Knights Group Holdings plc (KGH) Earnings Call Transcript & Summary

Those of you who are joining us today to hear from Knights Group Holdings, who if you haven't noticed already, announced their full year results this week. We have published a research note with updated forecasts, which you can find on our website. But the purpose of today is to hear from the team, go through the presentation and then take Q&A at the end. As ever, you can submit questions as we go through the presentation via the Q&A button at the bottom of your screen. But for now, we're going to be joined by Kate Lewis, CFO; and [ James Sheridan ], Head of IR and M&A, who will begin the presentation. Over to you, James.

Thank you, Hannah. Good morning, everybody. Thank you for joining us today. I will introduce things for us and then hand over to Kate, who will take us through the financial highlights, and then I'll pick up some of our key strategic initiatives, once Kate has been through the financials and hopefully, give us some good time for some Q&A. So you can ask us some questions around what we've been doing and what we plan to do. So just to get going, we've continued to make really good progress as a business. We've developed the platform that we operate on, we've delivered some strong financials, and we're continuing to see a step change really in the legal industry, particularly the regional market that we operate in that we think is going to continue to give us some really interesting growth opportunities as things develop over time. So in terms of -- what we've been able to do this year, we further developed our scale, and that seems to be opening up some really interesting new opportunities for us. And really good examples there are, as we've moved more into the premium space as we are regarding, I would say, less as a disruptor in our industry and more as a proven alternative to the partnership model. We're finding both higher-quality acquisitions open to talk to us and also, importantly, from an organic growth perspective, higher caliber higher opening opportunities for us where previously, it's regarded as maybe as a bit of a disruptor or an outlier in the industry that perhaps in their own mines, we weren't yet proven or we weren't yet mainstream. They weren't ready to talk to us. That seems to have changed us 12 months or so. That has definitely changed, and we'll take you through some of the detail on the hiring. We've continued to focus on our local markets. So we're in 29 locations across the U.K. Why is that important? It takes us close to the clients. It takes us close to the clients and it takes us close to the local talent pool. So instead of having a strategy where we're in matched Birmingham [indiscernible] Bristol type locations, we're filling in the gaps, and we're going where a lot of our competitors don't. A lot of these locations, they've got enough quality business activity that stays local. They've got enough quality private client, private wealth opportunities for us which stay local. And it's a really good place for us to be in those locations where we're able to be clearly the quality provider in those locations. From a financial perspective, Kate will take us through the detail of the performance, but we've continued to focus on profit and cash. We've had a really good year in terms of cash generation. But we continue to lead the market in terms of how we manage our business. So Kate will take us through working capital days, debtor days, [ weak ] days and we've continued to make really good industry-leading progress there, which is releasing cash to the business and enabling us to continue to invest to grow. The -- mentioned before the structural changes that we're beginning to see emerge at a quicker pace in the industry is giving us more access to more interesting opportunities in the M&A world. That's both high-quality businesses that are trading well that are wondering what they're going to do next. Can they continue as independence or should they look at coming into a more established platform with scale that will enable us to invest for the future. But we're also just beginning to see stressed and distressed opportunities. We bought 1 business that I would classify as stressed last year. It's only a small business in [indiscernible] kind of opportunities to move from us. But we've seen a couple of distressed scenarios. Over the last 6 months or so, we had a serious look at 1 of them, didn't manage to execute that. But we think the movements in the industry that the challenges that these independents are facing is going to throw up some interesting opportunities along those lines. And then other things that have really helped us drive progress is the continued movement to these premium markets, the quality that we're able to deliver to clients, the quality environment that we're able to offer to our people is really helping drive the business forward from an organic perspective and enable us to continue to grow. I suppose, finally, worth noting, and I'll get into detail. We continue to develop our technology platform and when we talk to people who've joined us through acquisition or through lateral hiring activity, it's something that they always talk about. I'll give you if you ask a feedback after somebody has been in this 4 or 5 weeks, and we say the one thing I really want to tell you about your technology is so good compared to what we used to work with. It's so easy to use, it's an platform, all that flinching, and I will talk you through the progress we're making on that as we automate more. We bring in some AI, which has given us some real growth and scalability opportunities. So can we jump on to the next slide, please. Just some of the key financial highlights there that are worth flagging to you. Kate will talk us through the detail of it, but particular note, I think, is the free cash flow that we generated this year. The other one that I would really bring to your attention is the fees per fee at the bottom right bar chart, so in pure numbers, yes, good progress. That's a really, really important quality and productivity indicator certainly one that we -- one of the very early things we look at when we're sizing up a potential acquisition, just to give us a clue as to where it sits in the market. So that's something you can see we've made good progress on pretty consistently over the last few years. And we're very confident that, that will continue to develop as we execute on the plan to take the business into the quality regional space. So next slide, please, Hannah. So just to kind of finish my introduction, we've had a really strong period, and the organic growth that I think everybody has been questioning us on quite rightly, we've been questioning ourselves on it and focused on it. We said at half year, if you were on one of the calls with us that we felt that the momentum had really started to build. You can see how we delivered that through the year, a much stronger second half. We'll talk with you about the factors that have helped us to drive that. But that's been really encouraging. The M&A activity that we've done in the recent past is integrated fantastically well. The churn of people within those businesses has been entirely in line with the churn in the rest of the business kind of market-leading, steady state 10% rate and we've been able to generate the cash out, both the organic trading and the acquisitions, which has enabled us to continue to invest in the business, building the scale that is giving us a real competitive advantage in the market. So with that, hopefully, I've introduced things nicely for you, and Kate will pick up on the financials.

