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 Knights plc, who announced their half year results on Monday. If you haven't seen it already, we've published an updated note with an updated fair value, and that is on our website, if you haven't seen this already. But the purpose of today is to hear from the management team and talk through the results presentation with an opportunity for Q&A at the end. As ever, feel free to submit questions as we go through the presentation. But for now, I will hand over to David Beech, CEO.

Thanks, Hannah, and good morning, everyone. Good to see you all. I'll just do a few minutes to set the scene as to Knights, where we've got to, brief history and where we are. Then I'll do the half year, and then I'll hand over to Kate to go into more detail on the numbers. So a reminder really for those who it before or just to set the scene for those who are new to looking at Knights, we law deregulated in England and Wales in January 2012, so exactly 14 years ago. And we were the first in commercial and private wealth law firms to embrace that in June 12. So straightaway, post deregulation, [indiscernible] bought a law firm to corporatize the model. And what we mean by that is to separate the ownership and management away from the partners, letting the partners be employed to do what they're really good at, and that's lowering and then bring investors in to invest in the business and management team in to manage the business in a typical owner-managed way. And we did it 14 years ago. In the last 2 years, there's definitely interest in private equity looking to copy that and do similar. But obviously, we've got 14 years now of history and growth before us. We started when we bought the first firm, law firm, it was GBP 9 million revenue. And obviously, today, now we're over GBP 200 million. It's really worked. It's working. It's really showed how you can employ today 1,350 lawyers, fee earners, we call them, professionals that earn fees by doing client work. All of the people employed. We have none of those partnership issues to deal with. And the issue with partnership, the big issues are that it's very silo because self-employed people do things in their own way, not in a collective cohesive way as a normal business. So they operate very much individually silo. We don't. We've had 14 years of really showing a team culture and ethos, so we can get everybody working to a consistent and disciplined style business-wise, and that's what we brought, and we brought a lot of discipline to professional services by owning and managing a law firm and a legal service business that's now grown to where we are today. The other thing that the big difference between us and the traditional partnership law firm is because every silo earning fees, they're very concerned and worried and insecure about the clients and the fees that the client is generating. So they don't challenge the clients or think about charging the right amount to make the right margin or get paid quickly enough to generate the right cash, whereas for 14 years, we've worked to very clear margins, and we can talk about those. You'll see those in this presentation. And we work to a very clear discipline about generating cash, and I always highlight our debtor days, the amount of time it takes to collect our invoices is always around 30 at half year, 32. Average in the top 100 law firms, the very biggest law firms, takes 75. And you do see some law firms taking longer than 100 days to collect their invoices. And the reason for that difference is nothing to do with clients or London or regional or any nature of work. It's that lawyers are worried to ask their clients to pay because they don't want to upset them and disrupt the fees. They're worried that they might lose the client or the fees. So they let the client take as long as they want to pay the invoices. We don't. We insist our clients pay us within 30 days. And if they don't, we stop acting for them. There's a very clear data point to show the massive difference between an owner-managed business like ourselves that's unique in the legal service sector where all the other businesses, our traditional partnerships with that silo individual mentality, not wanting to upset a client. So that's the scene, that's the opportunity. We feel that we're really coming into our own now with this private equity interest that's come in has really helped us, to be honest with you. It's warmed up the whole sector. We're looking at 300 law firms in the regions that do a mixture of commercial and private client work. And it's warmed up that environment and the sector for us to embrace corporatization and more partnerships now are thinking of separating ownership and management like we did 14 years ago. So that's a quick sort of review of the history of Knights and where we are today. The half year that we talk about, I think the key thing that we've been focused on that certainly investors want us to focus on and we do ourselves is our underlying organic growth and there's -- we've had in our history of 14 years, we had almost a decade of showing 10% organic revenue growth with churn below about 8%, 9% of churn. These are people that leave our business. There's always positive natural churn, people retiring or people that just aren't of the right quality to be at Knight. So you're always going to see 8%, 9%. And we had that for nearly a decade and a low churn means organic revenue growth of 10%. We then had 4 accounting periods, '21 to '25, where the churn increased to 15%. Acquisitions and COVID affected that and were real clear factors as to why people churn went up from 8% to 15%, which is the average in law, but we want to be better than the average in the regions. And as a consequence of higher 15% people churn, we saw a 0 organic growth. It was very flat. It didn't go negative, but it wasn't where we saw it at 10% revenue growth before. Now what we've seen, and we saw this in the second half of the previous financial year ending 30 April, and we've seen it in the first half of this financial year. So a good sort of last 12 months ending 31 October. We saw 10% last year's second half, and we're seeing 9% people churn in the first half. And that now gives us strong confidence that we're back to that sort of looking to do 10% organic revenue growth. This year, we've guided the market this week and the analysts and the investors that we've done nearly 3% organic revenue growth in this half year ending 31 October, and we're guiding to that going up to that 9%, 10% in the second half to give us a 6% organic revenue growth for the entire 12-month period ending this 30 April. So that's where we're at with our organic revenue growth. We see that carrying on into the next financial year, FY '27 starting on May. We see that churn remaining at that sort of 8%, 9% level, which means that we should be then seeing that organic revenue growth coming through at high single-digit level, which is a very important feature for our business, and it's certainly very important for people that may be interested in investing in our business. So that's where we are with the revenue growth. The cash -- the profit margins, the cash generation, I'll let Kate talk about when we go into a bit more detail on the numbers shortly. On this slide, just zooming out for a second from when we listed. We listed in 2018, we started in 2012. We took 6 years to really prove the model of being an owner-managed business, very different to the rest of the law firm sector, as I've said. And we spent those 6 years getting ready, then we listed in '18. And then zoom out here just to show we came to market as a [35 revenue]. We've now gone over GBP 200 million this year. We were making just shy of GBP 5 million. We're now making GBP 33 million at the PBT level, the adjusted PBT level. I think we have incredible amazing cash generation. We've really got this business in a good place discipline-wise. All our lawyers know that the clients have to pay or we stop acting. And we've got processes systems behind them that make that happen if they get too close to the client. Those results on the bottom left come through there. We're knocking out now GBP 30 million of free cash that we can obviously allocate and deploy into investments, into other law firm acquisitions, CapEx into technology and offices, people and dividend. And then we've got money left to start to reduce the debt facility to give us more headroom as we keep going forward investing. So the cash generation, I think, is absolutely market-leading. And you can see the growth in our fees per fee earner. So I'll now hand over to Kate, and we'll do some numbers on the half year for you.

