Ward: Core legal business has grown strongly
Pioneering law firm Gateley is on track to become the first listed legal business to hit the £100m turnover mark, with double-digit growth across all financial indicators in the first half of its financial year, it told investors today.
Its unaudited results for the six months ended 31 October 2018 recorded revenue up 20% to £46.4m, with profit before tax up 18.6% to £5m, in line with its projections last year. However, debt has increased significantly.
Gateley’s business is weighted to the second half of the year, a stock exchange announcement said, and revenues for the year should reach “not less than £102m”, of which the four businesses acquired since flotation in June 2015 should contribute £13m.
Our analysis of listed law firms in 2018, published yesterday, showed Gateley to be one of the poorest performers, with its share price sliding 26% over the year. However, the initial reaction to the results has been good, with the shares up 7.5% in early trading this morning.
The half-year revenue increase was split equally between organic and acquisition growth – thanks to the deals to buy housebuilder specialist law firm GCL Solicitors in May 2018, and human capital consultancy Kiddy & Partners in June – which has expanded the group to 16 legal and five non-legal business lines.
Total headcount was up by 17.3% to 928, including eight lateral partner hires and seven internal promotions to partner, making 146 partners in total.
Since Gateley’s admission to AIM, its legal team has grown by 47% to 565 people, and the expansion of non-legal service lines means there are 38 other professionals, including chartered surveyors, tax consultants, clinical psychologists and chartered accountants.
CEO Michael Ward said: “Our proven strong and resilient business model and our focused diversification strategy has continued to drive growth across our business: our core legal business has grown strongly; our acquired complementary businesses are all fully integrated and are performing very well; our acquisition pipeline is strong with regular approaches from companies who view Gateley as an ideal choice to help them grow their businesses successfully…
“In the first three years post admission to AIM, the group has delivered turnover growth of 37%, adjusted EBITDA growth of 46% and, including the dividend from this set of results, has provided shareholders with dividend income of 21.84 pence per share.”
Mr Ward’s operational review of the business noted that the GCL deal meant that – with nearly 200 staff – Gateley’s residential development team was the largest at any law firm in the UK.
He added that Gateley’s “differentiated model” – enabling it to offer share options to staff – was what “enables us to attract the best talent from across the industry”. Some 55% of staff participate in one of the firm’s three equity schemes.
A break-down of practices areas showed particularly strong growth in litigation and the employment, pensions and benefits group, but revenue in the corporate group slipped by 6%.
However, total net debt has increased to £8.2m from just £700,000 as at 30 April 2018.
The firm attributed this to restructuring existing term loan facilities to accommodate borrowing £3m in October 2018 to fund its acquisitions, plus a £1m repayment to the original term loans.
Gateley also acquired, along with GCL Solicitors, £1.3m in loans from GCL’s former partners, nearly half of which were repaid during the half-year, while cash at bank reduced from £4.3m to £300,000 in the red, “partly as a result of funding given to the employee benefit trust in order for it to purchase some shares from vesting option holders and partly due to FY 18 dividend funding of £5.3m.
“The strong contribution generation from working capital net cash inflows across the group helped to partly settle these cash outgoings.”
By 30 April 2019, Gateley forecast that net debt would be £3m, comprising approximately £5.7m of remaining term bank debt and £400,000 of loans to former partners of GCL.
The announcement added: “Working capital at H1 19 totalled £21.3m compared to £18.8m at FY 18.
“The growth of £2m in trade debtors was partially due to the expansion of services following acquisitions of GCL and Kiddy. However collection of debts remains a continued focus of management across the group.”
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