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

Good morning, everyone. Thank you for those who've come in personally, and welcome to all of you who are dialed in on the webinar. We've got David and Kate here to present our half year to 31 October. I'll start briefly, setting some of the theme, and then I'll hand over to Kate. So just on the first page of our presentation, I'm going to just mention, when we presented the full year last July, we talked about working and are very focused around levers for organic growth, which we've been doing. I think these results were starting to see the early signs of evidence of our return to organic growth that we've been very much focused on. And I'll leave Kate to talk in detail when she particularly looks at the revenue bridge. We've also seen improvements to our bottom line, which, again, I'll leave Kate to go into detail on the profit bridge. Obviously, that's been enhanced by bank interest, and I'll leave Kate to explain more about that. I'm going to briefly talk about the resilience of our business through diversity of what we do. I'll also talk, after Kate, around further organic growth through more business with existing clients, small clients and the hiring and our churn rates, too, as well as touching on our acquisition strategy. So just turning on to the next page, here, looking at the resilience of our business. You can see on the top left side there the nature of what we do, and 80% of the business in this period we're talking about has been totally resilient to economic turbulence and downturn. The 20% is in 2 parts. We've definitely seen a headwind in the housing market, which is residential property and the Integrar business, so that comes to 11% of revenue. And the corporate work, which just sit about 10% on M&A transactions of that 13% that's put on that pie chart, is definitely affected as well by headwinds of bank interest. So the bank interest that happened from October '22, 14 months ago, has impacted our business to the tune of 20% of the revenue in the housing market and in the M&A work that we do, important areas to us, and it's 20% of our revenue. So we've seen in this period we're reporting definitely an impact on the volumes in those 2 areas. The rest of the business has been incredibly resilient, particularly private wealth. In downturns, people focus much more on their management of wealth and succession, inheritor's tax, all those areas. We do a lot of work in the private wealth arena throughout the regions. That's where they thrived, dispute resolution, has regulatory work, has -- our specialist Medilaw business is really growing and thriving. So all the rest of the business is incredibly defensive and resilient, but those are the 2 areas. That's the negative bank interest, offset obviously by a big positive that Kate is going to talk about from the additional revenue that we have from client money interest. Just want to feature on a couple of things there on the right-hand side. What we've seen through this period, and we've seen it over the last 2 or 3 years, is just how evolved now and mature our management team have become. We've got 14 client service directors that have been in the business for at least 3 years. Some have been there for a lot longer, a real cohesive and now thriving management team that give us great confidence, scalability. They're doing a fantastic job. They report to myself and the COO, and they're really helping us achieve the cultural drive and leadership and cohesion and collaboration that we have in our business. And I think an easy tangible evidence of what we see through such a strong management team is the debtor days. Our debtor days, which is the amount of time it takes for our invoices to be collected, is 31, which is talking to the 73 days, which is the average number for the top 100 law firms confirmed by the PwC survey of November. It's the best survey of the top 100 law firms. It comes out every November, and that confirms 73 debtor days for the top 100 law firms were 31. We've been 30, 31, 32 every period, reported. We've taken the business from 35 revenue when we listed to the current expected 155 revenue, and we haven't missed a beat on debtor days, and that's down to the management team to drive that culture of managing clients to make sure we get paid on that time scale. Very different to law firm. If you just took that difference of 42 days, we're market leaders on that cash collection. If you wanted to quantify that into pounds, it's about GBP 19 million more that we have in our bank account than an average law firm would have. And there's the big gap between us and law on that, which has come from the owner-managed nature of our business, both the culture and the leadership that we have through the management team. I just think it's a very tangible evidence of what we achieved. But really on that slide, I just wanted to show the scale and the diversity and the resilience. And I'll come back to more around people and churn and recruitment and acquisitions after Kate.

