Hello and welcome to the 2020 financial results call for the Kelly Partners Group Holdings. We will open for questions after the presentation. I'd like to now hand over to the CEO and Chairman of Kelly Partners, Brett Kelly. Brett, please go ahead.
Good morning and welcome. Thanks very much for joining us this morning. I'm pleased to present our third-year results of the listed company in August 2020. It's been a journey, and I appreciate those of you who have walked that path with us. The overview of the company is on page three, and I'd just like to call out a number of matters there. Firstly, we continue to stick to operating in one very clear and very large addressable market, and that's the Australian Accounting Services market, targeting SMEs, small and medium-sized enterprises, of which there are 38,000 of those in Australia. That market for accounting services is at least $12.5 billion, and we are now at $46 million, only 0.4% of that market.
I've stressed that for those of you who've known us for a long time, we've always believed that if we can grow in this market, stay in this circle of confidence of ours for a long period of time, and consistently perform, then we can do quite well. We are Osborne and Steadfast in the insurance broking market. Our revenue is very much of an annuity recurring income style. It's more than 99% of the revenue that we bill. In the prior year, that 1% is a performance fee that came from our investment office business largely. We feel very good when the market is difficult from an ability to grow, although we don't feel good for our clients and others that are being affected in a recessionary style environment. I would emphasize that our revenues are very, very defensive.
Our revenue growth over the last 14 years is 32% CAGR. We're compounding at 15% on the revenue line since IPO. We believe that we can continue to grow very strongly by growing 5% organic, 5% acquired as a minimum for the foreseeable future. We think in 20-year time periods, not 20-minute time periods. There really is an ability to continually grow in this space, and we look to do that in the way that we always have. If you are interested in our business, I'd refer you to that revenue graph that shows we grew strongly in 2007, 2008, 2009, and 2010, and then we consolidate 2011 and 2012. We grow strongly 2013, 2014, 2015, consolidate 2015, 2016, strongly 2017, 2018, consolidate 2019, and we're growing strongly again. This is a long-established pattern. It's really become a fundamental habit of the business.
On page four, the Kelly Partners business model is a very resilient and very diversified structured model built on very strong fundamentals that we believe during the economy that we're likely to face over the next three to five years will demonstrate an outsized ability to grow. Revenue continues to grow. EBITDA margins are very strong. Underlying NPATA growth has come back to where we'd like to see it, and then some more going forward. And the balance sheet return on equity is very strong. Net debt to underlying EBITDA, we think we're very moderately geared. It is worth your while if you're interested in the business to understand how we structure debt, which is largely structured into the special purpose vehicles through which we do our business.
There are 22 businesses they each hold debt that relates to their business activities, and then cash flows up 27%, and our cash conversion is 98%. It's always very close to 100%. On page five, our COVID response. When a crisis such as this occurs, as it did during the GFC, we move very quickly to prepare for a depression and hope for a recession. I very much strongly believe in the idea that you should be short-term pessimistic and long-term optimistic, and that's always the way we've run the business. So we focused on the team, cost management, capital, and liquidity, and we're very pleased that we've always focused on just doing work for private business owners that is recurring.
In the team space, we moved the team to work offsite immediately because of the significant investments we've made in our IT infrastructure, which is private cloud-based and allows us to work from anywhere. We were able to seamlessly move the entire team offsite immediately, and we've had nothing, in fact, but an uptick in productivity. In terms of cost management, we reduced exec salaries. We've done a massive cost-out exercise. The COVID crisis has given us some cover to take actions on costs that we might not have been able to do in a different environment, and we are receiving government incentives that are significant and very helpful and much appreciated, and they've been basically banked into the business through that reduction in the subs and the headcount.
In terms of capital and liquidity, there's AUD 12.5 million in cash and unused facilities in the group, which gives us essentially the ability to make up to AUD 30 million in further acquisitions, which is another 75% of our existing revenues. The group gearing's very low. We feel great about where we sit at the moment. We asked Westpac to extend facilities by a further 15 days in our overdrafts. Things got really interesting when the crisis started, which meant that we added about AUD 4.5 million to our lines of credit, which we haven't touched and don't expect to touch. We can trade the business for 127 days without any revenue at our full cost base, without any particular impact on the business. The most interesting thing about our group is the way that it's structured.