Thanks, James. I can go on to the next slide, please, Hannah. So we've just set out here really a very high-level view of our performance for the year. I'll go into the key factors in more detail over the page. But just to highlight really and summarize what James said that we are delighted with the year that we've delivered. We've grown revenue by 28% of which 7% of that is organic, and I'll talk through the impact of that. We've maintained strong margins. Our EBITDA margin, our underlying PBT margin remained at strong levels. We've generated excellent cash. Our cash conversion, you can see there as outstanding this year, which has meant that we've maintained our debt level at the same level as last year despite doing acquisitions and investing in the business in CapEx, et cetera. So really delighted with how the year has gone. If we go over on to the next slide and look at some of the factors which have driven that growth. This here is just showing our revenue bridge from last year to this year. just to explain each of these blocks very briefly to you. So the FY '25 acquisition, so that's the full year impact of the acquisitions that we acquired during the last financial year. So we acquired [indiscernible] in September '24, and we acquired IBB in April '25, so right at the end of the financial year. So that's the full year impact of those revenues on our business. They have integrated really well. James talked about the fact that recent acquisitions are all performing as we'd want them to. They come in to just for anyone that's not heard the story before. We will, on the date of completion. We will have all of that business into our business and now on our systems and trading with us from the date of completion and trading really well and delivering what we'd expect them to do during that period. We've also got the impact of acquisitions that we've done during FY '26. So in financial year '26, we did the acquisition of [ Burkett Long], which brought along with it a financial planning business. We did that in June '25. We then bought on a small business [indiscernible], which is down in the Southeast. We also bought [ LaGroa ] small real estate boutique, which added to the Cardiff organic story that James again will talk through in more detail when he gets through to his section. But we performed really well, delivered the revenue that we expected to and really happy [ to ] fully on our systems, again, from day 1 at completion and performing an integrating culturally and financially as we would want them to. The next block there is our organic revenue growth no around there, yes, is our organic revenue growth for the year. Delighted to have delivered this. We -- at the first half of the year, if you were on the call there, we take -- we moved into delivering organic growth, which was 2.6% for the half year. We expected and we could see that things were improving. And I think we talked at doing 9% in the second half of the year. We've actually delivered just under 12%. So averaging out at 7.1% for the year, which I think is a factor of many things. It's not just happened in that second half of the year. It's a result of many things that we've been doing for a while which have all come to fruition during the second half of the year, we feel -- felt that they would do. In terms of the key drivers behind that, we've had a sustained level of lower churn in the business. So from the second half of financial year '25 through into this year, we've been running at an annualized churn rate of 10%, which means that we've got good people staying in the business, which means we continue to deliver that revenue growth. We've recruited some real quality hires into the business. James has talked about the move to premium and getting some premium quality people into the business. So as we recruit good quality partners and seniors, senior hires that have got good client following that comes with them, and that's helping to generate growth. And what we're doing very much with them is we are when we do recruit some money into the business, it will take a little while for them to get up to full run rate revenue. But what we have seen by bringing people in by working with them with the client services, directors working with them on a daily basis, closely making helping them to come into our business, integrate while, it means they're getting to full run rate revenue faster, which is having a bigger impact on organic growth. So we recruited quite a few people during the first half of the year, and then that has helped drive organic growth in the second half of the year as they get close to fall in rate revenues during the second half of the year. There's also the impact of pricing. So we put up at the start of last year, we put our prices up, our rates are up by about 5% on average across the board. So as a result of that coming through but it isn't just putting your prices up, it's ensuring that the pricing discipline around that is really good. So that if somebody, for example, is charging GBP 1,000 worth of time to the clock, on doing a job. When they come to build that, they're actually billing GBP 1,000, not discounting [indiscernible] and that's what we have client service directors. So for those of you that have not heard the store before, client service directors were a little bit like regional managing directors. They look after a couple of offices. We've increased the number of client service directors that we have in place over the last 18 months so that to reduce the amount of people that they're looking. I have to say that they can be on the