Good morning. Thank you, and Hannah if we can go on to the next page, please. As David said here, pleasing results for the first half of the year. Really pleased with the figures that we've delivered. You can see there quickly the highlights of what we've delivered 30% revenue growth, increasing profits as well, 12.5% growth in our PBT. And whilst doing that, we've managed to maintain our exceptionally strong lockup days at 95 days due to our continued cash conversion generated over 100%, 122% there. And all of that puts us in a strong net debt position compared to our leverage giving us a strong balance sheet for the year-end. We talk through in more detail on the next slide, some of these pictures, give a bit more color to some of those figures and how we've achieved that. So looking, first of all, at the underlying revenue, you can see there we were at GBP 79.4 million last year. What we split out here is the contribution from the acquisitions that we completed in FY '25. In FY '25, we completed 2 acquisitions, one in the West Midlands in September '24 and then one down in the Thames Valley area right at the end of the financial year. It was our largest acquisition to date. They are fully integrated onto our systems as all acquisitions are on the date of completion, we integrate them onto our systems and are contributing really well as expected to the business and have added an increase of 12 -- just over GBP 12.5 million to the revenue in this half financial year. We've also then completed various acquisitions during the half year to October '25. We've completed the Birkett Long acquisition, which is in the Essex area. We completed that in June. We've completed Rix & Kay, which is in the Kent area and has actually gone into a couple of our existing offices. That's gone into our Kings Hill and Brighton offices and has integrated really well. And then we've also completed a small acquisition in Cardiff [indiscernible], which again has helped to actually boost an organic office, which David will talk about later as part of his talk. So those acquisitions have contributed 27% of the revenue growth during the year, performing really well, all fully integrated onto our systems, and we expect those to continue to contribute well in the second half of the year. And then the pleasing part here is the solid return to organic growth, as David has talked about that GBP 2 million of organic growth equates to around just under 3% of revenue, so 3% organic growth in the period. And the reason for that, the key reasons behind that is the reduction in churn. As David has talked about, one of the key indicators of our organic revenue growth is the number of people that we are employing. So we need to be recruiting more people that we're losing. And then that means that we're going to grow the business organically as they come in. There's also been a little bit of an impact in some of our property-related areas as interest rates have started to fall some areas of the business, so the remortgage and various places that were impacted negatively when mortgage rates and interest rates hit their peak, that started to come back, and we expect to see that starting to return a bit more in the second half of the year. So that's taken us to our GBP 103 million revenue for the full half year, which we're pleased with. We move over on to the next slide, please, Hannah. Summary of our income statement here for the year. We'll talk about some bridges over the next page, which we'll talk through in a little bit more detail. But just to give you a high-level view here in terms of margin, the margin -- it's dropped slightly from where we were at this time last year, and I can talk through the reasons for that, but still a really pleasing margin at circa 16%. That's really pleasing compared to our competitors and where we expect it to be. In terms of the question I always get asked is where do you expect that to go, what will happen in the second half of the year and going forward. The second half of the year, as we said, we're comfortable with market consensus and where they are. And that assumes that we will do around about 16.5% in the second half of the year, which means margin nudging up to around about 17% for the year. One of the key reasons for that is in this half of the year, as I've talked about just when we were talking about revenue, we've done some acquisitions. And we get synergy savings out of those acquisitions. We get quite a lot of synergy savings initially. But then in terms of aligning all of our contracts, all of our IT contracts, our photocoping, et cetera, all of those, some of that will take a while to come through. And so we expect to start to get a little bit of improvement from that going into the second half year. So that factor really should be one of the key factors in helping to nudge that margin going up. In terms of longer term and where we expect that margin to be, I would always talk that as a sort of -- we expect to start leveraging those costs. As we grow organically, we should start to leverage those costs, but in a controlled manner. We always want to make sure as a growth business, but we are always investing in the support structure of the IT that we need to. We don't see that margin coming off increasing, but only, I would say, at a controlled manner so that we can make sure that the business remains well invested in. If we go over to the next slide, please, Hannah, and I can talk through here the PBT bridge. And I think the interesting part on that is actually the table on the right-hand side, which shows you the movement in the margin from this time last year to where we are now. So we've gone from 18.4% to just under 16%. One of the key impacts there is the NII impact. That's impacted our business across the direct fee earners and the support staff by about GBP 1 million in the year, which is about 1% impact on revenue. That's obviously the government putting the NII rates up at the start of the financial year and the impact that, that's had on our cost base. That will start to be absorbed, but it's not all going to be absorbed within the first half of the year. That will take some time for us to work on our margins to improve that going forward. The next item is client interest. We have a line in our P&L, our income statement, which is other income, which is money that we earn on client funds that we hold. So we hold funds for clients, and we can earn interest on that and that interest was quite high as interest rates were at their peak. That is now starting to decline slightly. In absolute terms, the actual amount of interest we've earned in the period has increased as the business has increased and so the amount of monies that we hold has increased. But as a percentage of revenue, as you'd expect, with falling interest rates, that has declined. We expect that and I have budgeted in the forecast that are out there that is budgeted to decline slightly as interest rates fall. I don't think it will ever go away completely, but it is budgeted to decrease as a percentage of our revenue going forward. The next impact on our PBT margin is our RCF interest. As we've done these acquisitions, our net debt has grown as a result of the consideration that we've had to pay. And so we paid slightly more interest as a percentage of revenue on that. The next couple of items then are looking at how we have invested in the business going forward. So I'll jump quickly to the depreciation. You can see depreciation as a percentage of revenue has increased slightly. And that's because we've invested over the last couple of years, and that investment will start to decline as we go forward. But we've invested heavily in our properties. It's really important for us as part of the culture, and David will talk very much about the culture of the business and the one team working together and not having a hybrid policy, encouraging people to work together in the offices. It's really important that we have really good quality space for us to do that to be the premium business that we want to be in. And we've invested quite heavily in CapEx and