DWF Group plc (LON:DWF), the global provider of integrated legal and business services, has issued the following trading update for its financial year ended 30 April 2021.
· Group revenue of £338m reflects growth of more than 13%, including 8% organic growth
· Adjusted profit before tax of £34m exceeds market expectations by c.15%1
· Strong free cash flow generation with a 20 day reduction in lock-up days to 186
· Net debt reduced on prior year to £61m (FY20: £65m) despite one-off outflows for deferred consideration and acquisition related payments of £17m
· The Board anticipates recommending a final dividend of 3p per share
· Resumption of M&A activity with two bolt-on acquisitions to the Group’s Connected Services division, following the year end
The Group has continued to enjoy strong activity levels in H2, with revenue growth for the year of more than 13% (8% organic) and the pipeline remains robust. All divisions delivered growth in FY21 versus the prior year.
Gross profit margins increased in every division and the Group’s cost to income ratio has reduced with the combined impact of these improvements driving a more than 120% adjusted profit before tax uplift compared to FY20. Adjusted profit before tax of £34m was c.15% ahead of market expectations1.
1 DWF believes consensus PBT, prior to this announcement, was £29.3m
Net debt at £61m has reduced versus prior year despite deferred consideration and acquisition related payments of £17m. These are non-recurring outflows with only £7m of deferred consideration from these past acquisitions remaining to be paid in FY22. The FY21 payments have been funded by strong free cash flow generation which was supported by a 20 day (c.10%) reduction in lock-up, the metric which the Group uses to assess working capital efficiency.
The Group also announces that it has acquired Zing 365 Holdings Limited, a compliance training business, and reached an agreement to acquire BCA Claims & Consulting Limited, trading as Barnescraig & Associates, a Canadian insurance claims and loss adjusting business, to enhance its Connected Services offering. Completion of the acquisition of BCA is expected to occur by 28 May 2021. These acquisitions together are expected to add c.£3m of revenue and c.£0.5m of adjusted profit before tax in FY22 and are expected to be immediately earnings enhancing.
Zing365 is a specialist provider of compliance training to numerous sectors including Insurance and Financial Services, delivering training through in-person and virtual live training, plus digital, platform-based e-learning. E-learning is particularly suitable to scaling and delivery across the Group’s global business. Total consideration of £1.8m (subject to working capital and net debt adjustments) comprises £0.8m payable in cash on completion, £0.8m payable through the issuance of new shares subject to a phased release over a three year lock-up period and the assumption of £0.2m in debt.
The Company will make an application for the admission of the new consideration shares to the Official List of the Financial Conduct Authority and to trading on the London Stock Exchange’s market for listed securities. The new consideration shares will rank pari passu with the Company’s existing ordinary shares and Admission is expected to occur at 8.00am on 28 May 2021.
BCA, established more than 25 years ago, is one of the leading adjusting and claims firms in Vancouver. This platform will complement the Group’s existing Toronto based adjusting and claims business enabling the Group to serve both local and London market clients. Total consideration is C$3.8m (£2.2m) payable in cash of which C$1.5m (£0.9m) is payable at completion and C$2.2m (£1.3m) is payable over 2 years following completion.
As a result of the Group’s profit transformation, strong cash flow and positive outlook, the Board currently anticipates recommending a final dividend for FY21 of 3p per share, taking the total FY21 dividend to 4.5p per share. This is the first step towards normalising the dividend towards the target pay-out ratio of up to 70% of the Group’s profit after tax. The Group will provide an update on its capital management strategy with the release of its full results in July.
Sir Nigel Knowles, Chief Executive Officer, commented: “This week marks the first anniversary of my tenure as CEO and I am delighted with our results which show significant improvement on the prior year and a strong performance in their own right. We have grown the business, transformed our profitability, improved our operational efficiency and strengthened our balance sheet notwithstanding the impact of COVID-19 during the year. These results are testament to the resilience, dedication and excellence shown by our colleagues right across the business. Since my appointment last year, we have emphasised the importance of a ‘one team’ approach and it is paying off.
“We have very clear differentiators versus the rest of the legal sector: we are the only main market listed global legal business, we have a unique client proposition which offers integrated legal and business services, and in Mindcrest we are the only law firm to own a market leading alternative legal services provider. This significant global addressable market supports our confidence that we can continue to deliver strong growth in all of our markets, both organically and through acquisitions.
“We have continued to align our global businesses with our core strategy – reorganising operations in Australia, which is expected to be earnings enhancing, and striking new exclusive associations with firms in Singapore and South Africa. We already have established relationships and fee earning work is underway with these two firms and we see promising opportunities for more.
“We launched our new global operating structure on 1st May which will bring efficiencies to our business and enhance our ability to combine the services of our Legal Advisory, Mindcrest and Connected Services to deliver bespoke solutions to our clients with greater efficiency, price certainty and transparency. Our results reinforce the confidence we have in the execution of our strategy.”
DWF will publish its full-year results on 21 July.