There's 51-49% partnerships with real owners that have signed personal guarantees and invested their own professional skills, equity, good names, and reputations into these businesses. And those 22 businesses have 8,000 client groups. No client is a dominant client within the group. Only 10% of the client base are receiving JobKeeper, and many of them are, in fact, now more profitable than they would have been in the past because of their opportunity for cost-out and to use some of that money to improve their businesses. And we've not seen a slowdown in collections. In fact, we've been able to reduce our lockup through faster collections and less width. On page six, this is the stated and consistent long-term strategy of the group, and we'll continue to report back that we're trying to increase the earning power of each of the businesses that we are owners of.
As number two, we want to continually do tuck-in acquisitions. That's where we buy all or part of another accounting firm and put it into an existing site where the management of that site takes ownership of that business and integrates that business. Number three, participate in the growth of our businesses over time. Number four, we expect to continue to buy back our shares while they are below where we see their intrinsic value. We've bought back 95,000 shares. I have been asked why we haven't bought more. Often, when we've wanted to buy more, we're restricted in two ways. One, we can only purchase shares at the prior five days VWAP plus 5%. And two, we're not allowed to buy shares when we have material information about our activities.
And so often, we are in that situation where we're partway through an acquisition, or we believe we're sitting on information that precludes us from trading. So it is quite difficult for us to get hold of shares. Number five, we will look to make an occasional large acquisition, but it is definitely not our focus. We believe that transformative acquisitions are often transformative in a negative direction, and the research indicates that that's the case in 90% of instances. On page seven, we've put a new slide in to make it easier for people to sort of understand our five-year plan that we've continually been publishing over the last 12 months. And that is that we believe when we went to list the company, the commentary was, "You're a private company.
You need to be listed and prove yourself as a public company." And we did believe that it would be different to be a public company and there would be a lot to learn, which has proven to be the case. But we think we've got on top of that and that the team is well-settled and well across what it is that we need to do and how we should be doing it. And so we can see that the business is building. If you look at the revenue, the revenue has increased by 50% since IPO. The EBITDA margin is at the sort of level of 30% plus that we'd like to see. And the job that we need to do in part two there in terms of accelerate, we see now, is to really grow the NPATA of the headco.
We can do that by strongly managing the costs of operating the central management team over this next period. Number three, we believe and was by the really lead in the accounting and tax-based private business owners in Australia. We know that if we can get our revenue to AUD 80 million within this five-year time frame, that that makes us a top 20 firm, a number 24 at the moment. It makes us the only firm in the country that has a 100% private business focus with a 100% focus on recurring income streams. That is structured in a very, very unique way that we've invented, pioneered in our industry, and that every transaction that we've ever done since founding in 2006, 14 years, has been done on that 51-49, what we call a partner-owner-driver model.
Returning to the financials, there's obviously always a lot of information here, and I will defer to our listeners today in terms of what they find most interesting. The things that I find most interesting are halfway down the page, you'll see that we are growing our earnings. You'll see that our gearing is falling, that our revenue per equity partners is growing. I would urge you to, when you look at our balance sheet and think about where our debt lies, it lies in the special purpose vehicles that operate these businesses, and it lies largely with the partners. That each partner has a small amount of debt that they've contributed on top of the equity that they've invested in the business. And so we feel very good about how that structure works.
I directed to our lockup, which is a very important number in a professional services business, debtors and width. It's at very low levels. That's always best expressed in my mind as a number of days. And so if you look at the 7.6 million that was there in the last period, and that was the 69 days, we've managed to continually since IPO contract that number, which is now at 54 days. And our equity ratio has been affected by the, I think, the new leasing standard, which we've noted down there as well, ASB 16, which I'll let Justin speak to. So the underlying NPATA is growing. Margins are consistent. You'll see above. And we're growing the dividends and distributions that are being paid. We are a quarterly dividend payer. We could be a monthly dividend payer with the way the cash flows work.