pitch day out, helping make sure that we maintain our pricing discipline and the senior hires are coming in well. And so all of those big factors together have driven that organic growth that the organic growth is across all areas, really. There's not particularly only one area that stands out across all areas of the business. So where we feel the question is why don't you delivered organic growth? What are you going to do going forward? We feel the business is in a really good position. At the moment, we see a lot of those factors continuing to drive that organic growth. We've guided the market and we've guided analyst to expect mid-single-digit organic growth in FY '27 and beyond. We are aiming to do much higher than that, but let's be prudent, let's put out you can see from what we've already delivered last year looks very solid and very easily achievable, and we're working hard to actually beat that and deliver more of that organic growth going forward. On to the next slide, please, Hannah. I won't spend any time on this. This is just setting out the income statement for the year. But if we move over on to the next slide, which I think is more interesting and explain it, we've got a couple of bridges which take us from the performance last year to the performance this year. The key element of the bridge on the left is showing the absolute movements, which obviously as the business grows, a lot of those increased anyway. But if we look at what's impacted the margin during the year, so the graph that's on the right-hand side there, you can see that the margin did fall slightly during the year from 17.3% to 16%, still a really strong margin in the industry and -- compares very well to any of our competitors. But you can see there the impacts that we've had. So we had the impact of the NII increase. The NII threshold and rate increased at the start of last financial year, and that has had an impact on our margin this year, about 0.9%. Client interest, we receive interest in our client accounts, which is part of our income that we recognize in the income statement. That has -- although that's increased in absolute terms, as a percentage of revenue, that's decreased because of the fall in interest rates. So we've had that impact. And then we have managed to leverage some of our cost. You can see the 0.9% assets, some of our property costs, some of our travel, some of our other central cost, we've managed to leverage some of those costs, which has allowed us to invest in AI technology, et cetera, and those are the costs. So keeping that margin at a really strong [indiscernible] of 16%. Again, the question is where is that going to go going forward? And why do we see that again? 16% this year. I think now that the NII impact is fully embedded into our pricing. We've built it into our pay reviews that we've done this year. We've looked at our total HR cost. So I don't think we'll see the impact of that again. So we expect you could almost add that back and then you're getting towards the 17%. In terms of where we see that growing, we are working very hard to improve that and leverage all of our costs. There's certain room to leverage our property costs quite easily by organically growing recruiting into the offices that we've got. We've got capacity in all of those offices. So all of those costs should start to leverage. I'm always going to predict that they will grow at a regular steady pace, so 17%, 18%, 19% over the next -- over the medium term over the next 2, 3, 4 years. Because as a growing business, we always want to make sure that we are well invested in what we're doing. So we're going to make sure that we invest in our business support, our IT, et cetera, but we do see opportunities to leverage some of those costs. For example, in our business support services cost, we don't need an awful lot of cost going in there to be able to add another 50, 100 [indiscernible] and that doesn't -- that won't need much in that. But if we're going to do acquisitions, we do want to make sure that we've got enough client service directors, et cetera, in place to do that. So we will recruit and investor head, but we see lots of opportunities to see that. Going over on to the next slide, please, Hannah. Here, very briefly, KPIs that we look at and we've delivered. You can see the bottom 2, as James has pointed out before, the fees per [ fear ] increasing over the year and the gross profit per year. That is most definitely a feature of the quality, our move to quality, better quality recruits coming in generating higher fees. It's also a little bit of a change. The change in our gross profit per [ fee earner ] mix is also a bit of a change of the mix of the fee earners in our in our business as we're recruiting in at the top level partners and senior associates. We're not needing to recruit at the bottom level so much because of technology developments, et cetera, as James will talk about. So we're seeing that mix change slightly the percentage of senior people in the business are slightly higher, and they're also generating greater gross profit per fee earner. We see those continue to move in that trajectory there. Gross margin, we've seen stay consistent, which is around about the 50% level, which is what we're aiming to be. The one graph, which I think stands out there is the underlying cash conversion and how strong that has been over the year. If we go over on to the next slide, we can talk about what we see is really key to our cash conversion. And this is really our financial management. I've talked about the client service directors before. One