refurbishing properties over the last 2 or 3 years. And now you're starting to see the impact of that slightly increased depreciation come through. Again, I see that level now. I think we're at a well-invested level. There will still be some more refurbishment that needs to do, but not at the levels we've been doing. And so that should start to leverage as well as we go forward. And then the other area, which everybody is always interested in is investment that we've done in AI and technology. And I'll leave David to talk through later, there's an AI and tech slide, which he'll talk through what we're doing. But we have during the period, invested and taken on enhanced really the facilities that we've already got available. So our library resources, which are what people use to research tools and various things like that, we've enabled, we bought modules, which enable the AI facility within that. And we've also added in a new net document system -- document management system on top of our existing one system that we use for the business. It's enhancing that. So we've invested in facilities that enable us to enhance our current offering to make sure that we're at the forefront of where we want to be with AI, and that's had an impact of about 0.6% in terms of our margin for the year. We've had -- the benefit then in this half year, a couple of years ago, we did a joint venture with a business called Convex, and that has traded well during this half year. We've got a percentage interest on that, and that is recognized just over GBP 0.5 million worth of income in this half year. And so that's -- we've seen that going forward. Going forward, as we've talked about, some of those other operating charges, we see those starting to leverage as we grow the top line and as we get all the synergy savings of acquisitions. So we will start to leverage those costs, which will enable us to do 2 things: grow the margin slightly, but also make sure that we're properly invested in the business. So I've talked about where we expect to see that margin going improving but improving at a steady rate as we go forward. We go over on to the next slide, please, Hannah. So these are the important KPI factors that we look at as a management team across the business. And you can see there, all of them remain at pleasing levels. We're happy with what we're doing with these. There's been a slight impact on gross profit in the period. That's impacted by a couple of things. It's impacted by the NII, as we've talked about just and it's also impacted by recruitment as we recruit people, obviously, they come in on full salary from day 1, but they aren't at full fee earning run rate on day 1. So it takes a while for them to come in to be fully at full fee earning run rates. Normally, with our on average around about 6 months. So we expect to start to see that margin start to creep up in the second half of the year. But a gross margin of around about 48%, 49%, 50% is good. We'd like to get it up to 51%, maybe, but that's an acceptable level. We look to a margin around about 50% across the business as a whole. I think the one exceptional thing just to point out there, not to dwell on anything too much, which is our exceptional cash conversion. You can see there how strong we are in generating cash from the underlying business, which allows us to invest in acquisitions and capital and tech as we've talked about previously. If we go over on to the next slide, this really is an important KPI and it's how we manage that really strong cash conversion on a day-to-day basis. It's our lockup for anybody that's not -- that is new to the story, we call our lock essentially, it's the amount of time it takes to for a unit of time spent on a matter to become cash in the bank. So it's the number of days it takes to bill that unit of time, which we call our WIP days, which we set a target of around about 60 days for the business. And then it's the amount of time that it takes to collect that bill, those are debtor days to get the cash into the bank, and we look at that being around about 30 days for the business as a whole. So we're looking at the business as a whole around about 90 days. And at year-end, we always achieve that. We've always at that sort of level. Half year is normally a little bit of slightly higher than that. But you can see at this half year, we're pleasingly at 95 days less than where we have been last year. And the importance of that is the cash that it generates. Now we are industry-leading in terms of our debtor days, as David talked about. You can see now we're at 32 debtor days at the end of October. The industry average as defined in the PwC survey is 75 debtor days. If we were to actually increase our debtor days to 75 debtor days, that would mean we would need an additional GBP 23 million of debt funding. So really important in terms of our cash conversion and set us apart from the industry. And just to give some practical examples of how that works and the differences that we can see across businesses that we've acquired. The table on the right-hand side of that page shows that the businesses we've acquired over the last 4 years, the lockup that those businesses had when we acquired them and then the lockup that they are at the 31st of October. And you can see how we work with those businesses to reduce our lockup to get their work in progress build and then to collect the cash that they've got outstanding. None of that is rocket science. There's no magic way to doing it. It's just by having a centrally agreed approach, having client service directors. David will talk about what our client service directors manage the day-to-day financial management of these businesses in each of our offices we come in and just making sure that everyone complies to the normal standards that we want within business, which is normal, good business practice of growing your client and then collecting the debt from your client. And that's what generates our exceptional lockup days and our really strong cash conversion. And going over on to the next page, please, Hannah. I won't dwell on this because it's just repeating what we've talked about, but you can see we've generated 122% cash conversion in the first half of the year, GBP 14.7 million underlying free cash flow. We'd expect that to be circa GBP 30 million for the year as a whole. That level of 122% is normal if we look back over the past 5 years, we're at around about 120% cash conversion on average. So really pleasing. And having such a strong cash conversion, as we said, enables us to invest in acquisitions, to invest in the property, to invest in IT and to continue to pay dividends, and we've declared a 10% increase in the interim dividend compared to where we were last half year. Just over on to the next slide, please, Hannah. And just quickly to pull all of that together really in terms of the net debt bridge here. You can see I've talked about the main movements on the net debt bridge there and what we've used the cash generated and what we spent it on during the period. But in terms of our facilities that we have available to us, we do have really strong support from our banks. We have GBP 100 million RCF facility. We extended the term of that during this period for another year. So that is agreed now out until November 28. We kept the same terms and conditions that we originally had. We were at GBP 75 million drawn at the half year, which is 1.8x our bank covenant. Our covenant allows us to take that up to 2.5x. So no pressure from a bank covenant perspective there. We expect that to end up around about 1.5x, around about GBP 70 million by the full year, which gives us headroom then to spend to invest to grow the business going forward. In terms of covenant and where we feel comfortable taking that people often ask us that. We feel comfortable taking our leverage up to circa 2x leverage and knowing that as we acquire something, we get cash out of those balance sheets, and we can pay that down really quickly with the cash generation that we deliver from the underlying business. And with that, I'll hand over to David.