We're growing the dividends at 10% a year, and we will, or we do expect that we will grow the dividends again by 10% this year, and they'll continue to be paid on a quarterly basis. If we can continually grow revenues, reduce debt, pay quarterly dividends, and grow those dividends, then we think that over time, and we always thought being a listed company would take three to five years in the listing environment for people to really understand our model, and we think that the business becomes quite attractive if we can get it to a size that makes it more relevant. On page 10, the income statement, strong revenue and earnings growth driven by acquisitions and existing businesses. There's 15.9% growth for the year. We are not going sort of hell for leather to grow this business. I'm an owner, not a promoter.
I have a significant stake in the headcount myself, as does many of our management team and our partners, and we are here for the long term to continually compound our capital and yours as shareholders. We think that we can continually grow this statutory NPAT to the parent entity, and this year, I think in a difficult environment, it would be a good test of that. Page 10, I'll leave you to study the reconciliation. I've directed to page 12 that shows we do have industry-leading margins, and that's achieved by the centralization of our back offices, the expert management team that runs that central function, allows us to group by focus on 18 expense lines and very actively manage them. And we just, I've been in charge of accounting firms since I was 18. That's 27 years.
It's a long time, and we do know a lot about the assets that we're seeking to manage, which is these accounting firms that we know and we actually love, which is really important. On page 13, you'll note that the lockup date has reduced again, which unlocks more of the partners' and the shareholders' cash, which is great. We have a month that we've been having all partners' weekly meetings on Mondays since the beginning of the crisis to deal with major matters such as lockup and to make sure that everyone feels supported and feels part of a team and knows what's going on in the business. And that is having not just a morale impact, a very strong morale impact, but a great financial outcome as well. On page 14, this is the best part of our business from a financial perspective.
Not only can you grow the top line in these businesses, but it is, in fact, reflected in actual cash flows. The cash flows are up strongly again, and we feel good about our ability to turn billings into cash that goes into partners' and shareholders' pockets on a regular basis. And part of our, I guess, the secret sauce to the business is because our partners, owners, drivers are in these businesses as partners in the businesses, as owners. They are driving returns to themselves and to all shareholders, which is, I think, really key in a people business that you've got very, very strong alignment from the most junior person to the most senior. On page 15, in terms of debt and liquidity, there's 12.5 million in liquidity for COVID cushioning. We've got $31 million of acquisition capability.
We do not need to raise money on the market to buy anything. We do not expect to issue shares to buy anything. If anything, we will reduce the number of shares on issue, and we don't expect to have to come to the market for equity at any point that we can think of. It is good to be a listed company, and our house broker at Morgan's have done a great job through the crisis of being very supportive and being constantly in contact to make sure that if we were looking to raise equity, that we're in a position to do that. But at no time have we been in a position that we would contemplate that at what we consider very subdued valuations for the equity of all shareholders in this business.
So we try to break out here clearly how the debt looks in the parent and in the operating businesses. I would emphasize that the operating businesses' debt is shared between 45 partners. And so on a debt-per-partner basis, that number is $346,000. This is a goodwill ownership model where these partners of mine and yours as shareholders have direct equity in their underlying businesses. If they were to be a pretend partner in any second-tier firm, they would have to write a check for $346,000 at least to contribute to working capital that would be locked up and never seen again. The partners feel great about their ability to invest equity and then top up with some debt that they are personally guaranteeing and standing behind in their business. There's no refinancing of term debt required in FY21.
In particular, I want to call out Justin Sweet, who's our CFO, who's done a great job in the last 12 months working with the business and our bankers to restructure all of the group facilities, all of the individual business facilities, and put us on the sorts of terms normally offered to very, very much larger companies and to secure a banking relationship that allows us to continually grow through the style of acquisitions that we've now done, I think, 28 or 29 times. I guess I'd emphasize there we're not looking to do any new adventures here. We're just trying to get better at the things that we've got quite good at over time. On page 17, there's a strong outlook underpinned by annuity, strongly recurring income, and industry-leading margins.