Morning, everybody. So in terms of our results, just a very brief high-level review here, and I'll talk in more detail as we go through them. We've got various bridges, which will help to visually explain what we've done. But I think given what's going on in the wider macro environment there, we're very pleased with our results for the year, 6% growth in revenue for the year, of which 3% is organic, and I'll give a lot more detail behind that when we look at the revenue bridge. I think if you go back to -- as long as we've been listed and before that, back to 2012, we've always looked to build a profitable cash generative growing business. And so I think our results for this year, again, go to support that. We've grown revenue. We've grown our underlying EBITDA by 25% in the year. As we've said, that is supported by the interest income that we've received, and I'll talk through that and the levers of that and how we see that moving in the future going forward. And whilst we've done that, we've grown the business. We've also maintained our lock-up days of 93 days, which is how we measure that. As Dave has talked about, that's an improvement from 103 days at this time last year. Generally towards year-end, we target 90 days at year-end each year plus few years we get there at the end of October. 93 days compared to 103 days is really pleasing. So we've maintained our focus on that strong financial management. And because of that, we continue to deliver good cash conversion, 69% at this half year compared to 57% for the previous half year, driven by that continued focus on our financial management. And that strong cash conversion gets us to a net debt position at the end of the half year of GBP 38 million, which is about 1.3x in terms of our bank leverage covenant. Given that we've renewed our facility during the year up to the GBP 70 million, that gives us GBP 32 million headroom to invest in the business going forward. And we'll talk about our capital allocation policy as we go through. On to the next slide, I'll just very briefly pick up a couple of points here, and I'll talk through in more detail when we get to the bridges because it's easier to visualize that, I think. But you can see there the revenue is growing from GBP 71 million to GBP 75 million, week 3 over the year. The only point I'll particularly pick up here is talking about sort of the gross margin. Gross margin during the year has slightly declined from the prior year, and that's due to 2 factors, really, both of them are in terms of our investment in staff. Key factor is we've recruited an awful lot more people, and David will talk about the recruitment markets and how that's turned. But in the last 12 months in total, we've recruited 35 partners into the business. Now when those partners come in, as we've talked about previously, they take a good 6 to 9 months before they become full run rate. And so for those first few months, you are investing in them, and so that does depress your margin ever so slightly. And then the other reason for that is the softening of the housing and M&A market. We've not -- we've kept hold of those good people that we want to be in those markets because those are cyclical changes, which we do see coming back. And so taking a long-term view of the business, we've kept those people in place. We've not gone to part-time working because we see that coming back, and that's our investment in those people for the future. Operational staff cost has gone up slightly as a percentage of revenue. We have taken steps to look at that. It is partly due to our investment in client service directors and again, the impact of that slightly softer revenue on there. But again, we've taken steps on that already. We're looking at where we can do in terms of our central resource, centralizing that as much as possible and making sure that we're as efficient as we can. So we've already taken steps in terms of HR, bringing that centrally in terms of compliance, bringing that in centrally, which will realize savings, which we'll see partly in H2, which will support some of the H2 weighting, and then more importantly, we'll see going through into FY '25 and beyond. But I'll talk through the details on the bridges a little bit more because it's just much easier to visualize as we go through. So if we look at the revenue bridge, first of all, we've grown revenue there from GBP 71.2 million to GBP 75.3 million, partly because of acquisition income. Here, you can see the GBP 0.6 million increase there is the increase in the acquisitions that we did in FY '23. That was Globe Consulting, Meade King and Coffin Mew, all of those fully integrated now on our systems, performing well, performing as we'd expected. Coffin Mew has had a slight softening. It did have a little bit of new homes working there, so that, because of the macro environment, has fallen off slightly. But other than that, they're all performing exactly as expected to do, so performing well. HPL, we sold in the prior year, so that had an impact because we've got no income from that this year. And then the 2 acquisitions that we've done this year, St James Square and Baines Wilson, integrated on our systems and performing exactly as we'd expect them to and given us a really good opportunity for future growth. We've already recruited into those offices, and so that will deliver future organic growth into H2 and H1 '25. The interesting point to look on that, though, is the organic growth. We've reported net organic growth of GBP 2.1 million for the year, which is 3.3%. But if we split that down and look at the impacts, as Dave has talked about, on the housing business and the corporate M&A, which is cyclical and impacted by the macro environment, if we pull that out, that's actually had a negative impact on organic growth of GBP 2.6 million. Pulling that out are the rest of the business. All of the sectors have grown by 4.7%, which would actually be organic growth of just over 9%, 9.5% for the year, which I think demonstrates the resilience of the rest of the business, demonstrates good growth and demonstrates a good position in where we are there. A lot of that growth has come from -- has come across the board, really, but private wealth, dispute resolution performing particularly well in that. And the majority of that growth has come from pricing, pricing that we put up at the start of the year and the continual work that we've done and we've talked about for a number of years on the recovery of our time, making