DWF Group plc (LON:DWF), the global legal business providing advisory, managed and connected services, has issued the following trading update for its half year ended 31 October 2020.
· Group revenue growth of more than 14% versus HY20 revenue of £147m
· Underlying adjusted PBT of £13m which is close to the full year FY20 comparator of £14m
· Strong free cash flow generation with a reduction in lockup days of c10 days versus 206 at April 20 and c5 days versus prior year of 201
· Net debt reduction of £6m versus April 20 position of £65m despite £12m of acquisition related outflows
· Free cash flow generation in HY21 was over £10m, which contrasts with a £9m outflow in HY20, and an outflow of £5m for full year FY20
· The Board remains cautiously optimistic about FY21 outlook despite the macro environment and believes the business is well prepared to work remotely during any further lockdowns
The Group has continued to enjoy improved activity levels since Q4 of FY20, which was impacted negatively by COVID-19. Revenue growth for the year to date is more than 14%, as activity levels increase towards pre-COVID levels. The FY20 acquisitions of DWF-RCD and DWF Mindcrest have made a strong contribution to revenue, whilst the organic performance of 1% reflects a return to growth in the underlying business over the course of H1. The Group’s Managed Services offering is also gaining traction with clients.
Previously announced cost-reduction initiatives have improved both gross and net margins positively. Gross margin is beginning to trend ahead of HY20 and is 2pts higher than the diluted FY20 full year margin, driven by recovering activity levels and cost reductions starting to reflect in lower direct costs. Strict control of overheads has also reduced the cost to income ratio by over 3pts compared to HY20 and FY20.
In aggregate, these revenue and cost dynamics have delivered an increase in underlying adjusted EBITDA and PBT of more than 25% compared to the prior year, with underlying adjusted PBT for the half year being close to the £13.8m achieved in full year FY20.
Net debt of £59m reflects a £6m reduction on the April 20 position, despite year to date acquisition related outflows of £12m. The lower net debt is a result of an improved performance on lockup days, with a reduction of c10 days versus the FY20 year-end position and a c5 day reduction from the HY20 position. Free cash flow generation for the 6 months to October 20 was over £10m, which contrasts with a £9.3m outflow in HY20, and an outflow of £4.6m for the FY20 full year. Further improving lockup days remains a key area of operational focus and represents an opportunity for further reductions to borrowings. The positive impact of lockup improvements are expected to reduce net debt more materially in FY22, which will not include the one-off outflows relating to deferred consideration for previous acquisitions and COVID-19 tax deferrals expected in H2 of FY21.
Sir Nigel Knowles, CEO, commented: “We have seen a very pleasing recovery in activity levels since the dip caused by COVID-19 in Q4 of FY20. We have prioritised organic growth, acquisition integration and operational efficiency and this focus, combined with our cost reduction measures, has delivered strong profit improvement for the Group. We have also increased our focus on working capital and lockup and this is reflected in our net debt reduction and lockup day improvement, further strengthening our balance sheet. The pipeline of work is encouraging despite the challenging economic environment, we continue to selectively hire partners to strengthen and expand our offering in key practice groups, and our clients are increasingly recognising the benefits of our integrated service offering. We believe now more than ever that our combination of advisory, managed and connected services sets us apart from other legal services providers. As we move into the second half of the year, we remain cautiously optimistic about H2 and will continue to deliver our strategy whilst focussing, as always, on the needs of our clients.”
