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

Welcome to our full year presentation for the year ending 30 April, '24. I'm going to start with a brief overview of the year and set the scene for Kate to then go through the numbers in more detail, and then I'll pick up after that and end with a section on our strategy for growth. I think the key question that most people have and certainly we have is the recent organic growth. We've seen a return, it's a very modest return to organic growth. But I think much more importantly, we see there's an inflection point for further now improvements in our organic growth going forward. And we're becoming more and more confident about to return to high single-digit organic growth. Kate will give the bridge to the year ending '24 and touch upon the sort of building blocks for moving forward as to why we see that high single digit now returned. So it really is an inflection point more than just the organic growth numbers this April '24. We've seen an improvement in profit margins. We see that continuing too. We've worked hard on the cost base in the last 12 months with the improving organic growth and the improving macro environment, then we certainly now see our profit margins also increasing going forward into FY '25. The market conditions have improved for us, particularly in residential property. And again, Kate will highlight what we're seeing in current trading going forward in FY '25. We've seen in this period reported an improvement in recruitment. And again, we see that carrying on to scale this business now has started to attract more people, it's better now and it's becoming the start of a national brand for what we've built. The resilience, we've always talked about the resilience when we listed, we talked about this in economic conditions, so economic downturns. This business is resilient. And I think we've shown that in this trading period. There's definitely been a couple of headwinds with residential property and M&A. But I think overall, the business has shown strong resilience in an economic downturn that's happened in '22 and '23. Finally, the acquisitions that we've done in the last 2 or 3 years, the last 8 acquisitions have traded ahead of our expectations, and we're really seeing strong integration to those acquisitions that have come on board. And just going to the map. The point of this really, I think, to begin with, is the integration. We've really built to date. We've been out this 12 years, 6 years since IPO, and to date, we've built now a fully integrated national business. This isn't a gathering or amalgamation of small businesses at all, we work really hard with a very experienced team now to integrate. And so what? Well, that's the strength of the business. When you've got an integrated business, when we focus very much on One Team culture, you can start to share, work across experience levels and you can start to bring all the disciplines and expertise to the clients to grow the share of the wallet with the clients. So it's very important for the strength of the business, and that's what we've built today. We've taken our time in the last 12 months and not really accelerated growth because we wanted to finish our integration of everything that we've acquired historically in those last 8, that we've done in the last 2, 3 years, and that's what we've got today. The map also shows where we're heading next. The dark orange on this map shows the work that we want to do to complete England and Wales. So over the next 2 or 3 years, we're going to be looking to fill those gaps that you can see in the dark orange in England and Wales. We will, at some stage, I imagine in the next 12 months, have a very small office in London. We're a regional business. We're going to continue being regional but we do want to now have a small base for our retail business to go and trade in London. We have more and more people that go into London to get work and then it's serviced from the regions. And we need, therefore, a small platform to go into them. And that is not to compete with London businesses. It is merely to be an office for our retail business, to trade from so we can go and win more work in London and have it serviced in our regional business. For the next 2 or 3 years, it's all about completing England and Wales growth. I think beyond that, we definitely see opportunities in Scotland, which is the lighter share for longer-term potential. And beyond that, possibly doubling, but that's way further down the road. So that's the next sort of short and medium-term growth strategy as far as location, continuing to interface all the time so that we remain One Business, One Team. The mix of work on this slide hasn't really changed that much. We're still very much commercial-focused, commercial services for corporate clients of 65%. We have seen some growth in private wealth, and we anticipate continuing to see that. Private wealth is a very profitable part of our business. There's a real gap in the market in private wealth because the top 50 law firms have largely disregarded this over the last 20 or 30 years. Some are now returning because they see that profitability. We've been in it now throughout that we can see that growing further as a percentage of revenue, maybe by 2 or 3 percentage points. Particularly with the changing tax regime that we anticipate, private wealth will continue to flourish and grow and strength to strength. In the last 2 or 3 years, our clinical negligence business, CL Medilaw, the subsidiary down there, 9%, has also grown and flourished. It's very profitable. It's very successful. It's becoming very dominant and it's clinical negligence, so will cause the specialization. And we continue to see that grow. I think the growth will slow down a little bit now but that's really grown in the last 2 or 3 years. But the mix of business, pretty similar, focused on corporate clients but also alongside that, the private wealth, which is a huge opportunity for us to fill that gap, especially in the regions. We've put some thought into how to explain the uniqueness of Knights. It's quite challenging for people to understand, I think, law as a segment because this is socio listed. So I think law firms are tricky to understand for investors but I think our business is unique even compared to law firms. So I just want to spend 2 minutes trying to explain the real nature of this. And I think there's still essentially put it. So we changed the structure 12 years ago to create an owner-managed business, separating ownership from partnerships, and that allowed us to develop a culture, a One Team culture and a collaborative culture. You don't find a club to culture like Knights anywhere in legal services where people share work across 23 offices and 1,000 fee owners. The power and strength of collaboration is that we create a national business focused on premium services for corporate clients and private wealth clients. That means we win more clients acting as one business rather than a siloed individual, lawyers or teams or offices where they can fight for each other for fees. We don't do that, and we haven't done for 12 years. This is a real unique culture that exists in legal services. From that growing presence and more dominance in the regions allows us to have pricing power because we're doing more for clients and we're doing more for larger clients, and it allows us to continue to increase prices and have pricing power in the regions because we're competing with smaller businesses compared to our national business. From a retail cost base, this creates really strong margins and financial results. From there, we can pay people really well and be the regional leader we are, particularly outside Manchester, Birmingham, Leeds, what we call the tertiary locations, outside the secondary of Manchester, Birmingham, Leeds, that we are a very good payer, and we're very attractive for people to come and join. Thus why we're very confident that more people will want to join this, and they will continue to recruit strong numbers as we've just seen. And this year, we're reporting. And also, when you're the dominant player, particularly in the tertiary locations, people stay because you're the local Slaughter and May in your given location. So that's how it all works, and that's the strength of it, that's very different. And that's why we're very confident in this going forward and how we can grow the business. But it is different. It is unique. Finally for me, just showing here the compound annual growth for the last 5 years, we've put on this slide, it's 23% -- 22%. That's why we've been going steadier because of all the things we have to do through COVID and through downturn and through all the integration that we've worked on to create this fully integrated business. We're still growing at that rate. We will take that rate up now, we believe. We're very confident now. We can return to pre 5-year growth rates where we didn't have some of the headwinds we've just experienced. I want to talk more about our medium-term growth strategy after Kate's gone through some of the numbers.

