Kelly Partners Group Holdings Ltd. · ASX:KPG
Kelly Partners — H1 2024 Earnings Presentation
61 slides from Kelly Partners's earnings presentation, February 2024
Slide 1: Kelly Partners Group Holdings 1H24 Results Presentation
KELLY PARTNERS GROUP HOLDINGS (ASX: KPG) 1H24 RESULTS PRESENTATION PRESENTED BY Brett Kelly Founder and CEO Kenneth Ko CFO February 2024 1
Slide 2: KPG in 10 Seconds
KPG IN 10 SECONDS PROFIT & LOSS BALANCE SHEET CASHFLOW 23.1% 2.6% 25.0% 7.4% 0.01x 21.1% 5.0% REVENUE EBITDA UNDERLYING RETURN ON NET DEBT TO OPERATING CASH GROWTH MARGIN NPATA EQUITY UNDERLYING CASHFLOW CONVERSION GROWTH EBITDA REVENUE MARGIN PARENT RETURN GEARING CASHFLOW EFFICIENCY NPATA 1H24 $52
Slide 3: Double 5 Times in a Row
DOUBLE 5 TIMES IN A ROW Revenue Double Double Double Double 2007 2008 2009 2013 $120.0 1 Year 1 Year 4 Years 5 Years 5 4 Years 12 3 4 $110.0m $100.0 $86.5m $80.0 31% $64.9m $42.5m $m $60.0 Revenue $48.9m CAGR* $45.5m $33.9m $39.5m $40.0m $40.0 $24.1m $22.0m $30.2m $20.1m $20.2m $44.0m $16.4m $20.0 $
Slide 4: Next 5 Years (FY25-FY29)
NEXT 5 YEARS (FY25-FY29) OBJECTIVE TOP 10 IN AUSTRALIA SCALE COMPLEMENTARY GO GLOBAL Growing Kelly+Partners System, Grow to become a top 10 accounting Build vs. Buy vs. Partner Business Model and Partner-Owner- firm in Australia Driver® model in markets globally Financial Review Top 100 Accounting F
Slide 5: About
ABOUT KP+GH
Slide 6: Introduction
INTRODUCTION • Kelly+Partners Group Holdings Limited (“KPGH” or the “Company”) is Australia’s leading accounting services platform, delivering transformational outcomes for operating partners and exceptional returns for shareholders • The Company was founded by Brett Kelly in 2006 and listed on the
Slide 7: Leading Platform
LEADING PLATFORM Our 542 team 34 office 49 90% Great people members locations acquisitions Place to Work® Inc. 91 operating partners 28 Australia and 6 global Since inception Our 23,000 88% tax & 5% organic +70 NPS vs clients active clients accounting growth p.a. industry’s -18 Across Australia Prop
Slide 8: Business Highlights
BUSINESS HIGHLIGHTS 1 Industry leading disruptive operator in highly attractive accounting services market Exceptional track record of disciplined founder-led growth, pursuing programmatic acquisitions 2 to drive profitability and returns 3 Annuity-style revenue mix supported by long-standing and di
Slide 9: Overview
OVERVIEW Overview Revenue mix ▪ Kelly+Partners Group Holdings Limited is one of the fastest growing accounting platforms ~99% annuity ~1% transactional in Australia with market cap of ~$250m ▪ Since inception 17 years ago, the business has achieved 30% average revenue growth p.a., 91% 6% 2% 1% succe
Slide 10: Performance
PERFORMANCE Consistent revenue growth EBITDA approximately doubled since FY19(1) Successful programmatic acquisition strategy A$m A$m Number of acquisitions Impacted by additional 21% 4YR CAGR 16% 4YR CAGR investment ‘ahead of the 31 acqns L4Y curve’ to support growth 87 9 20 20 8 65 7 16 46 49 14 4
Slide 11: Partner-Owner-Driver
PARTNER-OWNER-DRIVER® Target partner profile Key terms of operating model 17-year track record R • Alignment with KPGH’s vision and culture • Parent ownership >50% ✓ 30% revenue CAGR since inception • Capacity to meet KPGH’s target financial and • Agreement term 10 years + rollover ✓ 49 acquisit
