Knights Group Holdings plc (KGH.L) Earnings Call Transcript

Good morning, everyone. Thank you for joining our webinar and our 6-month presentation. I'll start off with a summary of where we're at and then I'll hand over to Kate and then back to me to focus on sort of where we are today and how we see things mapping out going forward, current trading and specifically focusing on organic growth at the end. So starting off, a summary here of where we are today and what we've built over the last few years and certainly since listing is a really exciting platform for further growth organically and acquisitively. The mix of business hasn't changed at all in any of the recent years. We're a full service provider. It's a local businesses. That's becoming more interesting now for large corporate national businesses, and we are seeing as well some international work, which I'll talk about in my second section. So the mix of business hasn't changed. It's very diverse. What you've seen on this slide is the map that we've created. And this has now an interesting platform, particularly in the tertiary locations, which is all those locations, excluding Manchester, Birmingham, Leeds. There is a difference in Manchester and Leeds, it's harder for us to break in. We see more churn. We've seen that in this period of reporting in Leeds. It's harder. There's more competition. All of the other top 50 are there. We have to really position ourselves for the local corporate scene, trying to avoid the top 50's appetite for things like private equity and bank panel work. We're there for local business. And we see a great opportunity for ourselves in those markets, too, but it is slightly different and it's more competitive. If you look at the 19 sites out of Manchester, Birmingham, Leeds, the tertiary locations, as we call them, now 20 with Bristol, which neatly plugs the gap there between the Cheltenham and Exeter offices. Then we've got a very exciting local seam where we can, over time, once we've been in situ for 1 year or 2, we will then the dominate the local business scene. We become the local magic circle to these types of tertiary markets. So that sets out, I think, what we've built today as a platform for further growth. What that has done with the client base is obviously made the client base explode, to be frank, we've got so many clients now, so much spread, but all shapes and sizes and a strong client retention with strong key people retention. Our key people over last 10 years, frankly, have been very sticky to our business model. That means the clients are very sticky. Here, I just want to focus on a couple of things. We are very much positioning and coaching and we're doing a lot of training, I'm going to talk about this later, but we're doing a lot of training of our people now. Now we're back in offices, we feel very much back to normal. I started this year over the last 2 weeks. We've had 9 working days so far, and we've not wasted a second of those 9 working days. We've met all of our people across the offices to almost relaunch the business now things are back to normal, we feel we've had our first normal Christmas I think, in 3 years. And back to normal for us, is very much back working together in offices so that we can train people. And a couple of key features there, which are on this slide is, first of all, to let them see the purpose and the vision of Knights is to really become the dominant premium business for professional services to local business communities. And I think once people understand the premium nature of what we're aiming to be, then that helps them understand how we need them to adjust from the sort of squeeze middle, we call it from the independent firms they've joined us from. So they come from firms where they feel under pressure where there's no growth, and they can't charge for their effort, and we bring them out of that and put them into a premium business where we can be paid for all of our efforts. And there's a lot of coaching of that. Alongside that, that brings, I think, a uniqueness of Knights and the commerciality that we have had people start to think commercially. And what we mean by that is they start to the value of their time, get paid for their time and get paid quickly. And without a doubt created a market-leading, lockup days. When you look at our Debtor days, for example, the amount of time it takes for our invoices to be paid compared to the, say top 100 with stellar, we are market-leading in that respect. And that's because we've got our people now 1,100 fee earners thinking commercially. And this is very important for us day-to-day, but I think even more important perhaps as we go into a recession. Just here a quick reminder really of what we've built over recent years. We started this journey properly in 2012, we grow the business -- this is how we've grown it. We grow particularly focused on gross margin and then the net margin and that just gives you a reminder really of how we've run the business. We absolutely see this continuing. I think as we've now become known, people understand the uniqueness of Knights. I'm going to talk about what this means in a recession and in my second section for attracting people, but we absolutely see this rate of growth continuing as we move forward. Organically and acquisitively, a lot of focus at the moment is on organic growth, which we're going to talk about. But just a reminder really of what we've built so far and the track record and now the team are very set, very experienced together, going nowhere. We're all in this together to really stay on board for the next few years to really enjoy, I think, a fantastic growth period ahead of us. My last slide before I hand over to Kate. I just want to talk here about the resilience and opportunity of recession. So the resilience, first of all, I think, comes from the diversity. We have no client concentration. I mentioned the mix, our business right at the beginning. We're not reliant on transactions. We're not relying on funding arrangements for our activities, our work at average GBP 3,000 invoice value is [ really ] management, day-to-day property management, regulatory, all things that go on, it's a nondiscretionary business, obviously. So we see it as very resilient going into recession. There might be a very small 1%, 2% of revenue, small impact on softening of corporate M&A activity, but the vast majority of our corporate activity with -- will continue. We don't see any rest in respect of our real estate work, which is incredibly diverse and very day-to-day management, not large transaction led. So the resilience, we see in the business. But the differentiated corporate structure, which I -- remind about what we mean there is that partners do not have to have capital risk that don't have to go and put GBP 250,000 in the business to try and earn a 6-figure salary or GBP 150,000 of whatever it is. They don't have to risk money. There's no financial risk unlike all of the partnerships out there. And we think that's going to be now very attractive to individual partners who want to join us to get away from that risk. We're seeing early examples of this in recent weeks as we got to the back end of '22. And as we go into '23, the economic situation, we think will fuel the recruitment of individual partners who don't want financial risk but want to earn more money. They can with Knights. We also think this will fuel acquisitions. At the moment, we're slowing that down to wait for the recession to see what happens economically and to see what happens with the marketplace and to see how we feel about acquisitions and also gives us the opportunity to put all of our entire efforts into that organic growth, which is really important to us at the moment. So the uniqueness, we think, will be resilient and very attractive to individuals or firms. The integration of our people in the last 12 months since we've sort of put out of the lockdown -- last lockdown was a year ago, you now. This is really important for us. It interrupted our flow, COVID, because people are in and out, and we need people together. We have 400 of the 1,100 who are paralegals, graduates, paralegals or trainees. They need supervision, they need to be in. And the take-up on people coming back into our offices has been incredibly well received. In fact, we had a partner last week rejoined us. I mean left a couple of months ago. It was a regretted leaver for us. Unusually, a lot of our leavers are where we managed out or we're happy they've come down to their career. But with this lady, she was a regretted leaver which she came back last week because where she went to, which is another top 50 firm, nobody was in the offices and she wanted to be in the offices with other people. So we actually think, which is possibly counterintuitive to what you read about. We actually think a strong culture of being in the offices together, which we're seeing. We saw it from last October, and we're seeing that now as we go into this new year, we think that will actually become attractive to people who want to work in teams, particularly people starting their careers because they can't learn from sitting at home. So we are very clear about our return to office culture, which we see as really positive with some flexibility that you might want to ask me about, what we see our return to offices is hugely important and very popular amongst our people. And that cultural integration that we've seen over the last 12 months positions us again in a very strong way considering what we've built over the last 2 or 3 years through difficult circumstances. Now we feel in a very a strong position to go forward with our people because we've been able to integrate them much more effectively in recent months without the interruption from COVID. An example of that would be we held our first annual conference in June 22 with 1,000 people in Birmingham. And these days are transformational for people's thinking. They see the scale or they see the fun, they see the benefit of working in a big team. We did a partner conference in November, the chart, 250 partners. Again, a transformational day that people have been talking about ever since. And the mood and the morale is high as a consequence. So this is an exciting time now as we go forward back to normal, back with our flow is how it feels. So with that point, Kate, I'll hand over to you.