of their key jobs as well within the offices that they are in is to look after financial management. And because of our structure, because of the way we centralize and we set goals essentially for financial management and what we want to do, we are able to make sure that everybody applies the same financial discipline across all the business. In a lot of partnerships you will find that not everybody will want to collect their data because people are working much more individual silo rather than being able to apply a consistent approach across the business. And you can see that in how we compare. You can see there that we compare our lock-up days is generally mid-80s. At a year-end position, and that compares to 138 day lockup days in the industry as a whole. Now just for anyone that's not heard the story before, we define our lock-up days as the amount of time it takes for a unit of time being spent on the job to that being billed, which is our [ WIP ] days and then the amount of time it then takes to collect that, which -- and get cash in the bank, which is our debtor days and you add our [indiscernible] days and our debt days together and you got our lock-up days. And you can see how we're consistently good. And in fact, we've improved our position this year, which considering that we've grown the revenue by 28%. I think just shows how well embedded that financial discipline is in our business. I start, which I'll back on to the other page, Hannah, quickly. Just to point out this table. On the right, which I think is a really important stat and it shows how we are very different from a lot of the businesses that we buy and the industry out there. We've looked at the acquisitions that we have purchased over the last couple of years and the lockup days that they had in their business when we acquired them, which is the figures on the left-hand side off the table. And you can see for the last 3 that we acquired the [ IBB], which we acquired in April '25, and then the 2 that we've acquired this year, [indiscernible], there were 176 days, 126 days and 260 days lock-up in their balance sheet. And then on the right-hand side, you can see where they are now, having been within our business for a year or slightly less than a year in some of those and we brought them down an average 60 days. Now it's not rocket science what we ask people to do. But through central management, we make sure that they are billing their clients, frankly, that they are phoning their clients up [indiscernible] the cash regularly, and it's just that central management that oversight by the Client Service Director, which is helping to do that and that generates cash into our business. By us taking that lockup out of their balance sheet, those 3 that I reckon, we've got about GBP 4 million, GBP 5 million of cash after that balance sheet into ours, which is what is helping to generate high cash conversion. And if we go over on to the next slide, you can see where that is, really, you can see our cash conversion this year 163% compared to 130% last year. The key drivers behind that is the significant amount of cash we've got out of the balance sheet. And then also the reduction in the lock-up days in our business from 86 days down to 84 days, which is getting cash after the balance sheet and helping us to generate really strong cash conversion. Because we feel confident to where the business is and our cash generation, it happens year after year, we have maintained our dividend policy of paying a dividend of 20% of profits after tax. And you can see there that our total dividend for the year will be 5.6p, which is an increase of 17% from the prior year. Going over on to the next page then, please, Hannah. And finally, just to wrap up on this cash conversion and what that does for our net debt and our balance sheet position. You can see that because of that strong cash conversion there, that GBP 40 million of cash that we've generated during the year from our operations, we've been able to invest in acquisitions. We pay [ 17 million ] of acquisitions. We've been able to invest in CapEx. It's really important for us to have really good quality offices and really good IT equipment within the business so that we can provide the premium service and the premium place to work for everybody that comes into our business. And we've been able to do that service our borrowings and pay dividends and still maintain cash net debt levels at the same level as they were last year. So really pleasing that we've been able to fund that during the year. Our covenant leverage and has decreased slightly to 1.5x compared to 1.57x last year, and so growing the business and we grow the EBITDA that will enable us to do that. What we have done, we financed the business to an [ RCF ] facility. We did have a facility of GBP 100 million. We have just increased that to GBP 159 million for the support of the same banks which gives us lots of headroom and lots of flexibility in order to continue to invest in the business and grow the business going forward. Just quickly in terms of leverage and our appetite for leverage and where we feel comfortable taking it to. We, on a steady state, [indiscernible] we're looking at probably being between 1.5x leverage. If we have just done an acquisition that might pick up towards 2x because we will then get the trading and the cash out of that balance sheet to bring that down quickly. So with all of that in place, we've got lots of headroom for us to invest through acquisitions and organic growth with the business, which James will now talk us through the strategy.

