Welcome to the Kelly Partners Group Holdings Ltd, HY20 results briefing conference call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Brett Kelly, Executive Chairman and CEO. Please go ahead.
Good morning, everybody. It's a very nice morning in Sydney, a very sunny morning. I hope everybody's had a moment to look at our results deck that we've shared this morning. I'm pleased to report that things are moving according to plan, and I think that's here in the deck. I just very quickly whip through some of the key pages and then take some questions. On page two, we've got this format: KPG in 10 seconds. In doing a lot of our investor meetings, we've been asked, or we've been told, investors have a short amount of time, so could we tell them the story in 10 seconds? The story of the business is quite simple. It's growing strongly, and it has for nearly 14 years. Our EBITDA margins are up 20%+ revenue growth. EBITDA margin is back to 30%. Underlying NPAT growth at 50%.
Just call out that last year at this time, we had a one-off event in the CBD acquisition, which was an accounting entry. It was not a cash flow entry, and that should now be obvious to people in reviewing our five halves of the public company. From a balance sheet perspective, there is a 41% ROE , and our net debt to underlying EBITDA remains very, very conservative. Cash flow is up 15%. Our cash flow conversion is 100%. I will just draw your attention to these little gray boxes at the bottom. On average, our people bill over AUD 200,000 per person, the full-time equivalent. Our firm's EBITDA margins are at 32.9%. That is after we pay the partners, on average about 12%, I think, in these numbers. There is about a 45% EBITDA margin for partners.
Our lockup is at 62.8 days, which is really, I think, as good as anyone in the industry. Cash to bank set AUD 4 million, and we think we're in quite good shape. Page three is a very important graph. Our business is not a new business. It's a new business as a public company. We'll be three years as a public company in June. Those big green numbers indicate that we've doubled the business 4x in a row, and we expect that we can continue to do that in the foreseeable future without having to do anything particularly crazy. The reason that this is important is that the business has a habit of doing certain things, and those things that it does well have a habit of delivering consistent results over time.
I am very confident in our people and our team and the systems and way we approach what we do. On page four, we published a five-year growth plan about six months ago. I think it was the first time we have made this public, but it just makes clear how we have grown the business over time. We do not like to share too much for our competitors to understand what we do, but we do want our investors to be fully informed. We have an existing group. We aim to grow organically at 5%+ per annum, and then we aim to expand our business through tuck-ins to existing sites, acquisitions of new marquee sites, or the establishment of new greenfield sites, and then add new services. We put a target group there that shows that we can grow this business significantly over time.
In the context of large accounting firms or accounting firms generally, that would be a significant economic entity. When you consider that we are just Sydney-based with one office in Melbourne and just focused on private business owners, there is obviously a huge opportunity to grow over time. On page six, we want to be Sydney and Melbourne's first choice accountants and advisors for private business owners. That mission's never changed. We think we've got good momentum. I expect that we certainly are the only group of any size, probably nationally, that has that single focus. Our strategic pillars, though, to challenge the status quo, we do that through looking after our people better and looking after our clients better with unique IP and structured systems.
The actual structure of our ownership of these businesses on a 51/49/10-year partnership model is completely unique and invented by us to our industry, although this type of approach has been successfully deployed in other industries in Australia and globally. From a growth point of view, we see that our centralized management function gives us an opportunity to attract firms that want help in growing and are sick of the burden of running these things by themselves. This specialist accounting services team really has deep operational expertise in our industry. From a performance point of view, if we can continue to perform as we always have, then people are attracted to being on a winning team, and people are obviously very important to our business, be that our partners, our future partners, or our clients.
On page eight, our industry is very, very large, and the pillar or in the sector that we are focused is AUD 12.2 billion of market opportunity, smaller private practices. There are over 10,000 of those firms. No one's ever made a significant play in that space. Our industry, like others, the participants are largely concerned with size. They just want to be huge. We want to be very profitable, very unique, and very effective in competing in our space, very focused on our strategy. By continually focusing in this smaller private practice space to these SME clients with a unique system and process and central management team, we believe we have an advantage, and we believe over time we can continue to prove that. We draw parallels to the insurance broker market, which is a very similar recurring income style market.
Major players have been able to get hold of a significant chunk of that market, and we think over time with a similar model to AUB, we can do the same in this sector. On page nine, we're the 24th largest accounting firm in Australia, and we believe the opportunity continues to remain enormous. Importantly, we don't seek to be a Big Four firm. We don't seek to be the next four firm, what we call Big Four wannabes. We don't want to be a national mid-tier firm. We want to be our own unique thing, and we think we're doing a pretty good job of that. On page 10, we do have, we believe, significant differences that give us a competitive advantage, and our aim is just to quietly prove that over time. Page 11, we are executing a five-year plan. It's not afterpaid. It's not Facebook.