Thank you, David. Good morning, everybody. I'm pleased to present results this year showing strong growth, again at both top line and bottom line, especially given the backdrop of the challenging macro environment that's out there, at least we've brought 19% revenue growth, and that's fallen through to 19% PBT growth as well. And we'll talk a little bit more on later slides about the factors that have built those up on what's impacting that. Again, on this slide, you can see that, as David talked about, we continue to have market-leading lockup days. Our lockup period ended at 103 days, 33 days Debtor days and 70 days WIP days and again, we'll talk a little bit more about the breakdown of that later on. Cash conversion for the half year was 57%, which was lower than where it was last year. The main impact on that is again timing due to some clinical negligence work that we've got from clinical negligence [ WIP ], which has been delayed and has been able to bill it and convert it into cash due to the ongoing delays at the court. We do see, however, that starting to unravel and by the year-end, we would predict to be at our sort of normal target minimum level of 70% to 80% cash conversion. One we've been reaching 100%, 105%, that's always with the benefit of acquisitions coming in and helping to push that up. But we always target around 70% to 80%, and we still see that has been an achievable level of cash conversion. In terms of net debt and where we ended up at the period end GBP 35.6 million, went to over 1.1x and our forecast year-end EBITDA is exactly where we'd expected it to be from our internal forecast. So pleased with where we've ended up. And again, we'll talk a little bit more about that. Going over then and just pick out a few of the highlights of the profit and loss account. This profit and loss account here does include the disposal of the business HPL. You may remember when we acquired the Langleys business, back in March, it had an element called HPL, which we described at the time we bought it, GBP 4 million revenue that we didn't think was strategically aligned. We have sold that during this period, and that's now sold. That contributed to these results here about GBP 700,000 in revenue and a loss of about GBP 100,000, so it actually impacted our PBT margin for the year. But excluding that, the key drivers of our revenue growth, the main driver in this half year is the acquisitions that we did. So the acquisitions that we completed in FY '22, which was the Keebles acquisition, the acquisition of Archers and the acquisition of Langleys. They contributed circa GBP 6 million worth of revenue growth in this half year and then also the acquisition of Coffin Mew, which we exchanged in July this half year, and that's contributed just over GBP 4.5 million worth of revenue. Those acquisitions that we've completed. The 3 that we completed last year are fully integrated and are performing very well on our systems and performing as we would expect them to as David's aligned to. The Coffin Mew as well, we exchanged in May. It came on to our systems as planned in July and integration is starting really well there, and we're starting to see that settling down very well as we move forward. So really pleased with the acquisitions and how they're performing and how they've integrated. In terms of organic growth, that has remained flat for the year -- broadly flat and a very small increase. That's impacted by a few things, really. It's been impacted by -- we still got the remains of us coming out of the debt recovery and the volume conveyance in areas which we talked about in the past. There was still some of that revenue in the comparable period last year. We were impacted, as we've talked about before, that our revenue that we built is based on basically the amount of days that we're working around a peak time, people are recording 2 active bank holidays in the half year for the Jubilee and the Queen's [indiscernible] did impact that slightly because not all of that work would have been picked up again. And then as David has talked about as well, we're also slightly impacted in this half year by the acquisition and leads that we completed in FY '20, but now forms part of our organic revenues because that was in a secondary market, as we've talked about, there's perhaps a bit more churn in there. It's done through COVID in a secondary market. So we have experienced a little more churn in there. So that's kept us really at a flat organic growth, which actually, given those factors and given the environment we've been in, we're relatively happy with we are pushing, as David will talk about, a lot more going forward to grow -- improve that organic growth, and we can see the start of that organic growth coming through over time. That sort of a slight decline or less than forecast organic growth has been offset by real pleasing improvement in our gross margins. So our gross margins increased from 48% to 49% in the half year, again, improving. I know a concern that many people have had about sort of the salary pressure that we've had. I think that's showing that we're managing that salary pressure. We're managing to offset that by our price and increases that we're putting through price increases of 9% went through at the start of April and actually our management of those costs. So pleased where that is and looking to grow that margin even further in the future as we continue to make sure that we're pricing appropriately and we could involve our time and saw some increased productivity, which again, David will pick up on later. Operating staff cost as an improvement in our operating staff cost. The majority of that improvement relates to the exit of the COO at the start of the year, that's there. But other than that, we're saying sort of broadly in line, and we expect again to see that starting to leverage now. So pleased with our total staff costs as a percentage of revenue where that is. Other points to pick up really on here without going through outline -- other operating charges have increased slightly, as some of it is a return to norm, some increased BD, some increased travel cost, the annual conference, which has taken place during the first half of the year. Those we expect to see starting to leave it. We've also got some of the costs of the acquisitions that we've done. We don't get all those synergies out in day 1. So obviously, cost of the land is still falling to and Coffin Mew are still in there. And we start to see that leveraging as we go into the second half of the year. You will have seen that we're looking at our property costs, you will have seen possibly in the past that we've moved part of our business in Leeds, we've merged it all into the majestic building, which allows us to sublease some of the other costs we've got that, again, started to leverage those property costs. So a slight increase in operating cost charges but where we'd want them to be invested in the business, and we see that leveraging going forward. The other line to pick up on that is the other operating income. That other operating income combined various other things that combines recharging of various cost that's increases some sort of lease income. And it also includes [indiscernible] interest that we receive on client monies, that has been an increase this year. Because of the increase, the return almost to normalization of interest rates now, we are seeing an increase in the interest that we can earn on our client monies, which is very much part of the normal business for most legal industries. We just returned to that norm. So we've got an increase there in that. That is partly offset by the interest that we then have to pay out to clients and an increase as you can see there in our underlying finance charges. But we do see that as a normalized line moving forward. The increase isn't that significant actually in this half year, but we see it going forward as an additional line. There, as you can see the margin that we've chose this half year, 12.6%. If we exclude the impact of HPL and the loss that, that incurred over the period, it's 12.9%. So a small increase. In terms of sort of year-end outcome where I would expect to be H2 is always higher. Last year, we did circa 16% just under PBT, we'd see ourselves returning to that margin, which will give us the margin of circa 15% again in the second half of the year as for the full year. So pleased with where we are in terms of P&L. Just going over on to the next slide, the bridge there, really just picking up on the elements of that. We've talked through most of that, those increase in costs mainly are in line with the increase in size of the business. The increase in gross profit. The vast majority of that is come from the increased revenue from the acquisitions, but also part of that, circa GBP [ 2 million ] is coming from the increased gross margin in the core business that we've seen coming through and we've talked about property costs and how we'll start to leverage those going forward. Over to the next slide, then the KPIs, key KPIs. And I think, again, really pleased with these KPIs that they've delivered and how they are trending over the period, you can see our gross margins increased from 48% just over 49%. This year, again, prove of our management of our costs, but also reflecting our fees per fee. And you can see there a nice steady increase in our fees per fee and that regenerates again coming from the revenue, coming from the quality of our fee earners coming in. You may see some churn of fee earners, but quite often, as David has talked about, churn can be good churn, and we've gotten some really good quality fee earners coming in that are improving that fees per fee and the work that we've always done, we've always talked about how we go about sort of making sure that people are coming more of that time. So pleased with those KPIs, and we expect to see them continue to grow into the future. Moving over then on to the cash flow. We have reported 57% cash flow conversion for the year, which is less than last year, talked mainly that, that is about the increase in working capital in the clinical negligence business. So the clinical negligence work in progress. It's all got with -- It's all work that will be built and moved cases along while but we are delayed. We are sort of in the hands of the court and the delays there. We can't do anything about sort of how quickly that's turning around. We do see that starting to turn now, starting to come through, and we will see some more of that started to be built. You don't see that increase in the lockup days because it is a one-off. It is exceptional. We don't include clinical negligence, as we've talked about before in our lockup data. So the rest of our work in progress is all exactly as we'd want it to be, and we talked about that going forward. There I just put on the slide as to what we target. We've always targeted plus 70% to 80%. We quite often achieve circa 100%. I do think that's very ambitious to put that as a long-term goal. I think a more realistic goal would [ B2B ] 70%, 80%, 90% cash conversion, which is what we're confident we'll end up for the year-end. Moving over then to talk about our working capital. Just to reiterate briefly, this is the amount of time it takes effectively for us to convert units to time spent on a job into cash in the bank, and it's made up of our WIP days and our Debtor days. And we are market leading with where we end up. We target around about 90 days at the year-end, which we've achieved in the last few years. We're always slightly higher at half year because the push for billing isn't quite as high half year as it is the full year. At this half year end, we're reporting 103 days. Now that is impacted slightly by the acquisition of Coffin Mew. We do exclude acquisitions from our calculation, but we only exclude them for the first quarter of acquisition with Coffin Mew completed in July. That is actually included within our definition and so it is included in that calculation. If I did strip that out, we would be at 98 days lockup. So you can see that very comparable to where we've been reporting in prior years. And on the right-hand side there, this is just a table really to show you the opportunity that we have and to demonstrate how we improve the financial management of businesses as we acquire them. The gold items there, OTB and the Mundays were acquired in FY '21. And you can see there how we've improved our lockup from over 100 days down to sort of the circa 70 days, in line with where we'd expect them to be for business as a whole. And so there you can see the improvement that we've made in the acquisitions last year and the opportunity that we still got to improve that financial management and bring those down and generate cash out of those going forward. Going over then now on to the balance sheet. There's not really an awful lot to talk about on the balance sheet, the main movements in the balance sheet related to the acquisitions. We've acquired, Coffin Mew during the year. So that has increased the assets, and that's the majority of the movements that you'll pick up on there. The net debt figure will pick up on the we'll talk a little bit more at there. And that's increased. It's increased because of the acquisitions that we've done, but it's exactly in line with where internally we've budgeted it to be at the year-end. And in terms of the consensus EBITDA for the year-end, we were about 1.1x. We do see that coming down as we go forward. We have obviously just announced the acquisition of Meade King, but that requires minimum cash out during the second half. And so we do see actually the cash generation that will come through in the second half will mean that, that will come down at the year-end. And we'll end up 1x, maybe less than 1x EBITDA at the end of the year. Going over to the net bridge here, really, this is just talking through what we've talked about before, showing that, yes, we've increased, but actually, it's due to what we've invested in terms of the outflows for acquisitions and CapEx. We paid the dividend last year, which was GBP 1.7 million. We have declined dividend this year. So because we were confident in the business and there was the sufficient cash in the business, we've declined a dividend to [ 1.53p ], which is an increase of 5% from where we were last year, that results in a cash outflow in this H2 of around about GBP 1.3 million. But given the current headwind, we're just GBP 24 million, that's GBP 23 million taking account of the dividend that we forecast. That's plenty of headroom within our GBP 60 million facilities available there for us to go and invest in growing the business organically and through acquisitions if we find the right acquisitions, which Dave will talk about. So I'll hand back over to David to talk through the future plan for the business.

