Knowles: No sharp changes of direction
Partners at DWF cashed in shares worth £4.25m yesterday at the first opportunity to sell some of the stock they received when the international law firm listed in March 2019.
The first release from the lock-up arrangements for partners came on the day the firm announced preliminary results for the year to 30 April, which showed an 11% increase in revenue, despite Covid-19, but a fall in profits, along with a “temporary pause” in merger and acquisition (M&A) activity.
More than 34m shares were released to 211 partners, 17% of whom sold a total of 7.5m shares at 56.72p – amounting to 4.15% of the shares held by the partners.
In addition, a further 2m shares were sold to settle tax obligations arising from vesting IPO share awards.
The results announcement included a proposed final dividend of 0.75p, taking the total proposed dividend for FY20 to 3.25p a share.
Group revenues rose from £268m to £297m, although organic growth was just 2%. Chief executive Sir Nigel Knowles said that, while that growth rate compared to other global law firms in FY20, “it was lower than expected”.
DWF is split into four divisions. The insurance division’s revenue grew 6% to £96m, connected services 13% to £21m and international 53% (due to acquisitions – 5% organic growth) to £76m.
But its largest division, commercial services, felt the deepest impact from Covid-19 due to a drop in transactional activity, contracting by 4.1% to £104m.
The group’s EBITDA fell 22% to £22m, with profit before tax declining 32% to £14m. Margins at all the divisions except insurance fell.
DWF’s net debt at 30 April was £65m, an increase of £30m from a year earlier, which the firm said reflected the impact of Covid-19 and lock-up days which peaked at 206 in April, falling back slightly since to 200.
In a trading update also published yesterday to counter any negative messages in the results, DWF said revenue was 20% higher in the first three months of the current financial year than in the previous year, made up of 5% organic growth and the acquisitions last December of Spanish law firm RCD and US legal and managed services business Mindcrest in January.
Net debt has reduced to £55m, but while EBITDA was 145% higher than in the same period in 2019, DWF recorded a loss of £600,000, compared to a profit before tax of £1.9m last year.
The firm said the financial year-end came too soon to reflect the £15m of cost savings it has previously announced to mitigate the impact of the pandemic – closing its Brussels and Singapore offices, reducing its presence in Dubai and Cologne, and discontinuing its flexible lawyer service DWF Resource.
Sir Nigel unexpectedly took over from Andrew Leaitherland in May but told investors that “there will be no sharp changes of direction from DWF”.
However, he promised “much greater focus this year on operational improvement”.
He explained: “The aim is to improve efficiency across the group, better connectivity across our global business, and to see the improvements in working capital performance that we believe will help us to reduce net debt.”
DWF has completed 17 acquisitions in the past 13 years but Sir Nigel said that, given market conditions and “a desire to ensure we have fully integrated our most recent additions, there was a temporary pause on M&A”.
He added: “It will still be a key ingredient in driving further growth, and we anticipate resuming activity when conditions allow.”
DWF launched an internal ‘key client’ programme this year and it has already seen 21% year-on-year billings increase from its ‘grow’ and ‘target’ clients.
DWF is the first law firm on the main market. It listed at 122p but barely moved during the rest of 2019.
Like the rest of the market, its share price suffered when lockdown was imposed, and then dropped 18% on Mr Leaitherland’s departure. The shares fell to a low of 46p in July but closed up 5% yesterday at 62.5p.
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