Thank you, Kate. So I'm just going to talk a bit more about the organic growth and the drivers of organic growth. I'll hand over to James. James is our Investor Relations and M&A Officer, so works to lead our M&A campaign. So I'll ask James just to talk briefly through the M&A that we've done in the last 12, 15 months and then what's sort of in our pipeline and looking at the map as to where we go next. So just on this slide, the drivers of organic revenue growth, this really starts with what we talked about in churn. If we can hire more people than leave, and there are always going to be some levers. There's real positive churn, I think, up to 10%. But if you maintain the number or slightly grow the number, you then start to see organic revenue growth from 3 main drivers. And the first driver is pricing. So if you maintain the group or slightly grow it, the pricing, we would say is maintainable at 4% per annum. So probably a bit more than inflation at the moment. That definitely went up to 7%, 8% per annum 3 or 4 years ago through higher inflation in today's environment, 4% per annum. The next 4% on top of that to get to 8% is then recruitment. As you -- as we recruit partners with client following and revenues that come in, then they are growing as the business grows, we see bigger client followings, bigger fees coming with the partners that we're hiring. And that's a 4% addition to the pricing gets you to 8%. And then there's a couple of percent and hopefully more, but we'll say a couple percent sort of look to a 10% target for organic revenue growth of new client wins and doing more business for our existing client book. So you've got 4% on pricing each year, 4% on new hires and a couple of percent or more in terms of doing more for the clients. And we now cover all of the service lines which clients need, which corporate clients need and private wealth business owner clients need. We've got 60% of our business is in terms of acting for a company, 30% is in terms of acting for the individual in terms of wealth management, tax trust, wills, landed estate clients, high net worth people, that type of work. Another 10% is in a couple of specialist areas involving clinical evidence and volume remortgaging. So we can get more out of the client base. Now we've got more and more service lines and more depth and breadth of resource available. So that's how we grow organically. It's very important though to start with at least the same number or a few more people because we hire more than we lose. And that's what's changed. And compared to the previous 4 years, we're now seeing that we're hiring slightly more people than we are losing before we were losing a few more. And therefore, the net number of females was slightly down, which meant that we stood still organically. And that's been a big thing that we've moved on. I just want to talk about some of the investment Kate alluded to on our CapEx and offices. We've got a couple of pictures there of our Stoke office. And we're certainly seeing a return on investment from our Stoke central hub more than we would have anticipated. We've had it now for 14 months. It's where we're sitting today. And we've had virtually all the 400 partners, all the new people joining through acquisition, all the new recruits and new hires come first Monday of a month. We can see about 30 people on a Monday now come through Stoke. And they really get to understand the nature of our business, the friendliness, the collaborative culture, but also the premium nature. We've really created an office where, frankly, you have to go to the west end of London to probably see the equivalent in standard that we've built in Stoke-on-Trent. And it's really served us well as it does in all the other 32 offices to invest in grade A, give a really polished refurbishment that's very similar across the country. It gives the consistency of environment so people feel part of one business, one team, but it also lifts them and gives them a swagger to know that we're working in a premium business to give the best commercial advice to corporate clients and private wealth advice to the private clients to really position us in that premium place throughout the country in the regions outside of London. And that is that investment, that environment that we've created has made it very clear we're aiming at premium work, but also it's helped getting all our people in because it's a great place to be. They want to be in rather than be at home. So it's built -- it's really fueled the collaborative nature of our culture, and it's also meant that the churn rate is right down to the lowest you could see in professional services of 8% and 9%. So it's a very important feature of what we've achieved over the last 12 months, certainly in the Stoke office and across the network. And the CapEx will certainly now reduce a little bit going forward because we've made all that investment across the network. So I'll just hand over to James just to talk about some of the 5 acquisitions, which we've just made and what's in the pipeline. Next slide, please.