Thank you, Kate. So on this next slide, I just want to talk about a couple of things. First of all, what is interesting to clients. And I think it's interesting to our people and I think you'll be interested in this is that we have created now the largest legal services business outside London. If you look at the top 100 lawyer survey, it's the best survey to look at to see the actual map of law firms for the top 100 and then they do the second 100. So they put this up 200. If you exclude those businesses regionally with London premises, London offices, they are London and international. If you look just solely regional, which is all we are, we don't do business in London, we got to try to get this international, but not based in London and will never be based in London or internationally. This is getting scale. It's creating something that's starting to be known. When we started our journey as a listed company, the reason to list was so that we could grow. So people could get to know about the brand, know what we're about. We'd obviously have to lend them capital and where for all to grow through acquisition. And people have now got to know about Knights. There's very few people when we go and present to say, law firms or when we're hiring individuals that they don't know about us. So we're known within the legal industry. I think we're still not that well-known and certainly with say, large corporates and that's starting. You can now see that people do have an early awareness of our business. So the fact that we're now getting quite large outside London is, I think, very relevant to local business and national business. So that's interesting. And it's attracting people because of the scale. They've got significant 7-figure client followings. Then they know they can come to the largest business outside London and bring those clients and onboard those clients with us. We've just had one of biggest pillars from a top 20 [ old ] firm joined us first November. That would be a good example, who brings a multiple of 7 figures with him, all fueling organic growth, which I want to talk about. So the scale outside London and the regions, is becoming interesting. I think in this sense, COVID has helped that I think people now working in offices with teams close to where they live without commute times is very relevant, more relevant than perhaps it was before. We certainly see an opportunity in the South, Southeast and Southwest, attracting people from London to come and work where they live. And that's, I think, going to be relevant going forward in recruitment and the scale of being larger and being more known is helpful. And the second thing I just want to focus on here because I'm not really talking about it after this slide is acquisitions. And just to give you clarity about our intent at the moment. We definitely still want to do acquisitions. There's no question. But it's need of the moment to just slowdown, which is what we've been doing. I think the acquisitions we'll do at the moment will be similar to what we've announced today in Bristol. We'll look at some small ones for a few reasons. We don't want to do anything more substantial at the moment while the market is going into an economic downturn because I think that will affect the actual valuation of the law firms we're talking about. I think it will increase their appetite to want to seek the safe sanctuary that Knights gives them. So I think the conversations should be logically, in my mind, the wheels should be oiled in respect of those say, medium or larger acquisitions. So I see that down the road a little bit, say, probably in a year's time when we understand what '23 has delivered economically. In that time, I think we will look at some small ones like we've announced today that will help us get a turn into a market like it does in Bristol this morning. It gives us a good chance to then explore the Birmingham market with virtually no risk coming up very little capital out for a very small law firm. So that's the future, I think, over the next month. There will be some acquisitions, but I think they'll be smaller. This gives the -- as well as waiting to see what happens economically, it allows us to pay the debt down in the next few months. So I'm really keen by 30 April that we see the RCF drawn the [ 35 ] circa that Kate mentioned that we get that -- we get into that, and we can reduce that. That will increase our firepower down the road too. And I know this is probably something shareholders will be positive about. But I think there's good reasons for us as a business to do this too as well as it's been a positive thing for investors. So that's where we're at with acquisitions. I think there will be some, but I think they'll be smaller. What I'd love to see in the next year is Bolton acquisitions where we can add an acquisition to an existing office. This has 2 major positives for us. First of all, we can integrate even better. We've become absolute excellent masters at integration, having done so many in recent years. Our team is very ready whenever we do acquisitions. And I think recent acquisitions and when we're now just focused exclusively on tertiary locations, we find them a lot easier and a lot stickier and a lot smoother. So I hope that we do some, and I hope that we do small Bolton acquisitions into existing offices, even easier to integrate with so many culture carriers in an office. And we leave overhead so much more effectively by taking out their office costs, which is normally about 8% of revenue, therefore, going straight to the bottom line when we look at the synergy cost savings. So that's the flavor of where we are on acquisitions. What I'd look to now just talk about organic growth. Here, just a reminder of the scale of this opportunity, we evaluated at least GBP 3.3 billion. As you can see where we're positioned, we neatly go into that Southwest now, which I think is a very interesting, exciting opportunity for us. I've already had several our partners who found our assets, as you did this morning, e-mailing, showing that excitement. And I think we'll be able to grow organically from Bristol with little or no churn from that business that we've acquired. But just a reminder there of what we occupy, you can see the gaps to further acquisitions, but perhaps after the next sort of 6, 12 months when we see things economically, as I've mentioned. This is the team that we're working. Now this really gives us great confidence to scale our business further. A question I used to ask myself as we're listing how we're going to scale our culture and we think about scale as the culture before we actually think about growing a bigger business because the culture is unique from the point view of the one team culture that we have across the whole country. We don't have offices or teams fighting until we get them supporting each other. And that's very well evolved and mix is unique in the market. And it's the #1 thing for us as far as importance that we have a culture where people learn to share with our individual feet on [ inspiring ] each other. It makes the business incredibly resilient and sustainable. And these people lead that culture. It's crucial that we have these people. They've all been lawyers but they have learned how to people manage, how to culture carry and then how to financially manage because the second distinction with us from a normal law firm is the financial management and we get people building their time and collecting cash and we've become incredibly effective at that. And this is the reason why we can scale it because across the country, I work closely with all these people. I speak to them most days. And certainly, I'll speak to everyone on this list every week. And together, we changed the mindset of lawyer so they can come on board into a thriving commercial business. And this is how we can carry on and grow. We've added a couple recently, Andrew there, top to become a real key to link client services operations. We're much more connected than we were before when we had a COO. That change has worked brilliantly for our business to bring everything together, client service-wise with all the fee earners and the clients and all of the operational colleagues. So this is the organic that I wanted to try and make this as simple as possible so you can absorb all the drivers. And the first thing I'll talk about is recruitment. And I mentioned this earlier, we see this accelerating. Our recruitment has definitely softened in the last 12 months as the whole job market has become so competitive. There's no question. We've seen our numbers reduce and how many people we have. I think the quality has gone up a level because of the awareness and the scale that we give people. For example, that person I mentioned at the beginning of November. There was an incredibly big bill with lots of the clients has been attracted. So I think we've still got some amazing quality that's joined in recent weeks, but the numbers have gone down because it's become a very competitive environment. I think that competitiveness will diminish now in the next 12 months because I think more firms will start hiring as suppose we go into an economic downturn, straight recession, that will give us the same opportunity we saw in the summer '20 when we very much reopened the business to hire when obviously, we're in COVID and people were sort of stopped in their tracks. So I think we'll accelerate recruitment. But the scale, I think, will be attractive as well as the fact that the job market is changing. And I think the sort of balance has shifted that will really help us, I think, now grow our organic growth and client base to attracting more numbers, but still the quality will continue to grow, but