Slide 12: Succession
SUCCESSION Accounting firms intending to exit / retire Global tax megatrends Source: Good Bad Ugly Insight Report – Succession 2018 report ✓ Shrinking tax base demographic ✓ Societal pressure to increase personal taxes ✓ Competitive pressure to reduce corporate taxes ✓ Increasing tax complexity and
Slide 13: Advantage
ADVANTAGE GROUP MODEL BUSINESS TEAM CENTRAL PROGRESS TEAM ® Kelly Partners’ Programmatic Acquisition System 13
Slide 14: Hedgehog / Ikigai
HEDGEHOG / IKIGAI what you LOVE Passion Mission what what you are the GOOD World AT NEEDS Profession Vocation what you can be PAID FOR 14
Slide 15: Programmatic Acquisitions
PROGRAMMATIC ACQUISITIONS ~4x Pre-IPO 6 8 35 Total Acquisition Contacts: 49,504 Leads: 193 IPO Prospects we have met or plan to meet with 9 8 7 Prospects 4 4 actively in 3 3 3 final stage 2 2 1 1 1 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 201
Slide 16: Capital Allocation
CAPITAL ALLOCATION KP+GH
Slide 17: Capital Allocation – HY
CAPITAL ALLOCATION – HY KPG aims to build per-share intrinsic value by: FY23 1H23 1H24 1 Improving the earning power of our 27.3% 30.3% 30.6% operating businesses EBITDA Margin of Operating Businesses 2 Further increasing their earnings through acquisitions 28.7% 34.5% 20.4% Contribution to revenue
Slide 18: Capital Allocation – FY
CAPITAL ALLOCATION – FY KPG aims to build per-share intrinsic value by: FY18 FY19 FY20 FY21 FY22 FY23 1 Improving the earning power of our 34.0% 27.7% 32.5% 33.4% 30.9% 27.3%* operating businesses EBITDA margin of operating businesses 2 Further increasing their earnings through 17.2% 6.4% 6.6% 4.8%
Slide 19: ROIC
ROIC “And when we think about Invested Capital, we think about the shareholder capital that has been invested in the businesses, plus any Adjusted Net Income less any distributions. Obviously, when you divide Adjusted Net Income by Invested Capital, you get a measure of the return on our shareholder
Slide 20: Additional Investment
ADDITIONAL INVESTMENT • Additional investment of $0.7m (0.7% of run rate revenue) to ensure we can handle next stage of growth (revenue growing 60% from FY22 ($64.9m) to FY24 run rate of $100-$110m). Additional investment for the half year has reduced ~40% compared to prior year • We have always inv
Slide 21: Software Engineering
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Slide 22: Strategic Review
STRATEGIC REVIEW ▪ As part of the Strategic Review announced on 11 August 2023, Kelly Partners Group Holdings Limited (“KPG”) continues to review its strategy, capital structure and governance in the context of its Australian and emerging US growth strategy ▪ The Strategic Review has identified the
Slide 23: The dividend was a tactic, not a strategic move
"The dividend was a tactic, not a strategic move." “Another obvious fix for our cash constraints would be to axe the dividend. The dividend was a tactic, not a strategic move. It broadened the appeal of our stock and thereby helped us find an exit for our private equity investors. We appreciate the
Slide 24: Dividend Reinvestment
DIVIDEND REINVESTMENT Illustrative pro forma analysis demonstrates the incremental earnings potential from ceasing dividends and reinvesting capital. Commentary Illustrative pro forma historical Underlying NPATA assuming reinvestment of dividends(1) 20.1% CAGR • Illustrative analysis shows pro forma
