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DWF Group PLC   -  DWF   

Full year results for the year ended 30 April 2019

Released 07:00 31-Jul-2019

RNS Number : 2826H
DWF Group PLC
31 July 2019
 

Wednesday 31 July 2019

 

DWF Group plc

 

Full year results for the year ended 30 April 2019

Strong organic growth with significant progress against medium term targets

 

DWF, the global legal business providing Complex, Managed and Connected Services, today issues its full year results for the year ended 30 April 2019.

GROUP FINANCIAL SUMMARY

£m

FY 2019

FY 2018

Change

Net revenue

272.4

236.5

+15%

Gross profit

145.5

125.6

+16%

Gross profit margin (%)

53.4%

53.1%

+30bps

Adjusted EBITDA

33.6

30.7

+9%

Adjusted PBT

26.1

23.1

+13%

Non-underlying items and share based payments expense

(13.8)

(1.9)

 

Reported PBT

12.3

21.2

 

Profit after tax

12.2

21.1

 

Adjusted diluted EPS (pence)

6.8p

6.2p

 

Reported diluted EPS (pence)

4.5p

7.7p

 

Net debt

35.3

54.1

 

 

Andrew Leaitherland, Group Chief Executive Officer commented:

 

"These results mark the end of a milestone year for DWF, in which we became the largest listed full service legal business on the London Stock Exchange. I am pleased to report another strong period of revenue and profit growth for our maiden results post IPO, driven by an uplift across all four divisions, with International and Connected Services the standout performers. The Group delivered 15% growth - 12.5% of which was on an underlying organic basis - emphasising the strength of our unique business model.

We have made significant progress against strategy, taking meaningful strides towards our medium-term targets, and expect our diversified and differentiated business model to continue driving long-term sustainable growth. We are committed to recruiting and retaining leading industry talent which is underpinning our broadened service offering and revenue growth. Following a period of reduced M&A activity due to preparation for the IPO, we are maintaining discipline in identifying value-add acquisitions and associations to add scale, build on our sector expertise and develop our international presence."

 

 

 

FINANCIAL HIGHLIGHTS

§ 15% increase in Group revenue from £236.5m to £272.4m

78.7% growth in International division 

23.3% growth in Connected Services

6.0% in Commercial Services

2.8% in Insurance Services

§ Underlying organic revenue growth[1] of 12.5%

§ Adjusted EBITDA2 of £33.6m, increased by 9% (FY 2018: £30.7m)

§ Reported PBT of £12.3m (FY 2018: £21.2m)

Reduction due to one off non-underlying costs relating to IPO

Adjusted PBT3 of £26.1m (FY 2018 £23.1m), growth of 12.9%

§ Reported diluted EPS of 4.5p (FY 2018: 7.7p)

§ Adjusted diluted EPS4 of 6.8p (FY 2018: 6.2p)

§ 12 day reduction, equivalent to 9% improvement, in debtor days5

§ 15 day increase in WIP days5 resulting in gross lock-up days5 of 203 (2018: 200 days)

§ Closing net debt5 of £35.3m (FY 2018: £54.1m)

§ Net debt/Adjusted EBITDA of 1.0 (FY 2018: 1.8) is in line with guidance

§ Proposed final dividend per share of 1.0p

 

OPERATIONAL & STRATEGIC PERFORMANCE

§ Revenue per partner accelerated 9% to £857.6k as recent partner hires ramp up to full delivery

§ Net increase of 20 new partners in the period will support ongoing underlying organic growth

§ Gross margin up 0.3 percentage points ('ppts') to 53.4% driven by improvements across all divisions with International and Connected showing strongest growth in line with expectations

§ Cost to income ratio6 of 43.1% (FY 2018: 43.2%)

§ Entered into an exclusive association with Wood, Smith, Henning and Berman LLP in North America

§ 7 new panel wins since IPO

§ Investment in new key executive hires

 

OUTLOOK AND CURRENT TRADING

§ Entered into an exclusive association with RCD in Spain in June 2019

§ As announced in May 2019, we completed the acquisition of K&L Gates Jamka in Poland

§ Secured a new 5 year contract with BT within the Managed Services platform

§ The new financial year has started well and management is confident of the outlook for the full year

 

[1] Underlying organic revenue growth eliminates the impacts of acquisitions

2 Adjusted EBITDA is defined in note 2

3 Adjusted PBT is defined in note 2

4 Adjusted diluted EPS is defined in note 8

5 Debtor days, WIP days, Gross lock-up days and net debt are defined in note 22

6 Cost to income ratio is defined as administrative expenses (less non-underlying items, share based payments expense and adjusted for changes made in the adoption of IFRS 15 Revenue Recognition and IFRS 9 Financial Instruments) divided by net revenue
 

A presentation for analysts and investors of the full year results will be webcast on 31 July 2019 at 9:30am (BST) and can be accessed at: https://webcasts.eqs.com/dwf20190731

 

For further information:

DWF Group plc

 

Nicole Nordwall, Head of IR                                                         +44(0)20 7280 8929

James Igoe, Head of Comms                                                        +44(0)20 7280 8929

Finsbury

Charles O'Brien +44(0)20 7251 3801

Richard Crowley +44(0)20 7251 3801

 

About the Company

DWF is a global legal business providing complex, managed and connected services, operating from 27 key locations with approximately 3,200 people. The Company became the first Main Market Premium Listed legal business on the London Stock Exchange in March 2019. DWF recorded revenue of £272.4 million in the year ended 30 April 2019. For more information visit: www.dwf.law

Forward looking statements

This announcement contains certain forward-looking statements with respect to the Company's current targets, expectations and projections about future performance, anticipated events or trends and other matters that are not historical facts. These forward-looking statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan" "estimate", "expect" and words of similar meaning, include all matters that are not historical facts and reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement.