Hi, everybody. I think what I'd like to do is just take you through a bit of an update on what we've been doing over the last 15, 18 months, and that will give you a clear view of the strategy we've got with our M&A. So what we've been doing, we more or less completed our map in the Midlands in terms of new locations. I think we're pretty well covered there with an acquisition we did in the summer of 2024, where we bought a business called First Fields. That took us into Worcester and beefed up our presence in Birmingham. And that -- when we did that, that gave us kind of very thorough coverage across the North of England and into the Midlands. And we've been looking for some time at the Southeast where we've been pretty light really in terms of our locations and activity levels so far. So as a result of that, we focused a lot of time and effort in searching for the right acquisition targets down there. And we've had a really good run over the last 10 months or so where we acquired a business called IBB in the Thames Valley that brought about 140 lawyers into the business. We followed that quickly with an acquisition in Essex with 3 locations there that brought 90 lawyers into the business. And then we followed that in late summer last year with a business called Rix & Kay, much smaller business that brought 30 lawyers into existing locations in Brighton on the South Coast of Kings Hill in Kent. So that's 250 lawyers into the Southeast, which is really, together with our existing locations there, started to put us on the map in that important vibrant, strong economic area. Last one we did in 2025 was a little bit different actually, and that was in Cardiff. And I think it's an important one just to talk through. We've been doing some recruitment in Cardiff really from about this time last year. And unusually, we've been able to recruit high-caliber people without actually us having a location there. So the closest other location was in Bristol and perhaps also in Cheltenham in terms of where Cardiff is. But for various reasons, I think, unique to that market, we've been able to recruit some high-caliber partners to come and join us almost as a kind of local challenger start-up in Cardiff itself. We've looked at acquisitions previously, but never really found the right one and stars are not quite aligned there. But we hit this rich theme of recruitment and then in late summer, followed it up with an acquisition of really a kind of boutique property law firm that brought us 2 partners and their team into the group. So we've got ourselves within 12 months to a place where we've got 20 or 25 lawyers into Cardiff with a combination of some hires we brought in from other businesses locally, supplemented with what in effect is a kind of bolt-on acquisition into those existing people, which is attractive for us if we can do that because we've not written a big check to buy a set piece business there, but have quickly been able to build momentum and have an impact in that market with, we think, some very interesting further hires to come. So if we can get that office to 40, maybe 50 lawyers, I think we'll be in a really good place. We've also identified Milton Keynes as an area where we think we might be able to do something similar. So hopefully, that's coming up on the horizon. But in talking through those, I hope you've kind of seen how we've strategically filled in some of the gaps. And if you look at the map, I think that will give you a good idea of where our focal areas are moving forward. I think the East of -- so the north of London and East of England is a bit of an obvious gaping hole for us. So Milton Keynes will contribute to that if we're able to pull that off, but also looking into locations like Ipswich, like Norwich, like Cambridge, that our acquisition in Essex is enabling us to move into those areas. We've definitely found you don't want to have too great a distance between offices. So as we've created this location network, if you've got an office -- we've done the acquisition in Essex, that then opens up Ipswich. If we did Ipswich in the nearest office was somewhere like Weybridge or Oxbridge or something like that, that's too big a gap really for us to get our collaboration amongst the various locations. So East of England is firmly on our agenda, headed from West London down towards Southampton, I call that South Central, so down towards Bournemouth, Southampton area running through Surrey, Berkshire, Hampshire. We think that could be a very interesting area for us and would fit neatly in our strategy. The area middle right is Hull. There are 4 or 5 decent businesses in Hull, which we think would fit our criteria. So let's see whether we can acquire something at some point there or maybe do some hires out of those areas. So hopefully, that's been useful in updating you on what we've done recently and where our strategy is moving forward.