sure that our [ P&L ] are quoting properly for the work that they're doing and being paid properly for the work that they're completing. And that's [ a concern ] there. And we can see that going through. So you can see we have had a negative impact by housing and the M&A market, but that will start to turn. We are seeing starts are -- particularly housing in the number of instructions and housing starting to turn up. I think if you read in the press the number of mortgages available and everything starting to increase, people are now used to the interest environment that we are in. And so I do feel that, that will start to come back. And so as that starts to come back, that will alleviate the negative impact that it's had on organic growth. So in terms of H2, I would say that organic growth increasing in H2, and I sort of anticipate still working in terms of consensus at around about 5% for the year, and we still feel at the moment that that's fully achievable. Moving over now on to the underlying PBT bridge and looking at the key drivers on that. You can see that the margin has increased from 12.6% to 15.4%. The big item obviously standing out on there is the GBP 3.6 million additional income that we've had from the interest. We talked about interest a lot last time. That's the client interest that we hold on behalf of the clients. And I think it's important to explain that, that is transactionally one that comes in early. We don't hold it for a long period of time. People aren't holding it to earn interest with us. It's just the number of transactions that go through us, we end up with a larger balance there, which we can obviously attract higher rates of interest on. We do pay interest out to clients at an equivalent rate that they could earn on a instant access current account, what still is a net benefit to us of GBP 3.6 million additional income during this year. And we see that as very positive. If we are -- and I know people will ask. Obviously, there will start to be a bit of a softening of interest rates at some point, but I do think, generally, they are here to stay. We are going to see interest income at some level going forward. In terms of the impact that, that will have, I think, for us, the interest going down will reduce our interest income. But it will alleviate the pressures that have been on the housing market and the M&A market, so it should be offset by those increases there. Looking at the rest of the margins and what we've done there. You can see the increase in support staff costs. We have already done work on that to start to leverage those costs, and we expect to see those coming through in the next few months and into the next financial year. Property costs, we are constantly reviewing those, and we are taking actions to make sure that we're maximizing our use of all of our space, and we are subleasing any excess space that we've got where possible to make sure that we're maximizing those and leveraging those costs going forward. So we're starting to see some leverage in those costs. We have seen as well, in the first half of this year, the softening of the PI market, one of our biggest overhead costs is our PI. That has softened. And so in terms of a percentage of revenue, we've seen a saving in that, which we'll again start see the benefit of in H2 and going forward in sort of FY '25. And also, as a larger business as we amalgamate all of these businesses that [ we come through ], we amalgamate all of our contracts together, and that gives us, basically, economies of scale. So we can see that going forward [ and everything ]. So in terms of margin and where we expect margin to be, H2 is always a higher margin than H1 because of the mix business, and we've made some cost savings there as well. And going forward, we're looking to leverage that margin and see it increasing to pre-COVID levels, but I would always say let's do that gradually over a number of years. Let's not expect it all in 1 year. And once we get our margin back to pre-COVID levels, we see this level of interest that we see now as a normalized level of interest actually be an additional income forward and so boosting our margin even further in future years. Key performance indicators, so the key performance indicators that we look at as a business, as we've talked about, is profitability and cash generation. And we've just demonstrated there the ones that we look at regularly. Gross margin, we've talked about. That has declined slightly, but that's our short-term impact because of our investments in our staff. We do target around about 50%, but as we're growing and recruiting, that's always going to have a little bit of an impact on that. But we see that coming back, especially as the top line starts to recover from housing and M&A up towards the 50% level. Cash generation, really pleased with that. That is the, [ what ], the GBP 5.9 million generated in this half year. And I'll talk a lot more in detail about that on the next few slides. Fees per fee earner, we've worked, as we've talked about on pricing and recovery of our time and concentrating on high-quality work to make sure that we're sort of getting the most efficient use of our fee earners, not necessarily by them working harder but by being more effective in how they're working and recovering more of the time they do. That's really pleasing trend for us to see there. And numbers of fee earners, that has dropped slightly. The main reason for that decrease is there's been a reduction in some natural churn in our volume in [ new ] mortgage business. So that churns naturally anyway. So what we've done is just let that stay off whilst that, that [ new ] mortgage market is soft, and we'll we put back into that when it starts to pick up again. So looking at our cash flows for the year, GBP 5.9 million of underlying free cash flow during the year. If you look before tax paid, we've actually doubled our cash generated in the period compared to the same period last year, which I think is really pleasing. It's our growth in our profitability and our continued focus on our working capital and conversion of our WIP and debtors in cash. Tax paid this year looks slightly high compared to last year. That's because last year was depressed slightly because of an overpayment of perhaps at the end of FY '22. So it reduced what we needed to pay in the half year there, but nothing unusual in there. And again, that's showing good cash conversion of 69% compared to 57%. We expect that to increase