 

GROUP CHIEF EXECUTIVE OFFICER'S REPORT

 

This has been a milestone year for DWF. In becoming the first legal business to list on the Main Market of the London Stock Exchange, we emphatically demonstrated our commitment to doing things differently, created access to capital that will allow us to accelerate the delivery of our strategy and we extended share awards in our business to more than 2,000 of our people.

We achieved another year of strong financial performance, with full year revenue growing by more than 15% to £272.4m (2018: £236.5m).  This growth was primarily organic across the Group given the pause on our M&A programme required by the IPO process.  Our adjusted EBITDA increased by 9% to £33.6m (2018: £30.7m) while our adjusted PBT increased 12.9% to £26.1m (2018: £23.1m). Reported PBT decreased to £12.3m (2018: £21.2m) due to the non-underlying items of £12.6m that relate to the IPO.

A global legal business

All 4 of our divisions delivered strong organic growth in the period.  In the UK, the Commercial Services and Insurance Services divisions, which still account for the majority of our revenue, delivered 6% and approximately 3% growth respectively. The UK remains a core market for us and as such, we made investments and key hires which we expect will drive further gains in market share in the future.

Our International business has shown particularly strong growth, increasing revenue by approximately 79%. We have continued to build our international capabilities through acquisition, associations and new partner hires.

Australia has seen significant expansion in this period. At the beginning of the last financial year we announced the opening of our fourth Australia office, in Newcastle, and the appointment of a new Chairman of DWF Asia Pacific together with a team of 24 people across our Sydney and Newcastle offices to commence our Commercial Services build across Australia. We have since completed the acquisition of FT Adjusting, further building our Connected Services offering in Australia, and we were joined in March by seven principal lawyers from the Melbourne-based firm WARD Lawyers.  Australia is a growth opportunity for us, and we have doubled the number of people in that location to more than 150 since the beginning of FY19, significantly expanding our service offering and geographic footprint.

Already in FY20 we have added a further principal lawyer in Melbourne and a team of 15 fee earners, doubling our banking and finance team in Australia.  We have also delivered on an opportunity highlighted in our prospectus, through the acquisition of the legal business of K&L Gates Jamka in Poland. This move establishes DWF in Poland itself, but also opens up markets across central, eastern and south-eastern Europe.

We continue to take a diversified approach to expanding our international reach. Last September we announced an exclusive association with Los Angeles-based Wood, Smith, Henning & Berman, helping us to support more of our clients in the world's largest market for legal and insurance Services. More recently, we announced an exclusive association in Spain with Rousaud Costas Duran ('RCD'), a highly-regarded firm that is renowned in its market for innovation. RCD will also help DWF to support our clients in the broader Iberian peninsula and more extensively into Latin America.

Our international strategy is client-led. We enter new markets and build capability to serve clients where they need us, through acquisition targets or association partners with a strong sector alignment and cultural fit. We anticipate that the development of our existing international business and expansion into new markets will continue into FY20.

 Building our Managed Services platform

DWF is differentiated by our ability to provide clients with an integrated legal service through our three delivery platforms of Complex, Managed and Connected. In March, we stated that we would use a portion of the IPO proceeds to develop the Group's global Managed Services platform. We are still only a few months on from our IPO, but we have already taken a number of steps forward.

We have appointed a new CEO of Managed Services, Mark St John Qualter, who joined DWF in June from RBS Group plc, where he was Head of Artificial Intelligence for the bank's Commercial and Private Banking business. Mark will lead the development and delivery of our global Managed Services strategy.

Our clients are supporting us with the build, with our recent contract win with BT demonstrating how we intend to work in partnership with our clients to deliver legal services in a different way.

Our international expansion strategy has also been executed with our Managed Services build in mind. We anticipate Australia and the US becoming integral locations in our ambition to create a 24-hour Managed Services capability.

Leadership at every level

This year's successes were made possible by the quality and dedication of our people and their commitment to our values. I am particularly pleased that in this period we have been able to further strengthen our Executive team and I would like to warmly welcome our four new Executive Board members. In addition to Mark St John Qualter, we have also been joined by Daniel Pollick (Chief Information Officer), Mollie Stoker (General Counsel and Company Secretary) and Zelinda Bennett (Marketing and Client Development Director). Mollie joined DWF from Lucozade Ribena Suntory, while both Daniel and Zelinda joined the business from DLA Piper.

The quality of our team at Executive level is reflected across the business and evidenced by the recognition we have achieved throughout the year, both for client delivery and our HR & Workplace initiatives. We are pleased that some of our initiatives have been recognised beyond the business, where over the year, we have won external recognition such as: one of the Top 30 employers for Working Families, a Top 100 Employer in the Stonewall Equality Index and Insurance Post's Insurance Law Firm of the Year.

 Our progress against strategy

Our ability to transform legal services through our people for our clients, depends on the effective delivery of our strategy, which means understanding our clients, engaging our people and doing things differently.

Understanding our clients

Getting close to our clients and understanding their industry sector is crucial to the way we build relationships. During the year, we secured a series of important panel appointments, including those of the NFU Mutual and MS Amlin.

Engaging our people

Being able to recruit and retain the right people is critical to our success, which is why we saw the IPO as an opportunity to further strengthen our people's connection to our purpose and our strategy. I am delighted that more than 2,000 of our people now have an entitlement to shares in our business and I hope that even more of our people become shareholders through our Buy As You Earn scheme.