Okay. Thanks, Kate. And really, when we're putting the disciplines into the business that we're able to drive that fantastic cash generation performance that Kate has just been talking about, we talk a lot with our colleagues around why are we doing this. It might seem obvious to people on the call, but perhaps lawyers at the call [indiscernible]. It's not always obvious why we're obsessed about this kind of thing. And we always talk around the growth and the strategy that we want to implement, whether that's bringing great people into the business, whether it's enabling us to do acquisitions or whether it's the technology and AI investment that we're doing. So I'll take you through some of that stuff that is really powering the growth that we've delivered over the last few years, but also we can see an increasing opportunity to do as we move forward. So what about this organic growth then Kate took us through some of the factors there. So the selective recruitment which is helping us drive the growth, the low churn. So it's one thing bringing people into our business isn't it. We've got to make sure that the right people remain in that business. We're always going to have churn. It will go up and down. That's just a natural product of what we do. The legal industry is one where people do move around a bit. They have choice and that happens. The key thing for us is making sure we keep the right people. So I'll take you through some of the detail, but we hired 39 senior hires this year in round numbers. If we've got 400 partners, 40 people will have left. The key is that, that's the right 40 people, and we've been getting that pretty close to about right over the last 12, 18 months. I think you will have seen this before, we run an employee Net Promoter Score survey each year. I think lots of businesses do it with customers. We do it with our employees. And we've got a fantastic score this year of 46 plus 46. For those of you who will check us up on this. I think the score last year was 59. So we have come down. 59 was a ludicrous off the chart score. We obviously caught people at the right time. I don't know if there is free ice cream or something that day. But 46 is a standout. We're delighted by that, and it's something that we continue to work to maintain that level of satisfaction with colleagues. I think a couple of key things that are really helping us drive the organic beyond the people, so the pure people side. It's the geographies that we've got. So our ability to be closer to clients, to be local to clients is certainly giving us an opportunity that most of our competitors of any scale don't have. They tend to be in the regional financial centers, maybe the odd area in between. But we are where the action is with our clients, with our wealthy families. Having [indiscernible] able to visit those clients to go and see our families. And as you will have heard us say many, many times, this is a relationship-based business. So if you're a relationship-based business, the more time you can spend with clients, be close to them, be in their trading markets, be able to visit them in their factories and homes is a real key differentiator that we see we see big opportunities with. And it also opens up the talent pool that if you -- for whatever reason, in your life, you're a high-quality lawyer, but you've chosen to live in and around [ Lincoln]. I'm picking Lincoln. Just there is one place in Lincoln. If you want to do quality legal work, there is one business to go and work in. So we do really well on that from with people who've perhaps played at a different level elsewhere, whether in Manchester, whether in London, but they move the family back to where they come from, and they can continue to do the high-caliber work in their local markets. So I'll just move on, please, Hannah, just to give you a little bit more detail now just to talk about, one, the recruitment, two building the management team, three, the acquisitions, and four on technology. So in terms of those that recruitment, we've talked about the increased quality. So what does that mean? What's the difference that, that delivers for us? That's all about the size of the client book at these higher quality candidates have got. They've got bigger books of business. They've got more sophisticated clients and those clients have got broader service demands than just, say, the legal area, the partner who holds the relationship does. So what we've seen is bigger books of business and we've seen these partners bring those client relationships with them and immediately be introducing them to other service lines in our business, which is enhancing the relationship and enhancing the ability we've got to deliver more services to clients and charge for those services. And they also seem to be quicker to get to revenue than some of the less developed hires than we've seen in the past. So these clients are probably more regular users of legal services, they've got demand month to month rather than every quarter or every 6 months that sometimes you see in perhaps a different layer of quality. The retention is critical, as I've said, and Kate mentioned the client service directors. They play an absolutely critical role in this. Those client service directors have got 3 very clear responsibilities, one of which is the culture in their offices, and that's crucial to maintain that low level of churn with the right people and our commodity technology, but our tech advantage is making it easier and easier for us to both recruit, retain, but also get to effectiveness the senior hires. So we've definitely seen a shift kind of move to quality. So you might -- I think we did 45 senior hires last year, 39 last year. So on the face of it, we've done less than we did before. The quality caliber and returns we're getting on the 39 is better than the 45. And I think you'll see that trend continue. We're at decent numbers