in the second half year as normal. And there, we've talked about just under GBP 6 million of free cash flow for the year. On an annual basis, we'd expect that to be close to GBP 20 million. How we generate this cash? As David has talked about, it's our focus on our working capital and our client service directors' focus on our lockup. And it is a daily task which we look at. We look at our WIP schedules and our debtor schedules on a regular basis. We have done for the last -- since 2012, that's as long as we've been with the business, and as you can see there historically, we've always maintained a very similar level of lock-up days. How we look at lockup and what our lockup is just for anybody that's unaware, we basically count our lock-up days as being the amount of time it takes to convert unit of time being spent on a job to paying cash in a job. And that's a breakdown of WIP days to the time that it takes before we bill our work and debtor day is the amount of time it then takes to collect that cash. And as a business, internally, we target 60 WIP days and 30 debtor days. When we calculate our lockup internally, we exclude any work done on clinical negligence work and insolvency work from our WIP calculation. And we do that because it does have a very different profile to the rest of our business and isn't in all of our offices. What we don't want to do is distract the majority of our business, 90% of our business, from working towards the 90-day target, which we do. So we exclude that from our calculations because it's a very different profile. What we have done here, and you can see it on the orange line there, is we have included it. There's been some commentary about the fact that people can't compare our lockup to other people's in the market. So we have included it on the orange line. And you can see there that even including all of our work in progress, our lockup is 136 days at the end of October, which compares, again, still favorably with the 142 days for the industry average as confirmed by the PwC market. That has grown slightly over the period, and that is all to do with the growth of our clinical negligence business. That is a very good, profitable countercyclical business, but it does involve some extra work in progress in there because some of those cases take a few years to actually complete. So although it's grown that work in progress, we see that as good, profitable and it's worked for us in this period. It's been very countercyclical. But looking at what we do and looking at our 93 days that we've generated this year and how we do that and how that compares to the industry. The key factor that we've put in there to point out is the debtor days, which David has mentioned about. We're consistently at 31, 33 days, and that compares with favorably, 42 days faster than the rest of the industry. And we consistently do this and transform the lockup in our acquisitions, I think, which again just shows how we do this and how we are better than the industry as a whole. These calculations, which you can see on the right-hand side of the schedule there show the lockup of the acquisitions that we do at the date of acquisition. And then we show how we convert those and how we can reduce those lock-up days throughout the period of ownership. They're calculated on exactly the same basis, so it is a like-for-like comparison. You can see that we reduced those lock-up days quite considerably. And it's not rocket science. It is simply making sure that everybody realizes they have to chase their bills. They have to phone up the client and chase the debtors, and we encourage them to bill on a regular basis, on a monthly basis if possible putting [ one stop ] dates and making sure that they are billing regularly. So we're doing that. And I think that schedule, in particular, shows how good we are and how by coming onto central management, client service directors helps us to deliver those really strong lock-up days. Looking at net debt and impacts that, that has there. We've talked this here. We've generated, as you can see there, just under GBP 6 million of free cash flow during the period. We would expect that on an annualized basis to be circa GBP 20 million. But there's always a first half weighting because of the timing of some of the payments, the tax dividends. Our PI cost falls into the first half of the year, which does impact the first half of the year. That strong cash conversion gives us leverage. Our leverage at the end of October on a bank covenant basis is 1.3x. That's improved from 1.6x as at the end of October last year. So we've got plenty of headroom in terms of our leverage covenants and also in terms of our RCF. We've renewed our RCF facility to be GBP 70 million during the year. It's given us GBP 32 million of headroom going forward for us to use to invest in the business. And then just looking very briefly then at our priorities for the business in terms of our capital allocation. Key priorities, existing business is very cash generative. And so we'll continue to generate cash. We've talked about, there, we'd expect around about GBP 20 million of operating cash to be generated annually. Our then priority is to -- how to use that cash. Organic growth remains key focus for us. Organic growth investment required there. We've talked about we need -- as we recruit people, we need to [ firm ] that, the first 6 to 9 months before they become fully fee generating. We continue to invest in our working environments to make sure that we're providing grade A quality workspace for people to come in and work. We see being in the office is really important for us and really important to supporting and growing our businesses organically. So we want to provide a good basis for people to be in there and investing in the business technology as we go forward. We're then looking at selective acquisitions, and we've got plenty of headroom, as you've seen in our facility, to invest in selective acquisitions as and when the right acquisitions come up. David, again, will talk about that. Acquisitions are very much driven by cultural fit and what fits within the business. We do want to grow the business both organically and acquisitively, but we will be very selective about how we grow that. And then finally, in terms of dividends, we do intend, as we have done, to pay a dividend, and we have declared an interim dividend of 1.61p for the half year. That should give the return that investors are expecting. I'll hand over to David.