As well as awarding shares to our people through the IPO, we have continued to invest in their career development.  This year we made 172 promotions across the business. This included 35 senior promotions, including 20 partners and 15 directors. Of our senior promotions, 12 are women (34%), including five partners and seven directors. We also made significant improvements to the DWF Pension Scheme with a new minimum combined contribution of 8% between employees and their employer.

Doing things differently

Our reputation as an innovator was recognised in the 2018 Financial Times Innovative Lawyers report, as DWF was ranked the 11th most innovative legal business in Europe.

Launched in September 2018, the Manchester Law & Technology Initiative saw us join forces with Freshfields Bruckhaus Deringer and The University of Manchester to look at the potential innovations and impacts of technology applications in the legal sector. It is one of the first research collaborations of its type in the UK to draw on business and academic expertise to develop research and teaching focused on the potential application and the impact of digital technology in legal services provision.

Outlook and current trading

The new financial year has started well, with continued growth in line with our expectations. International continues to grow strongly with the added benefits of our recent hires, strategic acquisitions and associations. We continue to see the benefits of our diversified business model with opportunities to build further market share. A substantial proportion of our business is focused on sectors which are less correlated with the performance of the underlying economy, and as such we see stronger near term growth opportunities in these areas. As the impact of economic and Brexit uncertainty increases the incidence of contract disputes, insurance claims and fraud we are seeing the countercyclical benefits of our Litigation offering within our Commercial Services division, as well as across our Insurance Services division more broadly. Connected Services is trading strongly with increased visibility in the market as this business matures and our Managed Services offering is seeing growing momentum with a pipeline of further opportunities.

We are continuing to focus on cost control and working capital efficiencies and anticipate further improvements in 2020. Our strategy is to supplement our organic growth with value-add strategic acquisitions which increase both our capability and global reach. We have made a good start and are confident in the outlook for the full year.

Andrew Leaitherland
Group Chief Executive Officer

 

FINANCIAL REVIEW

 

Financial overview

The Board is pleased with the financial performance in FY19, in what has been a significant year for the business.

We have grown revenues by 15.2%, and have seen positive margin expansion in all four of our divisions. The most significant progress has been in International and Connected Services, two areas that we believe set us apart from other listed legal businesses. The revenue growth is profitable, with gross profit increasing by 16% with a gross profit margin percentage uplift of 0.3ppts versus the prior year.  In order to support this growth across our divisions the Company invested in its overhead primarily in International locations and also in a one-off increase in PLC related costs. As we continue to grow revenue, we do not anticipate that we will need to increase administrative expenses at the same rate.

The revenue growth, margin improvement and controlled investment in additional overhead combine to give an adjusted EBITDA figure of £33.6m, a 9.2% increase on prior year.  Adjusted PBT is £26.1m, a 12.9% increase on FY18.

Working capital

Working capital (measured using 'gross lock-up days') has remained a key area of focus and closing net debt was £35.3m at the year-end which was in line with expectations and guidance.

Gross lock-up days comprise two elements, being work-in-progress days ('WIP days') - the amount of time between starting work and invoicing clients - and debtor days which represent the length of time between invoicing and cash collection.

The Group is pleased by its debtor day performance which reduced by 12 days over the period as clients have, on average, paid invoices more swiftly. This significant improvement is as a result of process improvements in the Group's internal credit control function and fee earner behaviour improving client adherence to payment terms. The Group remains confident that additional opportunities are available to improve this further.

The Group's WIP days increased by 15 as a result of a variety of factors including growth in the Motor practice group in Insurance Services which has a naturally longer WIP cycle, rate card increases in Commercial Services, and a normalisation of International WIP days as locations diversify into full service offerings.  Some areas of the Group's business are subject to standardised billing cycles, such as in Insurance Services where a quarterly billing cycle is normally adopted, hence, while the Company is targeting improvements in this Group measure, the opportunity is not as significant as that for debtor days.

The Group will continue to focus on working capital requirements in FY20 and beyond and remains confident of at least achieving its medium term targets. In the current financial year, the Group is focussing on global process standardisation for billing and collections, billing automation, and partner accountability to drive improved working capital performance.

 

Revenue

Revenue was £272.4m for the year compared to £236.5m in FY18, an increase of 15.2%.  All 4 divisions of the business delivered growth in line with medium term guidance with International and Connected Services underpinning the bulk of the Group's growth with increases of 79% and 23% respectively.  With M&A activity largely on hold due to the IPO, the majority of the growth was organic (12.5% underlying organic revenue growth vs. 2018) driven by 20 new partner hires and improvements in revenue per partner.

Direct costs

Direct costs, including partner remuneration, were £126.9m compared to £110.8m in the prior year, an increase of 14% year on year.  This increase was driven by investment in 160 additional fee earners and 20 partners. In addition, it is worth noting that the partner compensation model changed at the time of IPO, such that former equity partners moved to 40% of their pre-IPO profit share while fixed share partners moved to 90% of their pre-IPO profit share. The impact of this was a reduction in partner-related direct costs for the period since IPO to the 30 April 2019. Whilst the accounts reflect 10.5 months of trading as a partnership and 1.5 months as a plc, the accounting for partner costs means the income statement effectively reflects the equivalent of a full-year of the new compensation model.

Gross profit

Gross profit increased by 16% from £125.6m in FY18 to £145.5m in FY19.  This reflects an increase in gross profit margin of 0.3ppts. All divisions have seen positive margin development through a combination of pricing and productivity increases, and the maturing of the Connected Services and International businesses which are transitioning out of the heavy investment phases of FY18 and prior years.

Divisional performance

 

Commercial Services

 

Measure £m

FY19

FY18

Variance

Revenue

108.9

102.8

6.0%

Direct cost

(40.5)

(39.1)

3.6%

Gross profit

68.4

63.7

7.4%

Gross profit margin %

62.8%

61.9%

 

 

Commercial Services finished the FY19 financial year strongly.  Revenue at £108.9m was 6% up on prior year.  Gross profit at £68.4m was 7.4% up on prior year.  The tight control of costs has driven gross margin improvement with a 0.9ppts increase on prior year to 62.8%.  The strongest revenue growth came from the Litigation practice group with the strongest profit increase coming in Real Estate.

Revenue from the division's top 40 clients in FY19 grew at a slightly higher rate than overall revenue.  This was a strong endorsement of the division's business plan objective to upgrade its client base and further institutionalise key client relationships. 

The key business plan priorities for FY20 are to drive continued growth in revenue and increase productivity through the newer divisions of Connected Services and Managed Services by delivering some elements of work more efficiently through process and technology.  There is also a greater focus on the importance of scoping and pricing. 

The start of FY20 sees a general political and economic climate which is slightly tempering activity in transactionally focused teams in Corporate Services and Real Estate, however the division is involved in several high profile client tenders. The Litigation practice group remains very busy with high profile work for the likes of Morrisons and other large institutional clients.  Litigation enjoys a degree of counter-cyclical demand which is expected to replace some of the transactional activity.

There is an increased focus on raising the division's profile in relation to securing corporate services work, as a catalyst for winning further work in Litigation and Real Estate. We are targeting low to mid-single digit revenue growth for the current financial year.

Insurance Services

 

Measure £m

FY19

FY18

Variance

Revenue

91.1

88.6

2.8%

Direct cost

(44.5)

(43.1)

3.3%

Gross profit

46.5

45.5

2.3%

Gross profit margin %

51.1%

51.3%

 

 

Insurance Services experienced a year of consolidation whilst also delivering a good revenue result of £91.1m, a healthy 2.8% up on prior year which was purely organic growth. Investments in partner hires and their teams, who are still to attain full productivity, meant that the overall gross profit margin remained relatively flat despite healthy improvements in certain practice areas. The strongest revenue growth and gross profit margin improvement was in the Motor and Fraud practice group, in part, as a result of the initial deployment of Managed Services techniques and also through forensic cost control.

The latter half of the year was marked by contract wins, most notably from NFU Mutual in January 2019, as well as panel reappointments, with extended lines of business for clients such as MS Amlin. There has been an investment in resource to gear the insurance business for the expected growth this next financial year.

The key business plan priorities for FY20 are to embed new contractual wins across the Insurance Services business and integrate lateral hires to maximise these revenue streams. The division will continue to drive strong organic growth whilst maintaining tight control of the expense base to deliver margin improvement. Continuing deployment of Managed Services techniques will help to enable this productivity increase by delivering elements of work via process and focused performance management alongside minimisation of non-chargeable activity. We will continue to search out new client opportunities and lateral hires who will add value to the business.

In many ways an uncertain political climate leads to increased insurance claims activity and additional value, however this could very well be tempered as the UK insurance sector awaits the full outcome of the Civil Liability Act. These so called "Whiplash Reforms" will eventually impact lower value work in the Motor Volume Practice Areas although this will not be implemented until April 2020. The division's award winning proposition for innovation in the area of predictive analytics will continue to produce significant indemnity spend savings for insurers and should mean that the division is ideally placed to gain increased market share. This alongside planned internal efficiencies, should offset any reduction in work as a result of the reforms.

The higher margin Catastrophic Injury, Professional Indemnity and Commercial Insurance practice areas continue to handle insurer's most complex and highest value claims with expansion expected as a consequence of increased instructions from existing clients and the new client wins and panel reappointments referenced above. The division will build upon new service line expertise such as in Political and Trade risk whilst further extending its offering in the specialist Lloyds and London market. The division will continue to search out new business opportunities from insurers, intermediaries and large non-insurer corporate nominations looking for opportunities to provide a broader range of service to its clients. This will involve partnering with the Commercial Services division and DWF Connected Services companies such as Ventures, Claims and DWF360. In summary Insurance Services expects high single digit organic revenue growth and further margin improvements in the current financial year.

Connected Services

 

Measure £m

FY19

FY18

Variance

Revenue

18.5

15.0

23.3%

Direct cost

(11.6)

(10.2)

13.4%

Gross profit

6.9

4.8

44.3%

Gross profit margin %

37.4%

32.0%

 

 

Connected Services, the newest division in DWF, continued to increase both revenue and margin in FY19 as it grows from a small base to become a more fully developed proposition across the breadth of the offering. Revenue has grown by 23.3% to £18.5m, with Claims, Adjusting, Advocacy and Forensic all posting double digit growth ranging from 14% for the larger claims business, to 80% in the fledgling Advocacy business.  Ongoing investments have been made in various connected businesses during the year but despite this gross margin percentage is on an upward trajectory with a 5.4ppts improvement in profitability and a 44.3% increase in gross profit.  Awareness of Connected Services division's capabilities is growing across the two principal new business channels, being direct marketing to clients and internal referrals from other areas of DWF.

The division has continued to innovate and invest, with £0.8m spent on DWF Ventures in order to develop new products, collaborations and alliances which will allow us to bring new ideas to our clients and generate new revenue streams.  A particularly notable initiative was our collaboration with The University of Manchester to look at the potential innovations and impacts of technology applications in the legal sector. The Manchester Law & Technology Initiative was launched in September 2018; it is the first research collaboration of its type in the UK to draw on business and academic expertise to develop research and teaching focused on the potential application and the impact of digital technology in legal services.  The division also completed the only M&A transaction for the Group in FY19, with the acquisition of FT Adjusting, further building our Connected Services offering in Australia.