That allows us to pay quarterly dividends that when we listed, we said we would grow at 10% per annum. We are growing at 10% per annum and expect to continue to grow at 10% at least per annum. The payout ratio has averaged about 60%, 61%. And we think that that's appropriate for a business of this nature at this time of its growth cycle. On page 18, that's really a slide. If you're keen on the business, you could stick to your desk as I have. And that's really the scoreboard we've set up as our central team to deliver on. On page 19, it gives you a little bit more color as to how we will do that. And there's nothing in the growth that we're seeking to achieve that we haven't done before. We need to continually grow organically.
You can see that's a very small number of 5% organic growth there in each of those years. We need to make some acquisitions, and we need to add some new services. The acquisition growth of 3.8 million in one year, 4.4 in 5.1, there has virtually never been a year in the last decade where we haven't done that number of acquisitions. In the first year, as a listed company, we had said we wouldn't go and make any acquisitions so that we had the opportunity to bet down the business. But there's no the largest acquisition we've made to date is 8 million in revenues.
We don't have to make a very large acquisition to get to a position that we think gives us the sort of financial and earnings side that makes us a more relevant business and gives us opportunities to really move on strongly from there. So there's, I think, in an unpredictable world, a very predictable plan to grow. It's, I think, very achievable. Obviously, with a COVID environment, anything can happen out there in the world, but I feel confident that this is about as boring a business as you can be in from the point of view of predictability. We don't see any situation where the government will decide that they should close down the tax system.
So they will close the airport, they'll close restaurants and gyms, but we can't see any indication that at some point the federal government will decide that collecting taxes is a bad idea. And so that's always been central to the thesis of this business, is that you're essentially as an investor leveraging into a Western advanced economy's government's desire to have a tax system that collects tax. And we just believe that they'll continue to want to collect more tax, not less tax over time. And so the people that run private businesses will need excellent advice over time. And we believe we're very, very well positioned to deliver that advice over time. Just in conclusion, I'll just take you to page 26 in your appendices.
Our business is genuinely different, and we don't share too broadly some of the things that are really proprietary knowledge of the business, but there is very genuine difference in this business. It starts from a clear mission to help private business owners who want to go somewhere, the people that employ 70% of all Australians. These are the get-up-early, stay-up-late people that mortgage their houses to build something, provide a better future for themselves and their families, and look after their people. By having that clear focus, that has served us incredibly well. It's allowed us to build real depth in our knowledge and acknowledgement in that target market. We've got clear values to act in the interest of others, to do exactly what we say, and that's best reflected in our pioneering of a fixed-fee service.
And then to understand that working as a team is always better than working as an individual. With a clear mission and values in an industry that's largely focused on itself, we believe that that has provided us with real internal energy that I think you can see manifested in the sort of growth that we have had over a long period of time now or a prolonged period of time. In terms of number two, that clear focus, not just the SME market, but on clear geographies to get large in Sydney, where we're in the top 25 firms in the country, and we would be the only firm in the top 25 that isn't a national firm. So there's a lot of growth to come out of places like Melbourne over time, but I'd emphasize over time.
We are now in the Melbourne market, in the CBD, and that business has grown strongly this year. We've got a phenomenal team down there, and I'm very, very excited about what comes next after Chairman Dan there gets his shit together. Number three, the partner-owner-driver operating business model. It's a 5149 model that we invented, in fact, in the depth of the model and in the application now over 14 years. It's a very refined model that is very excellent at giving people opportunity and really aligning people's interests. Number four, the central back office, to have a dedicated central management services team that has real depth in terms of its understanding of chartered accounting firms. For instance, one of our team members employed me when I was an 18-year-old at Price Waterhouse. He joined me when he was 56. He's been here for 12 years.
He was their CFO at PwC for 9 years and a partner for 26. He's been in this business now for nearly 13 of those 14 years. Just a quiet, achieving, highly talented person. We've continually added strong talent to that team. It's an active management team that is involved in every aspect of these businesses, improving every line item and every person's performance. Number five, we have a proprietary client system that allows us to better understand a client and show them how to get them to their goals. It is genuinely unique globally, and we look to scale that over time. We've built out a brand as number six.