Okay. Thanks, Kate. So I'm going to talk about recruitment. I'll then talk about some client growth and then acquisitions briefly. On the recruitment, I'll start with just talking about churn, so staff retention before we start adding the new hires. And we've seen, if you compare us to a year ago, the first half last year was an unusual 11% churn. The job market became very hot, and it was a very different period for us. Our average churn, looking historically, was always sort of high single digit, 8%, 9%, talking to mid-teens and the top 100 confirmed by PwC surveys. So we have lower churn. And we're back to that lower churn as confirmed by this half year reported of 6% to anticipate churn going forward of being high single digit. And one of the biggest reasons for us to have lower churn than the sort of industry average for the top 100 firms is -- there's 2 things really. First of all, in the regions, we've got 20 office locations outside Manchester, Birmingham, Leeds. It's -- we're the dominant player often or there's very little competition to the premium business that we've become. And that means that people want to work for the best business in their location. They don't want to move to then have big commutes. So you do the model by being strong in the regions, brings churn down to high single digit. I think that secondly is this culture and morale. We've done 20 acquisitions since IPO. When you're very unique compared to a traditional partnership model, we see ourselves as being very modern fit for purpose in this world that we live in now, but we're different on purpose. And when you're different, you will get commentary. And I think sometimes external investors, external commentators will see that commentary, but you will get criticism and comments made. But actually, if you look at how our people feel and certainly if you go into LinkedIn and see what they're saying, we have a very high morale. And I say the -- one of the best evidences of morale isn't sort of get cloudied by what people are writing about. But actually just look at attrition, and our attrition is much lower than the industry because we do have high morale. We have a very collaborative team culture, and we have a very happy workforce despite what some commentators might say. And I think the attrition rates prove it. And I say look to those. So we're back to normal sort of 8%, 9%, 10% churn rates, which we regard as very healthy and normal. Going forward, we've also -- in this period reporting, we've sought to improve things for our people as much as we can. We serve our people every year, and we have strong feedback a year ago about our benefits not being sufficient. So we've worked on our staff benefits substantially, and that's certainly been received very well when we've been asking our people recently. We've also been able to, since June '22, for the last 18 months, we've been able to get our people together a lot more. The culture of our business is absolutely fundamentally our priority, of that collaboration team working together as one business, one community. That suffered when people were in and out of homes. And we're seeing since June '22 real revival of the culture and we're seeing that improve all the time. We've got all of our people coming together in 7 conferences next week and the week after in January. Those conferences are very important for people to get together to feel what they're part of. So I think the 2 things there that we've done recently of staff benefits, getting our people together is only going to continue to fuel low churn. Going on to the recruitment. We are seeing an increase in recruitment. And there's a couple of factors here. There's a push away from traditional law in an economic downturn. And we were talking about this 12 years ago when we first acquired Knights, that an economic downturn will put more pressure on the traditional partnership model for equity partners or the generation looking to come into economic partnership because to earn a 6-figure salary in the regions, they have to put money at risk. The average capital account in the traditional partnership model is circa GBP 230,000. So they put money at risk to earn a high salary. They can earn that higher salary with us without the financial risk, and they like it. They like the fact that they can earn a good salary, certainly a market salary. We are the highest payers in the tertiary locations. We pay exceptionally well, but people don't have to risk any money to be paid well. And that attracts people. There's a push from traditional partnership model that's starting to increase the momentum. It's been increasing the momentum over the last 2 decades. This economic turbulence and downturn will increase that momentum, and I think we will be seen as a safe haven by the next generation of equity partners. And that will fuel recruitment. I think the second thing, which will be a pull factor for Knights is our scale, people starting to now know more about our business and know more about the team, culture, the collaboration that they can come to as risk free. They can onboard clients. So we are attracting partners from top 20 law firms now more because they can feel the scale means we can service clients. When you look at the lawyer report that comes out in November, you can see now that if you exclude any firms with London or international presence, we are the largest now regional-only business in the U.K. And that means that people know that we can do all the work that clients require. We've got the A to Z now of a broadened specialist offering to give all corporate clients and private wealth clients, and that is attracting more partners who can bring their client filing with them, knowing that we've got all the tax, all the intellectual property, all the specialisms that clients need. So we are seeing more recruitment, and I think that will continue for those 2 reasons, and we're seeing the pipeline certainly grow as we speak. I'd want to move away from just recruitment and talk briefly about clients. It's the same thing about scale. As we've broadened the offering, we're now over 1,000 fee earners. We've got all the disciplines, particularly tax has been growing for us in recent months. And that means that we can look at larger corporates. And we've dedicated one of our clients services directors to look at large corporates and general counsel, which has its own nuance and niche talking to general counsel who are in-house for large corporates. We're looking at this nationally and internationally. We're in the U.S. now talking to large corporate general counsel. We're in Europe, [indiscernible], U.K., inbound clients coming into the U.K. who are large corporates. And they like the regional cost base. They like the accessibility partner because our partners are 100% available for client. They're not in partners' meetings trying to manage a business, so they're totally accessible for clients. They lack the scale that we've got over 1,000 fee earners. The pricing is very competitive when these businesses are used to magic circle and city rates, and they see our rates, and they see how competitive it is for an incredible value offering. So that is now developing and growing. And we are seeing client wins from that large corporate client base, both in the U.K. but also further afield