Knights LON:KGH, the listed legal and professional services group, has reported double-digit profit growth for the year to April, as a combination of organic recruitment and acquisitions drove performance despite rising costs linked to its expansion strategy.
Revenue rose 8 per cent to £162m, up from £150m a year earlier. Underlying pre-tax profit climbed 11 per cent to £28m, reflecting stronger margins and tighter cost control. Gross margin improved by 170 basis points to 50.5 per cent, while underlying earnings before interest, tax, depreciation and amortisation increased to £42.9m.
However, reported pre-tax profit fell to £12.3mn from £14.8mn, weighed down by higher acquisition-related expenses. Basic earnings per share dropped to 8.83p, from 11.47p last year, although underlying EPS grew 10 per cent to 23.95p.
Knights said it would raise its final dividend by nearly 10 per cent to 3.05p, bringing the full-year payout to 4.81p.
Knights is pursuing a consolidation strategy
The company has pursued a consolidation strategy in a fragmented legal services market, expanding its regional footprint through a series of acquisitions. During the year it bought Thursfields Legal in the Midlands and IBB Law in the South East, the latter its largest transaction to date. Together, the deals added almost 250 fee earners and broadened the firm’s offering.
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Since the year-end, Knights has agreed to acquire Essex-based Birkett Long and Rix & Kay, which operates in Kent and Sussex, further strengthening its presence in the South East and extending its wealth advisory capabilities.
David Beech, chief executive, said the company had delivered “step changes” during the year, citing improved recruitment, lower staff turnover and operational discipline. “We have built strong recruitment momentum and reduced churn, while advancing our value-accretive acquisition strategy — including our largest acquisition to date in the second half — and continuing to win new clients,” he said.
Recruitment has been a central focus for the group, which hired 51 senior fee earners during the year, up 28 per cent on the previous period. Churn dropped to 10 per cent in the second half, which Knights said was “significantly lower” than the industry average, reflecting investment in employee engagement.
Client wins and tighter pricing discipline supported organic growth, while the firm maintained what it described as “industry-leading” debtor days of 31. Cash conversion remained strong at 130 per cent, though net debt nearly doubled to £64.8m, reflecting £25.1m of acquisition payments. Even so, Knights reported a net debt-to-EBITDA ratio of 1.6 times, well within its banking covenants.
Trading in line with expectations
Beech said trading in the new financial year had started in line with expectations, with the company continuing to attract “high quality people and firms”. He added that Knights was “well positioned to seize the opportunities presented by the structural trends in our industry,” pointing to growing recognition of the firm’s national scale and integrated service offering.
The group said it was confident of delivering further profitable growth in the year ahead and medium term, with a pipeline of acquisition opportunities under review.
Shares in Knights have risen in recent months as investors warmed to signs of operational progress, though the fall in statutory profit highlights the costs of its buy-and-build model. The coming year is likely to test whether the company can sustain earnings growth while integrating a string of newly acquired practices.