already this year of senior hires. So I don't think if it does go down for 39, it won't be much but it's the quality over quantity that we're beginning to see that we think is really helping us drive the organic. So just moving on to talk about acquisitions. Kate mentioned the acquisitions that we executed in FY '26. You'll remember, we did our biggest ever one on a business called [ IBB ] in the terms value that was right at the end of FY '25. So we had quite a run where we did that one, biggest one we've ever done, [indiscernible], the third biggest one we've ever done opportunism with the [indiscernible] deal in the Southeast where we moved that business immediately into 2 existing offices in [ Canton ] Sussex and the growing Cardiff, which was it's really a kind of team hire really. It's technically an acquisition we did right to check. But it brought on board a real estate boutique, small team, but high-caliber team, very well known in the Cardiff market to supplement an already successful organic opening. So we opened the Cardiff office. Unusually for us, stars aligned in a way that they don't often in a location for us to open an office from scratch. We got 4 or 5 key partners to come on board at the same time. They came from different places. There weren't an existing connected team. And then we built from there. So we've got that to about 25 people and are already having great success in Cardiff as the premium operator in that market with competition that's been there for years and years, nothing which has changed and we've come and done something different and taking that premium position already. Kate mention performance is as we would have hoped, which is really pleasing to see. And I think particularly our focus on the Southeast over the last couple of years is really paying dividends for us. We've got a super pipeline of opportunities, the strongest we've seen for some time. Some interesting drivers there, particularly highlight the tech and AI challenge the businesses are facing. Remember, we're talking when it comes to acquisitions to regional independents they might have revenues typically between GBP 5 million and GBP 50 million. Those businesses don't know what to do with technology. They don't know what decisions to make. They're panicking and buying some expensive shiny new toys. They know they've got to do something, and they know it's going to be expensive, but they haven't got any money. Remember, the partnerships, we've spoken about this before. They distribute all of their profits. Their partners demand that there is a dividend and all of the profit very quickly once the year ends concluded, leaving them unable to invest in the way that a well funded business invested for growth like us can do. And if I'm talking to a managing partner about potential acquisition opportunity, early conversation, one of the easy buttons to press that tends to instill a little bit of fear in them is to get them talking about what are they doing with AI and how are they funding it. And it's a key driver to come to us. I think we solved that problem in one fell swoop and I think that the final bullet on the bottom left-hand side of that slide, our reputation. Remember, I said before, we've definitely moved from being seen perhaps as this disruptor on the outside of the market? What are they doing? Are they very different to -- yes, they are different, but they're proven now, and they are a proven genuine alternative, which is making a lot of our acquisition opportunities a bit easier and certainly helping us with some larger and higher quality businesses that perhaps might not have engaged with us 3 or 4 years ago. There's a really nice quote there. You're probably not familiar with the [indiscernible]. It's the leading trade journal. It's behind a paywall so you can't easily see it. It's a pretty conservative publication. It's kind of industry store work type stuff. And I'm not sure they really like change too much. So we are the most popular topic of writing for them. But locally, I was sitting down when I read this one. They published in April about our M&A strategy. Knights is inevitable, and the acquisitions are only going to continue. The U.K. 200 is no shortage of regional firms with aging partners, rising debt and an overreliance on client account interest income. For them, the future is increasingly nice. It's something we've been saying for a long time, I know that, but really interesting to see that publication saying that. I mean, that actually came on a daily alert e-mail that buying an every managing partner in the U.K. subscribers to that e-mail, every member of management, we certainly all get it across our exec members. That flushed up in the middle of April, which was great to see. The map is highlighting, by the way, some -- the blocks are areas of concentrate -- areas of attention for us. So East of England, we've chatted about before, [ corridor ] down from Richmond to Southampton is the [indiscernible] corridor across from Southampton to Bristol some quite a lot of space there, obviously, not obviously a kind of big tech area or industrial area, but there's also a lot of agri wealth there, which is one of our sweet spots and private client wealth. The blocks of the North of London is [ Milton Keynes]. We're still exploring that and hoping to get some headway there. And then we've just highlighted in Scotland, something that at some point we might have a look at the 3 obvious economic centers there alongside [indiscernible], which is an area we've had a look at before, but we think it's a really good market for Knights, and we'll keep plugging away working out what to do there. So let's jump on to the next slide, Hannah. Think the management team, both Kate and I, have spoken about. We've continued to enhance that team. We've now got 16 client service directors. They have 3 key responsibilities. Making sure the culture of what's going