Thanks, James. Next slide, please, Hannah. So here, I just want to talk about the investments, and I do want to then get on to tech. So we've already covered the middle box there talking about investments in offices. The first box is how we strengthen the management team. We've done that in 2 ways. We've definitely strengthened the central management team where the 3 of us plus 5 others sit. But we've in part in that 8-person management team, we've now got a CTO who joined us last summer. That's been a real important gap that we've filled that was crucial to us as we go forward and I'll come on to technology. And then the bottom box is talk about the investment in technology. Kate already sort of alluded to this, and I'll talk about that on the next slide, please, Hannah. So this is the investment we've made in technology. And there's a couple of key steps that we've made. So we've put a lot in the last sort of 3 months, 6 months, ever since John joined into the infrastructure and Kate mentioned the document management system we added, which is called net documents. And this is a more modern document management. The key thing we do as a professional service business is create documents, be it contracts, be it pleadings, wills, you name it. It's all finds its way into a document. So your document production and management and electronic storage filing, search capability, version control as the document gets progressed through versions 1, 2, 3, et cetera, all really crucial to our core business. And our existing platform, which is a single database technology system called Partner for Windows, excellent system, but we were starting to outgrow it in terms of document production management, and this has been an important integration, which we're making. But importantly, it sits in the cloud, so it's AI compatible and it has Copilot already integrated within that document management system. And we go fully live actually next Monday, the 19th. So we've been working hard on this for the last 6 months. We've been doing some soft launches to really iron out the creases. We've done that. And next week, we'll have a fully integrated document management solution within our practice management system, Partner for Windows. And this will really, I think, take us to the next level in terms of today's business, but also ready for AI enhancements as we go forward. The second thing we've done thinking of technology and AI is to really start work on our data and our database and our client database and our CRM system. And this is to look at all the data that we've inherited that we've compiled. So doing 25 acquisitions since IPO over the last 7.5 years. We've got a huge amount and volume of data. We've got approaching 30,000 clients. We've got over 50 million documents. We've got lots of templates and precedents and existing documents and knowledge management documents, know-how, huge, huge volume. And we want to really look at and analyze and manage and cleanse this data in a modern AI compatible document management system to then work out the question a lot of people ask, well, what's AI going to do to professional services? The honest and truthful answer is we don't know yet. But we know what we're doing in terms of getting the infrastructure right and the data right to then work out where are the efficiencies and the speed of delivery in what we do in producing documents going forward. We certainly see the experienced lawyer of the future embracing AI, working faster and more effectively than they do today. It's rather like moving to electronic and e-mail and computers from typewriter 30 years ago. I think if you don't embrace technology, you get left behind. We certainly don't see AI as a threat replacing lawyer far from it. But I think the lawyer that doesn't embrace technology and AI developments will get left behind. So we're doing all we can, working as well as some leading providers, particularly Thomson Reuters on the knowledge management side that Kate mentioned briefly. We brought that in fully now into our business last year with all the AI capability of the research tools that come with that Thomson Reuter product and package that we have in our business. So plenty happening and lots to come, I think, as we go through this year and sort the data out, getting much more understood and ready for an AI enhancement going forward. I'll just turn over to sort of work towards the summary here. I'm sort of going back to almost to what I was trying to do at the beginning, and that is to show our competitive advantage. I've mentioned that separating that ownership and management produces very different financial results in profit margin and cash generation. And on the top right there, the 4:1 fee earner ratio, this is 4 fee earners to every non-fee earner. The average in law is 1.5 fee earner to 1 non-fee earner. And you can tell which type of model is more profitable. If you've got more people earning fees than actually cost the business money and overhead, then you're going to make more money. And we just run -- we operate and manage and run way more efficiently than a law firm that isn't owned and managed. Nobody takes responsibility for the overall business. They work in their individual silos as I've explained. I think the other thing it's enabled is this growth. So we've gone from GBP 9 million beginning right back to 14 years ago to GBP 200 million. When we listed 7 years ago, we tripled our revenue from GBP 35 million to GBP 105 million in the first 3 years. And we feel having got through all that disruption we incurred 5 years ago and that flat organic revenue growth, we certainly feel we're back to that 2018 mode where we can grow organically of high single digit, we can acquire 20%, 25% of our revenues to start to think about growing at 35% prior to organic and acquisitively, which doubles our revenue every 3 years. We feel we're back into that rate. As we've shown, that's the lawyer bar graph at the bottom, one of the main journals that showed we were the fastest-growing law firm in the decade from 2014 to '24. And I think the final point to make on this slide is that we've stuck to our knitting. We've stayed a regionally focused business. When businesses get to -- often they get to GBP 50 million revenue as a law firm, they go into London, and they go to Dubai or international. There's a real movement to go London, Middle East. We've resisted all those temptations as we found our way to 200 plus. We're staying very much on the map James has explained to fill the map and make sure in all the main areas, we think probably at 40 to 50, including Scotland eventually, to really be known as the biggest and best premium regional professional service business. That's the clear strategy. It's not changed in 14 years. Next slide, please, Hannah. Here, just a quick flywheel that I'd like to start at strong profitability in that bottom right, that means we generate cash. We've shown how good we are at that. That means we can invest in acquisitions. The acquisitions themselves and the new areas create fantastic organic revenue growth opportunities for us as we can be that breadth of fresh air as a modern corporate structure with a fantastic culture in these cities. It means we can attract more people and price differently to the law firm and really start to grow so we can do the recruitment in more areas, and that leads to all the organic growth that's so important to us. And the final slide before we open up to questions. I think it's important as well to talk about current trading. We've seen the half year we talked about. We've certainly seen a strong November and December in terms of organic growth and in terms of margin and getting the margin up a bit from where we've seen in the first half and the cash generation. The hiring is coming through strong. The acquisitions that we talked about that we've done over the last 15 months, 5 of them have really integrated brilliantly. The stronger management team that we brought in, particularly in technology, we're off to a good start to the second half, very confident about delivering consensus and then beyond into FY '27. We're getting really excited about the opportunities that lay before us. So thanks, Hannah, we'll take some questions.