It's not tech or sexy, but we think strong and growing cash flows and strong and growing dividends and a provable recurring income stream will probably become very attractive over the next decade as many Australians seek to retire, and the scramble for retirement income will be unparalleled. We think income streams are going to be bid up over time. From an investment case point of view on page 13, it's a very simple plan that we're trying to execute. We've been sticking to this same plan for a long time, and we'll continue to report back as to what we're doing. We're trying to improve the earning power of our businesses. We're trying to increase our earnings through tuck-ins. We're trying to participate in the growth of our businesses through organic growth and our 51% interest. We'll repurchase KPG shares whileever they remain significantly undervalued.
Unfortunately, when we see today's share price, for example, there seems to be a habit in the sort of two-month pre-reporting that share price falls off a lot, but we are in a blackout, and we can't do anything about it. It's quite frustrating, and we'll make an occasional large acquisition. We'll be very careful about those acquisitions because we believe that transformative acquisitions often transform businesses in a negative direction. Our business model is outlined on page 14. We think it is valid, and it makes sense, and we expect to continue to prove that out. I would draw your attention to the fact that we have, at number three, 7,500 client groups and growing, and we believe that the trust we have with those client groups will, over time, result in more business.
In terms of network expansion, on page 15, we added the Melbourne office, which is very exciting. At the time of the [like there] a lot of people said to us, "Well, you're just in one city." The good news is Sydney is a massive city that's continually growing, so we're not too focused, too concerned about not being everywhere. We're really doing what the clients desire. We do love Melbourne, and we see Melbourne as a very large, deep, and exciting opportunity. We have managed to partner with Paul Dobson and his firms. Great business, great guy. We are very excited to be in now the Melbourne market with opportunities to grow. We have also added the Blue Mountains, which was outlined in our areas to grow in our previous presentation.
We see going to places where other people do not go, where there is above-trend growth, as being the heart of what we have done for a long time and to be a continuing valid strategy. Page 16 outlines existing offices. Page 17, places we are continually looking to grow in terms of location. Page 19 shows that we do have a differentiated offer for a client that really is a very high-quality offer and that now is not available, we believe, at this level of quality from a focused private business owner-only firm anywhere else. Page 20 shows that our complementary businesses continue to make some growth. They are small, and they certainly have no more exciting economics than accounting firms, but they are good businesses to be in that help our clients, and they are growing. On page 22, in terms of operational highlights, there continues to be strong organic growth.
My aim has always been to grow much more strongly than GDP growth. My view is that as baby boomers all seek to retire at the same time, many of them who own accounting firms will be looking for somebody to buy them, and that will be us as the most experienced, best-track record buyer in the market. We also believe on the other side as investors continually look for income and, interestingly, an ethical source of income that over time, if we can prove ourselves as a public company, will become a more attractive place for people to invest. In the meantime, while people have questions, we'll continue to look to get hold of some of our own shares if they're on special as they are today. Network expansion, other services, developing people, systems, and processes are outlined.
Moving to the financials on page 24, I think they largely speak for themselves. I'll take questions if people have questions when we go to Q&A, but these businesses need two things to happen, really, to perform at their best. They need to grow their revenue, and you can grow that organically, which is very important, and you can grow by acquisition. Like most things in life, I think it's best if you do both of those rather than just one. There certainly is no significant firm in our sector that's ever been grown other than by pursuing both of those strategies at the same time. On the balance sheet side, you just have to look at the efficiency of the balance sheet in particular, management of cash flow around lockup, which is with work in progress plus debtors.
Our lockup is by far, I think, the best in the industry, certainly, that you can get hold of any information that's reliable. Our ROE , I think, continues to remain excellent. We are still a very small business, largely economically irrelevant as a public company, so we don't have any delusions about that. We do believe that over time we can prove up in public why talented partners and team members should join us and why other firms who are looking for a better way to operate and realize value in their businesses should join us. That's really the attraction of being public.
To speak to that, we continue to have a very large and very actively engaged pipeline of acquisitions that mean that we can't see any time where we would be scratching around looking for some deal to do that was an excellent deal. That is very exciting. The income statement on page 25, underlying EBITDA margin has got back to where we wanted at 30%. It was affected last time by an accounting entry. Page 26 indicates that our margins are nearly 2x that of the industry and clearly outlines where we see impact of acquisitions on margins. It is hard to grow and run at our benchmark, 32.5%- 35%, and grow continually through acquisition at the same time. Hopefully, a clear reading of our numbers can, over time, show growing EBITDA and then growing NPAT.