FY20 is expected to continue the momentum that has been building in FY19.  We expect DWF360 (our software business), Claims, Adjusting, Advocacy and Forensics to be the key growth drivers.  For all of these businesses, there is significant opportunity for internal referrals and revenue capture as we educate our clients and fee earners about the ability to shrink panels and supplier lists to move towards single-source procurement.  We believe this is in the best interests of our clients, is what the market requires, and is what our Connected Services are designed to enable.

With clients seeking to reduce the number of service provider relationships they have to manage, they wish to engage with fewer providers who can deliver consistent services on a common technology platform across their international footprint.  The ability to provide clients with consistent management information is also a key requirement and market trend which we are able to provide through our proprietary software developed by DWF360.  This demand for services across multiple locations and jurisdictions is driving our investments in Connected Services throughout our international network.

 

International

 

Measure £m

FY19

FY18

Variance

Revenue

54.0

30.2

78.7%

Direct cost

(30.3)

(18.5)

64.1%

Gross profit

23.7

11.7

101.6%

Gross profit margin %

43.9%

38.9%

 

 

The International division grew by almost 79% in FY19, delivering revenues of £54.0m compared to £30.2m in the previous year. Every location showed growth year-on-year, but Australia, Dubai and Qatar showed some of the most significant growth whilst in Europe, previous investments in France, Belgium and Italy have started to generate revenues.  This revenue growth has been driven by prior year partner hires coming up to full productivity, an increase in demand from global clients and cross selling between territories as our international presence matures. Direct costs also grew as locations continued to invest in partner hires and fee earners, but despite this investment, gross profit margin improved by 5 ppts to just under 44%.  This is part of the expected normalising of International margins as the heavy investment in 2018 and earlier starts to deliver revenues.

Europe continues to present opportunities.  In France we recruited in banking and financial services which gave us a sector presence we did not have before.  We launched a business in Poland with the acquisition of the legal business of K&L Gates Jamka Warsaw office giving us a highly rated business to service the CEE region. Finally, and most recently, we entered into an exclusive association with top 20 Spanish law firm RCD.

We have had a strong year in the Middle East where the Dubai office has had a year of consolidation and increased its profile in the Dubai legal market.  Our office in Doha, Qatar finished its first full year completing a major international arbitration case relating to the Doha airport.

Finally in Australia, now our largest overseas location, we were joined in March by seven principal lawyers from the Melbourne-based firm WARD Lawyers.  We have since recruited a financial services and banking team in Melbourne giving us a strong presence there in conjunction with the existing banking team in Sydney.  The Australian legal market continues to offer consolidation opportunities as well as the ability to leverage our Connected and Managed Services delivery platform model.

As highlighted at the time of IPO, we will continue our international expansion in priority countries through either future associations or additional acquisitions in legal markets which we would like to enter with Poland, Spain, the USA, Canada, Hong Kong and the Netherlands all being locations where we will continue to look for opportunities.

Administrative expenses

Administrative expenses increased from £103.1m in FY18 to £131.0m in FY19.  This increase of 27.0% was as a result of £12.6m of non-underlying items (which were IPO related expenses) and share based payment expense of £1.2m in FY19 compared to £1.9m and £nil, respectively, in FY18. Non-underlying items and share based payment expense are separately disclosed to provide more information about our cost base.  The underlying increase in administrative expenses of £16.0m or 16%, primarily reflects the full year impact of Australia, support costs for the substantial growth of the International business and an increase in PLC specific head offices costs.

Net finance expense

Net finance expenses were £2.1m in FY19 compared to £1.3m in FY18, an increase of 65%.  Included within this increase is £0.2m related to the write-off of bank charges for the 2018 refinancing.  This was a 3-year facility which was subsequently replaced on IPO, so the charges in relation to this were fully expensed in FY19.  Interest on borrowings was broadly flat compared to 2018.

Profit before tax

Reported PBT was £12.3m compared to £21.2m in FY18, a reduction of £8.9m or 42% in the year.  This statutory position is impacted by the inclusion of non-underlying items and share based payments expense totalling £13.8m in FY19 compared to £1.9m in the prior year.  The increase of £11.9m increase is entirely related to the costs of the IPO process and the new shared based payment expense.  Much of this cost was driven by the complexity of the project, including the detailed regulatory work required in each jurisdiction in which we operate. Considerable restructuring work was undertaken immediately prior to the IPO to ensure the Group structure was robust and further work was needed to transition our financial reporting, systems and controls away from an LLP model to a corporate one.

Adjusted PBT reflects the combination of double digit underlying organic growth and control of direct and operating costs, such that FY19 adjusted PBT is £26.1m compared to 2018 adjusted PBT of £23.1m - a 12.9% increase. 

Taxation

The majority of the Group operated as a partnership until the point of IPO so all of the profits earned by the LLPs were attributable to Members as individuals.  The overall tax charge is £0.1m, comprising a current tax expense of £0.4m and a deferred tax credit of £0.3m.  FY20 will see a full year of tax charge as our first full year as a corporate entity.

Dividend

The Group's dividend policy is to retain sufficient capital to fund ongoing operating requirements and to invest in the Group's long-term growth. The Group will, from FY20, target a dividend payout ratio of up to 70% of DWF Group plc's profit after tax.

For FY19, where the Group was only listed for six weeks of the financial year, the directors are pleased to announce a final dividend of £3.0m in relation to the period.  This equates to 1p per share, and is subject to approval at the AGM on 20 September 2019 and, if approved, will become payable on 27 September 2019.