Slide 25: Appendix
APPENDIX KP+GH
Slide 26: Contents
CONTENTS 1 GROWTH 2 GROWTH - USA 3 FINANCIALS Note all totals and other calculations presented in this presentation may be impacted by rounding 26
Slide 27: Growth
1 GROWTH
Slide 28: Incumbents
INCUMBENTS PwC scandal: Australian Tax Office tried Hoh rere REE to get federal police to investigate in 2018 Net benefits In their own words: What staff say about EY “The partners protect bullies. Often they are bullies and ageressive themselves” EY personnel describe what itis ike working at the b
Slide 29: Offices
OFFICES NSW 34 VIC QLD GLOBAL USA 2 32 2 India 1 3 2 1 4 +2 / +6%
Slide 30: Revenue & EPS
REVENUE & EPS YOY Contrib. Revenue compounded INTERNAL annual growth Accounting 3.3% 3.1% rate since 2006 INTERNAL 30.5% -5.2% -0.4% Complementary Earnings per share ∞ EXTERNAL annual growth 20.4% Acquired rate since IPO (TTM 1H24) Excluding organic growth from acquisitions made in the last 12-24 mo
Slide 31: Owner Earnings
OWNER EARNINGS 1H20 1H21 1H22 1H23 1H24 CAGR Owner earnings $1.9m $2.6m $3.4m $3.5m $4.2m 20.9% Owner earnings per share (cents) 4.29 5.83 7.51 7.86 9.26 % Growth 36.1% 28.8% 4.6% 17.9% Underlying NPATA $1.8m $2.8m $3.3m $3.5m $4.4m Cashflow Conversion - Parent 107% 94% 101% 101% 95% • Owner earning
Slide 32: EPS & Owners' Earnings
EPS & OWNERS’ EARNINGS $0.12 50,000,000 45,000,000 $0.10 $0.10 $0.09 40,000,000 35,000,000 $0.08 $0.08 $0.08 $0.08 $0.07 30,000,000 $0.06 $0.06 $0.06 25,000,000 $0.04 20,000,000 $0.04 $0.04 15,000,000 10,000,000 $0.02 5,000,000 $0.00 0 1H20 1H21 1H22 1H23 1H24 Owners earnings per share Earnings per
Slide 33: People Services Clients
PEOPLE SERVICES CLIENTS Other Services, 0.31% Investment Wealth, office, 0.50% 6.13% Audit, Finance, 3.87% 1.71% FY23 Revenue $86.5m Accounting, +70 NPS 87.49% 542 Team Members $86.5m Revenue (+33%) 23,000 Groups (+22%) 33
Slide 34: Growth - USA
2 GROWTH - USA
Slide 35: Global TAM
GLOBAL TAM Australia United States United Kingdom Estimated TAM (A$bn) Estimated TAM (A$bn) Estimated TAM (A$bn) <1% ~15x ~5x penetration $190bn the size of the size of in Australia AU market AU market $63bn $12bn ✓ Proven model with 45 acquisitions to date ✓ Larger scale market with many global ope
Slide 36: Global Accounting Firms
GLOBAL ACCOUNTING FIRMS Top US-based global accounting firms by revenue (Example operators that meet USD revenue threshold shown) Many global operators face challenges of an outdated model Misaligned incentives given ownership hierarchy $10bn+ Commoditised approach to service Breakdown in tran
Slide 37: US Opportunity
US OPPORTUNITY US Economy vs Australia ($ USD) US accounting services revenue by firm cohorts (2023) ($ USD) Rank Country GDP ($T) 1 United States 25.5 Big 4 2 China 18.0 55% 3 Japan 4.2 Top 5-20 ~$145b 15% 4 Germany 4.1 ~46k total firms 5 India 3.4 Top 21-100 8% 6 United Kingdom 3.1 15.0x Sub-500 1
Slide 38: USA Demand Drivers
USA DEMAND DRIVERS Paying taxes in the U.S. is even more difficult than in Australia The US tax code is incredibly complex and growing each year ~75,000 Ease of paying taxes (ranked easiest to hardest)(1) Total pages in US Tax Code (including tax regulation and guidance) United Arab Emirates 1 Switz
Slide 39: USA Expansion