Right. A question around debt. Given your current net debt of GBP 75 million and the total deferred contingent consideration of another GBP 20 million, should we expect a slowdown of acquisitions in the next 2 to 3 years? Or are you willing to further increase your RCF and run the business with a higher leverage ratio?

I'll take that. So we certainly are having a cooling off period for acquisitions right now. We won't be doing any acquisitions planned to the year-end to 30 April. And that will get the net debt down from the half year position to, I'll say, circa GBP 70 million. It will get the leverage multiple down to 1.5x EBITDA. So we're currently 1.8, we'll be 1.5. And we're going to run this between sort of 1.5 and 2x EBITDA. We're not -- it's not the quantum. It's actually the leverage and that multiple of EBITDA, that leverage covenant. Our bank covenant is 2.5. I think the U.K. is very risk averse on debt. We understand that in the public markets. Obviously, private equity borrow 3 or 4x EBITDA without frenching. We say let's keep it under 2. We think that's a very prudent, conservative leverage. So beyond 38 we will definitely be doing more acquisitions. The reason today, we're at GBP 200 million plus, and we're making GBP 33 million PBT and growing is that we've done acquisitions. We're better than we've ever been having done 28. We're faster than we've ever been at getting the synergy cost savings. The value accretion that we can show with these is excellent, really good news for owners and good news for our business that we can really take advantage of all the effort we've made in 14 years to really now go and consolidate the regional space and become a much stronger business by being bigger, more profitable and cash generative by using the facility. It's a bit like I think as long as you're borrowing, say, 3x your salary, you buy a house, you don't wait until you've suddenly been able to afford the house, you'd probably be ready for retirement if you didn't bother with a mortgage. Well, we're not waiting for retirement. We're going to continue to borrow some money. The market isn't there to support us at this valuation. And to raise money through equity, be placing or issuing equity on an acquisition would be too expensive, way too expensive, too dilutive. We wouldn't do that. Our share price would have to be GBP 4 plus for us to use the shares. So we'll use our own cash resource, that GBP 30 million we generate, we'll use debt. And the thing here that keeps it very prudent and safe is that we meant every day, every week, month, we're generating the same levels of cash. So when we have these quieter periods that we're having, we pay down the debt and we build some headroom up, we use some cash, and we go again and keep building the business in the way that we've proven we can. So for the time being, yes, we'll get the debt down, hopefully below 70, but then we'll go again when we're ready with the next acquisitions in the summer.

Okay. And for you, Kate, can you give a little bit more detail on the outlook for CapEx in full year '27 and '28.

Yes, yes. So CapEx over the last 2 or 3 years has been high. So it peaked last year at around about GBP 11 million because we refurbished the Stoke office that I'm starting now, which was a big one-off for us. And it's been important for us to have that CapEx spend as we've created. And I think for the last 2 or 3 years, we were a bit of a catch-up really because we slowed it write down during the couple of years prior to that. So going forward, we're just over GBP 3.5 million in the half year here. I'd expect by FY '26 for us to end up probably just below GBP 8 million, GBP 7.5 million, GBP 8 million for the year. And then going forward, as expected to be sort of GBP 6 million going forward, maybe 3% of revenue compared to the 3.5% plus that it's been in the past few years. So dropping off, there will still be some maintained. There'll still be some IT renewals and there'll be some refurb, but at a much lower level. We're thinking GBP 6 million compared to GBP 11 million last year, that's GBP 5 million different.

Okay. A few questions here actually on AI. And there's quite a few sort of sub-questions within questions. We'll give it a go. Do you use internally developed tools or rely on third-party solutions such as new AI features in Lexis+ AI or Protege or start-ups like Harvey?

Yes. So there's those out there and there's a few others. We -- our main -- our practice management system is an outsourced solution, off-the-shelf solution. We brought in off-the-shelf solutions for time and recording and the best time recording package out there is called Carpe Diem. The best document management is NetDocuments, which we're now just about to bring in fully. So we've integrated the best solutions, not trying to invent a wheel, you don't need to. It's already being made and you bring that in. We've got a really strong technology team of 70 people. And in there, you've got a development team as well of about a dozen who help us develop our own IT solutions. So one thing we've brought in is a wrapper over the whole system, we call it LaunchPad, and that we brought that in fully at the back end of last calendar year, and that enables all of our people to input client data, matter data very quickly. That is our own developed wrapper around the whole practice management system. It was a big move. It took over a year to develop and it got launched fully in November last year. For those sort of things like Harvey and those bespoke we're letting things run on AI at the moment. I think. I mean, we've seen a law firm. I won't name who they are, but the sizable firm switched to Copilot on last February and within 3 weeks, had to switch it off because the data it was out looking at and the things it was producing were coming from a lot of data that hadn't been analyzed in cleans like we're doing with our data. I think you've got to be quite careful with AI at the moment that it doesn't produce 100% accurate documents and solutions. You can tell that just on a voice mail on a phone and what it gets wrong. In law, you can't afford 1% to be wrong in the document. In law, everything has to be 100% accurate in what you produce. There was -- [2 lawyers] got fined just less than a year ago for quoting case law that was AI generated and the cases didn't even exist, and that was a high court. So this isn't just plowing in to sort of reckless [indiscernible] use anything that's there and buy things and switch them on. I think they have to be sort of considered. And we're working very closely with Thomson Reuters and LexisNexis in terms of all of their AI tools. We've certainly already embraced the research tools and library and knowledge management that they produce and part of the investment that you're seeing in the CapEx numbers is in that Thomson Reuters and LexisNexis tools. We're not going to stop sort of going out there spending money on AI tools until we kind of know more about our own data, our own system and what we're then seeing as the outcome we're seeking to achieve. I think we've got a lot to do to learn in the next year. and beyond. We've got a lot of training to do. I think when we switch things on, we've got to train 1,350 lawyers on how to use it. So if you go and bought Harvey or the others that are out there, how are you going to implement it and what's the resource needed to get everybody using it in 32 locations. We don't need to do that yet either. There's no quick fix to any of this speed of document production. Yes, people put lots of letters and text through Copilot and see what Copilot -- those people use ChatGPT. But we are producing sale and purchase agreements, which around multimillion pound transactions, pleadings around multimillion pound litigation cases, wills that deal with millions of pounds of assets and enhance sort of liabilities. You've got to get this right with lawyers close to it, and we're going to work going forward as to how we can speed that up, but it will be done in a very considered manner rather than just buy things off the shelf and plug it in and hope it works. It's a very -- in the real world of business and professional services, it isn't quite what I think you sometimes read from the AI promotion of -- from the technology providers as it's all going to be now a quick fix and there's a magic button and a lawyer can just produce any document they want to quickly. It's not like that.