Balance sheet

Group net assets increased to £41.8m in 2019 compared to £5.3m in 2018.  The increase is due to:

·   an increase in gross lock-up of £21.5m which has broadly grown in line with net revenue growth, increasing by 16.5%;

·    £18.8m reduction in net debt; and

·    a £18.4m net repayments to members, primarily being the partner capital repayment on IPO.

With the exception of the working capital movement, the changes above have largely been driven by the impact and use of proceeds attached to the IPO.

Capex

The Group has not been capital intensive historically, and FY19 was no exception.  With the Group focussing necessarily on the preparations for IPO, capex was primarily spent on business as usual requirements including IT replenishment and essential office maintenance and refurbishment activity.  Total capex is broadly in line with the annual depreciation charge.

Conclusion

The Group has delivered profitable, mainly organic, growth and an improved level of profitability in a year where considerable resources were allocated to preparations for the IPO.  We have continued to invest in partners and fee earners and have a platform that is unique amongst our peers from which to drive future revenues.  Working capital and net debt is being and will continue to be tightly managed with more opportunity to self-fund as gross lock-up days are driven down.  It was a quieter year for M&A due to the focus required on IPO although this has brought us into FY20 with a strong pipeline of opportunities that we were unable to progress during the IPO. Looking forward we will continue to carefully consider inorganic growth opportunities and apply the same level of discipline as we have in the past, while looking for opportunities that are culturally and sector aligned, have client overlap, and complement our existing capabilities and offerings. 

 

Chris Stefani

Chief Financial Officer

 

 

 

FINANCIAL STATEMENTS

Consolidated Income Statement

Year ended 30 April 2019

 

 

2019

2018

 

Notes

£'000

£'000

Revenue

 

321,446

236,488

Recoverable expenses

 

(49,085)

-

Net revenue

3

272,361

236,488

Direct costs

 

(126,871)

(110,840)

Gross profit

 

145,490

125,648

Administrative expenses

 

(131,037)

(103,139)

Operating profit

4

14,453

22,509

 

 

 

 

Adjusted operating profit

 

33,589

30,746

Depreciation, amortisation and impairment

4

(5,365)

(6,333)

Non-underlying items

4

(12,569)

(1,904)

Share based payments expense

4

(1,202)

-

 

 

 

 

Net finance expense

5

(2,131)

(1,293)

Profit before tax

 

12,322

21,216

Taxation

6

(138)

(92)

Profit for the year

 

12,184

21,124

 

 

 

 

Earnings per share attributable to the owners of the parent:

 

 

 

Basic (p)

8

4.5p

7.8p

Diluted (p)

8

4.5p

7.7p

Adjusted earnings per share attributable to the owners of the parent:

 

 

 

Basic (p)

8

6.9p

6.3p

Diluted (p)

8

6.8p

6.2p

 

 

 

 

 

 

Consolidated Statement of Comprehensive Income

Year ended 30 April 2019

 

 

2019

2018

 

£'000

£'000

Profit for the year

12,184

21,124

 

 

 

Items that are or may be reclassified subsequently to the income statement:

 

 

Foreign currency translation differences - foreign operations

180

(392)

Total other comprehensive income/(expense) for the year, net of income tax

180

(392)

Total comprehensive income for the year

12,364

20,732

 

 

 

 

 

Consolidated Statement of Financial Position

As at 30 April 2019

 

 

2019

2018

 

Notes

£'000

£'000

Non-current assets

 

 

 

Intangible assets and goodwill

10

4,541

3,801

Property, plant and equipment

11

14,032

14,184

Investments

 

254

254

Trade and other receivables

12

152

-

Deferred tax asset

 

933

-

Total non-current assets

 

19,912

18,239

Current assets

 

 

 

Trade and other receivables

12

164,168

140,975

Cash at bank and in hand

13

12,912

5,130

Total current assets

 

177,080

146,105

Total assets

 

196,992

164,344

Current liabilities

 

 

 

Trade and other payables

14

55,620

49,381

Current tax liabilities

 

418

23

Other interest bearing loans and borrowings

15

9,028

9,704

Provisions

16

1,252

1,252

Amounts due to members of partnerships in the Group

 

38,071

35,715

Total current liabilities

 

104,389

96,075

Non-current liabilities

 

 

 

Trade and other payables

14

10,280

13,322

Other interest bearing loans and borrowings

15

39,196

49,522

Provisions

16

1,329

119

Total non-current liabilities

 

50,805

62,963

Total liabilities

 

155,194

159,038

Net assets

 

41,798

5,306

Equity

 

 

 

Share capital

17

3,000

2,385

Share premium

17

63,167

-

Other reserves

18

(1,323)

(2,556)

(Accumulated losses)/retained earnings

18

(23,046)

5,477

Total equity

 

41,798

5,306

 

 

 

 

Consolidated Statement of Changes in Equity

Year ended 30 April 2019

 

Share capital

Share premium

Treasury shares

Merger reserve

Share based payments reserve

Translation reserve

(Accumulated losses)/
retained earnings

Total equity

 

(Note 17)

(Note 17)

(Note 18)

(Note 18)

(Note 18)

(Note 18)

(Note 18)

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

At 1 May 2017

2,385

                  -  

                  -  

(2,385)

                  -  

221

            7,666

7,887

Profit for the year

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

          21,124

21,124

Exchange rate difference

                  -  

                  -  

                  -  

                  -  

                  -  

(392)

-

(392)

Total comprehensive income

                  -  

                  -  

                  -  

                  -  

                  -  

(392)

          21,124

20,732

Reserves transferred to amounts due to members of partnerships in the Group

-

                  -  

                  -  

                  -  

                  -  

                  -  

(23,313)

(23,313)

At 30 April 2018

2,385

                  -  

                  -  

(2,385)

                  -  

(171)

5,477

5,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 May 2018

2,385

-

-

(2,385)

-

(171)

5,477

5,306

Impact of IFRS 9 transition

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

(2,510)

(2,510)

Impact of IFRS 15 transition

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

997

997

Restated at 1 May 2018

2,385

-

-

(2,385)

-

(171)

3,964

3,793

Profit for the year

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

          12,184

12,184

Exchange rate difference

                  -  

                  -   

                  -  

                  -  

                  -  

180

-

180

Total comprehensive income

                  -  

                  -  

                  -  

                  -  

                  -  

180

12,184

12,364

Reserves transferred to amounts due to members of partnerships in the Group

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

(42,537)

(42,537)

Deferred tax arising on group restructure

-

-

-

-

-

-

636

636

Issue of share capital

615

63,167

                  -  

                  -  

                  -  

                  -  

                  -  

63,782

Treasury share sale

                  -  

                  -  

                  -  

                  -  

                  -  

                  -  

            2,707

2,707

Share based payments

                  -  

                  -  

                  -  

                  -  

1,053

                  -  

                  -  

1,053

At 30 April 2019

3,000

63,167

-

(2,385)

1,053

9

(23,046)

41,798

 

Consolidated Statement of Cash Flows

Year ended 30 April 2019

 

 

 

2019

2018

 

Note

£'000

£'000

Cash flows from operating activities

 

 

 

Cash used in operations before adjusting items

22

(10,545)

(9,539)

Cash used to settle non-underlying items

 

(19,289)

(731)

Cash used in operations

 

(29,834)

(10,270)

Interest paid

 

(2,405)

(2,373)

Tax paid

 

(50)

(69)

Net cash used in operating activities

 

(32,289)

(12,712)

Cash flows from investing activities

 

 

 

Acquisition of subsidiary, net of cash acquired

 

-

(1,376)

Purchase of property, plant and equipment

 

(4,196)

(4,211)

Purchase of other intangible assets

 

(1,222)

(1,028)

Net cash flows used in investing activities

 

(5,418)

(6,615)

Cash flows from financing activities

 

 

 

Issue of ordinary shares, net of issue costs

 

73,350

-

Treasury share sale

 

2,707

-

Proceeds from borrowings

 

80,290

56,331

Repayment of borrowings

 

(89,475)

(43,614)

Movement in corporate purchasing card

 

(2,646)

4,930

Interest received

 

293

240

Acquisition of subsidiary, deferred consideration

 

(1,802)

(897)

Capital contributions by Members

 

4,732

7,780

Repayments to former Members

 

(23,124)

(3,902)

Net cash flows from financing activities

 

44,325

20,868

 

 

 

 

Net increase in cash and cash equivalent

 

6,618

1,541

 

 

 

 

Cash and cash equivalents at the beginning of year

 

4,228

2,772

Effects of foreign exchange rate changes on cash and cash equivalents

 

(24)

(85)

Cash and cash equivalents at the end of year

13

10,822

4,228

 

 

 

 

 

Consolidated Notes to the Financial Statements

Year ended 30 April 2019

1              Accounting policies

1.1        Nature of the financial statements

The following financial information does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and Financial Statements for the year ended 30 April 2019 on which an unqualified report has been made by the Company's auditors. The 2019 statutory accounts will be delivered to Companies House in due course.

Copies of the Annual Report and Financial Statements will be posted to shareholders shortly and will be available from the Company's registered office at 20 Fenchurch Street, London, EC3M 3AG.

1.2        Statement of accounting policies

The preliminary announcement for the year ended 30 April 2019 has been produced based on the Group's annual financial statements which are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The accounting policies applied in this preliminary announcement are consistent with those reported in the Group's annual financial statements for the year ended 30 April 2019 along with new standards and interpretations which became mandatory for the financial year.

2              Alternative performance measures

Profit measures

To provide shareholders with additional understanding of the trading performance of the Group, adjusted earnings before interest, tax, depreciation and amortisation ('EBITDA') has been calculated as profit before tax after adding back:

·    non-underlying items;

·    share based payments expense;

·    net finance expense; and

·    depreciation, amortisation and impairment.

Adjusted profit before tax and adjusted EBITDA reconcile to profit on continuing activities before tax as follows:

 

 

2019

2018

 

£'000

£'000

Profit before tax

12,322

21,216

Non-underlying items

12,569

1,904

Share based payments expense

1,202

-

Adjusted profit before tax

26,093

23,120

Net finance expense

2,131

1,293

Depreciation, amortisation and impairment

5,365

6,333

Adjusted operating profit ('Adjusted EBITDA')

33,589

30,746

 

 

3              Operating segments

Reporting segments

In accordance with IFRS 8 the Group's operating segments are based on the operating results reviewed by the Board, who represents the chief operating decision maker ('CODM'). The Group has the following four strategic divisions, which are its reportable segments. These divisions offer different services and are reported separately because of different specialisms from the teams in the business Group.

The following summary describes the operations of each reportable segment:

Reportable segment

Operations

 

 

Commercial Services

Provides commercial legal services, encompassing our Corporate Services, Litigation and Real Estate practice groups.

 

Insurance Services

Provides insurance legal services, encompassing our Professional Indemnity & Commercial, Catastrophic Personal Injury & Occupational Health, and Motor, Fraud & Claimant practice groups.

 

International

A division focussed on supporting clients on a global scale, with a sector-focussed approach to grow a client-orientated practice.