We really have emphasized, and you'll see that we've spent $2.7 million in the whole co of shareholders' money over the last three years, building out our brand and building out our systems and IT to really make sure that we are well-known as a private business specialist. Now, our brand study last year indicated that all of the firms larger than us, other than the Big Four, all of them are more than 50 years older than us, and none of them have better brand awareness than we do. And we're seeing that in continual growth in the business, which is number seven.
Growing the network, our unique acquisition capability tends now in more than 28 transactions of people who are buying big firms, small firms, small parcel fees from live guys, dead guys, guys with nervous breakdowns, all sorts of situations in different markets of different sizes, we think is really a unique capability of the business. So we're still a small business. We know we're a small business, but we aspire to grow in a controlled and intelligent way over time. And we hope that the presentation today makes clear just where we're up to and where we think we can get to with your support over the next number of years. I'd love to throw back to Fiona if there's anyone on the call that would love to ask a question. We are here to answer questions.
Thank you, Brett. Guests are now invited to ask questions by pressing Star 1 on your telephone keypad now. You'll hear a tone as you join the queue. Please listen for your name, and I'll introduce you through to the call. Again, that's Star 1 on your telephone keypad. Thanks, Brett. We have our first question from Scott Murdoch from Morgans. Scott, please go ahead.
Thank you. Morning, Brett. Just a couple of questions for me if I can. Just specifically on the revenue profile, just interested if you can talk to the revenue profile that you delivered in the second half, which was down on the first half despite a few acquisitions coming through. Obviously, some COVID impact there as well, but just if you could give some insight on.
Yes. This is Cody. In the prior year, we had a large corporate advisory transaction that was a one-off, and we called out as a one-off, and we put a special dividend to try and take it out of the numbers. So it was in the second half of last year. So it may give you the impression that the revenue growth was different in those two halves, but the revenue growth in the underlying business was largely consistent.
Okay. Sorry. And just half on half in the first half, sort of dip back a bit, and you had the acquisitions coming through in the second half. So is there sort of some delays there or some COVID delays in the second half you experienced?
Not in particular, Scotty. We see that when we grab an acquisition, there is generally 70% upfront, 30% two-year retention. It gives us the ability to clean up that revenue. If the revenue isn't, if a client isn't appropriate or doesn't pay its bill or whatever that might be, we won't keep that revenue in the business for the sake of it and pay for it. It doesn't actually make sense to do that. We're just really focused on earnings rather than top-line revenue. But we see the revenue growth has been quite strong. And yeah, with COVID, there is some impact on the clients, but we're not seeing that on the revenue. So we would have liked to see the revenues slightly higher.
But frankly, given what happened starting in early March, and what the predictions were, we think the business has been really quite rude shaped from a revenue perspective.
Thank you. Can you just talk a little bit about the performance of the acquisitions that you made in those vendors that have been in the business about eight months now? At the time of acquisition, you always give us some metrics around where you think they can get to after business improvement. Just needed a quick update on the main two there against your expectations after eight months.
Yeah. So the Glenbrook business and the Melbourne business have traded well. There's been some extra costs, significant extra costs in Melbourne just to reshape that team. So a large redundancy cost to take a person out during COVID. We've been there a long time and was on a very, very large out-of-sort-of-market salary. But they've run at about 20%. And Glenbrook, similarly, is a real tidy-up job, small team. It's trading at about 20%. It'll trade at its full margin in the next 12 months. But we had, in the Melbourne case as well, we took one of our partners, Dylan Barry from Wollongong, and moved him and his wife and young child to Melbourne. So there were significant relocation costs and time and effort in that exercise. But good news there now is that Dylan's wife, Bronwyn, worked for me here for five years in North Sydney.
She's now stepping into the business as a senior manager. We will end up a partner. That is pretty exciting. Those businesses, we have taken a bit of a gently, gently approach in Melbourne. It is a new market, a new business. We wanted the partner in that business to remain in the business. In fact, he is now going to acquire equity back into the business. The gentleman, Paul Dobson, who sold the business to us, had an option to buy back into the business, which he has decided to do. In both those instances, we had vendors who were keen on us not turning the place upside down too quickly. We have done that. I would stress that we had got to a point in November last year where the world was pretty toppy and pretty relaxed. It is very much a different world now.
