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‘Match fit’ DWF rebounds after torrid finish to 2019/20

DWF has started 2020/21 strongly after a series of efficiency measures were put in place following a tumultuous end to the last financial year that saw debts rise and underlying profits plunge, the firm’s delayed financial results show.

For 2019/20, revenue at DWF rose 11% to £297.2m, up from £268.2m last year. Despite the double-digit hike, the performance is still below the firm’s revised expectations announced in March, when DWF suggested total revenue growth would land between 15% and 20% as the Covid-19 lockdown impacted the firm’s year-end. Underlying organic revenue growth was also below the revised expectations, with the figure growing 2% due to the difficulties encountered in Q4. The firm suggested in March the figure would undergo a ‘high single-digit’ increase. 

While gross profit saw a marginal decrease of 1% to £142.2m from £143.4m, more concerning was the firm’s underlying profit before tax – the figure excluding one-off investments – which was down a hefty 32% to £13.8m. Likewise, the firm’s underlying adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was also down, decreasing by 22% to £21.8m.

‘We were having a decent year in 2019/20 following our expansion strategy,’ DWF’s CFO Chris Stefani told Legal Business. ‘But in the final quarter Covid hit and that saw a strong decline in instructions and why revenue delivery was much lower than expected. While we still grew revenue by double digits, the shortfall hit profitability.’

Moreover, the firm finished the year saddled with more debt – something DWF has always struggled with. For the year to 30 April, the figure stood at £64.9m, compared to £35.3m in 2019. According to Stefani the increase in debt was mostly an ‘accident of timing’ due to large acquisitions – such as the £50m DWF invested in Spain and its £14.2m Mindcrest acquisition – taking place just prior to the pandemic.

Such was the dire situation at DWF, the firm ousted long-term leader Andrew Leaitherland and appointed chair and former DLA head Sir Nigel Knowles as CEO.

Despite a difficult 2019/20, DWF’s trading update for the beginning of 2020/21 made for better reading. The firm saw net revenues up 20% for the first three months of the financial year, with organic growth coming in at 5% while underlying adjusted EBITDA was up 145%. Net debt, meanwhile, had been reduced in the period, with the figure dropping by almost £10m from its peak in April.

Speaking to Legal Business, Knowles said: ‘What we needed to do was join up the business. When you were once a UK firm and become a global firm, you have to look at the costs you inherit. We needed to create a sustainable platform to ramp up business and we’ve spent a lot of time getting us match fit for the future.’

Despite the strong start to the year, the firm is maintaining its initial financial forecast. As of this 9:30am this morning (08 September) its share price stood at 62p.