pension contributions (2021: $nil).
The charge for the year can be reconciled to the profit/(loss) per the income statement as follows:
Factors that may affect future UK tax charges
Property, plant and equipment includes right-of-use assets, as follows:
All right-of-use assets relate to properties.
The maturity analysis of lease liabilities is presented in note 13.
The Company had no capital commitments contracted (2022: $nil).
Except as detailed below the directors believe that the carrying amounts of financial assets carried at amortised cost in the financial statements approximate to their fair values.
On 12 April 2023, a resolution was passed that Denuo Legal Services International Limited accepted to be a minority shareholder in Legal Services International Eurasia FZ LLC, a registered company in the UAE with registered office at Creative Tower P.O.Box 4422, Fujairah, United Arab Emirates. It was agreed that Denuo would have a 1% holding in Legal Services International Eurasia FZ LLC with nominal value of 1,500 AED per share. In accordance with the agreement, Denuo has paid in total $6.8mil for the purchase of their holding.
The contract assets value represents the conditional right to consideration for completed performance obligations on a contract by contract basis. Amounts are billed in accordance with agreed contractual terms, either at periodic intervals or upon achievement of contractual milestones. Accounts receivable are recognised when the right to consideration becomes unconditional.
Trade receivables are stated after a loss allowance of $1.35m (2022: $5.4m).
Amounts owed by group undertakings are unsecured, repayable on demand, and did not incur interest.
Amounts owed to group undertakings are unsecured, repayable on demand, and did not incur interest.
Operating lease payments represent rentals payable by the company for office premises. The amounts included in the above maturity analysis are the contractual undiscounted cash flows.
Deferred tax is not recognised on these balances as it is uncertain whether they will be utilised against future taxable profits. Unprovided deferred tax is stated at 25% (2022: 25%), being the UK enacted tax rate at the year end which any utilisation would occur.
Breakdown of unrecognised deferred tax asset position may be analysed as follows: