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

Good morning, and thank you to those of you who are joining us today to hear from Knight, who announced their results earlier this week. If you haven't seen it already, you can find a research note up on our website with updated financials. But the purpose of today is to walk through the presentation and then take Q&A at the end. As ever, please feel free to submit questions as we head through the presentation, and we'll take as many as we can at the end. But for now, I will hand over to David Beech, CEO.

Thank you, Hannah, and good morning, everyone. Before I start talking about the full year results and hand over to Kate, I will just give because it's the first time we've worked with equity development and present it. So I'll just give you sort of 5 minutes on the high-level view of [ Europe ] Knights and our uniqueness in the market. So the legal services sector, the legal profession deregulated in January 2012. And my background was I was a lawyer until 2004, then I was in private equity for 6 years. And then when I saw law deregulating, I wanted to come along and buy a law firm. And I was one of the first early movers to use deregulation and buy a law firm in June 2012. Kate joined me in May '12 when we've been together with the extent -- with the enlarged management team ever since. And by being -- by doing this 13 years ago, it's given us a great position in the legal sector. The problem I saw back in '04 when I retired from law was the partnership model doesn't work in business very well at all. It's very silo and people are competing with each other within the business for profit share. So they compete for fees and clients rather than share them. And that then gives them an entitlement to earn a bonus or a profit share. And I didn't like that when I was running a partnership, and it was a big reason why I left the law. When it deregulated, I could see the opportunity 13 years ago to bring owner-managed principles to a business, commercial discipline that we've brought and a team culture where we get people to collaborate to share work and share clients so that we can give the best service, but a more profitable service because we can manage cost of delivery by using less experienced people to process more cost effectively. And that's what we've been doing for 13 years. We've grown the business in that time through acquisitions. We've done 28 acquisitions now, 26 of those are since we listed in 2018. We listed in 2018 absolutely to accelerate the growth through acquisition, and it's worked brilliantly by being on the market. So we've taken the revenues from GBP 9 million back in 2012. Our current revenues now have gone through GBP 200 million as our consensus run rate, which we're in line with. So that hopefully gives you the flavor of the history, but also the uniqueness of this is that we're owner managed and we have a collaborative culture. And we've today built the only national law firm that exists in the U.K. with 32 locations. The nearest to us is 21, and that does personal injury, not commercial, corporate work and private client work that we focus on. And also, there's nothing like this collaboratively. All the law firms out there work with silo, competitive, people fighting each other for fees and for bonuses and profit share that I've mentioned. So this is a unique national business now, the only one, and it's got such a unique collaborative culture. So just to give you the flavor of what we've built over the last 13 years and where it's positioned, and it's absolutely positioned today for some real growth, which we'll talk about now in this presentation. So thank you, Hannah. If you can just go to the first slide. I've got a couple of slides just to talk through, and then I'll hand over to Kate, who will go into some detail about the 30 April '25 year-end numbers. I'll then talk after Kate about -- obviously, we're approaching half year now. So there's a lot we've been saying this week about current trading and about the momentum that we've got, and I'll talk about that momentum and the growth and the results which we're sort of planning on delivering going forward. So just here, a quick sort of summary of the year. I think Kate will talk about the growth in margin, which we're pleased to have delivered at 30 April and how that works going forward. There's also in this presentation towards the back, you'll see a really good organigram of the management team. I'm really pleased in the last 12 months through this period that we're reporting as to how we've not just strengthened that through a number of directors, there's 25 directors in the business, 15 on the client services fee earning side with all of the lawyers and professionals and 10 on the business services support side, but how we've organized that team. And there's a lot of tenure in the leadership team. The average period of time people have been in the business is 6 years, but Kate has been with me for 13 years and plenty of directors have been in the business for a long time now. And we've really got a real, I think, strong trust and bond between us, but a real understanding of where we're taking the business. So if we just go to the next slide, please, Hannah. This shows the bar graphs of what we've achieved since we listed. And I really just want to point to 2018 to '21 there on the left-hand side, the revenue. We listed at just shy of GBP 35 million revenue. And in 3 years, we tripled the revenue to GBP 103 million. That's what the listing did for us. COVID came along in 2020 and slowed down the acquisitions and the integration because we couldn't get to see the people that we were integrating into this unique team culture that we're building. We really have to spend time with people for them to come out of that silo world of law and come into a sort of normal owner-managed business that's very collaborative. And we have to be with people. And that really did sort of affect things for these -- for the periods after COVID. So you can see a sort of still growth but at a steadier pace. What now -- the situation we're in now, and I think this bar graph really shows it is that consensus, you can see there at GBP 199.3 million is what we're absolutely in line with that. We wouldn't put it on this graph if we weren't confident about the delivery of that. We're approaching halfway through, and we can see what's happening this year now. And you can see we're sort of jumping in growth a bit like I think when we're in 2018. We're doing acquisitions. We're hiring more people. I'll talk about it after Kate because we're now very much back in normal play with everybody in our offices and people can come when we acquire or hire, people come and meet us and we put everybody through the central hub and Stoke that we've invested heavily in is a great hub for people to come to and really experience the nights experience, the collaborative experience, but the premium experience that we're looking to deliver all the time. And that experience that they get and the first impression that people get is really helping them come on board and stick and stay with us. So we'll be talking about how that's changed as a churn rate of employees going forward. And it's all about the engagement, which we've been able to deliver. You can see on the right-hand side that the profit grew from when we listed at GBP 4.8 million PBT to the expected consensus that we're absolutely in line with this year is GBP 33 million. So it just gives you a flavor of growth, but it's -- we're now in a sort of new -- we're in this new phase of growth that I think is very similar to when we came to market. So I'll hand over to you, Kate, on the numbers. Thank you.

Thank you. Good morning, everybody. So just on the next slide here, I just got the high-level figures that we reported for the year. So for the 13 years that we've been running the business, we've always been focused on growth, but really importantly, profitable growth and cash generative growth. And so you can see from the headline figures that we've delivered here. We've grown the revenue 8%, which is primarily acquisitive revenue growth, and I'll talk through that on the next slide. But then we've also improved our profitability in terms of the EBITDA that we've delivered and the PBT up -- both of them up by just under 11% and the margin that we've achieved in the period as well has increased quite significantly. And I'll talk through the drivers for that as we go through on to the next pages. As well as doing that and delivering that growth, we've continued to maintain our strong underlying cash conversion. You can see there we're at 130%, which is about where we've been consistently for the last few years. And the way that we do that is through our management of lockup. Again, I'll talk through that more, but that's the amount of time essentially that it takes for unit of time being spent on a job to us getting the cash in the bank. We've maintained that at 86 days. That is a target where we want it to be. We normally look for at year-end for it to be less than 90 days, and then we've achieved that there. And that gives us a net debt position at the year-end of GBP 65 million, which has given us GBP 35 million headroom in terms of the facilities we've got available. And again, I'll talk through the building blocks of our debt facility a little bit later on. If we go over on to the next slide, please, Hannah. On here, the P&L, the key things that I'll point out here are revenue. So our revenue grew by GBP 12.5 million in the year. That is all acquisitive growth. So during the year, we acquired Thursfields, which we acquired in July and we completed in September. And we also acquired IBB, which we completed in April. Both of those acquisitions have gone extremely well as we'd expect them to be. They come on to our systems and are fully integrated on the first day of completion. So they're on our systems, generating revenues as we expect them to be, and they have performed well in these results here. Being that all of our growth is acquisitive, that obviously means that our organic growth is flat for the year. And we can talk through the key drivers for that as we go forward. But the main key driver for that has been churn. We've been -- over the past 2 or 3 years, we've had a period of higher churn than we would normally have. If we go back to pre-2020, our churn levels averaged at sort of 8%, 9%, 10%. They have been at sort of 15%, if not higher for the last few years. In fact, for the first half of this financial year just completed, we're at 20%. We have seen a significant change in that. So for the second half of the year, the churn level dropped to 10%, and we see it -- going forward, we see it averaging at that sort of level as well. So that's the key reason why there's been that churn, various reasons for the churn. We've very much focused the business over the past few years on being in the premium end of the market. And there have been some areas which we have strategically come out of. We came out of volume debt recovery, volume insolvency over the past few years because they weren't generating the profits in the area of the market that we wanted to be. And then some of that generates some further churn in individuals or various little pockets that aren't quite operating at that premium level of the market. So some of that churn is related to -- quite a bit of that churn is related to us focusing on the premium end of the market. But as I've said, we have seen the indicators of that now dropping towards the 10%, if not below, which is where we'd want it to be. And as that churn drops, that's one of the key KPIs for us then seeing actually organic growth coming forward. And I'll talk a little bit more about that and talk a lot about that going forward. Looking down at the underlying profit before tax margin, then you can see that, that's increased by 40 bps in the period, which is really pleasing. On one of the key drivers for the increase in the margin is our gross profit, which I'll talk through the KPIs and how that's moved. But the gross profit has actually increased by 170 bps in the year, and that has dropped through. Now one line just to pick out there, I'm not going to dwell on it, but other operating income, a lot of that income relates to interest which we earn on our client account. Because interest rates have decreased during the year, the amount of that income has decreased so slightly. If I take that out, then the actual increase in margin is 150 bps. So that increase in gross profit, which I'll talk through the key drivers has dropped through to the bottom line as we leverage our costs and everything going forward. If we go on to the next page, please, Hannah, we've got a bridge showing the key drivers of our movement in margin year-on-year. And you can see there the gross profit is the big driver, the big increase as to why we've increased our profitability and that margin of the year. We have continued to leverage all of our costs. We've spent quite a bit of time making sure that we consolidate all of our cost base. We've made sure we bought all of our support staff. Most of those now sit centrally and we work very much on a centralized basis. When we acquire businesses, they all come on to our systems, and we save an awful lot of money on the support staff function because we can bring it on to our systems and get it serviced by our internal finance teams, IT teams, marketing teams, HR teams. So we save money. So we start to leverage those costs. Our operating charges during the year have gone up by a couple of percentage points as we've enhanced that margin going forward. Question I always get asked is where do I see this margin going forward? We've increased it at 17.3% there. I would say prudently, I would forecast it at around about that sort of level. If we were to stop growing the business, if we were to stop acquiring and recruiting, then that margin, we could increase at a much faster level. However, when we do acquire, it takes us a while to get all of the synergy savings out. We make a lot of the savings early on, but we don't maximize all synergy savings immediately. And also, as we recruit, that has a drag on your margin as well because as you recruit, you're obviously paying from day 1, but it can take up to 6 months on average for those fee earners to be generating the margin that we'd be expecting them to be. So as a growing business, I'm always conscious that we're not going to maximize that margin that we're going to achieve. So that sort of level is a sensible level to look at going forward. Going on to the next slide, please. And these are the key KPIs, which we look at as a business. And you can see there the improvements in our gross profit margin and our increased fees per fee earner, which is, if you exclude the reduction in the organic fee earners are all showing positive moves, which is -- which will generate organic growth once that fee earner movement and the churn reduces. And we've seen that starting to reduce. So there, you can see the increase in the fees per fee earner and then the gross profit margin as we focused on premium, et cetera, improving. So a really pleasing performance in all of our KPIs. And like I say, as we now see that churn level dropping, that gives us confidence that over the future, we should start to deliver organic growth. We go over on to the next slide, please, Hannah. Summary cash flows, there's not an awful lot to pick up here. We continue to be very cash generative. We generate cash very well. It's because we have a central management team, our client service directors who look after all of our offices manage all of our offices on a day-to-day basis. They are very much focused on cash conversion and making sure that people build their WIP and collect their debtors on a regular basis. And that year after year means that we're very cash generative. And if we go on to the next slide, it actually shows the key KPI that we look at here, which is our lockup days. So just again, just to recap on this, it's essentially the length of time it takes for units of time being spent on a job to being billed, which is our WIP days and then the amount of time that it takes for that bill to be collected in cash in our bank, which has our debtor days, add the 2 together and we get our lockup date. And you can see there consistently year-on-year, they average the sort of mid-80s level at the year-end, which is significantly ahead of where the rest of the industry is. And if we look at debtor days in particular, you can see that we're averaging 30, 31 days. 31 days at the end of April '25 compared to an average of 124 days for the top 100 firms, showing that we're significantly different. And that's part of the culture that David talked about, the centralized culture that we have. Just as an actual example of what's out there and how we actually improve things. On the right-hand side of that slide, you can see the acquisitions that we've done over the past 3 years, the lockup that they have in their balance sheets as we acquire them. You can see that, that average is up towards 200 days when we acquired those. And then we work with those businesses as they complete and they come on to our systems and our client service directors go in and they manage those businesses, we work with them to reduce their lockup. So essentially getting cash out of their balance sheet. None of this is rocket science, it's not difficult. We just go in and make sure that people are billing on a regular basis. And then we are phoning up clients and collecting the cash. If something becomes overdue, we have 30 days terms straight if something becomes overdue, we go in and we collect the cash. It gets too old, we will start work and not do any further work until that amount is paid. And you can see the success that we have. It's just normal business practices, something different than an awful lot of -- every other business wouldn't do out there. But in law, it is quite different from what is going on. Just to highlight the acquisition at the bottom, IBB Law, it hasn't moved from when we acquired it to when we completed it because we actually only completed during April '25. So that is an opportunity for us during the next financial year to get some cash out of that balance sheet, which will help generate the strong cash conversion that we do. Going over on to the next slide, the net debt bridge. I won't pick up on every item here, but just to tell you, it's obviously increased over the period. The main reason it's increased despite us generating the strong operating cash flows is because of consideration that we've paid for acquisitions. We paid just over GBP 25 million for the acquisitions that we completed in the year, which is Thursfields and IBB and then we've paid another GBP 5 million just over in relation to deferred and contingent consideration payments for acquisitions completed in prior years. We've then paid obviously some non-underlying costs, which are the integration costs, it will be the redundancy, the restructuring of the support staff as they come on and our transaction costs in relation to those acquisitions. We continue to pay a dividend. Our dividend policy is that we'll pay 20% of our profit after tax in dividends. That balances our capital allocation so that we're rewarding shareholders with equally retaining money in the business so that we can invest in the future growth of the business. We have started to buy -- to do a buyback of our own shares during the year, not on a significant scale, but from the 1st of November, we're doing a purchase into an employee benefit trust of GBP 100,000 shares a year, which we can then use to satisfy some of our share options that we have in the business going forward. CapEx there was high this year. Our CapEx is higher than normal. The normalized rate is around about GBP 6 million. Part of that expenditure, the main reason for that increased expenditure is in relation to the refurbishment of our Stoke Hub, which is where we're sitting today. And that, we believe, has been a real key feature of why we think churn is coming down, why we've generated a really strong employee Net Promoter Score of plus 59 in the second half year, which David will talk through as well. And it's really important to us that when people come into the business, we want people to focus on the delivery of premium services, they need to be in premium offices in order to do that. So we refurbish all of our offices as we acquire over a period of time, they need to everywhere is refurbished to a really high standard. And we've done an unusually large job in this last financial year of refurbishing the Stoke Hub. But that has become a very central place for our integration and coordination and creating the culture that we want to have going forward. So that takes us all at the year-end to just under GBP 65 million of debt. We do have available to us an RCF facility of GBP 100 million. We have 3 very supportive banks that support us. We increased our facility during the year by taking the option of an accordion that we had, so we increased from GBP 70 million to GBP 100 million and also extended our facility out for another year. So we have facility, that facility in place until November '27. In terms of leverage at the year-end, we're just under 1.6x. Our banking facilities actually allow us to go up to 2.5x. In terms of where we feel comfortable with that being, we sort of would feel comfortable of it being somewhere between 1.2x, 1.3x, up to maybe if we've just done an acquisition, maybe up to 1.7x, 1.8x on the basis that we would then know that we will get cash out of the balance sheet, and we are very cash generative, and we'll pay that down. But in terms of our firepower and our ability to carry on going forward acquiring the businesses that we want to that we have the RCF facilities there. We continue to be cash generative. And so we have funds available to be able to fund our future growth strategy, which David will now talk through.

Thanks, Kate. Okay. On this slide, just a couple of things I want to focus on. First of all, the sort of strategy hasn't changed for 13 years and isn't going to change for the next decade. We're focused on all of the regional areas that's excluding London. So England and Wales at the moment is our focus. Ultimately, Scotland in probably 2 or 3 years' time, we think will become our focus and possibly Northern Ireland and maybe Dublin. But England, Wales for the time being. And the regional locations give a fantastic opportunity for our larger national business because we only have small law firms to compete with. The other sort of top 50 law firms, if I look at that segment, we're 40th in that list of 50. They're all focused on London and international. And if they're in the regions, it's in Manchester and Leeds, but it's not in all of the other provincial and regional locations. So we're bringing the best quality and scale resource for professional services to the business and private wealth communities. We're now in 32 locations, up from the 6 we had at IPO 7 years ago. The Net Promoter Score, which Kate mentioned, plus 59, this is exceptional. We -- a very good score, an excellent score is in the plus 30s. We started when we're doing this survey from when we listed, we saw the mid-high plus 30s. That's an excellent score. That went down into the plus 20s and last year, plus 15. I think that was through the interruption of COVID and more people joining who haven't met us and we haven't engaged with to the extent that we've just engaged with over the last 12 months and certainly using the Stoke Hub, which we've invested heavily in. We've now seen about 800 of the 1,300 fee earners that we currently have in the business, they've all come through the hub this year. This is the people who have been acquired, the people who have been hired, the new starters, all the partners and senior associates no matter how long they've been in the business, have all come through the Stoke Hub to do workshops to meet themself and to work with the leadership team. And I think that's a fundamental reason why we scored so heavily at plus 59. It really is off the scale and an exceptional score to reveal very high morale. But I think the more important KPI, I think it's the most important KPI of all in professional services, be honest, is the churn, how many people are leaving. And you do have regretted churn and non-regretted churn, but let's just keep it simple and look at the total number. And over the 4 years prior to now that churn rate has gone too high. It's gone to 15% that Kate mentioned. Before those 4 years, it was running at 8%. It feels now the second half of this year being reported got to 10% we're currently running at that rate now, if not slightly lower. That's a normal rate. And that's really important because it means now we're going to start -- this is excluding acquisitions. We're going to start recruiting more fee earners than we're losing. So the net number of fee earners is now going to go up, whereas in the last 4 years, the net number of fee earners has been going down because more people have been leaving than we've been acquiring. So that churn rate is, I think, the most important KPI for organic growth. And our organic growth is very important for 2 reasons. It's very important to us. It's very important to investors. But the investors need to see the underlying business is performing, absolutely correct. And that's the one thing that we've not been doing in the last 3 or 4 years, but we feel now because of the engagement and the high morale and we've dealt with less premium areas that Kate mentioned of volume, debt recovery, volume insolvency, volume and poor residential property conveyance where we don't want to be in that sort of middle ground of high street or regional. We want to be the absolute best for corporate clients and private wealth clients. We see that as the future where things like online solutions won't really affect wealthy clients and corporate clients that want proper professional advice. And that's our journey. That's our vision to be that provider throughout the regions. And we've seen 13 years of track record to give us all the confidence in the world that this has got such a long runway ahead of it now for the next decade. In doing that, we have had to cut various areas out. But that's behind us now, and we can, I think, really see more people joining and leaving organic growth returning. That's going to, I think, give people the confidence to invest in Knights. But it's also important from a commercial perspective because that's where our salary reviews and increases come from. Our salary increases don't come from acquired revenues. They come from underlying revenue performing more and improving and increasing. So it's really important for the health of the business. And we know that. And I think we're in a very healthy place now going forward. Just on the bottom right there, it reveals the growth. This is from The Lawyer, which is the leading publication for the legal sector, and they published about 4 or 5 months ago, Knights being the fastest growing over the last decade from 2014 to '24 compared to the other fast-growing businesses. You can see there that we're an outlier in growth. Also just before I move on from this slide, going back to Kate's reference to the debtor days. The average in the top 50 law firms or top 100 is the same. They average 75 days to collect their invoices. We're averaging 31 at year-end. We're always around 30. We're 45 days faster than law firms. Why? Nothing to do with the nature of clients or nature of business. It's all to do with mindset and the fact that we're owner managed. It goes right back to what I said at the beginning. We have got all of our 1,350 fee earners being coached and trained on how to do business, how to price and how to collect cash. I brought that discipline from my private equity days of how we make profits and how we collect cash. It's crucial that we retain a discipline and market-leading position on cash generation because that's the health of the business. It helps us invest in the business, and it certainly helps us invest in the growth. You can't be fast growing like we are if you're not excellent at cash generation. Otherwise, you just have to end up funding more and more on your working capital. We don't have that problem because of the discipline that we've brought to law that doesn't exist in any other law firm out there. Thank you, Hannah. Next slide, please. Just showing the map of where we are and where we want to go next through acquisition, but possibly also through some organic office openings. So we're in the blue at the moment. The 32 locations are all in those blue areas. And the orange areas are where we want to fill, which excludes London. We don't want to go into London. So the orange areas, East Anglia, particularly, we've now just -- we now exist in Charleston and Colchester in Essex. The Colchester positions us really neatly to go into Ipswich and Norwich and Cambridge, so we can expand hopefully into those areas, coming across into Peterborough, Milton Keynes and dropping into, say, St. Albans and Watford north of London to complete the clock around the M25. So that's a big area of probably 5, 6, 7 locations, a bit more on the South Coast in Bournemouth and Southampton we want to do to connect our Brighton and Portsmouth office to Exeter. And then in the Southwest, we've now just opened our first organic office in Cardiff. And I'm amazed at what's going on in Cardiff. We -- for the last 6 months, we've hired 13 partners and another 12 lawyers, so 25 in total, and we haven't even existed in Cardiff until 2 weeks ago. On the back of those 25 hires, we've then now gone into some temporary offices until we can find the grade A which we're looking at to fit out and create a high premium office like all our others. And I think the fact we've been able to hire 25 professionals without even existing in a city like Cardiff shows the national profile and reputation that we're gaining now. We've would never been able to do that a year or 2 ago. People would have thought, well, we're not going to join a firm that doesn't exist in our hometown, but 25 have decided to do so. So really interesting, I think, to see that happening in recent months and a lot of the organic growth opportunity for us in Cardiff now, which is a perfect location for us to bring a sort of fresh approach to professional services through our unique owner-managed and collaborative culture business that we have. Next slide, please. [indiscernible] Things get lots on this slide, but really just talking about the recruitment on the left-hand side and the acquisitions on the right-hand side, I'll let you absorb the wording later if you want to read it. But just to summarize what we're saying here, we attract people from law as individual hires. And there's a strong push factor away from law, and that is less people now, significantly less people want to invest GBP 250,000 is the average capital account that you have to put into an LLP partnership law firm, which they all are. They have to borrow that money from the bank. The cost of that borrowing has obviously gone up to probably about 7% now, 2% or 3% above margin above base. And they don't want to go and do that like they used to when I was qualifying in 1990, just to earn more money. They want to earn more money, but they don't want to invest GBP 250,000 and achieve equity partner status in the regions. This has really gone off a cliff, and that pushes them away into 2 places. More people go into in-house with corporates, not law, but they're going to in-house general counsel into a company or now they can choose us. And so we're there as an alternative to the general counsel going in-house. If they want to stay in law, but they don't want partnership, but they want to earn more money and they're entitled to more money through all their sort of revenue and where they're going with clients, then they can come to us, earn more money, but not have to put any money into our business. And that's a real push towards us. I think the pull from that is what I was saying about Cardiff, that the national position that we've now achieved 13 years in is now attracting more people and it's better known. We're often within half an hour where somebody lives in our 32 locations. That will go to probably 45, 50 locations in the next 2 or 3 years. So we'll be very close to a lot of people where they live, and they like the fact they can have a very small journey into work, then get into the offices. We have real high attendance in our offices. We've never had a hybrid policy. A team culture requires people to be together a lot. People starting their careers out of universities, paralegal training need to be sat next to experienced people to learn through osmosis. And we've got a really healthy, strong position there with our occupancy of offices. So we invest in them heavily for that reason and people live close to where they work, they enjoy that. And people know about it more now. So it's attracting more people. So we're going to hire -- last year, we hired 51 senior hires partners. This year, we see that number being at least 80 partner hires. So it's really gaining momentum and they bring all their clients to us. It's a relationship model in the regions. Clients follow people rather than brand of law firm. So we can really build our revenues through acquiring partners who've got a long history with their clients, and they want to come out of the partnership model away from the financial risk and join a real thriving successful business that they can then continue their career and have the benefits of all the team, culturally, the enjoyment that brings, but also the expertise that, that gives them access to, to service their clients successfully. They really like that. On the right-hand side, we're talking about acquisitions here. And just a couple of minutes on what's happening in the sector, which is I think is really interesting. So about 7 years ago, private equity started to look seriously accountancy. And it took a good 2 years, 3 years for them to, I think, work accountancy at. And then 4 or 5 years ago, they really started to motor. And there's now 29 private equity owners of accountancy practices, which has really grown in the last 3 or 4 years. The multiples that they're paying for those businesses has significantly increased as well. It's doubled from 6x or 7x EBITDA 4 years ago to now 15x when Grant Thornton, for example, got acquired a few months ago. So it's really overheated as a sort of sector for private equity. So what's happened in the last 2 or 3 years is private equity has swung its attention over to legal services, which they see as similar. I don't think it's identical by any stretch, but it's certainly got some real similarities to accountancy, obviously, as a professional service segment and sector. And you're starting to see some activity. There's still more conversations than activity. I think we're still trying to work it out. There's probably about 30, I would say, private equity houses looking seriously at law. There's now been about 6 who've come in compared to the 29 that are in accountancy. So it's taken off. And at the moment, this is really good news for us for 2 reasons. We were in this 13 years ago doing this. So we've got a sort of real early mover advantage on Peak because we've learned a lot and done 28 acquisitions, and they're now trying to find their way in the sector. So I think we've got that scale and platform that we've been able to build while nobody else has been sort of looking at this deregulated sector for 13 years. Now they're coming in, there's 2 benefits for us. Firstly, they're really warming up the understanding in law firms about the corporatized model. For 13 years, I've had to do a lot of explaining how a normal owner-managed business works that we are compared to the, I think, more strange model that was designed in 1890 of a partnership model, but owner all only knows partnerships. So it obviously isn't really understood how owner managed would work in a legal sector where it's all partnership. And I've had to do -- we've had to do that on our own for the whole 13 years. But in the last couple of years and certainly this year, I've really seen a change in this momentum, private equity are doing a lot of that talking for us as well. They're talking to partnerships about how they could come in and invest capital and bring that corporatized model to a partnership world. That's helping us because we get law firms calling us now saying, "I'm talking to Peak, can we come and talk to you as well because we've seen you've done this for a long time". I've never had law firms calling us before this year. we also get a much warmer reception when we call our firms that we like the look of to expand the footprint that I've explained on the map. So it's changed. The whole sort of reception and mood and understanding is changing about the corporatized model that we've been trying to explain to people for 13 years. I think the second thing there's a real help at the moment on valuation. I see this has been a temporary situation, but it's still a very positive one at the moment is private equity coming in and trying to buy these businesses for 5x or 6x EBITDA. I think that will change if it follows accountancy in the same way. But at the moment, they're sort of coming in at a fairly low 5x or 6x level. We listed Knights, by the way, for 14x EBITDA in 2018. So private equity is trying to buy them for 5x or 6x. We've got a great valuation advantage and opportunity at the moment because on headline, we pay more than that around sort of 8x EBITDA for a business. But when we're taking all the synergy cost savings out day 1 from having -- from taking out all the finance, IT, HR and all the other support services that we have in our platform. We don't need any of those costs in acquired law firms, then our entry multiple comes down below 5. So we look like we're paying more in private equity than we are to the sellers. But actually, with all of our synergy cost savings that private equity doesn't have, then we're still getting it at a really good multiple of, say, about 4.5x on average. So we can -- once private equity gets into a conversation, then we can easily outdo them on valuation at the moment. As this overheats, if it does overheat like you can see, that will change, and that will be a different scenario for us and probably slow down acquisitions in 3 or 4 years' time. But at the moment, I think we've got a really sweet spot where acquisitions have become easier to us for those reasons of what private equity is doing to help us. Next slide, please. Quick one here just on Southeast. We weren't in the Southeast in 2020. We didn't have anybody around London. And then 5 years later and certainly these last 2 years, we've tripled revenues from GBP 20 million to this year with sort of consensus is around GBP 57 million, and that's through acquisitions around '25. And it just shows, I think, how fast we can move from going from when we don't exist to suddenly having a significant business in the Southeast. Now we're definitely known in the Southeast. It's a fantastic area for us because of the wealth of private clients and all of the business that's down there, Reading, particularly where we've just gone into in April, Reading is the largest economic center outside London. That's fantastic for us to grow. We've already started to see organic growth in Reading through hiring about half a dozen partners that have joined us in Reading. So quite an exciting area. There's more to come in the Southeast. I just thought it was worth pointing out and highlighting. Thanks, Hannah. Next slide. A quick one here just on culture. We've talked about the culture about the engagement, which we've seen in the last 12 months. Zuher Makri actually, who is in our Beaconsfield office as a senior associate, he came and presented to 14 new starters on one of our welcome days, which we have on the first Monday of every month when all our new people come and see us and meet us. And it's the team. If you read that later, you'll just -- and if you read anything on LinkedIn about Knights, you see one team. Knights one team and people love the collaboration. And just an example then, the Net Promoter Score comes from that type of mood and morale and reduces the churn, which we've talked about. Thanks, Hannah. Quick one here on sort of a quick summary really as I've come to an end before questions. We're absolutely focused on organic growth. We know the market wants that to deliver, but we want to deliver it anyway for the health and well-being of our office and to keep increasing the salaries for our people it's crucial. You've heard a lot about the integration of acquisitions. Certainly, the 4 we've done this calendar year through March to August have really integrated superbly well. The team is now established and mature how we onboard people and how we integrate. And to integrate, say, 100 lawyers in an acquisition on day 1 where they come off their old IT system onto our IT system day 1. We've done that 28 times out of 28. The name goes, their offices are rebranded on the first morning. They're employed by Knights. We start helping them on pricing and commercial skills, which law doesn't give them. That's the strong pricing discipline we referred to. And they really enjoy the experience of working in a proper business where they're being coached to help them how they deal with clients, but they feel very much part of the Knights business and they put the Knights T-shirt on, and we've become -- we excel in how we integrate in that way so quickly. I've talked about the footprint and expansion. The centralized business functions largely from Stoke, but we've got other teams and dotted around in a few other areas. We have a very centralized business service function with decentralized client services in the 32 locations supported by 15 client service directors to really carry the culture of collaboration and strong commercial and pricing and cash generation. Our market-leading fee earner to non-fee ratio is worth pointing out. The average in law today, if I look at the top 100 firms is 1.5 fee earner to 1 fee earner. As you come below the top 100 to regional law, you often see 1 fee earner to 1 non-fee earner. So very highly geared operationally. We actually have just gone through 4, 4.3 fee earner to 1 fee earner. So you can see that we manage a very lean business service platform, which makes it more profitable, which is why we're more profitable than peers because we run a very lean operation. Next slide, please. A quick one on tech coming up here. Everybody wants to talk about AI rightly. We brought -- I'm really pleased. We had a gap in our management team, and we've managed to fill it in this calendar year in June, a new Chief Technology Officer, John Earl, came out of one of the leading banks where we've been there for 20-plus years and a real -- is fitted in brilliantly. He has a real sort of clear strategy for technology, automation and AI. The immediate things which we're working on is we've done brilliantly on integrating acquisitions I've been talking about, but there is still work to do under the bonnet on how we look at all the millions, tens of millions of documents, which we have in our IT system from all the acquisitions, and that needs data science analysis and cleansing, which John is leading. I mean having to really refine the data in our business to make sure that's all been fully integrated and organized so that we can point technology and AI at it. We're launching automation all the time. We've just literally on 1st October, launching a new launchpad, which speeds up how solicitors and fee earners can onboard clients into our IT system. We run one IT system, which makes it very simple to manage 1,700 people. Everything is just on one system. It's a very simple focus on how we run business. We think simplicity. We can move people quickly on how to improve using technology and efficiencies, and we're just doing that with an onboarding launchpad app that's being layered over our IT system. Further down the line in the next 12 months, we want to complete the data analysis and cleansing and then we want to start using AI. We've got Copilot ready with the document management system, which we acquired 6, 7 months ago. There's no CapEx needed for this because we've already got it bought and ready to go. and we've been piloting it. Next summer, we'll be using more AI and Copilot to document review and document management. That's coming up next year. We've got to get our data in order before we point things like Copilot at it. So that gives you a quick flavor on I think technology and automation and AI, really important themes for us. Final slide here, and I'd point to the strong profitability, first of all. We've always, as Kate said, looked at a strong profitable gross margin, 50% and the net margins you've seen at PBT level, 17%, looking to maintain strong profitability. Cash generation is absolutely fundamental. And then we can do acquisitions and that all leads to recruitment and expanded recruitment, particularly with the national scale, reputation and good buy. And then that leads then to a really important thing that we've got to see come back now, and that's organic growth. And we really believe that will help the rating, and it will help the actual strength and health of our business, too, as I've said. So with that, I have touched on all of those points. We'll go straight to Q&A, please, Hannah, to give some time for questions.

Let me pull up the questions. Right. Here we go. Despite your very impressive income and underlying profit growth, the share price hasn't moved in the last 5 years very much. From your conversations with institutional investors, why do you think the wider interest is not forthcoming? Are the high and ongoing exceptional costs putting off new investors?

I don't know what is being referred to by higher exceptional costs. Okay, the exceptional -- yes. I think that is a really good point on exceptional items. I think you have to -- and institutions have sometimes sort of struggled somewhat with this. When you're an acquisitive business consolidating a sector of 300 law firms as we're doing, you have to sort of get under the surface and under the bonnet to understand how the accounting of this is working to get -- understand the underlying position and the actual profitability and how the exceptional cost works there. And I think that's just explanation from it all makes sense. It's all not that complicated. But when you're acquiring businesses, that's just a key feature of how it goes. So when you're paying for them on a deferred basis, the 35% of consideration being paid. So if we're buying a law firm for GBP 10 million, GBP 3.5 million of that will be spread over 3 years, and you've seen that all the time in the accounting. That's not an actual P&L cost. That's an acquisitive exceptional cost, and therefore, it's all in the numbers. I think the point about the share price is obviously a really important point, and we're asking the same question, to be honest with you, our brokers and now of institutions. But there are 2 key factors to sort of obviously bear in mind, which are pretty obvious, but worth just putting out there now. I think you've got to remember, there's been 49 months of redemptions in the stock market -- in the U.K. stock market. So we've had 49 months of money leaving the market. So we've seen -- it's been a real surreal period. When we listed a GBP 35 million revenue business in 2018, we couldn't -- we were meeting all institutions. We have 12 of them on the register. It all seemed really straightforward how to get the top quality institutions onto the register and life was great. If you ask me 2 years in, what's really a listed law firm like, I go it's absolutely amazing. It's wonderful. And then the next 4.5 years have been awful. And the market really vanished and small caps really suffered there. So that's the first point. We also have not helped that situation by having flat organic growth in the 4 years that we've explained. So we went from very healthy organic growth to flat organic growth. And there's lots of reasons. And we -- having had the benefit now of 13 years seeing those 2 halves, if you like, of 8 years of organic growth and then 4 years of flat organic growth, we really understand it. And it's absolutely is on us to deliver organic growth. And we know that we believe that if we do that, we will like the touch pay paper of this now starting to re-rate. And that's what we're hearing. And I think this road show this week with institutions is showing us a different mood. I think for 2 reasons, I think we are -- they can feel and hopefully, you can say that our confidence is building because of the engagement with all of our people because we've got all the revenues at the right premium level that we're ready to start to, I think, now demonstrate organic growth. That's what we need to do. That's in our in our responsibility. I think as we're doing that, the hope is that the market will, at some point, start to return. It can't carry on the net redemptions. Now at 36 months, I has been told by plenty of people more experienced than me in this stock market that, that won't carry on much beyond 36 and it's gone on for another 13. I think at some point, it will stop. It will reverse. Money will -- you've seen some very, very early shoots of recovery in large cap, I think, to give some -- a little bit of hope there. So my hope -- and I am an optimistic person, my hope is that in 12 months' time, we deliver some nice sort of mid-single organic -- single-digit organic growth a couple of times, the market starts to return, money starts to find its way to small cap, this could start to go the other way. And in a thinly capitalized world that the small cap world is I think that can change things quickly, too. It won't take a huge amount of money to start to see it shift. So while we're doing that, we're broadening our focus as well to communities -- investment communities like yourselves here. And we want to talk to more people. We are very confident about our business. You can probably tell that, but we need the market to return hopefully, and we need to do our part in delivering organic growth. And then I think we should see hopefully changes to the share price going forward. We reached GBP 5 18 months in and a market cap of GBP 400 million and a rating of about 22x EBITDA, which was getting overheated, but we listed at 14x. We got to 22x. Today, we're sitting here at 4.5x. It feels all a bit crazy. But we explained where we are as a business and now we hope the market starts to see it. We're not the only one, by the way. I think there's a few hundred companies just like us. So I don't feel like we're being picked on. I just feel like we're in a weird world at the moment.

Let's focus on some of the positives there. Obviously, you've talked there on organic growth and lots of the positive indicators you've highlighted throughout the presentation. Obviously, in our note, we forecast 5% organic growth. This investor asks, given we're almost 5 months through full year '26, how confident are you of getting back to this quantum of organic growth this year, but also in the medium term?

If we're saying 5%, then we're confident. So 5% organic growth, which equity development views, our own analyst has used then to answer the question very simply and not be politician-like about it, then we are confident about 5% organic growth.

Excellent. You touched on your fantastic employer Net Promoter Score. What about your client Net Promoter Score?

Do you know the number, Kate? That wasn't in the presentation. It's high, isn't it?

It is high. It's in the 20s or 30s. I can't remember the exact number now. I won't say about 30, but it will be in the annual report. I can't remember the exact figure.

We do it with clients to the top 250 by revenue. That is something that we should be actually putting out there. I don't know why we haven't put that out there today.

Perhaps you can share it with me and I can go back to the individual, that would be great. Can you describe the current pricing environment and how much pricing you've been able to implement since the start of the financial year?

So we do something really, I think, simple but clever with pricing. And I've never seen a law firm because they're not owner money, it's not organized, it's siloed between competing partners, they never get near this. So at 1 May, a partnership would be scrambling thinking, do we change our hourly rates, don't we? We don't do anything like that. On the 1st November, we announced -- so this 1st November, we'll be announcing how our hourly rates are going to increase on the 1st of May 6 months later. And the reason this is clever is that it gets all our people just knowing about it and feeling comfortable with those hourly rate increases. But more importantly, it goes in all the engagement letters so that all the clients have seen it for 6 months. So on the 1st of May, we just have to switch the new hourly rates on in the IT system for 1,300 people, and they don't have to have a conversation with anybody. So it's totally compliant because you've told your clients how you increase rates have gone up. And the quantum of that is typically about 4%. It was 4% this 1st May. So our hourly rate price increase was 4%, and that pretty much matched the salary increases. So you're seeing a matching of price increases. The capability of doing that going forward, very straightforward. We are about 30% more expensive than the small regional independent firm doing, say, GBP 5 million, GBP 10 million. You'd expect that with all of our quality and capacity and expertise and breadth of expertise and the quality of the business and the support that we give clients and colleague. And we're about the same 30%, 40% lower than the top 50 law firms that operate in the regions. So we sit in a sort of our own pricing point between independents and between the large regional or large national businesses, international businesses that do sort of come into be in Manchester, Leeds to say we have our own sort of -- and our pricing -- the clients have no issue with the -- we get no client pushback on price increases. We could put the pricing up more with clients and have that pushback. Obviously, well, why don't you do that? The answer is the challenge isn't the clients. It's the mindset of our people who then feel shy of passing those increases on if you push them to. You have to stretch your people in a certain way. The clients aren't the issue, our people are. In the regions, it's quite different to the U.S. and London firms. They don't want to charge their clients more and more and more. You have to really take them on a pricing journey. That's why we do so much coaching on it to get them to charge those numbers. So a sensible 4%, 5% increase is very doable every year with the clients and with our people.

Thank you. What specific lessons did you take from last year's high churn? And how have these contributed to the improvement in churn this year?

Engagement. Seeing I think engagement, and I'll give an example of what I mean by that with new starters. So we're having on average about 30 new starters across client service and business services every month, so 360 people. And we see those 30 on the Monday. We gather them all and get them to start on the first Monday of a month. And the first person they see as they walk through the Stoke, so they come on a Sunday night and stay in a hotel before if they're further afield, and we see every one of them in person. And the first person they meet is myself on a Monday morning, I spend 4 hours with them talking to them like this and then they get a warm welcome and then they see other leadership team. And we don't -- before, it was remote. It was over Zoom or Teams. They were being given a computer. Here's the IT system, very dry. And we've changed all that 12 months ago. And I think it's transformed the first impression, it's transformed their entry in, and I think it set alight the retention and the low churn. I think that's what we've learned by trying to do it. We were doing so much remotely becauseof COVID, and we've scrapped all that, everything is in person now.

Okay. And how is churn at Thursfields and IBB compared then with previous acquisitions?

Much lower. I'll give an example there. We've talked about this with various investors. IBB has 140 fee earners when we came to buy it. And we normally see about 5% not signed between exchange and completion. So the announcement of exchange, we then consult on the 2P to get them employed at completion. You normally see 5% drop out. They don't want to work for a large business. We had 140 out of 140 signs on completion. We were really wowed by that. We had 100% of the fee earners signed with us at completion. And it was very similar with the 90 that were in Essex, I think 89 signed with us. So out of 230 fee earners across those 2 acquisitions, 229 signed with us at completion, which I think is a transformational number for us between exchange and completion.

Okay. Conscious of time, we've got a couple of questions on capital allocation. Essentially, buybacks are really attractive at the current valuation and also buybacks versus the multiples that you're having to pay for acquisition, are buybacks not a better use of cash at this point?

Well, no, because we want to grow the business, we want to take the opportunities that are available. Now we are doing some buybacks. So we're committing GBP 1.2 million to do that. It's not big, but it's something we're taking advantage of the price as it is now, but we want to grow the business while this opportunity is here and available now. So we're trying to balance all of that. We're continuing to pay a dividend. We're doing some buybacks, but we equally want to be able to invest in recruitment and in acquisitive growth.

Okay. And obviously, you talked about the opportunities regarding recruitment. As they present themselves and you take them up for the benefits of growth, will that hit this promised organic growth?

It fuels it. So absolutely. So recruitment...

I think it's a reference to the lag, isn't it, that when you recruit, obviously, the numbers don't come through for...

Yes. So there's a 6-month on average lag. So the recruits that we've recruited in FY '25 will be driving organic growth into FY '26. When we recruit more in FY '26, you'll get some of that, but the majority of that impact will be driving organic growth in FY '27. There is always a lag. We do always budget for that and expect that to come through. But if you look at the second half of FY '25 with the reduced churn and the increased recruitment, that is what is driving organic growth in FY '26.

Wonderful. Well, that just leaves me -- we've done the hour. So thank you both for your time this morning, for our audience for joining, and we look forward to hearing an update in another 6 months' time.

Pleasure. Good to see you. Thank you, everyone. Bye for now.