I think the numbers will too. The next thing there is talk about price increase. We've done something, I think, different to any law firm I've ever witnessed and that is we announced our first May rate change is very early in our last year. We did it on the first of February. So this time, it's 9% from 1 May, '23. This time, we've announced that from 1 November. So on the first November '22, we've announced to all our people and all the clients because we put this in every engaged letter from 1 November. And this is really, I think, quite clever because now we don't have any administrative work to do with clients from the first of May '23 in respect of the 9% average increased rates because they've all been told for the last 6 months. So the jobs that we have, going to first May, which is thousands than everybody knows. So it gives us more full year effect on that 9%. It's not absolute full year effect because that only works in respect of time spent engagements where you're basically doing your time every month and that's about 70% of our revenue, 30% is fixed field framework agreements. And we're working hard at the moment, I call it a preseason training. And these 3.5 months, we're working really hard to look at all the framework rings, all fixed fee arrangements to basically bring and play non-incentives. And we want to actually a lot of those fixed fees to get a lot higher than that, but we want to absorb that rate change to get as much of the full year effect as possible. The cross-selling, this has been going on for about a year. And the progress is slow because the mindset of a lawyer is to think about what they do, not lift their head and think about what else we could do for the clients. So what we've been doing, and we've seen some good examples of how this works is not rely too much on the part people doing the work, but bring in as another limit of work for those clients, service directors to go and see the top 100 clients I've been to see for myself, and we are more equipped to because we're not stuck in the weeds, doing the detail and doing the technical work to see what more we can do with clients. And that's something that it's still early days, but I think there is a big opportunity over the next few years to get much more of the clients' purse. And this goes a little bit with the scale as well as the brand becomes more recognized, it's more credible in corporate size, those people with big purses I think need to have that familiarity of the name of Knights and the brand. But we see that probably a little bit more medium-term from today. The next focus of BD is certainly lifting off. We've got now a dedicated client service director to look at the large corporate client base, existing and new, and there's plenty of new. We were in, for example, in Monaco. I went with this Client Services Director, Lyndsey , and we presented to 24 General Counsel. And we now already think we'll be working for about 8 of those [indiscernible] today. We hope to work for a few more and these are European, very large corporates with large General Counsel teams who can then use the largest business outside London, and that became very relevant to them in November when we were presenting to them. The fact that we've got the scale of 1,000 fee earners, the collaborative nature of our business, from the team culture of working as one business without individual fights o fee targets going on. They were very interested in that. And when we mentioned partner rate of GBP 550 an hour. Some of them fell off the chair, that it was -- I was asked why is that so cheap because they're used to paying [indiscernible] rates. And we're already now seeing 8 of those instructing as if -- and probably the other day as what we're seeing that progress just from seeing the 24 of November. So that's quite interesting. I think that will aid organic growth. I still think the biggest drivers for us are recruitment. That's always been the biggest. I think price increase is now starting to join that. I think those are the 2 large drivers for organic growth, I'd say price increase because we're able to coach people much more than we've ever done before. When we went into March '20, 400 fee earners joined and that's the March, April, May, June period, it was incredibly lumpy, obviously, trying to get them to be in that and just sort of trust it was the challenge. Now all the people in Knights are settled. They trust it. We think churn will be very low going forward, particularly as the employment market has changed. So I think it's more settled, I think less -- far less churn, but also we can train them more. We can [ enter ] into their mindsets of how to price, how to set jobs up with much more scale. The law doesn't teach pricing. Our business has been teaching it very effectively for about 18 months now and more effectively in recent weeks and months. So I absolutely think that, that 9% from 1 May and pricing generally, productivity and the efficiency of being paid for our time going up is all going to match recruitment, if not possibly ever take it, aided by more doing more for the client and winning new clients. And that is our primary focus and way more than acquisitions at the moment because we're okay about flat organic for the last few months. That's -- there's been, I think, lots of reasons to support that through a very disruptive period. But now we've settled as I'm saying to you, I absolutely believe that as we go into the second half, we'll start to see mid-single digit as a run rate emerge. I hope we see higher than that. And then as we go into next year, I think we should have a very positive organic story ahead of us, but that's for us to deliver rather than me trying to say too much about it. I just wanted to try and explain how we seek to deliver results in the future. And I mentioned there, the softening of recruitment. You can see it on the first line that's 9 partners in the period, to 31 October, that number would have been double prior. So we've seen a halving of volume. I think we've definitely seen a different quality in respect to those. The promotions has been the same. You can see there the 1,073 fee earners to 31 October. The retention is high. That number is a half year number. So actually there's quite a bit of churn, I think, in that number for us. We'll see very low single digit now in the second half going forward. People ask about our morale and I think they sometimes read things which people would state as a nonsense. I think our June conference, our partner conference going around all the offices back in had a lot of Christmas celebration and a lot of fun now we are as keen to get back in and work and understand and learn and train commerciality I think the plus 24 is a good score. And I think we'll be able to track that when we do it again in May, June and let's see how that morale I'm talking about translates into an employee Net Promoter Score. I've mentioned the momentum return to offices. We think we've probably improved now about 20%, possibly starting to be more in this month of January. That's from circa 40 to 60 attendance. We see that growing to approximately 75. There's still all the flexibility in our model. We're not saying how to set your desk between 9 and 5, but we definitely want people in most days working together. And I think we've had fantastic take-up on that. And I think it's becoming an attraction of joining Knights that you can come in and be part of the business where you actually got people to work with. On the right-hand side there, there's an incredible loyal [indiscernible] because the key people in our business have been with us for the tenure and some of them for a long time. When we look at the Net Promoter Score for clients in May, plus 72 is off the scale. So our client base is very sticky. And I think there's more we can do for them, as I've mentioned. I've mentioned now the absolute premium core #1 focus for us is on that organic growth and how we see that going. I've mentioned the return to offices that's been so well received, I think, concretes are perhaps what you read on our experience of that in the regions, bear in mind, again, this is nothing like London. This is about living 10 minutes' walk away from where you work. So we can't even get on the counterpart for state now. It's full. We've never seen that for 3 years. So people want to get in, they want to be with their colleagues, they enjoy it. They have a lot of fun in offices. I've mentioned the acquisition strategy. This is going to be small acquisitions in either as a new entrant into a market, a new marketplace like Bristol or as Boltons. We want to see the focus on organic, and we want to see the debt level come down in this period. Now in the second half. I think the recruit momentum will be interesting when we report to you next in the economic downturn. I think that will start to increase in November as well as the quality. The fact that we've created this -- the platform, the resilience of it into recession across all the different things we do, but the opportunity to grow through hiring people, particularly and the acquisition in the next few months, I think creates a fantastic opportunity in an economic downturn to accelerate this going forward. And that's why today, we're very confident in the future. But we know, particularly with what happened in this year that we've got to deliver the numbers. That's what this is all about now. So -- but it's only right that that we found this time explaining how we see the world and how we see it going forward. So we're positive, we're confident, but we're very focused on delivering numbers, particularly that organic growth going forward. So at that point, we'll hand over to any questions, if we may.