Just on this next slide here then, just at a high-level review half year, as David said, I think we're pleased with delivering a good performance despite the macroeconomic challenges that they've obviously been in environment this year. We have delivered revenue growth, we've increased revenues to GBP 150 million, increased our margins, increased our underlying EPS and again, delivered exceptionally good cash conversion. So I think those headline figures are really good, and we'll talk an awful lot more about all of those in detail as we go through pages. But that cash conversion that we've done has put us in a net debt position of GBP 35 million at the end of the year that in terms of our bank covenant ratio is 1.1x, which is down from where we were at the end of the year last year, we were about 1.2x, and that is achievable because we continue to deliver exceptional lockup. And you can see that our lockup that was already good last year at 87 days has improved even further to 78 days, and we'll talk a little bit more about that. Summarizing the P&L in a little bit more detail then. Revenue, I've got a detailed revenue bridge over on the next page. So I'll talk about that and the component parts of that in more detail. Picking up on other items here. Good gross margin, pleasingly, that's improved slightly from 48.5% to 48.8%. That's whilst we still invested. So David has talked about that we've recruited 40 senior recruits shown here compared to 20 last year. So recruiting people can quite often decrease your gross margin, but we've actually managed to increase gross margin about that, due to our focus on pricing and rates per fee earner, which we'll see on the KPIs and our cost control and making sure that we're controlling our cost well. So pleasing with where we've moved that to. We do expect that to start [indiscernible] further as well as we continue to focus on our pricing and keeping our costs under control. In terms of operational staff costs. Our operational staff costs have increased marginally in the year as a percentage of revenue but it's definitely been a year of consolidation for us where we've spent the time to centralize an awful lot of our systems, everything that we've done from the acquisitions. We've done 23 acquisitions over the last 5 years. We brought everything together, centralized a number of our support functions and use automation in various areas to enable us to get some savings in terms of our operational staff costs, which we will start to see the benefit up in FY '25 and beyond. You don't see them much in here but you'll see them going forward into next year. So pleasing with what we've managed to achieve there. In terms of other costs or other operating charges and marginal increase as a percentage of revenue to last year, but that has been due to investments in BD and IT. But pleasingly, again, we've made considerable savings in other central costs such as RPI insurance, the synergies that we've gained on things like photocopying contracts and pulling all of that together, which having a year of consolidation has really enabled us to do that. So consolidate all of our costs whilst investing in the things that are important for us to grow the business. And that investment in BD will help to grow the top line, and we'll then start to leverage those costs going forward. Other operating income, we've talked about that an awful lot in prior years but that's our interest on client count, an increase in last year just because we've had the higher interest rates for the full year. We expect interest rates are going to remain. It is going to be a line of income going forward. It may drop off that as interest rates almost probably drop off over the next year or so but it's not going to disappear. It is going to be the continued feature of our P&L as it was prior to 2008. There will be a slight softening in that but that will be more than offset by the savings we're expecting to see the improvement in margin in gross profit and the other costs as well. Our property cost, IFRS 16 cost that you can see there. They've started to leverage already this year. Again, having done 23 acquisitions, you inherit quite a property portfolio, we spent the year and we continue to spend into FY '25, consolidating that, managing it and leveraging those costs. You can see some leveraging already happened this year, and we'll start to see some further leverage over into the next few years. So looking at the business and how, you can see, our margin has increased from 15.2% to 16.9%. Pleasingly, if you split it out into half years, our margin in H2 was actually 18.4% compared to 17.8%, which I think the starting show the benefits of some of the synergy savings that we did in the first half of the year, and that is helping us to generate future margin growth into future years. In terms of forecast, I know you'll ask me where we expect that to go, we're looking to increase our margin. I would always say, we'll look to do that at a gradual pace. We're looking to grow that. It will be -- but we'll continue to invest in our IT and recruitment as we needed to put that margin. I expect all of the indicators of that, that will start to grow in future years. So looking at the revenue bridge and give a little bit more flavor about this and split it into acquisition income and organic income. The acquisitions that we've done now, as David said, are all performing ahead of expectations FY '23. We acquired Globe, we acquired Meade King, and we acquired Coffin Mew. There's been a slight softening in some of the residential property work in Coffin Mew but other than that, they are all performing well, integrated well and performing ahead of where we expected them to be. FY '24 acquisitions, Baines Wilson and St. James, which we acquired in June '23, are performing exceptionally well, ahead of recruitment, ahead of expectations, and also provides a really good basis for us to recruit into, so we've recruited well into those. We have recruited 6 people into the Newcastle office already, which will generate our organic growth into FY '25. So really pleased with how those have operated. We then look at organic growth, that net down at 1.9% organic growth for the year, where you can see that there are various different components in that. We've had the headwinds, as we've talked about at half year from residential property and M&A, the high debt costs have meant, the residential property and M&A have been depressed. And so that had a negative impact on organic income of 4.6%. Strategic reductions there. We've always talked about in the past that we've run the business to maximize profits, not just to maximize revenue growth. So we had [indiscernible] business, which -- some of that just weren't at the profit level that we wanted to be, they are actually making small losses. And so we made the strategic decision, again, to maximize profitability to come out of those but that has a negative impact on your organic growth. We take all of that outlook at the rest of the business and noncyclical part of the business that's not been affected by the debt market. That has generated organic growth of GBP 8.4 million or 6.3%. So I think a reasonable organic growth there. Some areas in there, private clients, immigration, discrete resolution are performing exceptionally well, performing up sort of high teens organic growth in there. So it's a real mixture of various different things than that. But really pleasing point. And I think that, as Dave has talked about, our return to high single-digit organic growth going forward. That is the basis on which we base this and show that it is actually achievable. If we look at where we think we'll go next year, the key building blocks to our higher organic growth. Pricing. We'd expect to see pricing going up. The main driver behind our increase this year, that 6.3% has been the pricing increases that we've put. So I'd say around about 4% to 5% in terms of pricing. Residential property, we have seen an increase in that this year. So we look at the number