internationally. We're also looking to talk to the existing 250 clients by the top 250 by revenue, and we've got all the client service directors plus a handful of other partners to really focus on client relationship management much more to the top 250 to broaden and get a bigger share of the wallet from the existing client base. The pricing that Kate just touched on, we've done something last year, and we've repeated this year. That, I think, is unique and lower. We actually introduced price increases from 1 May. We introduced that on the first of November. So it doesn't come into effect until 1st May. But our 1st May, '24 price increase is already being confirmed in all of the engagement letters on the 1st of November last year. That does something that's unique, and it's very important. It gets our people used to the increased pricing. The actual challenge when you increase your pricing isn't the clients. You get virtually no client reaction and particularly when we're so competitive compared to top 50 and city firm. But what you do get is a colleague reaction because they are troubled by having to charge more. They don't want to talk about money with their clients. It's a constant daily coaching exercise. But by having 6 months' notice at high rates gets them comfortable with it. So we've seen a real benefit from having to bring in price increases 6 months early. And it means contractually all the clients are on notice, so your compliance is very straightforward. And I've never seen a law firm do that, so we're early and 6 months ahead. Our increased breadth, I've talked about and the national scale, I've talked about. But we are seeing momentum in the existing client base and in new clients now that's new to us. That's only been happening over the last 12 months. And I just want to talk briefly about acquisitions. We're very focused still on making acquisitions. It slowed down over the last year or 2. We are, I think, being very patient about acquisitions for a couple of reasons. One is valuation. I think in this period of economic change, we see valuations coming down like they are in every asset class. And then the same is true of law firms. And as partnerships feel that financial pressure, so there's going to be winners and losers in every segment in every market, and I think there will be in law, there'll be some people feeling pressure in law. We just want to see what happens to valuation. We see valuation softening and coming off. So we've been taking our time. The pipeline is there that we're talking to all the time. So the acquisition is definitely [ a feature ] going forward, but we're being patient for the time being just for that reason. Also, we wanted to focus very much on organic growth, which we talked about in July and you've seen the early evidence now of what's happening. So we've really concentrated on the underlying organic growth of the business. But what we have seen with the acquisitions that we've made over the last 2 years has been a real integration that I think we've got better at it. I think we're more experienced at it. We've got these 14 directors that have all done at least 1 acquisition integration. And I've just picked on Teesside that we did in November '21, so it's just over 2 years old now. And what we saw with Teesside, and we've seen this with others, was 0 attrition. We've always had plan for 20% fee attrition because of the turbulence of buying a law firm. You get churn. You get disruption. But the Teesside, we had some disruption, but we were quickly able to get into price enhancements. We were able to coach them quickly on charging properly for their work. They struggled as an independent, to be confident about that because they're worried about losing clients and revenue. And we saw 0 attrition, you can see there in the numbers, and it's period that we acquired it. Revenue actually went up slightly and then maintained that slight increase for the first full year in FY '23. But in its second year that we're just experiencing second full year, we've seen uptick of 50% organic growth in Teesside. And the reason for this is this is the benefit of being dominant in a tertiary location. Up in Teesside, there's nobody else to compete with, but there's a lot of inward investment with first Freeport status, airport infrastructure. There's a lot going in Teesside. And we've been recognized very quickly as being the only top 50 law firm that's really focused on that area with local people, real quality people that we acquired. And the revenues this year, if we try and look forward to that [indiscernible]. But we're likely just going to be shy of GBP 6 million. So we've seen a real benefit from not seeing fee attrition, but also seeing organic growth, and that's what acquisitions give us. And we've seen this now in Newcastle, early days. We only acquired there in June, but we're seeing organic growth. We've hired already 6 partners into Newcastle. We're seeing the same in Bristol. These are large tertiary locations where there's a significant pool of talent. There isn't that much competition compared to Manchester, Birmingham, Leeds. You don't get many of the top 50 into these locations, and we can go in as that firm very locally focused regionally, very friendly to a regional market because we are regional. And we see great opportunities for further organic growth now in Newcastle and Bristol particularly. And I think Teesside just gives an example and flavor of what we see. I'll summarize now to allow 20 minutes for questions. I think we've clearly, I think, shown the early evidence. It's still modest at 3.3%, and I think when you see the headwinds that November, December have clearly given us a good insight into the housing market. That looks like the volumes are now returning. They have in November, December. Let's see what happens Jan, Feb, March. But in November, December, we have seen a return on the housing market volumes. We're seeing similar in M&A. It's early signs, what the M&A market looks like. It's coming back. And I think the various other people would agree with that. So obviously, with those 2 headwinds that we've clearly talked about, we see then a return to previous organic growth coming. We're confident about that. The diversity, I've mentioned, to give resilience in economic downturn. We've always believed this is a resilient business, both through its diversity of what we do and also the regional locations that we operate in, make it even further resilient in an economic downturn. I've talked about the recruitments. I've talked about as well as doing more for our clients and winning new clients. I think to finish here, to summarize, we've got a really strong management team, I mentioned, at the beginning, and they're -- also now got a lot of tenure. They're an incredible team helping each other, and I think, that gives us real confidence to scale this business going forward, both through organic growth of clients through recruitment, through more pricing and then through selected acquisitions, which we will be very selective about because of the valuation, and we'll be very choosy. So we're building our confidence now on getting this back to a real sort of strong underlying organic performance accentuated by recruitments and acquisitions going forward. So I'll leave it there, and we'll go to questions, please.