Thank you, David. And we have a question from [ Keith Hiscock ] at [ Hartman ], who asks, do you think that the legal workforce will split into two? Those that want to be in an office full time and those that want hybrid and that legal firms will decide to appeal to just one group?

I think it's a really good question. I think it's a geographical answer. I don't focus my time on the sort of magic circle top 50 in London. I've experienced them a lot in my career in previous years. I sense the commute into London will be a driver for people to want to be at home much more. So I think your question is a really good one. And I think there will be a split geographically and that I think people going to London will want to do that less. So I think there will be a hybrid or working-from-home culture that's going to be permanent, particularly in the big cities of London. We see that. We don't really see it [indiscernible] but logically, Manchester, Birmingham and Leeds could have a small element to that. I think when you look [indiscernible] to time model, which is virtually all of our businesses, excluding those, the Manchester, Birmingham and Leeds are about living close to where you work. We see it now actually having really pushed this from beginning of October. We made a decision to make it really clear to people what we were expecting. And partners welcome us because they didn't know what the answer was to the question, can I work from home. So we made it clear that unless there's a compelling reason, which also supports the team and then we want you in, and it's been incredibly well received, so much so that we've seen a partner to return. And we've seen other levels of people, like associates, senior associates actually say they want to stay in this model, and we've seen a couple of other returns as well as that partner. So I think it will split, and I think it will be London and I think regional will be much more looking offices. There's some of our offices and there's hundreds of businesses in the regions that never actually went into home working. We've got our office and Teesside that we acquired a year ago now just ever never actually went into home to work. So the regions never really embraced this homework in like, I think, large cities, large cities like London and large corporates. So I think that's the split. For us, it's clear that we need to be and working together in the vast majority. Yes, you can take [indiscernible] and then please get into the office. We just don't want people to develop a habit of staying in their shorts, working at home all day when they need to build the team. And I think we survived and we survived well with the world did, they're working from home on whatever reason to be home. Now we've gotten vast majority of our people in. We're not really fun of having Zoom team meetings where 1 or 2 people are in the -- connecting through Zoom and the rest of the team in the office. We don't think that works as well.