USA EXPANSION California is a gateway to the APAC region and a logical beachhead for KPG’s expansion, as it is the US’ most populous state and the world’s 5th largest economy despite a much smaller footprint than Australia KPGH has developed a “target list” of areas and firms just outside the CALIFO
Slide 40: USA Statistics
USA STATISTICS PEOPLE REVENUE CLIENTS USA, $6.5m, 6% N/A AUSTRALIA, N/A $103.5m, 94% 23 Team Members $6.5m Revenue (6%) ~2,000 Groups 40
Slide 41: Financials
3 FINANCIALS KP+GH
Slide 42: Highlights
HIGHLIGHTS 1H24 Financial Highlights (m) KPGHL & Controlled Entities KPGHL Attributed (parent only) P&L and Cashflow 1H23* 1H24 % Change 1H23 1H24 % Change Revenue $42.9 $52.9 23.1% – – – Underlying EBITDA (pre AASB 16) $11.6 $15.5 33.7% – – – Margin % 26.9% 29.3% 8.6% – – – EBITDA (pre AASB 16) $11
Slide 43: Revenue Growth
REVENUE GROWTH Revenue growth contributions by year FY18 FY19 FY20 FY21 FY22 FY23 1H24 AVG Organic – Accounting 10.3% -6.4% 6.6% 1.5% 4.7% 2.9% 3.1% 3.2% Organic – Complementary 2.7% 1.8% 1.4% 1.2% 1.5% 1.8% -0.4% 1.4% Organic – Total 13.0% -4.6% 8.0% 2.7% 6.2% 4.7% 2.8% 4.7% Acquired 17.2% 6.4% 6.6
Slide 44: Income Statement
INCOME STATEMENT Income Statement Summary ($m) 1H23 1H24 ∆% • Revenue of $52.9m (+$10.0m, up 23.1%), driven both by organic revenue growth (2.8%) and by contributions from acquisitions Professional services revenue $42.9 $52.9 23.1% completed in FY23 and in 1H24 (20.4%). Other income $0.5 $0.3 -53.9
Slide 45: Gross Margin
GROSS MARGIN “high gross margins are the most important single factor of long run performance. The resilience of gross margins pegs companies to a level of performance.” – Matthew Berry, “Mean Reversion in Corporate Returns” 1 70.00% 62.9% 61.9% 61.8% 61.7% 59.5% 58.8% 60.00% 57.6% 58.2% 50.00% 44.1
Slide 46: Profitability
PROFITABILITY Total inc. Total inc. Operating Businesses Established Growth Other Services Total Subscale Subscale Acquired* Acquired Revenue $38.6 $3.3 $2.8 $44.8 $1.0 $45.8 $7.0 $52.9 EBITDA^ $12.5 $0.8 $1.1 $14.4 $0.0 $14.3 $1.9 $16.2 EBITDA Margin % 32.4% 23.0% 38.3% 32.1% -4.3% 31.3% 26.4% 30.6
Slide 47: NPATA Reconciliation
NPATA RECONCILIATION Reconciliation of attributed NPAT/NPATA ($m)* 1H23 1H24 Statutory NPAT attributable owners of Kelly Partners Group Holdings Limited 2.3 1.8 Amortisation of customer relationship intangibles 0.9 1.5 NPATA attributable to owners of Kelly Partners Group Holdings Limited 3.2 3.3 Add
Slide 48: Trinity – Parent
TRINITY – PARENT 1H23 1H24 1. ROIC 1. ROIC 21.5% 19.9% EARNINGS PER EARNINGS PER SHARE SHARE 7.82 cps 9.78 cps +5.3% +25.0% 2. Net Debt 3. Cashflow 2. Net Debt 3. Cashflow to EBITDA Conversion to EBITDA Conversion 1.93x 100.5% 1.94x 94.8% 48
Slide 49: Trinity – Op Co
TRINITY – OP CO 1H23 1H24 1. WIP 1. WIP 11.4 days* 11.7 days* CASH CASH CONVERSION CONVERSION ON EBITDA ON EBITDA 106.4% 101.4% 3. Revenue 3. Revenue 42.2% Growth 23.1% Growth 2. Debtors 2. Debtors 45.0 days* EBITDA 43.4 days* EBITDA 30.3% Margins 30.6% Margins * Calculated on estimated annualised r
Slide 50: Balance Sheet
BALANCE SHEET LOCKUP DAYS WIP Days 60.0 56.4 55.2 • Net Debt / Underlying EBITDA of 1.94x (FY23: Debtor Days 1.65x) as a result of increased term debt taken 11.4 48.1 50.0 11.7 out to fund acquisitions. The gearing ratio is 5.8 impacted by acquisitions that only contributed 40.0 part year EBITDA. Ad
Slide 51: Debt & Liquidity