Maybe can I ask just about the organic growth profile? Particularly interested in the cross-selling element with the larger companies. Have you got any examples you can sort of give as to where you have one service and now perhaps they're taking a second in that just to bring that to life?

Yes. I'll give a couple. So I'll go back right to the beginning when be bought Knights in June '12. So that's sort of 11.5 years ago. We -- so the largest client then was a business called [ Hansen ] mines and minerals. And so we do all the quarry work in the U.K. We've got the largest sort of mines and minerals quarry team in the country, those specialist areas. And we saw the revenues of that client over the first 3 years, 4 years treble. And that's because we started doing commercial work and corporate work and regulatory work and planning for what was originally just real estate quarry work. So we started doing a more full breadth for [ Hansen ]. And we've always wanted to replicate that model to large corporates. And with acquisitions, particularly, they give us the opportunity because small independents doing just, say, real estate and it's often real estate or employment work that a small independent would do for corporate a client, it wouldn't be doing the M&A. It wouldn't be doing the commercial contracts, the intellectual property because that's considered to be more complex by client. So what we do with a client typically would be to take what's a real estate offering and try and broaden it into corporate and commercial and tax and specialist areas. And so I'll pick McDonald's. We're doing that with McDonald's. We would -- we acquired that business that was [ active ], McDonald's in November '19 in Oxford or Jan '20. And now we've trebled the revenues with McDonald's because we're now doing the corporate M&A work. We're doing the franchising work. It's a franchise model. We're doing all the commercial work around franchising. We're doing dispute resolution work with them. So we've broadened that. And that's the plan. It's always the take, what normally is a real estate client and broadly gets into the offering. You see, we've got 90 M&A lawyers, and that's why we've kept the M&A resource intact, even though it's been significant or 20% off on volume, what we've kept intact because the independents in the regions, particularly outside Manchester, Birmingham, Leeds, doesn't have the M&A resource that we have. So the fact we've got 90 M&A specialists, 28 partners really gives us firepower in the regions to do M&A work properly. And then all those 20 tertiary locations have decent deals going on, GBP 50 million transaction, sometimes up to GBP 100 million. And we can do that.