Just one more from Keith. Surely, you anticipate a slowdown in the residential property market. When would that impact?

I think it's absolutely -- it's in December, January, no matter what's happening economically, it slows down. People don't sell and buy in those periods, the construct on Christmas, then you start to see normally tick up -- it is up and down. The conveyance market as interesting as prices likely start to go up today on the news, which is interesting. I think the exciting thing about our residential property business and we call it that Northern conveyance, now it's differentiated. Three years ago, I would say and did say to people we carry it just as a sort of little thing that we did, and we do 2% of revenue on it. Now it's growing, it's become 5%, 6% of revenue because we've landed in the last years to the premium slot, severals of spotted that we now do residential property quite different to the rest of the market and different and that we have solicitors and partners doing it. It's very much done by experienced people. Normally, it's expensive property, but it's also [indiscernible] by people that are on the job doing correctly and with a premium service. So we've got the slot now in the U.K. to really develop our brand in that area. And I think that's going to be interesting and grow our market share. But it will be up and down. And at the moment, the volumes have reduced substantially, partly because of Christmas, but partly because of what's gone on in that chain with debt costs going up. So it is up and down. Like everything at nice, it's something is never that substantial that while something -- as going down, employment, for example, on its way up because there's restructuring happening in corporate world. We've seen a pretty flat -- slightly negative employment market plus tiers. I think employment is going to have a great '23. So it's a small percentage of revenue. I don't think the impact for us will be that felt in the residential property well, particularly as we're now getting known as the #1, the premium, the only [indiscernible] partner-led business outside London. There are businesses like [ that ] in London because of the cost of housing and it attracts qualified proper lawyers and partners to do it, but you don't see that in the regions and that's where we see opportunity for ourselves to dominate that slot.

And we'll go to Steve Woolf at Numis.

Just a couple from me. Just in terms of the deteriorating macro environment, where do you guys see the biggest end market risk to the business at the moment? And then the second one is when you have seen people leave the business, where have they gone? Have they gone back to other lawyers? Or have they sort of left the industry completely? Your take on the movements of people within the industry?

