DWF Group lowers expectations amid pandemic
Legal services company DWF Group updated the market on the impact of the Covid-19 coronavirus pandemic on its business on Friday, reporting that it had taken steps to enable all of our its 4,200 workers to be able to work “on an agile basis” in order to follow lockdown and self-isolation measures, and to mitigate the impact on client service.
The London-listed firm said client feedback had been “very positive”, and had generated a number of new opportunities that would benefit it in the year ahead.
It said that while to date it had shown “strong” revenue growth year-on-year, the final quarter of each financial year was typically the most important to the group's financial performance, and had coincided with the Covid-19 outbreak in its key markets.
“As a consequence, the board now estimates that group revenue for the financial year ending 30 April as compared to the prior financial year will show high single-digit organic growth and total growth of between 15% and 20%, which is below management's previous expectations,” the board said in its statement.
“Although the group continues to expect double-digit percentage growth in underlying adjusted profit before tax this year, it expects a material impact on the expected 2020 financial year profits due to lower than expected revenue and the level of investment made during the year to grow the platform.
“The group has already implemented cost savings during the course of the year and has accelerated its cost saving programme which is expected to deliver around £10m in cash savings during the 2021 financual year and annualised savings of £13.5m in the 2022 financial year.”
DWF said the payment of any final dividend for 2020 would be determined later in the year, once its financial results for the year were known and had been considered by the board.
The group noted that it invested in its extensive lateral hire programme through the 2020 financial year, increasing partner headcount on a net basis by 28 year-to-date, excluding those partners who joined through acquisition.
Due to the current environment, partners who had joined recently were said to be taking longer to ramp up their practices than would normally be the case, but the directors said they were confident that, as the normal business environment returned, new joiner productivity would progress as had previously been anticipated.
“Given it is uncertain when the market dislocation will end, management are keeping their expectations for 2021 under review.
“The company's revenues are generated from a diversified set of service lines and geographies, with a substantial proportion generated from litigation and related practice areas, which are less affected by the economy.
“Certain divisions and geographies have however experienced an impact from the market disruption caused by the Covid-19 pandemic.”
DWF said its international and insurance operations would deliver most of the revenue growth in this financial year.
As anticipated, international would deliver the strongest growth, although the group said it had started to experience issues in a number of locations as a result of Covid-19.
Insurance, with its strong counter-cyclical offering, was said to be trading ahead of management expectations.
Connected services was also expected to see revenue growth in the 2020 financial year, while commercial services was now expected to be flat, as corporate, finance and real estate had all been adversely impacted by the pandemic, with that partially offset by a strong performance from litigation.
“As the group expects that it will generate lower than anticipated profits in 2020, it also expects net debt at the year-end to be higher than anticipated.
“The group is very focused on working capital management and cash collections, however management anticipate that the current business environment will slow collections.
“Management is confident that the group has sufficient liquidity to deal with current working capital requirements.”
DWF noted that it had a revolving credit facility with HSBC, NatWest and Lloyds of £80m, adding that it currently expected to continue to operate within the limits of that facility.
Notwithstanding that expectation, the board said it believed it prudent to seek additional contingency facilities from its lenders to ensure that it had increased headroom for working capital purposes, and a relaxation of certain covenants for a period of time.
It said it had a “strong relationship” with its lenders, and had held positive initial discussions which were ongoing.
“The group has a resilient, counter cyclical business model that benefits from significant recurring revenues from institutional clients in its key industry sectors of insurance, financial services and real estate.
“While the current environment is unprecedented, the board is confident that the group is well-placed to continue to provide best service to its clients and benefit from future opportunities when the business environment normalises.”
At 1620 GMT, shares in DWF Group were down 14.71% at 87p.