Beech: Building blocks for organic growth
Listed law firm Knights said yesterday it was on course to return to organic growth this year after revealing that the 13% increase in revenues for the last 12 months came from acquisitions.
An increase in its fees from 1 May was one of the reasons for its confidence.
In the year to 30 April, revenue went from £126m to £142m, the increase split almost equally between acquisitions made during the financial year – Coffin Mew and Meade King – and the full year impact of acquisitions made part way through the previous year (Keebles, Archers Law and Langleys).
Other operating income increased from £1.3m to £6.7m, primarily due to increased interest income earned on client monies as a result of higher interest rates, net of interest paid out to clients.
“Should interest rates soften, we expect this to stimulate higher levels of activity in the transactional parts of our business, such as M&A and residential property,” the firm told investors.
Underlying profit before tax jumped 19% to nearly £22m, with the underlying margin up from 14.4% to 15.2%. But Knights’ gross margin fell by nearly a percentage point to 48.5%.
The firm’s net debt has increased slightly over the year to £29.2m.
By the end of the year, Knights employed 1,464 people, of whom 1,165 were fee-earners.
With a final dividend of 2.50p, the 4.03p dividend paid over the year was an increase of 15%.
Chief executive David Beech reported that a new large corporate client focus has led to it winning clients such as World Rugby, Marie Curie, EuroFinance and TTI, a Berkshire Hathaway company.
“These wins resulted from a number of dedicated initiatives, including raising awareness of the quality and breadth of our service offering, combined with the cost benefits of a regional base, through European roadshows.
“The range and level of services we deliver to our existing large corporate clients also continues to increase.”
He said the sharp rises in interest rates recently had led to work softening in some transactional and debt-reliant activity, such as residential property, mergers and acquisitions, and volume re-mortgage work.
“However, this is being mitigated by a combination of growth in other areas which are less cyclical, such as private wealth and CL Medilaw (our specialist clinical negligence team) new client wins and our pricing strategy.”
This would all help ensure organic growth in the current year, as would its pricing strategy, with fee rates increasing from 1 May. Mr Beech said: “We are also seeing a more favourable market for attracting professionals as well as acquisition opportunities and valuations.”
Knights has hired eight partners hired since May, compared to 13 in the whole of the previous year, and in May announced the acquisitions of North-East firms Baines Wilson and St James’ Law.
“From a flat organic growth rate in FY23, we have put in place the building blocks for organic growth to improve incrementally as we move through the current financial year, through a combination of pricing, productivity, net recruitment and client wins.”
Non-executive chair Bal Johal said: “While we remain focused on optimising and building our group to deliver organic growth, acquisitions remain a key component of Knights’ overall growth strategy….
“While the macroeconomic outlook is expected to remain uncertain into FY24, we believe that, as well as supporting recruitment momentum, this will also present further acquisition opportunities for the group.”
Knights’ share price jumped 16% to 74p yesterday following the results announcement, after 15 months of downward momentum. Its share price crashed on the back of a profits warning in March 2022; having ended 2021 at 410p, it was just 107p a year later.
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