on in each individual location is right for what they're doing, right for the people there and right for the Knights [indiscernible] team [ ethos ] that it's a consistent experience for everybody locally. We're committed to making sure that the whole business feels like one business and have that drive success for us. The second one is they're responsible for the financial disciplines in those offices. So for example, the working capital work that Kate talked about, that's driven by the client service directors with the people at the [ coal face ] in each of the locations. And the third one is growth. We are very, very keen to drive organic growth in each of those locations. So the client service directors are leading projects to win new clients, win new business, enhance service lines. Within our own team, we've got a well-established executive team, there's 8 of us on it. Kate and I are 2, David CEO, third member, who you would have met before and five or other colleagues. We spend a lot of time together when we're not on the road in locations, we typically, in our central hub in [ Stoke], all 8 of us work in one open plan office there, which is a great vibrant office for a [ sorter ] to bounce things off and make sure that all of us know exactly what's going on. We've got a really tight and effective team there that's got good tenure that apart from CTO John, who joined us about 15 months ago, I think I'm the least experienced member of the team. I joined when I sold that business to Knights 8 years ago. So we've got some great experience in the team that has been behind the growth that we've driven and committed to driving further growth. The other one, just to remind you of is that while we have our client services operations, so the people who deliver services to clients are based across our 29 locations. We've centralized the business services aspect of the business, which gives us great scale opportunity, expertise locally, but also an extremely efficient way to run our business. The [indiscernible] to the tech slide which is connected to what I was saying. So lots of things going on with technology, lots of talk of AI and lots of investors over the last few days wanting to ask us what we're doing with AI. We haven't made any big bets either way with AI. We've been really measured. We've been focused on security. We've been focused on data, and we've been focused on spending our money where we can see a clear business case where it's going to drive efficiency, cost saving, service enhancement. So we have one operating platform that the whole business is based on. All of the client data is in one place. Everybody can access everything -- and it's very simple does everything platform, very, very efficient, niche and straightforward, much more simple than many of the other platforms we see in our acquisitions with other products that they deploy. So we haven't bought any of the shiny new toys. Instead, what we've been doing on the client service side is continuing to work with [ LexisNexis ] and [ plc], which are the 2 leading data and [indiscernible] suppliers in our industry. Thomson Reuters and [indiscernible], the 2 listed companies that own those products. We see those as being critically important moving forward, and they are enhancing what they've got all the time with AI. I was on a webinar last week with [ LexisNexis ] where they were talking through the next AI that they're bringing in to make their tools slicker, quicker, more efficient less error pro and all that kind of thing for our lawyers to deploy quickly. So they've got the large language models from anthropic, from OpenAI, et cetera, et cetera. That's all behind all of the stuff that these 2 leading industry players are bringing in. So we're back in those on the client service side. But we are seeing some really interesting opportunity in business services that we can see already scale benefits. So we've always automated lots of the admin processes in that business, developing tools ourselves. We've got a team of 17 developers who work on our platform. We continue to do that, but we're bringing more and more intelligence into that automation as well. Key there really is this is -- I'm talking about finance, technology itself, compliance, HR, those kind of activities, facilities. Those kind of activities where we're giving the people who work in those teams more and more intelligent tools to make it more and more efficient for them to deliver the services internally to power the business. So what that's given us a clear view on is that we're going to be able to continue to hire more senior people into the business, increase our client service head count to continue to do our acquisitions. If we do the [indiscernible] transaction, there will be 200 fee earners come on to our platform. What we've been doing with business services will mean that we will not have to build business services in anything like the linear way. So we've spoken before around a 4:1, 4 client service people to 1 business service colleague. We think we'll be able to get that to 1:5 in reasonable time and possibly gain beyond that as we implement more and more technology. So we really do see our ability to invest in tech and AI in a measured, controlled way where we can see a clear benefit is going to release growth opportunities for us in the client services part of the business. Scalability, particularly in business services. And when it -- push comes to shove in our regional markets, let's remember, we're competing with regional partnerships who have distributed all of their profits and are unable to invest in this kind of thing and don't have management teams to look at the business in the way I've just been talking about. So giving us a really interesting opportunity to [indiscernible] compete in those regional markets. So Kate, I'll just hand back to you just to wrap things up, and then we'll open for Q&A.