And if we were to make an acquisition today, we would be able to move much more quickly as we used to do to our full margin because people are much more accepting of change in this environment than they were towards the end of last year.
Okay. Thank you. Can you talk to the SME environment, which is your client base, from a forward-looking position? I guess past the government assistance packages rolling off, just any expectation around peak pressure or stress in the SME environment that you may see, and if that is the case, how do you mitigate them?
Yeah. So Scotty, what we've seen during COVID, if you check out our web page, we have had the best response with respect to information to SMEs in the country around COVID, government stimulus packages, etc., delivered digitally. It's resulted in us attracting many, many, many new clients and a lot more new revenue. We are bullish about our ability to win the best clients in this environment. We are on the lowest cost base by far of any firm that is anywhere near the quality of our firm. And it gives us an ability to protect margins and compete in the market that other firms just don't have. So we quite like this type of environment for doing business. We don't see any particular threat to our client base. It's highly, highly diverse, and we have very high-quality clients. So we don't see anything at the moment.
It's 10% of clients, only 10% taking job keeper. We've got, I think, a very good cross-section of SME clients, and we only have two and a half million of revenues outside New South Wales. And we think New South Wales is the largest, deepest economy that's going to deal with COVID or any economic challenge, frankly, better than any other market in Australia. So we think we're with the diverse office network as well. No one office of ours can go down all at once. All of our people aren't all located in one office. So even if we had a COVID situation, it could affect one office, but it wouldn't affect all offices. And we're running at best 50-50 people in the office, people outside the office. So we don't see risk on our team side as being significant.
And I must say, the clients, many of our clients are quietly doing a lot better than they were pre-COVID because really the strong businesses will pull ahead in this type of environment.
Okay. Thank you. And just one last question for me. Just the usual on the acquisition pipeline. Just interested in the current environment. You're seeing more opportunities, or they're a little bit harder to assess, and kind of what your expectations are for the next 12 months?
Yeah. So Scotty, we always say we look to grow at 5% organic and 5% by acquisition. That would mean we'd expect to buy 5% of 4.46 million in revenue. So call that 2.5 million. You can be sure that we have a pipeline that is many times that number and that the older practitioner who is operating in this type of climate has never been keener to talk to someone like me because this is really changing the way business is being done. It's harder. The clients have more questions. They want more energy from their accountants. They want digital delivery, Zoom meetings, use of better technology that these small firms are just not equipped to offer. And so I have on my desk, as always, a nice big pile of people that we're speaking to.
But as I always emphasize, we've always put ourselves in a position that we never have to do a deal. And we're never going to put ourselves in a position that we feel we have to do a deal because the best deals are done when people know that you are interested but not desperate. So I'm confident that we'll grab another good bunch of people into our organization through acquisition in this 12-month period. And frankly, I haven't ever been more motivated to do that because I see these environments as opportunities, as simple as that. I just really believe when it's tough, a strong business has outsized opportunities. And we're seeing that not just in terms of acquisitions, but we've hired 14 people in 16 days. There's really good talent in the market. There's a lot of firms that have been letting go of a lot of people.
But what tends to happen is after you have wholesale redundancies in businesses, your good people feel insecure, and they start looking for jobs. So we haven't had to do that. And so I'm getting inundated, frankly, with good people who feel very nervous being in organizations that have made a huge number of layoffs.
Okay. Thanks, Brett. That's all from me.
Thank you.
Thank you. Yes, our reminder that if you would like to ask a question, please press Star 1 on your telephone keypad now. It seems we have no other questions for today, Brett. So I'll hand it back to you. Thank you.
Thank you so much, everybody. I hope that the lack of questions means that our presentation was clear and that you're as excited about our business as we are. I would love to just thank everybody for coming today. We're really pleased with the support that we've had from so many of you, and we're excited about what is coming from here. It's a beautiful day in Sydney as I look out on that blue sky. I hope everybody has a lovely day. And if anyone has any questions at any time, please feel free to contact me directly. I'd be more than happy to answer any specific questions that we can help you with. Have a great day.