Knights Group Holdings PLC · LSE:KGH
Knights — H1 2020 Earnings Presentation
35 slides from Knights's earnings presentation, January 2020
Slide 1: Results for the half year ended 31 October 2019
Results for the half year ended 31 October 2019 A diversified platform for profitable growth January 2020
Slide 2: Company disclaimer
Company disclaimer These presentation slides (the “Slides” have been issued by Knights Group Holdings plc (the “company”). The Slides have been prepared by and are the sole responsibility of the Company. Although all reasonable care has been taken to ensure that the facts stated in the Slides and ac
Slide 3: Strengthened our platform for growth
Strengthened our platform for growth Accelerating Strong organic growth of 13% recruitment momentum Successful Entered integration of Birmingham four post IPO through two acquisitions acquisitions 3
Slide 4: The leading corporatised business model in legal services
The leading corporatised business model in legal services Experienced operator, having corporatised in 2012 Fee earner to Single digit Industry non fee earner churn leading ratio well significantly working above market below industry capital days average levels Cash Profit Robust platform for growth
Slide 5: A diversified base from which to grow
A diversified base from which to grow • Over 10,000 clients • Average matter of c.£3,000 • 175 clients generating over £50,000 pa A broad client base of local quality and national businesses *Biffa and Mitchells & Butlers will become clients of Knights on completion of the acquisition of ERT 5
Slide 6: Financial highlights
Financial highlights +13% +23% +24% Organic revenue growth Underlying EBITDA Underlying PBT (1) growth Total growth +34% growth (1) to £32.0m to £7.3m to £5.3m (HY 2019: £23.9m) (HY 2019: £5.9m) (HY 2019: £4.2m) +14% 77% +83% Underlying EPS(1) Underlying cash Interim dividend conversion(2) To 5.95p
Slide 7: Solid financial performance
Solid financial performance Summary income statement (£,000) • Organic growth of 12.6% HY 2020 HY 2019 • Income from acquisitions £9.7m in the period Revenue 31,977 23,861 • Fees per fee earner £63k Revenue Growth 34.0% 36.6% • Gross margin 46.2% (H1 2019: 51%) Other operating income 281 220 Staff c
Slide 8: Driving profit growth
Driving profit growth Underlying EBITDA per fee earner (£’000) 20 16 14 15 12 10 Underlying EBITDA Bridge (£m) 5 10.0 0 9.0 0.5 1.4 H1 2018 H1 2019 H1 2020 8.0 1.5 0.7 7.0 1.3 Fees per fee earner (£’000) 6.0 80 66 5.0 63 60 53 4.0 7.3 40 3.0 5.9 20 2.0 0 H1 2018 H1 2019 H1 2020 1.0 0.0 H1 2019 Acqui
Slide 9: Balance sheet summary
Balance sheet summary Summary balance sheet (£,000) • Adoption of IFRS 16 ‘Leases’ increased assets and liabilities on the balance sheet by £20m each 31 October 31 October 30 April £’000 2019 20183 2019 • Net debt at £17.1m; £1.4m ahead of management expectations Goodwill & other intangibles 45,842
Slide 10: The market opportunity
The market opportunity Market size – revenues by region £93m < 3% share of Market a £2.6bn growing at addressable 3-5% £437m market £443m c.160 firms £85m Revenue £159m £251m £204m £2 – £60m outside London £296m £246m £442m Sources: Bureau van Dyke, Mintel UK Legal Services Report 2019, The Lawyer U
Slide 11: Knights – A unique opportunity for recruits
Knights – A unique opportunity for recruits City quality work No financial risk c.630 professionals Geographical spread Top 50 Local national firms independent firms Partnership model Lack scale Financial risk Succession challenges Large quality client Regulatory pressures following Cash constrained
Slide 12: Recruitment remains broad based
Recruitment remains broad based Historic fee earner organic (gross) recruitment 50 Pre-IPO Post-IPO 45 40 35 30 25 20 15 10 5 0 Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19 Q4 FY19 Q1 FY20 Q2 FY20 Paralegal Associate Partner 12
Slide 13: Acquisitions – A tried and tested formula for origination and integration
Acquisitions – A tried and tested formula for origination and integration Support staff redundancies Back office integration Fee earner Training fee earners Clear criteria: integration Financial management disciplines on single operating Modernisation – paper light Cultural fit platform Cultural int
Slide 14: Continuing to execute our strategy – Supplemented by strategic acquisitions
Continuing to execute our strategy – Supplemented by strategic acquisitions Highly selective, quality acquisitions to accelerate growth in existing locations or provide platforms for growth in new geographies or specialisms Turner Parkinson One of the top corporate law firms by deal volume in Manche
Slide 15: Creating value through organic and acquisitive growth
Creating value through organic and acquisitive growth 80 70 60 Revenue at time of acquisition 50 40 30 20 10 0 Knights Hill Dickinson Darbys Turner Spearing Cummins BrookStreet EGL Organic FY20 Revenue Parkinson Waite des Roches Growth since Consensus 2012 *The provision of the consensus forecasts d
Slide 16: Investing in the business to support future growth
Investing in the business to support future growth Building the team Transacting more efficiently Tech-enhanced delivery Expanded operational Building operational scale to Enhanced service delivery, management and team perform transactional tasks including the acceleration of through wider automatio
Slide 17: On track to achieve FY20 guidance
On track to achieve FY20 guidance Significant progress made in first half to achieve FY20 guidance set out at the time of the IPO Achieved at IPO FY20 guidance at IPO Achieved by Jan 2020 Fee earners 350 750 633 Increase leverage Fee earners : support staff ratio 4.5:1 4:1 of overheads Geographic fo
Slide 18: Summary and outlook