So the macroeconomic question. I think what's useful to say, which I've not said is that again, I'm outside the Manchester, Leeds and Birmingham, we've now got with Bristol' 20 tertiary locations. And they've been -- some of those have been in a recession for a long time already. I'll go to Stoke, which went into recession in 1990s never come out. So we've -- we're in locations. It's very -- it's really hard. I think if you got an investor, fund manager or an analyst sitting in London talking to things from a macro level to really understand much about this reasonable world that we live in because it's just so different. I mean people talk about Stoke on trends, 33 years in our recession as the patients nearly dead. In that time, we've doubled our revenues in that Stoke office. It's a very high margin because we're the only provider for 30 miles of commercial services. So we dominate quite a big population. It's about 400,000 people live in that area, and there's lots of businesses and they have only us to come to. So because there's nobody else, we're absolutely thrive in a really good product, low economic area. So when you talk about macro, to varying degrees, and I've probably gone to an extreme with Stoke, but there's lots of those 20 share feels sort of come out of its own -- some difficulties and started to improve, but it's -- they're not thriving buoyant economic centers of the world, other than local, quite deprived areas that we strive as the only commercial player for all the hundreds of thousands of companies and people. And the wealth sits there. There's wealth pockets in all of these areas that we're in, in the Sheffield, in the Chester in[indiscernible], in the Wilmslow. So the private wealth and the local company seen we can make our own. So we don't -- I'd have to make something up to answer your macroeconomic. Things so spread. I think the macroeconomics in the last 12 months, employment-wise, we have definitely felt, I think it's been a harder environment to settle people. I think the news has been actually going at a job wherever one -- can go and get a lot more money than that inflationary pressure. I don't think we really felt the inflationary pressure. We certainly don't feel it now going for it at all. I don't think we've had much impact from it over the last 12 months. When you've seen what's happened in London with [ MQ ] sales going with the American firms to [ GBP 150,000 ] even higher. You've seen [ GBP 180,000 ] quality for [ MQ ], we pay our people at [ GBP 45,000 ]. It's a different world, and I don't think it really is impacted by the macroeconomic climate and I'd struggle to make up something there. The employment seen, I think was one example maybe over last 12 months. Your question about where people go, it's a good one. We see people -- many people have come to us and if they've settled to us -- settled with us for a year. And so this is a recruit or acquisition, but particular on acquisition if they stay the year, the penny drops and we've often talked about valuable [ moments ]. And there's no going back. I think once you've settled into a business where we all work together, without fighting fee targets. We're definitely lifting accountability for productivity. That's how we feel we will improve productivity and margin and organic growth will come from more awareness. And we're working hard on awareness without it feeling like a target, which is a real skill that we've worked and it's tried and tested from 9 years ago, which is something to do it properly for 3 years because we won't be able to get close enough to people. Now we can get close to them. We can get them feeling the accountability without feeling the pressure. And so once you've got that team environment, shared work across experience levels, partner, associate, paralegal, sharing work across disciplines, sharing clients to go and win you more business, more of the purse. It's really hard to go back to silo where it's -- you are on your own, it's my client, my fees, my target. And so we don't actually see our people going into the [indiscernible] fashion. Well, because they've lived in a corporate culture where the culture is very clear. I'm not saying it's 100%, but we often say -- we often describe that we're 78% culturally aligned. And therefore, people feel the culture more tangible than ever. This was a dream 10 years ago. Now it's reality. It's how we are as a culture. They find impossible though that there are a lot of them to go back into fashion, but they will go to General Counsel. So we will lose people to McDonald's or to Hansen or to Rolls Royce -- also Easy Jack. We will see that they'll work with them. I'll go and give back commercial life again. So with General Counsel for sure. Our partners though, either younger partners will go test themselves in that environment. [ Alan ], more experienced and closer to having an eye in the next 5, 10 years of retirement, they don't want to leave us and go back to live the tough environment of partnership where it's silo, competitive and you've got to go with someone at risk. The fact that there's no financial risk as there's a huge retention. And I think that all those more experienced partners will stay. Some of those younger partners and some of those senior associates will go and venture into corporate world to give it a go as General Counsel. We see less and less -- and it's quite interesting to watch people go into the fresh and the lady I mentioned, there's just return last week, went to a top 50 law firm and within a month came back, and we see those stories every month or 2 or 3. But we'll see some -- if we won them back, then they've given low and they find it hard. It's more about corporate.

Just one quick follow-up. In terms of your own -- you mentioned the [ GBP 45,000 ] there. What would you say is your internal wage inflation at the moment for those fixed salaries?

I think going -- if I look at the first May coming up, it will be low single digits, and I think it will be lower than 5.

And we'll go to Sam Dindol from Stifel.

Three questions from me, please. Firstly, on the 9% price rise we may next year, what do you expect sort of the pushback to be and more so a realistic figure of what you can get from that? Secondly, when do you expect volume growth to return to the business, given I think you had a 5% price rise last year, which implies [indiscernible] just slightly down, given where the organic growth is? And then finally, on the other offering costs, which is now 20% of revenue. I appreciate they come back because they were [indiscernible] networking and better than [indiscernible]. Is that a sensible run rate going forward to 20%? Or -- I appreciate some leverage of property profits, et cetera. But any sort of color on where that should be in the normal environment would be great.