Yes. Reliability is not 100%, yes exactly. Linking into the same point in terms of cost savings efficiencies, which we think will eventually come. What do you think this can do to the longer-term fee per partner as you perhaps use AI rather than having to pay for more support staff?

I think increase -- it will definitely increase fees per fee earner. I'll say fees per fee earner, same for fees per partner. I think going forward, there will be less reliance on the inexperienced graduate resource that's there for processing and cost-effective administration and processing. I think if an experienced lawyer can do things faster using technology, then it will reduce that human low-cost, low experienced category of colleague. I think that's a clear indication going forward. I think the other thing which we're really excited about being an owner-managed business, we can move very quickly on these things as well. We haven't got to work through those silos of law firm partnership will be much more you try that I'm not going to change. We don't have that same issue. We can -- if we decide something is good for 1,350, you watch us go. That's what we do with document management now. It's what we've done with our own sort of technology and the way we bought a wrapper into it. And I think what will be interesting on this is pricing if we can start doing things faster, it's not going to work economically to support the cost base and the salary cost base if we start charging less. So we will need to start thinking of fixed pricing that maintains the margin to cover the salaries and the investment in CapEx and technology. So fixed pricing, I think, will become much more of a feature going forward rather than charging by the hour. At the moment, about 70% of our work is charged by the hour. And we welcome trying to charge more by fixed pricing. We've got a 100% fixed pricing model for residential property conveyancing transactions. And it's an important part of our business now. About 8% of our revenue is buying or selling a house. We've got this premium service for people buying or selling their homes. It's a GBP 5,000 minimum starting price and it goes up with the value of the property. The market is charging about GBP 1,000 for that, even less in lots of cases. So we're substantially higher, but the quality of the partner and solicitor that will qualify people deliver the service, the quality of service is in a very different place to what you see in the market from law firm and very supported by a lot of technology actually and a lot of processing in the background and automation on searches and land registry and local searches, all that sort of thing is push a button. But the pricing for that is done on a fixed pricing only. And we really look forward to chart doing more on fixed pricing than where they are, which we think works for the client really well too because you guarantee the price and then knows what the cost is rather than an unknown quantity. I think that's the feature of AI we do things quicker, which I think will fuel fees for fee earner too. So I see real enhancements for everybody actually for clients in this -- and I think we can be at the cutting edge of the change. We always have been. We got lawyers 14 years ago working without a secretary and switching on a laptop and using the laptop to produce work and book rooms and meeting rooms, book trains, do everything themselves 14 years ago, do their own bills, do their own invoices. This was rocket science 14 years ago and a revolution in a [indiscernible] law firm, what we showed 14 years ago, we could get ahead of the curve.

Excellent. Well, let's continue with the theme of revolution. What is the difference in organic growth between offices in larger cities, for example, Manchester and Birmingham and those in smaller markets, for example, Oxford? And what is the organic growth in a mature office over 5 years?

Well, the difference is much more in the mature office rather than a new office, your organic growth can be higher because you can attract so many more people because you're new, and it's a different model to what we've seen before. So if I pick Reading, we've already hired several new partners in Reading, and we've been there for about 9 months and because we're new in Reading compared to the law firm model. So when we're new in any size of city, the organic growth goes up. The size of City will give more potential for organic growth in a more sustained period over a decade because of the pool of talent in the booming Manchester, Leeds than you would get, say, in a Stoke where it's very mature. Our most mature office with 100 fee earners is here in Stoke and there's not many more people we can hire. Therefore, the organic growth is limited to pricing and trying to do more for clients and trying to be more productive. So you're going to be in a more mid- high single digit than you would be in double digit. In a new place, you'll be more double digit because there's more people you can bring in and more activity and more clients and more new things to do. And the bigger the city, the bigger the opportunity to carry that on for longer. So I think the maturity definitely has something to say about organic revenue growth and the size of city does more than any work type or service type.

Yes. Okay. Well, thank you. I'm conscious of the time. We've gone over that hour mark. So I guess I'd say thank you to our audience for listening and to the 3 of you for joining us today. Good luck, and we look forward to an update.

Thank you, Hannah, and thank you for your support. Thank you, everyone. Good to see you all.