of new matters that are coming into the business on a weekly basis. And if we compare the period, from 1st of May to now, this year compared to the same period last year, we have seen a 30% increase in new instructions coming in. So if we take that and roll that through to next year, that gives us another 2% organic growth. This, and other building blocks will be the corporate and M&A market. We're not seeing that quite increase yet but we expect to see that come now, markets will hopefully settle a little bit with the new government coming into place and everything is settled down and into the second half of the year, we expect to see M&A market coming back through strong recruitment that we've done, and we'll start to see the full year effect of those coming through. And also, as Dave will talk about some new client wins that we're getting first and selling more of our services to our existing clients will drive again. So that's given you another 2% or 3%, and I'm getting you to the high single-digit organic growth going forward. In terms of PBT bridge. Here, we've talked about most of these points here. Going from last year to this year, biggest increase is increase in gross margin driven by the revenue growth and then also the slight improvement in gross margin going forward. And those costs there, we've talked about, yes, they've all increased as the business has increased but we are starting to see leverage of those and expect to see them big as we go forward. Key KPIs that we look at as a business gross margin we've talked about, we're focused on a premium, focused on pricing, and that has helped us to increase our gross profit while still investing in new recruits coming into the business. Fees per fee earner. You can see there a 10% growth from GBP 131,000 to GBP 145,000 in the year, mainly driven by pricing and our focus on premium and quality. And the quality of the recruits coming into us is meaning we can generate higher fees. Our average number of fee earners in the year, you can see has dropped off from 1,077 to 1,037, and there's a breakdown further back in the pack, which shows that, but the main reduction is due to a reduction in people in our Integrar business. That's our volume in Mortgage business, which has been hit a little bit by that market. And so there's natural churn in that business anyway. So we've lapped that and that's been the main reason for that reduction of fees in that. Interesting point is the one on the top right. Cash generation, I think that shows a really good trend of our cash generation and how good we are at generating cash. And as you can see, over the last 3 years, we've generated over GBP 60 million in terms of free cash flow, and that has enabled us to invest in acquisitions, pay dividends and invest in the CapEx, invest in the property and the IT going forward. And that forms a big part of our growth strategy going forward. Cash flows. Again, here, and our cash generation 131% this year, we had 117% last year, pleasing results. A slight increase in our working capital, again, mainly driven by the growth in our clinical negligence business. But if you do look at our WIP days and are WIP as a percentage of our revenue, it is actually coming down, showing that that's all good -- it's all good work. It's been converted regularly, and we're generating really good cash from operations, which is allowing us to invest in our property. We've invested about GBP 8 million in our property portfolio this year. So although we're making savings were as amalgamating savings when easy to refurbish and go into new offices. So we spent on that. We're investing in recruitment. Every time we recruit someone, that uses some of our cash acquisitions and then our technologies to make sure that we're at the cutting edge of what we need to do. So our cash conversion is generated mainly by our focus on working debtor days, working lockup days, working capital days, which basically is the amount of time it takes to convert units of time spent into cash in the bank. So it's our WIP days, which is amount of time it takes us to build an item and then our debtor days, which is how long it then takes us to actually collect the cash. And you can see that, a really pleasing trend. We always calculate our lockup days excluding the clinical negligence work composed because it is so differently operate in terms of years, in terms of that lockup period, it can be 2 or 3 years to build something, but it's continuing, its moving on, it generates cash. It's very profitable. So it's a really important part of our business. But what we don't want is the other 91% of our business to be impacted thinking of that, that's acceptable, we want working to the 78 days that we did, but what I have done on the top just to show what our WIP days would be, including everything we've put lock up there in that brown line across the top, which shows lock up including all of our work in progress and all of our debtors, which again shows that, that started to come down this year. So pleasing in terms of that. And on the right-hand side, you can see the opportunity that is available to us as we acquire businesses, we are industry-leading in terms of our lockup, and you can see that from what we acquire, how different their profile is. And then once they've been with us for 2, 3 years, how we managed to get their profile down to much more in line with ours. And it's not rocket science as we've talked about before. It is just encouraging people to pick up the phone, chase clients to say, hey, you can't have an outstanding debtor to do that, to build our clients on a regular basis, not waste until completion and not be driven by the client but different buyers. And it's part of our culture that helps to drive that, and David has talked about our culture. We have One Team, everybody has to work towards our debtor days target of 90 days, and that generates some really good results and generate that strong cash conversion that we've talked about. Moving on to the balance sheet. Not an awful lot to pick up on here. The one point I will mention is just our loan to the joint venture. So that was our investment in Convex, which we did towards the end of the year. That's a joint venture, which is Convex -- or corporate finance to going after that, acquiring businesses for people. It's a joint venture for us. It will come in at just 1 line. There's nothing in our budgets at the moment, because of its lumpy nature, it's volatile. I have not included any income for that. The first amount of income will be repaying the loan we've put into that. It is performing exceptionally well at the moment. It seems an awful lot of activity, which gives us confidence that the legal side of that M&A will comp further down into the second half of the year, put that confidence and see how busy they are means that we're fully confident that, that loan will be repaid within the next 12 to 18 months. Then moving over just briefly on to our net debt bridge. The key points to make is that we are very cash generative. You can see there, just under GBP 25 million of cash generated from operations and then how we spent that over the year on CapEx, on investing in the business in terms of acquisitions, and paid our dividends in there. At the year-end, we're in a really good position. We've got GBP 70 million facility available to us until November 2026. We've got headroom there of GBP 35 million at the year end, which gives us lots of scope for going and funding acquisitions going forward. In terms of our covenants, we were only 1.1x at the year-end. So where I would take that to 1.5x. Our banking covenant allows us to take it up to 2x, 2.5x, but we know in the market of 1.5x as where we expect to be. But that still gives us plenty of scope to invest and fund acquisitions going forward. And then because of the headroom and because of our confidence, we have declared a dividend at the year-end of 2.79p, that comes to 4.40p, which gives us a 9% increase on the dividend that we declared last year. I'll hand over to David.

Thank you. Just wanted to go back briefly to a slide catered our acquisitions. That slide there. You can see a massive reduction from the WIP and debtor days that we acquire to what the performance we get out of them. And that really, I think, proves what I'm talking about, it's about the uniqueness. You can't achieve that if you're a siloed business as a One Team culture across 23 where everyone knows how it works at Knights, I think that shows you consistently the results we can get at as one business. And that's what we've worked on so hard over the whole period, what we've spent in the last sort of year seen full integration across all 23 offices. We call that as well a cash back guarantee when we do acquisitions. Because on average, we got about GBP 800,000 back as an acquisition, and there's the evidence there. Looking forward now, we're very clear, and this is well known amongst our executive directors, amongst all the client service directors and business service directors and a lot of the partners know that we're really focused on doubling the business in the medium term. You'll ask me what do I mean by medium term, if I'm being super confident, I'll say, 3 years, if I'm being more prudent, I'll say 5. So 3 to 5 years, we'll double the business. We've more than quadrupled the business in the last 6 years and we've been taking it steady in the last 2. So we're really confident we can double the business now, obviously, top line and bottom line. I'll talk about how we're going to do that organically, and I'll talk briefly about acquisitions. The rough mix, I'd say there is roughly 1/3 organically and 2/3 acquisitively is how we'll achieve it. Have we got that runway for this absolutely listing on for years. There's 200 law firms still to consolidate in the commercial and private wealth face. There's 9,500 law firms but we're just focused on 200 of them, which do decent quality commercial work in the regions and private wealth work. And that's what we're focused on really is continuing to consolidate. So we become the regional dominant provider. I'll talk a little more about that. I want to get into the actual organic growth. Now Kate has touched on these but I'm just going to sort of go over and again. We're seeing this year a 5% price increase. And what we've done now to, which I think is really effective is bring those price increases in on the 1st November to actually come into effect on 1st May. So we notify everybody client and colleague 1st November, 6 months ahead of 1st May. So the 1st May price increase is that we've just seen come through, the client has been seen in the 6 months and our colleagues have and therefore, we get full year effect of them in a very compliant way. We see that carry on. So we don't know next year's price increases yet. But there's a real gap between us and top 50, we're at about 40 up in the revenue leverage. If you look at the size of law firms, it's about 20% in price with 20% less than the top 50 law firms when you look at the sort of regional commercial work and private wealth work. So there's still a gap between us and our peers. So we still see price increases going forward. Kate has mentioned, we've already seen in the first 2 months of this financial year, a 30% increase in the value of our residential property business compared to last year. That's really recovered in January. We see new client wins, which just now, we feel with GBP 150 million, 23 offices fully integrated business. Everybody really settled now, churn's gone down. We're seeing now clients starting to get used to Knight and becoming more aware of Knights and larger clients because of that national scale. I think we're on the start of building a brand. I've never really believed in brand being that important in the regional law firm space. It's much more about relationships, all of our big clients, some of those because of the partner relationship. But I think the scale of this business now and the dominance we have in the regions is starting to begin the journey of a brand, which will make clients more aware of the quality that's on off from their doorstep. The land and expand is all of our acquisitions, bringing organic opportunities, and I'm going to focus on one shortly as an example, the partner recruitment, we've seen the numbers up this year, of the year, we're reporting up 48%, we see the partner numbers and senior partner hires to going up from here, more sites, more awareness of the business, more awareness of the culture, the legal profession is starting to get used to our presence being a disruption consolidator, and I think that's calmed down to allow us, I think, to recruit more people. And the corporate activity, Kate touched on Convex. This is the joint venture where we've invested to have an interest in this business. They are bulging at the [indiscernible] now and I can see obviously, that's a good sort of signal for what's coming up for the lawyers but we're also seeing referrals now. We've already had 3 transactions come out of Convex with significant 6-figure fees for our corporate lawyers. So there's a real benefit for our corporate people to then receive work from Convex, and we're starting to work much more together where we can introduce the sale mandate only corporate finance business, and we can introduce sale opportunities to them and the vice versa getting us to our corporate team to use our corporate layers. So there's a real sort of win-win coming out of one investment. It is going to be a superb investment for us. The recruitment. The recruitment is really important because the fastest route in a relationship model, which the regions definitely is, as I've mentioned, the fastest way to attract quality clients is actually to go and recruit the actual client relationship holders, which is the partners. And the #1 reason they look at this more than equity partnership is the no financial risk, the second box down there. With us, they can earn the same or more money without financial risk. And this is attractive to existing equity partners but it's also incredibly attractive to the next generation coming through, because there's many studies over the last 10, 20 years have shown that the next generation coming through don't want to borrow GBP 200,000 to put into a law firm to earn a bit more money. There's interest now on that money. It's the personal liability and they don't like the risk. They are a very risk-averse culture, lawyers. So there are no financial risk in our business model. It's always been prominent but I think in an interest environment, they feel the risk even more. And that's the #1 driver. The second and third drivers, I'd say, culturally, they see that it's very much a togetherness, low churn, happy place to be. And thirdly, because we now do full service, absolutely everything at corporate client needs, including tax, intellectual property, competitional, you name it, that regional law doesn't do. They can bring their significant client following all their large clients safely on board because we do everything to support that client. So there's some real drivers now and the quotes there from Jeremy and Leon are just typical of what we hear in our business. It's a very happy ship. What the quality is getting higher and the breadth of our services is complete now. I mentioned an acquisition, which shows the opportunity to grow organically, Teesside, and its second full year to April 30 '24 grew by 29% in revenue. And it did it because it has settled down. It takes a year for an acquisition to fully sort of settle down and start to take on board a modern commercial legal service business rather than the traditional multiple fashion partnership model. This group is a fantastic group, they've all fully bought into it. I can see them staying for a long time as I come with all the close people that we acquire. They approached us 3 years ago now to sell for 2 reasons: one, to make a financial return for their own investment in their own small law firm. But secondly, it was equal first for them, they wanted to take their business to the next level. And what that meant was doing all the work locally for the first free port status, the airport that's there now, it's on more international, all of the infrastructure investments going into Teeside. So really sort of thriving area from the point of view of certainly of investment and being attracted to it, and they wanted to be the player that was involved in all of that sort of work and investment and transactions. And that's worked. We now are the go to for the regional development corporation up there, and it just illustrates the organic opportunities by acquiring in tertiary locations. We're seeing this currently in new cost upon time just starting now, where we've been a new cost up time for a year. We're seeing it in Bristol. We're seeing it in Carlisle. This is an example which we will be seeing more of, particularly in tertiary outside on Manchester, Birmingham, Leeds. So to sum up, and then we'll take some questions. We're happy with FY '24, but I think more importantly, it's the inflection point we're seeing now for the current trading going forward and all the things we've been saying. We're happy with all the integration work we've done, all the cost control work we've done. But I think, as importantly, we're seeing a really good start to the year with particularly residential property. And I think M&A is soon going to be coming back in September. We've gathered ourselves as well with some dedicated direct resource to how we can talk to a large client and general counsel, and we've had this now for 18 months, and we're seeing some results now on the large corporate side. And that will, I think, gain reputation going forward. As I've said, the recruitments I've mentioned, I see recruitment increasing from the 40 that we did last year. I haven't mentioned much about acquisitions because I think organic growth is the priority. It's the priority for us. We won't get our share price rerated without strong single-digit organic growth being repeated. We know that. So the acquisitions, I think will only count if we can really achieve that organic growth, and we know that, and that's what we've been working on continue to. But I can say here that the pipeline of acquisitions has never been so full and never been so exciting, so you will be reading about acquisitions going forward because we're ready to do them now, we've got the business in a really solid state to now grow geographically through our acquisition. We're confident about the organic growth return we've mentioned, and we wouldn't be saying we're going to double this business in front of you when it's being recorded and in front of our investors in the next few days with us has been pretty confident that that's going to be something we achieve in the medium term. So thanks very much. We'll take some questions.