Summary and outlook Strengthened and diversified platform for continued profitable growth Good cash conversion Invested in the platform to support scaling up Realising the benefits of recruitment momentum and recent acquisitions Excellent pipeline of potential high quality acquisition opportunities
Slide 19: Appendix
Appendix
Slide 20: Environment, social and governance
Environment, social and governance Environment Social Corporate Governance Eliminated use of disposable, 4theCommunity - Colleagues cups, cutlery and crockery in have 4 hours of work time a the last 2 years month to spend helping their Independent board members Increased use of digital working local
Slide 21: Knights investment proposition
Knights investment proposition High growth, high resilience, proven model 1 Challenger to the legal services model in a highly attractive, fragmented market 2 Resilient business with high quality of earnings and a capital light model 3 A proven and compelling platform for legal professionals 4 Multi
Slide 22: The journey to date
The journey to date Successful track record of organic and acquisitive growth 22
Slide 23: Strong track record – continued growth momentum
Strong track record – continued growth momentum Significant revenue and underlying PBT growth (£m) 35 32 30 25 23.9 ✓ New regions 20 17.5 15.5 ✓ Healthy recruitment 15 ✓ Investing in support staff 10 5.3 4.4 5 2 2.2 0 H1 2017 H1 2018 H1 2019 H1 2020 Revenue PBT • Revenue growth driven by strong recr
Slide 24: Delivering on our strategy - organic growth
Delivering on our strategy - organic growth • H1 2020 marked a strong period for organic growth: • 43 net new fee earners recruited, compared to 46 in the whole of last year Stoke Office Number of Fee Earners / Office turnover • Benefitting from newly created recruitment director role 120 16 • Opene
Slide 25: Developing the Group organically
Developing the Group organically • More fully serving high quality UK clients o Clients that buy more than one service from us has increased by 13% to more than 1,100, but the vast majority still buy one. There is a significant opportunity to continue to grow this year on year. o We continue to attr
Slide 26: Recruitment: A compelling platform for fee earning legal professionals
Recruitment: A compelling platform for fee earning legal professionals Quality work, opportunities and choice, with sustainable balance • Fee earners focus on clients & quality work, leaving management to focus on the business • Opportunity to pioneer change in legal & professional service delivery
Slide 27: Delivering on our strategy – acquisitive growth
Delivering on our strategy – acquisitive growth • Grew prior period acquisitions as platforms for expansion in H1 2020: • Manchester – increased 44 fee earners acquired with Turner Parkinson in June 2018 to 79 • Leicester – grown from 64 fee earners acquired with Spearing Waite in October 2018 and C
Slide 28: Executive Management
Executive Management David Beech CEO Kate Lewis CFO Richard King COO • Chief Executive of Knights since • Kate joined Knights in 2012 as • Richard joined Knights in June 2018 2011 Finance Director • Richard has extensive experience of • Spent 16 years as a corporate lawyer • Kate is a Chartered Acco
Slide 29: Leadership team
Leadership team PLC Board Central management Steve Bal Jane Dolton Johal Pateman Senior Non Non Exec Non Exec Exec Director Chairman Director Kate David Richard Lewis Beech King Chief Financial Chief Operating Officer CEO Officer Mark Mike James Joanne Julia Tim Dan Nigel Colin Beech Cummins Philpot
Slide 30: Reconciliation of underlying to statutory measures – EBITDA and PBT
Reconciliation of underlying to statutory measures – EBITDA and PBT Underlying EBITDA (£,000) HY 2020 HY 2019 Operating profit 3,455 3,880 Depreciation and amortisation 2,010 645 charges Non-underlying costs 1,848 643 Non-underlying share based - 88 payment costs IFRS 16 impact in prior year - 687 U
Slide 31: Reconciliation of underlying to statutory measures – non underlying and non recurring costs
Reconciliation of underlying to statutory measures – analysis of non underlying and non recurring costs Non underlying operating costs (£,000) HY 2020 HY 2019 Redundancy costs 288 338 Transaction costs 51 305 Share based payment charges 280 - (one off IPO related awards) Contingent consideration (on
Slide 32: Reconciliation of underlying to statutory measures – PAT and EPS
Reconciliation of underlying to statutory measures – PAT and EPS Underlying profit after tax (£,000) / Underlying earnings per share (pence) HY 2020 HY 2019 Profit after tax 2,114 1,110 Amortisation 592 277 Non-underlying operating costs 1,848 731 Non-recurring finance costs 24 1,924 Tax in respect
Slide 33: Free cash flow and cash conversion
Free cash flow and cash conversion Free cash flow and cash conversion % HY 2020 HY 2019 Cash generated from operations 4,941 5,377 Adjustment for cash outflow re (987) - IFRS 16 accounting Tax paid (1,993) (488) Net cash from underlying 1,961 4,889 operating activities Underlying profit after tax 4,
Slide 34: IFRS 16 Reconciliation of Comprehensive Income
IFRS 16 Reconciliation of Comprehensive Income Reported Reported Restated Reported Restated IAS 17 IFRS 16 IAS 17 IFRS 16 IAS 17 IFRS 16 HY 2020 Change HY 2020 HY 2019 Change HY 2019 FY 2019 Change FY 2019 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Revenue 31,977 31,977 23,861 23,861 52,6
Slide 35: IFRS 16 Reconciliation of Financial Position
IFRS 16 Reconciliation of Financial Position Reported Restated Restated IAS 17 Change IFRS 16 IAS 17 Change IFRS 16 IAS 17 Change IFRS 16 Oct-2019 £’000 Oct-2019 Oct-2018 £’000 Oct-2018 Apr-2019 £’000 Apr-2019 £’000 £’000 £’000 £’000 £’000 £’000 Assets Non-current assets Intangible assets & goodwill
Knights Group Holdings — H1 2020 Earnings Presentation on 6ix