I was going to ask some examples of that from serial banking world to these 2 -- so the M&A that you're seeing, you mentioned transactions picking up. Again, any examples as to what those types of transactions are useful?

So we're very strong in sellers. So the sale mandates because you've got a lot of owner-managed businesses, founder businesses, second, third generation businesses, family businesses that are looking to realize their exit. This will be particularly important as we come up to political change and potential CGT changes. We always -- I've seen this the last 30 years. You -- when there's a threat on CGT, and I think that's very real now, then family and businesses are looking to exit to obviously realize their assets and liquidate it and pay a CGT rate of, say, 10% to 20% the amount. So that will fuel transactions. So it's a sale selling environment for us that we can really focus on. We do a little bit of PE. We do a little bit of banking, but we are really focused on acting for the owners who are wanting to self-trade or private equity. And then we see that returning now. That's been circa 20% off on volume, and we see that really coming back now this year. And that's why we kept those 90 lawyers very much in place, because you can't get that resource in the regions. And then we apply that resource to large corporates that -- where we can get a bigger share of the wallet by broadening the offering to them.

And then price, you mentioned I think it was 9% headline.

By last year.

Last year in November. Right. [indiscernible]

But you don't just -- you can't just put that on to the revenue. I wish it was that straightforward. 20% -- sorry, 25%. It moves around other places. Fixed price on frameworks and existing contracts, so you just can't then go there you go, those are other rates. It has to find its way into all of our fixed cost -- all our fixed pricing. So McDonald's and [ Hansen ] are on retainers. And if they don't just go, oh, that's fine, you have to then bring that into discussion. And all those discussions are happening -- happen between Jan and April. We try now -- we've got much more focus on our framework agreements and retainer agreements. And we're having discussions with all of those clients between Jan and April to try and make 1st May our fixed price renewal date. But that's still work in progress for us. And it means any price increase that's currently in place, contractual on an hourly rate basis for everybody. Effective from 1 May means it will go into the fixed pricing. I would sensitize that down to probably 3% or 4% of pricing growth.

Where do you think your price now is compared to your sort of bigger regional players? Do you still think a little bit below?

Yes. If you compare us to say -- a good segment to look at, and you can look at this in PwC particularly, I think -- maybe Stifel did a report as well on top 40 or 1 of you did on top 40. I think it was Stifel. You can look at 26 to 50 which is good for us because we're sitting at 40th by revenue. So when we look at 26 to 50, which is our segment, we are in the middle of that segment, we're about 15% lower than the average per hourly rate prices of those firms and the recovered rate of those firms, we're still 15% behind them. So there's still some catch-up for us, we feel, because I think our quality now on our premium offering is definitely on par with those businesses, but we're taking mindset of regional people and having to move them forward, and it's a stretch for them. And so you have to take one step at a time with them. The challenge for us is always our people, not actually the market because people say, look, you put your [ price since ] you're going to lose clients, and it's not like that at all. It's that you've got all the -- you could lose hearts and minds if you stretch them too quickly. I mean we take up to a year to move an acquisition on pricing. For the first 6 months, we leave them alone just while we're settling costing and everything, and settling everything down. Then we start to challenge and move forward.

On organic growth more generally, if we go to a more normalized economic backdrop, say, for FY '25, FY '26, do you think you could be at like single-digit 10% organic growth of the business? Is that sort of [indiscernible]?

I do, yes, feel through pricing will [ come ] all the time. Recruitment, I think, will grow from here for the 2 reasons I've said, the push and the pull. I think that the scale of our business should mean we do much more in client win and more for clients. And we're seeing the early -- this is early signs on more of the wallet and more client win. But I think we -- we want -- we're putting more BD into that now because we feel the scale is going to attract. We're in America every month now. We went in America 18 months ago. We're in the U.S. every single month now, talking to American clients and general counsels, particularly and American law firm, who don't have a U.K. presence. So we've identified at least 30. I think it's now more U.S. firms that don't have a U.K. presence. That's sort of 100 to 200 in size in America. We're focused on that group to say, when you've got U.K. inbound, you can talk to us as an independent. We're not a threat to them in the U.S. So it's all those things that and a bigger footprint with 23 sites as that grows to, say, 30. That will create the organic opportunities we've seen in Teesside that we're seeing now in Newcastle and Bristol. I think when we report maybe next time, I think we might be able to show Newcastle and Bristol on a similar term we show in Teesside because when you go in new, we're a breath of fresh air compared to a traditional partnership environment. And Newcastle hasn't really changed for the last 20 or 30 years law firm-wise. Some of the big ones have gone in and out and they've retreated out. We're going to go in, and we're going to be there to stay because that's -- we're a regional business. We're more excited about Teesside than we are London. That's not the case with the other top 50 law firms.

Baines Wilson and St James Square, the lock-up days went down really quickly since you acquired those 2. How'd you manage to achieve that? And then secondly, in private wealth, do you manage any money on behalf of wealthy individuals in that business?