Beech: Continued discipline
Listed law firm Knights saw revenue growth by 22% in the last financial year – almost all due to acquisition – as it marks the 10th anniversary of adopting a corporate model.
Chief executive David Beech spoke of his pride in the progress since 2012, turning a firm with two offices and £9m turnover to one in the UK’s top 50 with 18 offices delivering over £125m in revenues as at 30 April 2022.
Its post-year acquisition of South-East firm Coffin Mew [1] takes it to 22 offices and adds another £11m in revenue.
Organic growth was just 2%, which investors were told was “held back by Omicron in the typically important fourth quarter”.
Gross margins increased a little to 49.3%, although underlying profit before tax fell 2% to £18m, representing an underlying margin of 14.4%, down from 17.8% a year earlier.
Knights’ lock-up compares very well with most large firms at 86 days. Its net debt rose from £21m to £29m after paying £18m of initial and deferred cash consideration for acquisitions – during the year, it bought Yorkshire firm Keebles [2], Archers [3] in Teeside, and York and Lincoln firm Langleys [4].
Knights proposed a final dividend of 2.04p, giving a total dividend of 3.50p for the year, having not issued a dividend last year and only 1.10p the year before.
In acknowledgement of “the challenges Knights has faced during the period”, the executive directors have not received bonuses this year, even though some of the non-financial measures had been achieved, with Mr Beech not received a salary increase and the chief financial officer, Kate Lewis, only seeing an inflationary pay rise.
In March, Knights’ share price crashed [5] from 365p to 145p on the back of a profits warning and has continued to drift downwards below 100p, but yesterday it jumped 22% to 116p.
Knights has over 1,000 fee-earners with a churn of just 9%, and reported strong net promoter scores of +72 for clients and +24 for employees.
The firm said its new debt advisory service was “providing opportunities for cross-selling, and has attracted experienced accountants and corporate bankers from respected institutions, further demonstrating the strong positioning of the Knights brand”.
There had been a “positive start” to the new year, with the acquisition pipeline “growing in quality and quantity, aided by the return to normality following the pandemic and accelerated by the uncertain economic environment”.
It went on: “While uncertainty around economic conditions persists, the board considers that the business is highly resilient, with a significant market opportunity, the right strategy and team in place to deliver on it, giving confidence in its medium-term outlook.”
Mr Beech said: “We have delivered another robust financial performance despite the short-term challenges experienced in the fourth quarter…
I’m very pleased not only with the level of growth we have delivered over the last 10 years since we corporatised… but also with our continued discipline to deliver market leading working capital days and cash generation.
“We continue to execute our strategy and remain confident in our outlook, as we leverage our enhanced scale and national reputation to realise our ambition to be the leading legal and professional services firm outside London.”