Acquisitions masks decline in natural progress as Knights releases Covid-hit H1 financials
Listed firm Knights may have posted a robust 45% rise in 2021 half-year revenues from £31.9m to £46.2m, but acknowledged that without its slew of acquisitions turnover dropped in real terms from the same period last year by £4.8m (15%).
The results came after a year in which Knights opened in Leeds through the £20.1m buyout of Shulmans, while also establishing a south east presence through the acquisition of ASB Law in a deal worth up to £8.5m. The £8m purchase of Nottingham-based Fraser Brown in February 2020 marked the firm’s tenth acquisition since its listing in June 2018.
Profit before tax was up 13% to £6m, compared to £5.3m for the same period last year. And in further defiance of the difficult trading, the firm’s gross margin matched last year’s pre-Covid levels, at 46%.
CEO David Beech (pictured) told Legal Business: ‘Before Covid we achieved 10% organic growth, so it’s a new impact for us. We knew it was coming in March. It was not a comfortable or pleasant experience for us when it hit. I am sure that organic growth will return this year, particularly through strategic recruitment, but April to July last year was pretty tough.’
However, this morning’s (19 January) results paint a generally good picture of the firm’s financial health – trading improved enough in the latter part of 2020 to fully restore the salaries of all staff by 1 November. At the outset of the pandemic, Knights was among a host of firms to announce salary cuts, in this case, a 10% cut for all staff earning over £30,000. ‘We restored salaries on the earliest possible day we could’, Beech said.
The accounts bear the full costs of the firm’s Covid-instigated restructuring efforts in March last year and beyond. For the full financial year ending April 2020, Knights spent close to £3m on ‘redundancy and reorganisation costs’. For the first half of 2020/21, the firm has already spent almost £1.1m in similar costs. According to Knights’ report, the costs are part of an effort to ‘streamline the support function of the group following acquisitions’ and ‘as a result of reorganisation actions taken in relation to the impact of Covid-19’.
Knights has continued to expand, entering into the south west market with the £2.1m buyout of Exeter-based OTB Eveling in December. However, this deal did not factor into the H1 results.
Further positive indicators come from the firm’s active recruitment. Throughout the period, Knights hired 18 senior fee earners (partner equivalent) and made 83 internal promotions. Beech commented: ‘Our acquisitions have integrated faster and better than we could have predicted. That quick accessibility to people in their homes meant we could accelerate recruitment and integration – it’s a stable and happy ship.’
And while potentially pre-emptive, even a 15% fall in organic revenue could seem a fair performance once the wider market begins to reveal its own Covid-impacted finances.
Beech looks to the future: ‘There’s going to be lots of activity in the UK later this year, lots of consumer and corporate spend in the summer and autumn. We will be supporting clients as they step up their activity.’