Knights Group profits rise after second half recovery

Legal and professional services company Knights reported a 39% improvement in revenue in its full-year results on Wednesday, to £103.2m.

The AIM-traded firm said second half organic revenue growth was 10%, representing a “significant” recovery from the 15% decline in the first half of the year ended 30 April due to the Covid-19 pandemic.

Gross margins improved to 49% from 48% year-on-year, despite the impact the coronavirus crisis had on revenue in the first half.

Underlying profit before tax rose by 35% to £18.4m, although the company’s underlying profit before tax margin weakened slightly to 17.8% from 18.3%.

Knights reported a “strong” second half margin of 21.8%, up from 19.8% a year earlier, which was a significant improvement from the first half margin of 13.0% despite some pandemic impact, reflecting its continued leverage of overheads.

Underlying earnings per share were ahead 27.7% at 18.3p, and basic earnings per share improved to 4.14p from 2.44p.

The company reported strong cash conversion4 of 91%, up from 80% a year earlier, following 12 months of “significant” investment, and reflecting the roll-out of its approach to cash management in recent acquisitions.

Lock up stood at 89 days, compared to 85 days excluding acquisitions in 2020, aided by “robust” systems and a “strong” culture of day-to-day cash collection.

Net debt totalled £21.1m at year-end, widening from £15.9m at the end of the 2020 financial year, but still lower-than-expected due to strong cash management.

The board confirmed it was declaring no final dividend.

Looking at its current trading, Knights said momentum had continued into the new 2022 financial year, with an increasing quantum of new, quality instructions, supported by a growing team of “motivated and committed” people across the group.

The firm said it was continuing to see a strong pipeline of senior fee-earner candidates, as well as active engagement with a pipeline of possible acquisition opportunities.

Its directors said that in a challenging year for a number of UK businesses, their confidence in the group's strategy and market-leading position in the regions had been reinforced.

“We have delivered a robust performance during the year, with a rapid return to stronger levels of organic growth in the second half, complemented by high calibre acquisitions that further elevate our position as a market leader outside London,” said chief executive officer David Beech.

“Having reached critical mass following recent acquisitions, the group is increasingly attracting high calibre talent with strong client followings, good quality clients who recognise the value of our premium service, and legal service firms that would like to be part of a larger, diversified, forward thinking group.

“Looking forward, we expect that Covid-19 will only accentuate these opportunities for our resilient, well-invested, diversified and cash generative business in the highly-fragmented and often under-invested market for legal services outside London.”

At 0848 BST, shares in Knights Group Holdings were down 2.47% at 434p.