Your increased guidance for CapEx for next year, could you break that down a little bit further in terms of the [indiscernible] number. And the sales you mentioned the centralization of some activities and also synergies derived from past acquisitions through in FY '24, what's the annualized benefit of those next year in FY '25. And then for the employee NPS, also some lagging indicator, so I was just wondering what the main reason for that in terms of why it came down in the year and also confidence for that going forward given the stuff [indiscernible]?

So CapEx, we've talked about a total of GBP 11 million for next year. That will be the normal amount of that sort of 2 to 3 in terms of IT and then the rest is in terms of property. So it's just finishing off the property refurbishments that we've been doing within a big refurbishment of our office in Stoke. And then we're moving some of our offices, for example, Sheffield, when we acquired that, it had an office space, much bigger than we needed, not very efficient. We're moving that, that shows it's quite a bit to the end of its lease into new facility, which will be more efficient going forward, but it needs a refurb so that people are coming into the same quality places that everybody else is. So that's why, the last 2 years, we've seen a bit more CapEx but that's been catching up really with stuff that we've not spent over past. Once we do that, effectively, I think virtually all of our property portfolio then is a high grade A space that would want it to be. In terms of cost savings -- in terms of support cost savings, we've saved at least over GBP 1 million, probably just GBP 1.5 million in terms of support sort of savings that we're seeing going -- through the centralization of things for automation of a few different things. We've managed to make savings there. And then in terms of other operating costs, there's easily over GBP 1 million there in terms of savings. Now some of that, we will confer some of that we'll be using to invest in IT now going forward. So this GBP 3 million plus in terms of savings but that's really good because it gives us that headroom to continue to leverage cost we're investing in things that we see as important for growth going forward.

