Knights Group trims expectations as growth slows

Knights Group warned of slower growth in a trading update on Tuesday, as the Omicron variant of Covid-19 and weaker macroeconomic conditions impacted the business.

The AIM-traded legal and professional service provider said it typically has a strong second half, particularly in the fourth quarter, and so had anticipated “substantial growth” following a good first half in which it grew organically by 9%.

However, it said on Tuesday that a continuation of the impact of Omicron and recent macroeconomic conditions had slowed growth to a greater extent than expected.

The company said the persistent effects of Omicron across the UK meant greater illness rates amongst its people, resulting in the business not benefitting from a faster return to office working and the consequent advantages of its “team-based culture”.

Knights said it also saw a softening in business confidence, possibly due to concerns around the strength of the economy, leading to a slowdown in corporate work.

The confluence of events meant that, while the firm had seen a recent increase in activity rates, they were still lower than management's expectations.

Knights Group said it now expected to deliver revenue of around £126m and underlying profit before tax of about £18m for the year ending 30 April, with the board noting that it had not seen any significant losses of clients or fee earners.

Given the current uncertainty over both economic conditions and the speed of transitioning people back into offices, the firm said it was now “prudent” to anticipate organic growth of 5% for the 2023 financial year, with margins rebuilding to historic levels over time.

Cash conversion remained robust, Knights said, with “industry leading” lock-up and debtor days reflecting the “strong discipline” of the group’s day-to-day cash collection.

“Following a good first half, it is frustrating that recent events have held the business back from delivering a stronger performance in the second half,” said chief executive officer David Beech.

“Beyond this near-term uncertainty, the opportunity to cement our leading position in key legal services markets outside London remains substantial and we are as well placed as ever to deliver on that opportunity.”

Knights Group said it would provide a further update on trading for the full year ending 30 April in May.

At 1205 GMT, shares in Knights Group Holdings were down 47.77% at 190.62p.