DEBT & LIQUIDITY DEBT AND CASH Loan type (m)* Parent Op. Bus Total Debt Working Capital Debt $0.1 $4.4 $4.5 $80.0m Property Debt $0.0 $4.0 $4.0 $18.8m Acquisition & other term debt $6.5 $34.0 $40.4 $70.0m Cash & Gross Debt – 1H24 $6.5 $42.4 $49.0 Cash, $3.4m Headroom Cash – 1H24 -$2.2 -$1.2 -$3.4 $6
Slide 52: Net Debt per Partner
NET DEBT PER PARTNER Net Debt per Partner • Total number of equity partners increased to 88 (as at 31 December 2023): $600,000 100 • 2 new partners promoted internally 88 90 • 2 new partner recruited externally $500,000 78 80 • 13 new partners from completed acquisitions 70 $400,000 62 • In January
Slide 53: Cashflow
CASHFLOW CASH FROM OPERATIONS (CFO) FREE CASHFLOW TO FIRM (FCFF) • Cash from Operations pre AASB 16 of $11.5m $7.3m increased by 11.4% (1H23: $10.3m) $11.5m $6.4m $10.3m • Free Cashflow to Firm increased proportionately • Cash Conversion1 of 101.4% (1H23: 106.4%) and is within our expected 85%-100%
Slide 54: Dividends
DIVIDENDS • Since IPO in June 2017, the Company has consistently paid out dividends growing at >10% per annum 9.00cps >10% p.a. 8.17cps • The Company has paid out monthly dividends from Jan- 8.00cps growth in Ordinary Dividends For 6 years in a row 7.08cps 21, reflecting the resilience and strength
Slide 55: Parent & NCI
PARENT & NCI • Profit after income tax expense was $7.3m, with: (m) NCI Parent Total Group NPAT - Statutory $5.5 $1.8 $7.3 • Profit attributable to shareholders of Kelly Partners Group Holdings Limited of $1.8m 75% 25% • Profit attributable to non controlling interests (NCI) of $5.5m Add Back: Incom
Slide 56: Cashflow
CASHFLOW 1 2 3 4 5 6 1H18 1H19 1H20 1H21 1H22 1H23 1H24 CAGR Cash From Operations (CfO) $3.1 $5.4 $6.7 $9.0 $10.8 $12.5 $14.0 28.5% Owners' Earnings (CfO - Maint. Capex) $2.9 $5.2 $6.6 $8.1 $9.1 $10.0 $11.0 24.8% Cash Conversion (Operating Cash Flow / EBITDA) 72.3% 124.2% 100.5% 92.9% 88.9% 106.4% 1
Slide 57: Cash Reconciliation
CASH RECONCILIATION Reconciliation of NPAT to Operating Cashflow ($m) 1H23 1H24 Reported NPAT 6.5 7.7 Adjustments for: Depreciation and amortisation 4.5 5.7 Unwinding of interest on contingent consideration 0.3 0.3 Other non-cash movements* -0.1 1.5 Change in operating assets and liabilities: Decrea
Slide 58: 1H/2H Skews
1H/2H SKEWS Revenue seasonality in accounting business • Revenue seasonality in the accounting businesses is approximately 1H: 52% / (excludes acquisitions) 75.0% 2H: 48%, equating to a 5% (or c. $2.4m swing) down swing in 2H23. • Seasonality is predominantly due to 65.0% timing of tax work related
Slide 59: Metrics Since IPO
METRICS SINCE IPO KPGHL & Controlled Entities ("Group") 1 2 3 4 5 6 P&L and Cashflow FY17 FY18 FY19 FY20 FY21 FY22 FY23 CAGR Revenue $30.2 $39.5 $40.0 $45.5 $48.9 $64.9 $86.5 19.2% Underlying EBITDA (pre AASB 16) $8.7 $14.5 $10.9 $13.5 $16.0 $20.0 $19.7 14.5% Margin % 28.9% 36.6% 27.2% 29.6% 32.6% 3
Slide 60: 5 Year Plan: FY19-FY24
5 YEAR PLAN 1 : FY19-FY24 $120.0m 1. Build 2. Accelerate 3. Lead • 54% Total Revenue Growth FY23 FY24 FY24 • 15.4% YOY Revenue Growth Grow NPATA Actual Run Rate 5 Year Goal • Invest in Corporate Team to scale Double Revenue to $80m $100.0m Revenue Double NPATA to $8m Revenue $100-$110m 20% CAGR Reve
Slide 61: Thank you
Thank you KP+GH
Kelly Partners Group Holdings — H1 2024 Earnings Presentation on 6ix