Employee NPS. I think the -- I mean, it's the tough scoring system NPS. As you know, if you get 7 and 8, it gets you no point, 9 and 10 get you a point and then if it's 6 and below, it gets you a point [indiscernible]. So it's a pretty tough scoring system. I don't worry about plus 20, going to plus 15. But I think to answer your question, we've definitely now got a more experienced client service director group who look after the offices, and that's the 1,000 of 1,250 employees. So the fee earnings side is more advanced than its management because the clients, the directors who have had more experience and time. I think we've done better in recent -- even recent weeks to get around all the partners. We've gone around as a management team, self-catered COO with all the 270 partners. We've done that in the last month and met them all and being with them a bit more socially. I think that's been a great advance. I think the fact that it's settled and maybe we're out of a mini recession and we've had a change of government, all these things impact people's sort of mood, I think. And I think, hopefully, now as things are more settled, I think that would bring us a bit more positive vibe that we can then help improve their from to good management. So I would expect the employee NPS to not go down from plus 15. I'd be just really disappointed if it did. I'll expect it to get back in the 20s perhaps. I don't -- if you can get it in 30s and we have amazing because it's such a tough scoring system. So I think something in the 20s for us is good -- very good move. I think in the teens, it's probably less good move, but I think there's other factors that will play there. I think you've seen a massive vote against the Tories this time. I think there was a reaction there, wasn't there too. I think you had one of the worst elections for people turning out. I think it's about the second worst. So I think generally, it's been a bit flat in the country over last year or 2 with the sort of economic state as well, and we've had a mini recession with interest rates [indiscernible]. So all these things are not necessarily all in our control but we're certainly working incredibly hard with the partners. I think the partners now in the business that have another 2 or 3 years if they were acquired 3 or 4 years ago to settle and become local leaders. And the key -- one of the key things we have to work through and we've gained this to experience, they're doing some of our acquisitions is not to leave them the feeling they're not empowered. We need the local partners to feel autonomous and empowered to be captains on the pitch, to motivate people around them. And I think that's something we've really put some effort into in the last year. So you'll ask me again in 6 months or 12 months' time, I hope that would be back in the 20s. But the mood in the business doesn't feel that this declined in that way.