I'll do the first 2, Kate, and I'll ask you to do the third one, if that's okay. As far as pushback and how much of that 9% will actually achieve, I'm hoping that we'll get these things same. I'm hoping in respect of time spend that we'll get virtually all of it because straightaway on 1st May, they had 6 months' notice the clients have and people. So the people have responded now and felt comfortable that it takes a few weeks for price increases for people to be comfortable. You can understand that, they are the messenger of that, and they are comfortable with that and now we know that from the November chart conference when we got that feedback. And then -- the notice period, the [indiscernible] 6 months. We did think about putting that into 1 November half year for the first time, but that would have created too much pushback from our people. And we've got -- I don't know about any pushback from our people or not anticipating any pushback from clients because we're still incredibly good value if you put us next to some of those top 50 -- the best of those top 50 DLA [indiscernible]. Those firms were still less cost, it was probably still about 20% of those businesses. So I don't think there will be pushback from our people. I'm really confident that there won't be from client. [indiscernible] client being back about our rates being too expensive because they're more interested in getting a great service than they'll pay. I think people quibble a bill if they haven't had a great experience, be it in professional services or it's a restaurant, I think people quibble when it's the service. So I don't know there'll be pushback. I think in time, spending agents will get purchased all of that straight away. The challenge we've got to answer your question is to make sure we get into these fixed fee arrangements, if we're charging a lower fixed fee that hasn't brought that 9% price increase into it, then you don't get any of that 9%. So I think -- but here's an opportunity to not just do 9%. There's some of these fixed fee arrangements, we can actually do a lot more than 9% and with some of our frameworks and fixed fees, they're ready for a 20% increase, even higher sometimes. So I think overall, we're very confident to achieve the 9%. If not, we might -- we will be trying to do even better than that because of some of the frameworks and fixed fees. I've just -- we've just not got out them quick enough because we haven't been able to meet the people, meet the clients. What we're seeing now has got momentum in both meeting colleague and clients. So I think the answer to your question is, we're optimistic and confident of achieving all of that 9%. And that's what I said in my slide where I was comparing the price increases to the recruitment that it used to be led by recruitment. I think we've become much more sophisticated and affected in our training of people recently, but I think that's going to overtake the recruitment. As far as the organic, I couldn't quite hear your question, I think you're sort of saying when are we going to return to sort of the middle single digit, which we guided to at the beginning. I definitely see that as the run rate now as we go into H2. And I think we will -- with all the work we're doing, watch this really carefully, it's what we're working on without having to integrate hundreds of people like we did 2 years ago or around 3 years ago, we have 400 [ buyers ] to bring into the 500 that we had. So now we haven't got that. Now we can really work on organic. We'll certainly see some mid-single digits occurring now. What we get to at the half year will be a combination of that plus the margin growth, which we're going to see in the second half. So as we reach the end of the year, we'll see what single-digit we achieved [ for the holiday ], but we know it's flat in the half year. So it's more interesting to look at them what we've done in this segment and what we see as a run rate. I think when we talk to you next, and then we see that pushing through the 9% price increase there. I've mentioned salary wage and salary inflation pressure being incredibly [indiscernible], we should see good organic contribution from pricing. Now we've been able to train people so effectively. We've already 9 days be able to talk to 1,000 peers about this in person. We've never been able to do this properly before. We've lost our rhythm there. We used to be able to do this 4 or 5 years ago. So effectively in those offices where we've done it before in the way in which we do it now show the results because they still have stellar margin and some of them organic growth. So the organic growth, I think, will come. I think that's much more though for us to deliver at the end year and talk about the run rate and talk about guiding to FY '24, which I think will be an interesting period for us just to reflect on where we're at with things. Kate, do you want to talk about [indiscernible]?

Yes, sure. Again, Sam, your question was a little bit more full, so I hope I'm going to answer the right question. But I think you were talking about [indiscernible] and how we're going to leverage that going forward and what our margins will be coming out. We have invested in that, and we've seen sort of the some more costs in terms of increasing cost of return to normalization sort of increasing travel, increasing BD, as we've talked about. But there's also -- we have had during this half year, some acquisitions that have come in. And when we acquire acquisitions, you'll know that they're never operating at the margins that we're operating at, having bought Coffin Mew in during this half year. It takes us a while. There's a duplication, for example, in this half year of some PI costs when we bring [indiscernible], we put them on to our PI renewal, which is always at a lower rate than what they're paying. But sometimes, we have to double pay until we get to the end of that term. And so we have -- there is a duplication in this half year of around about 200,000, 300,000 of just those PI cost as a one duplication, which will disappear straight away. We are also looking to constantly leverage those costs as we grow organically, and that organic growth goes through increases and marginal increase in price, and that automatically increases our leverage because we're not expecting -- we don't need to increase costs. We are also looking to and as I talked about, leverage our property costs as best we can. We're sort of combining [indiscernible]. We had 2 offices. We've moved those into 1 office, and we're going to sublease and manage our costs there and we're looking to proactively do that to make sure that we manage our margins. So in terms of doing that, we see ourselves sort of leveraging those costs in terms of long-term margin and where we'd expect to get to. Obviously, before COVID, we were operating at the sort of circa 17.5%, 18% PBT. That's most definitely where we've looked to get to. We've also got, as we've mentioned briefly the benefit, which will come through as a more normalized [indiscernible] increased interest, which will help to move that forward going forward. So I think the combination once we've got that organic growth to that run rate that we want and the benefit of that interest, I think that will start to improve our margins more quickly to be sort of circa 15%, 16%, up to 17%. But as always, I would say, we're going to do that gradually, not in 1 year, but I would say we'd like to do it quicker than that. But to be prudent, we want to extend that sort of increased [indiscernible] in the next couple of years.

There's 2 here from Jamie Murray from Shore Cap. Q1 revenue per fee earner has increased by low single digits year-on-year. How much of this is to do with price increases versus the amount of time build? And his second question is the revolving credit facility. Can I just confirm that it is floating rather than fixed? And when does it expire?

Do you want me to deal with both of those?

Yes. Go on, Kate.

So in terms of the fees per fee and the majority of that is in terms of the pricing and recovery of time, market and productivity in this half year. David has talked about our move to go and improve productivity and getting everybody back at the office but in terms of where that's come from, it's come from the quality of the fee earners that we've got in. And the majority of that is then sort of the price and the recovery of that time that [indiscernible]. But we're working [indiscernible] and we've started to see that improvement in productivity [indiscernible]. Then in terms of RCF, it is floating. It's between, I think we pay above SONIA [indiscernible] depends upon our leverage between 1.65% and 2.4% above SONIA in terms of that. And it runs through until October 2024. So in terms of what we're paying on that, it's a really good rate. We're paying -- we've talked about before actually interest rates are actually a net positive to us as they go up, we earn slightly more in interest [indiscernible] to pay out. So we don't see any particular big risk to the business in terms of interest rate increase.