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DWF Growth Slowed By Coronavirus Effect As Shares Slump

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Listed law firm DWF slumped after an announcement (below) announcing reduced revenues and sending the shares sliding. DWF is the only law firm listed itself on the main market on the London Stock Exchange.

The full statement on the revenue slump is below –

The health and wellbeing of our people and clients is paramount, and steps have been taken to enable all of our c. 4,200 people 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.

Client feedback has been very positive and has generated a number of new opportunities that will benefit the Group in the year ahead, as the investment we have made in our delivery platforms has helped the Group to provide a wider range of services to clients.

Whilst the Group has, to date, shown strong revenue growth year on year, the final quarter of each financial year is typically the most important to the Group’s financial performance, and has coincided with the COVID-19 outbreak in the Group’s key markets.

As a consequence, the Board now estimates that Group revenue for the financial year ending 30 April 2020 (FY20) as compared to the prior financial year (FY19) will show high single-digit organic growth and total growth of between 15% and 20%, which is below management’s previous expectations. Although the Group continues to expect double-digit percentage growth in underlying adjusted PBT this year, it expects a material impact on the expected FY20 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 c.£10m in cash savings during FY21 and annualised savings of £13.5m in FY22.

The payment of any final dividend for FY20 will be determined later in the year once the Group’s financial results for FY20 are known and have been considered by the Board.    

The Group invested through FY20 in its extensive lateral hire programme, 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 have joined recently are taking longer to ramp up their practices than would normally be the case but the Board are confident that, as the normal business environment returns, new joiner productivity will progress as had previously been anticipated.

Given it is uncertain when the market dislocation will end, management are keeping their expectations for FY21 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.

International and Insurance will deliver most of the revenue growth in this financial year. As anticipated, International will deliver the strongest growth, albeit the Group has begun to experience issues in a number of locations as a result of COVID-19. Insurance, with its strong counter-cyclical offering, is trading ahead of management expectations.

The Group is very focused on working capital management and cash collections,

DWF Press Release

Connected Services is also expected to see revenue growth in FY20 whilst Commercial Services is now expected to be flat – corporate, finance and real estate have all been adversely impacted by COVID-19, with this partially offset by a strong performance from litigation.

As the Group expects that it will generate lower than anticipated profits in FY20 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.

The Group has a Revolving Credit Facility with HSBC, NatWest and Lloyds of £80m and currently expects to continue to operate within the limits of that facility.  Notwithstanding that expectation, the Board believes it prudent to seek additional contingency facilities from its lenders to ensure that the Group has increased headroom for working capital purposes and a relaxation of certain covenants for a period of time. The Group has a strong relationship with its lenders and has had positive initial discussions, which are 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.

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