I'll ask about pricing. You've got -- you said you're sort of 20% of the top 50. Is that a conscious place that you want to remain in order to continue guiding [indiscernible], is that something?

It's a little bit -- I'm picking that against the DLA, [indiscernible] business. So it's really hard for us to pick a competitor. If you pick the competitors in the secondary cities, then the top -- those firms I've just mentioned in the top 30, top 50, are you'd say probably after degree. But we want to be in the mid-market. They're trying to do the institutional work, so I don't even see competition there. Once you come out into the 20 total locations, it's a local independent that we are competing with. Well, will be more expensive than them. So I'm only really comparing that against the top 50, which isn't that helpful in some way. Now we've got time to talk about it because there's plenty of locations where we don't come across them. So I think the bottom line terms, I think, yes, I think something like 10% to 20% difference between us and the top 50 is probably about right. And I think at some point, price increases will slow down. I think we've probably got another year ahead, and then we'll see. But I think inflation has come back down. So that's the factor where I think pricing will stop at some stage. But I think we'll have many other drivers to this. And the fact we've lost those couple of headwinds that debt interest brought, offset is net positive for us [indiscernible] client' interest money. But I think now we're seeing a stabilization on interest and mortgage rates. I think we're going to go into a very busy period of residential property and M&A. And we've lost the M&A 2023 as well, one of the worst years for [indiscernible] 30 years and 2023 it was definitely bottom core sale. So I think we're -- I think we should be all back, and also owners now, certainly when we reach the [indiscernible] M&A.

With the M&A question in mind. Your conversations with owners now in a very full pipeline. Are they feeling better about the world and is that sort of coming through in pricing conversations? Or is it still pretty depressed. I think interest rates coming down as you say stable government, are they feeling better about outstanding or pushing prices up? And then the second one, you mentioned coming into London, property wise. Is that likely to be full office lease or you thinking going into service offices as a cheaper route to that potentially?

Let me just pick the last one, so I don't forget it. The -- I think we've tried service offices already. We've had a service office, which we stopped 6 months ago. I think now it will be a small full service offering because I think we've got enough people now on real estate and corporate wanting to -- who've got clients in London, and we've got a significant premium top-end residential property offering that is in places like Weybridge, particularly, but also Oxford, also Wilmslow that have London clients. So we definitely need to be in London for our people to be able to trade with their clients. And I think it will cover corporate, real estate and residential property. If we found and we certainly have conversations with some sort of regional style operation that's small, and I'm talking 30 lawyers, 40 lawyers that's in London, we might even acquire something that is then our base. But it would be very much a small base for our people to operate from because we've got demand from quite a few layers now saying, when can we please have somewhere to see our clients. On the -- our own M&A, our own acquisition strategy, but I don't think anything is going to change with pricing, even though I think there's slightly more fear in the model, in the profession. I think the lead fashion is -- and the partnership model is getting older. The people in this are getting older. The next generation hasn't been coming through for quite a while, at least 10 years, probably longer. So you'll see an aging equity partnership model that I think is concerned about how they -- where do they go to -- for their succession, for their return of capital, and if we come along and pay for it well, then it really is Christmas came early for them. So I think we're very attractive to them. There's nobody else doing it. We've never met an of the bidder in the 24 acquisitions we've done, the 20 since IPO, we've never met another bidder. We're not anticipating seeing any bidders private equity or the law firms, accountants. It's not unlike the account space, but it's getting pretty busy now. So we've got it to ourselves still. I don't think prices will come down, though, because we want to buy the good businesses. And the top quality law firms have an expectation of return that I can easily answer it's 1x revenue. I think that gives them their return that justifies them reducing their profit share. I think it generally equates to 6 to 7 years money when you work on all out with profit share compared to capital and what we pay them as we pay them less than our profit share. It gives us the opportunity to make the synergy cost savings to get the multiple below 5x EBITDA. So -- but to get to unlock those opportunities ends up being circa 1x revenue. Sometimes it 0.9x, sometimes it might be 1.1x. But I don't see the price changing but I do see the move for equity partners to want to sell increasing but that won't give a reduction in price because we're buying the good ones.

Just on CapEx. Just so I can understand it, are you just making revenue from the referred legal equity share their fees for pricing on M&A? And is that -- are you trying to move all way into something [indiscernible]?

Say last bit again.

[indiscernible].

Oh, yes, yes. It's probably at the moment what they pay for it, isn't it? They pay 20. And the management team bought it for 2. And the management team are buzz and we bought them to do an NBL effectively. So we have a carry interest that kicks in to pay dividends once that loan is being repaid. So the loan has to be repaid, and I think they will be able to repay that quickly where they're trading them. It's incredibly profitable. They're very buoyant. They have a tough '23 but now they're having an incredibly busy '24, so I think our loan will be repaid, then we have a dividend right that will carry on going forward. That doesn't end at some constitutional dividend right. And we got the certainty of the synergy revenue of fees from the -- my hope, optimistically is that we should be doing 30%, 40%, 50% of their transactions ultimately once we built the relationship because then we're going to do it if they're confidence in our people. They operate autonomously. You're not going to do just what David says but I hope that we can win their confidence to do a good chunk of their deals legally on top of the dividend.