Balance sheet on page 27 is conservatively geared, I think, very conservatively geared. We are very aggressive about growing the business within our very limited circle of confidence, which is accounting firms. We will just stick to our nitty. Page 28, we always think cash flow is a highlight in our business. This is a very capital-light business that is, I think, very well operated through our partner-owner-driver model. Our partners are keen to see the cash, and we know how to teach them to find it and manage it effectively. That is largely around engaging with the right clients and making sure that they pay in the right way. Our borrowings are outlined on page 29. I would just draw your attention to our effective gearing, if you think of it as AUD 295,000 per partner.
is less than the working capital contribution that most large firms and partners would make. That debt is personally guaranteed at the sublevel by those partners, which makes them pretty attentive and excited about growing their equity value by paying down their debt aggressively. On page 30, our aim has always been to grow our dividend at 10% a year. We have done that for the first two years or three years. We expect that will continue. Really, it is our play that if we continue to pay quarterly dividends and grow those dividends in line with growing earnings, over time the share price will look after itself.
Our property strategy on 31, we want to make sure that our partners who could buy property, if they were not a Kelly Partners business, in fact can buy property so that they're not disadvantaged by being part of our business. We have come to believe that we will look to get those properties outside the KPG structure because we'd like to get capital back into the business where we can get a better return through acquisitions. We did not see when we did our last roadshow, we did not see any particular support for that involvement on property from our shareholders. We have heard that feedback, and we will act on that in the next few months. We think we can find very good uses for our capital, particularly around the acquisition pipeline that is in place. There is a bunch of appendices for your interest.
Page 33 makes very clear that there's very strong alignment between our people, partners, and management. We do still own 59.3% of the head co, which we think is important. There's good institutional support, which we're very pleased with, and some retail shareholders. There's a clear outline of operating cash flow and a trivial impact to underlying impact risk. I'll draw your attention to page 36. The reason that this is very important is that our model has been the same since inception. We have always had a 51% or 50.1%+ interest in all of the businesses within which we've operated. There is one business where that's not the case, where that business has opened less than 6 km from another office, and we allowed that office to have a direct ownership so that we had a look-through ownership of that business.
This is an operating model that we invented in our industry and have applied in a unique way, which we believe has delivered very strong differentiation and competitive advantage to us and our partners who are the 49% owners in these businesses. I think that's obvious now, a 14-year-old business, and I think it'll become more obvious over time. There's an outline of our central services team, which we're investing in to grow. We've really strengthened that team and would make clear here that we have the capacity to run now with a team that we have up to at least AUD 80 million in revenues. Our run rate's about AUD 50 million. There's an outline of how we've transformed businesses in the past on some of those other slides. Importantly, there's a disclaimer. Without taking any more time, just a quick 20 minutes.
I appreciate there's a big turnout on the call today. It's at least twice what it's been in the past. I appreciate people's interest. If there's any questions anyone would like to ask, myself and Justin Sweeting, our CFO, and Kenneth Ko, our Finance Director, are here to answer any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. We will now pause momentarily while you register your questions. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Wayne Sanderson from Phillip Capital.
Please go ahead.
Hi, Brett. Congratulations. Good result. Just wondering how the wealth management strategy's coming along, please.
Hi. Why do we think that wealth management's about the worst business you could possibly invest in and that the market's obsessed with a business that's just crap? It's subject to massive regulatory interference. If anyone can tell me how to value a wealth management business, well, then they're much smarter than I am. Other than that, our internal efforts to grow that business remain very strongly on track. We've not seen anyone make a fortune for their shareholders in this space, and it's certainly not our focus. We are 100% focused on the quality of accounting firms as the best asset that we can possibly acquire and operate to great effect.
We will just grow our wealth management business as a derivative of that business, as a support service to that business. There is an outline of the growth of our complementary services in this pack, page 20. You will see there that the wealth management business continues to grow. I think it has grown at 48% on the period. I cannot say that I am excited about owning wealth management businesses. I think the days of lazy trail commissions are over. We cannot grow through acquisition because the assets are still dramatically overvalued. We pay dollar for dollar for an accounting firm, and people want AUD 3 per dollar for a financial planning business. Their margins are lower than ours, say 25%. We are doing 30%. The key person dependence on a financial planner is much higher than it is on any of our chartered accountants.
This is not, we are not in the middle of a wealth management business. I've watched all the major banks, your Mac banks, your Credit Suisse, the Big Four, etc., etc., dust that much shareholder capital on wealth management businesses that I don't intend to take on that adventure. Most Australians can't afford financial advice and therefore won't get any. They can buy a book at the public library or borrow one.
Thank you. There are no further questions at this time. This does conclude our conference for today. Thank you for participating. You may now.