Brilliant, thank you. So just very quickly on this slide here, this [indiscernible] here. I think this really summarizes our strategy behind the business, and this strategy has been in place for the last 14 years since we did the first acquisition of the [indiscernible] office out of partnership into the [ corporatized ] model. Basically, we're running our business for profit and cash. Now by doing that, that you can see how the flywheel will work. So we're looking to drive organic growth. So at the various points that we've talked about. Maintaining strong profitability, being very much on top of our costs, making sure that we make those central decisions to stay profitable. Our cash generation, we see is exceptional and is generating that cash and maintaining that cash generation year after year allows us to invest in acquisitions and further recruitment, which again drives further organic growth. So I think that slide there just really simply summarizes the strategy of the group. And then just very quickly, over the page, just to wind up where we feel we are. As we've talked about, really pleased with the year that we've had. The start of this year, 2 months in, it started really well. We feel in a good position. All those factors that we've been working on for a number of years are there, well aligned. The executive team is very much focused on continuing to generate organic growth, continue to use our money to generate cash, investing in technology and acquisitions. We've got a really healthy acquisition pipeline because of the structural changes that we're seeing in the market and how that's coming to us and what James has talked about our reputation and what we can offer people. So we see ourselves in a really good position to continue to deliver strong growth through organic growth and acquisitions and generating the cash to be able to fund that. So I'll hand over now to Hannah for any questions that we've got, please?

Absolutely. Why would you use debt to pay for interest, dividend payment and buybacks? We understand that you would do it for CapEx generation, et cetera, which has a direct impact on the revenue line.

I think it is -- interest is part of what we have to do. We have to pay our interest on that. It's a way of funding it. So at the moment, that is a cheaper way of funding it and then equity because the share price is not where it should be. So if we were to do an equity raise or something like that, the dilution in earnings would be quite significant. We've got the support of our banks. Our banks are very supportive. We continue to pay a dividend. People question whether we should, whether we shouldn't. People have got mixed views as to whether we should. We keep it at a low level, 20%. We're not paid 50%, 60%, 70% of our profit is out, I think it's a good discipline to play it out. It opens the market up to some people that like a regular dividend as well. And in terms of buybacks, again, the market split where some people tell us we should be doing lots of buybacks and people told us shouldn't. We're buying some so that we've got some share schemes within the business. So we're buying some into that share scheme so that we can utilize that and not dilute the equity when we come to need issue shares to one of those results.

M&A, that article in [ the lawyer], James, that you highlighted, suggests that you should be dominating the M&A space. Are you actually seeing prices softening as a result?

I wish. No, prices aren't going up, but they're not really coming down too much. So I think it's a bit of a polarized situation really. You either get a distressed asset when you're picking it up for not very much at all stressed or distressed or you're getting a business which is functioning okay. And the partners are getting what they regard as an okay return out okay or better. And they see value in that for them. So bear in mind, not many of the deals we do, active sale processes. So if I sat at this desk waiting for a sale mandate to land on my desk and only buy businesses that had a sale mandate, we'd be crawling on. So it's us going prospecting, opening up situations and working out what we think is a sensible value for us with the synergy cost savings that we can put through it. And ultimately, the price we end up paying is, yes, with all our disciplines in the background, but it's driven really by what can we do to break open this partnership to get them to transact and they have a pretty consistent view from firm to firm of the [ kind of ] level. Now we're still able after synergy cost savings. We're buying these businesses at 4x, 4.5x EBITDA, which we're comfortable with. But the price we're ending paying is driven a little bit by the partner mindset of what they've got and not so much saying to them, look, if you put a salary in for you, you're not really making that much money, so your business isn't worth much if -- which we went that route, we wouldn't get very far.

Okay. And I guess, as an adjunct to that then, are you seeing more packed competitors driving both competition with the assets and clients?

Not clients. No impact at all in any of that. [ PE ] seems to have backed off a little bit in our markets anyway. They -- and this, I'm going to say, 4 or 5 platforms. One has got some scale is more backed by a [indiscernible]. That business is called [ Law front], gone about it very different to us hasn't integrated acquisitions. They also trade under their old face name. Then there's a few other smaller ones. But I'm talking GBP 10 million revenue business, GBP 20 million revenue business. So for them to build a platform and scale to compete with us is, they're a long way off. So I think we don't see much competition. We know they are around and we do end up in discussions where somebody says, "Oh, I had from somewhere else come and see me recently, but they're not really executed M&A in any kind of fashion that gets in our way."

Okay. One here, perhaps for you, Kate, on the interest income that you earn on client money. Firstly, how sustainable is this GBP 10 million annual interest income that you're booking every year surely the client money is related to on go legal cases or corporate projects?