[indiscernible].

I've always said that, that where appropriate working from the core Sam, so that gets us in earlier in the food chain because laws at the end, corporate finance is a great example that we sit there waiting for deals to be ready to be done. Wouldn't it be wonderful, and Convex, there's a route to this where we can be in at the beginning. The other opportunity with Convex was this private wealth because everybody should be thinking about the Wales and IHT planning and CGT structuring before they've even found a buyer, when they're looking to convert shares to cash. So that's another -- and we're very strong in private wealth now nationally. We've hired some amazing private wealth partners than last year. And we're looking to get, those people are very best experts in front of sellers with Convex, because that gets the relationship sticky for us. So if we can find other things that gets in earlier, to the professional services cycle, and we definitely are interested and it gets sticky. And then we don't have to compete on fees or tenders or pitches because we've got the relationship. So if there's other opportunities like that, then yes, I see in real estate, perhaps project management, the ultimate quantitative, I think we've looked at project management in the past. But there's so much in the map that we put up today really shows and our appetite for acquisitions. But on the top of strong organic growth, we do want to construct on consolidating the space as we've done. So that will occupy most of our time. But where we can, tax will be another great opportunity for us. We're definitely in the move to acquire a tax business if we can. There's not many of them but we want to bolster up our tax offering because again, you can talk to everybody about their tax strategy. You can talk to everybody about their succession and enhancement that strategy. And I think tax strategies are going to become more and more focused on going forward with the socialist government and just generally, while the country [indiscernible] raised money. So I think that there's going to be an important thing for us to [indiscernible].

We have a question from Tom Callan at Investec.

I've got 3 actually if That's okay. David, you mentioned before about CL Medilaw clearly doing very well at the moment but you sort of alluded to the fact that you thought that might slow down a little bit moving forward. Just sort of keen to get a bit more color on why you think that might slow. In terms of the ambitions to double the business in the medium term, apologies if I missed this, but are we talking about EBITDA or PBT and either or is there sort of an associated margin target with that sort of remembering the fact that I think there was sort of a 20% PBT margin target in the market beforehand. So just wanted a bit more detail on that? And then just in terms of sort of longer term in terms of the high single-digit organic growth, Kate, what do you sort of see in terms of an optimum split between price and volume here, sort of long term, what do you think that will look like?

Okay. I'll pick up the first part and the second Kate can maybe finish tough and then do the third. I think CL Medilaw, I think will, they've gone through such a period of growth that I think now it's the sort of ready for may be slowing down. I think also, they're so specialists with the sell the policy side and the clinic. They do catastrophic [indiscernible] too. But I think they're reaching maybe a little point of leveling off. Part of it is it does so well, but it would be nice to have a breather as well from a cash perspective because those WIP days do take up cash. So I think it will slow down, but who knows, they're so successful and they're getting so well known that I might be wrong. But it just feels now that they're ready to absorb what they've been doing over the last year or 2. On the doubling the business, that's definitely bottom line as it is top line, whether you take EBITDA or PBT. We mix between these 2 because we know the market sort of looks at PBT, but we also like to look at EBITDA from the point of view of the sort of cash generation. It will be definitely doubling the bottom line as well as the top line. I think we should see margin growth, and we should see -- when you're doubling the revenue, if we can leave to our overheads as we should be, we should see better growth on the bottom line, but we'll just say double to be prudent at this stage. And going from the most recent PBT margin was at 16.9% up to 20%. Well, Kate will want to talk that down. And I'll probably want to talk it up. So we'll go somewhere in the middle, and I'll hand over to Kate at that point.

Tom, just to clarify on CL Medilaw, though we're saying that it might slow down. I don't think we're thinking it will shrink. We just think it won't grow quite as fast. So just want to clarify that. Yes, in terms of margin, yes, as I'd like to prudently increase that. We do see there are lots of things now, which are showing that, that will start to improve in the medium term. But I would always say, let's take the other gradual steps at sort of half a percentage point sort of each year so going from 17%, 17.5%, 18% sort of gradually up to that. Because as we grow, it takes time to get all the synergies out as well. So again, you need a year to start to actually maximize the margin and get it to the maximum level there. In terms of organic growth, going forward. We've given you the building blocks roughly for next year. In terms of the medium term, we're still looking to deliver mid-single-digit organic growth. The split between price and volume, I'd say, probably 50-50 pricing, as we've just talked about, we think we can still continue probably to increase that at 5%, 6% for a couple of years, but then that might start to drop off. But then I think as our -- as we start to win bigger clients, our volume will start to increase as the M&A markets come back to normal. And as we recruit as well. The bigger we are, the bigger our footprint is, the more that we can recruit and continue to bolster our organic growth that way. So I think I'd all hope to look that it splits 50-50 for a couple of years but then we probably move a little bit more towards volume rather than pricing.

And that's the end for my questions.

Okay. Well, thank you, everyone, for coming. It's great to see you in person. And thank you very much for attending.