 

Connected Services

Encompasses various independent businesses that work alongside, support and deliver products and services to our legal teams and clients.

 

The revenue and operating profit are attributable to the principal activities of the Group. Information relating to each reportable segment is set out below:

For year ended 30 April 2019

 

Commercial Services

Insurance Services

International

Connected Services

Total

 

£'000

£'000

£'000

£'000

£'000

Segment net revenue

108,885

91,062

53,954

18,460

272,361

Direct costs

(40,499)

(44,532)

(30,287)

(11,553)

(126,871)

Gross profit

68,386

46,530

23,667

6,907

145,490

Administrative expenses

(131,037)

Operating profit

14,453

Net finance expense

(2,131)

Profit before tax

12,322

Taxation

(138)

Profit for the year

12,184

 

 

For year ended 30 April 2018

 

Commercial Services

Insurance Services

International

Connected Services

Total

 

£'000

£'000

£'000

£'000

£'000

Segment net revenue

102,769

88,552

30,192

14,975

236,488

Direct costs

(39,110)

(43,089)

(18,453)

(10,188)

(110,840)

Gross profit

63,659

45,463

11,739

4,787

125,648

Administrative expenses

(103,139)

Operating profit

22,509

Net finance expense

(1,293)

Profit before tax

21,216

Taxation

(92)

Profit for the year

21,124

There are no intra-segmental revenues which are material for disclosure. Administrative expenses represent non direct costs that are not specifically allocated to segments.

Revenue by Region

The UK is the Group's country of domicile and the Group generates the majority of its revenue from external clients in the UK. The geographical analysis of revenue is on the basis of the country of origin in which the client is invoiced:

 

2019

2018

 

£'000

£'000

UK

220,486

208,188

Rest of Europe

24,033

17,466

Middle East

9,871

4,281

Rest of World

17,971

6,553

Net revenue

272,361

236,488

 

Total assets and liabilities for each reportable segment are not presented; as such, information is not provided to the CODM.

4           Operating profit and auditor's remuneration

 

 

2019

2018

 

£'000

£'000

Recognised in the income statement

 

 

Members' remuneration charged as an expense

31,014

25,452

Depreciation of tangible assets

4,348

5,316

Depreciation of assets held under finance lease

-

375

Amortisation of intangible assets

1,017

637

Impairment of intangible assets

-

5

Operating lease cost on land and buildings

12,261

10,285

Operating lease cost of other leases

1,202

753

Net foreign exchange loss

545

145

Non-underlying items

(12,569)

(1,904)

Share based payments expense

(1,202)

-

 

 

 

 

 

 

Auditor's remuneration

 

 

Audit of the Group financial statements

250

206

Amounts payable to the Company's auditor and its associates in respect of:

 

 

Audit of financial information of subsidiaries, subsidiary undertakings and partnerships of the DWF Group plc

120

107

Other assurance services

2,500

320

Tax advisory services

626

77

Other services

105

112

Total fees

3,601

822

Net foreign exchange loss is included in administrative expenses. This was previously stated in net finance expense. The prior year comparative has been restated accordingly.

Non-underlying items comprises of IPO professional fees being £12,569,000 (2018: £1,451,000) and transaction costs of £nil (2018: £453,000) that relate to the acquisition of Kaden Boriss.

Other assurance services includes the reporting accountant work completed as part of the IPO of DWF Group plc, which was completed in advance of the listing on 15 March 2019.

Tax advisory includes the tax advisory work completed as part of the IPO of DWF Group plc. All work was completed in advance of the listing on 15 March 2019.

Other audit services include reporting under the SRA Account Rules 2011, and other advisory services.

Fees payable to Deloitte LLP and its associates for non-audit services to DWF Group plc are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. No services were provided pursuant to contingent fee arrangements.

5              Net finance expense

 

2019

2018

 

£'000

£'000

Finance income

 

 

Interest receivable

293

240

 

293

240

Finance expense

 

 

Interest payable on bank borrowings

1,057

1,082

Interest payable on finance leases

-

42

Other interest payable

279

107

Bank and other charges

1,088

302

 

2,424

1,533

Net finance expense

2,131

1,293

6              Taxation

 

 

2019

2018

 

£'000

£'000

UK corporation tax on profit

237

-

Foreign tax on profit

145

92

Adjustments in respect of prior periods

53

-

Current tax expense

435

92

Deferred tax credit

(297)

-

Taxation

138

92

Factors affecting the tax charge for the year:

The effective tax rate is lower (2018: lower) than the average rate of corporate tax in the UK of 19.0% (2018: 19.0%). The difference is explained below:

 

2019

2018

 

£'000

£'000

Profit before taxation

12,322

21,216

Tax on Group profit at standard UK corporation tax rate of 19% (2018: 19%)

2,341

4,031

Tax borne by individual members of partnerships within the Group

(4,708)

(3,939)

Foreign tax rate differences

20

-

Non-deductible expenses

2,479

-

Adjustments in respect of prior periods

53

-

Effect on deferred tax of change in corporation tax rate

(47)

-

Group total tax charge for the year

138

92

 

UK corporation tax in respect of the legal trade is only payable in respect of the profits generated post the pre-IPO reorganisation on 9 March 2019. As such, a large proportion of the FY19 profits (i.e. the 45 weeks of the legal trade prior to the reorganisation) are taxable on the partners, disclosed above as 'Tax borne by individual members of partnerships within the Group' in the statutory effective tax reconciliation.

On 26 October 2015, the UK corporation tax rate was reduced from 20% to 19% from 1 April 2017 and a further change was announced on 23 November 2016 to reduce the rate from 19% to 17% from 1 April 2020. These changes have been substantively enacted at the statement of financial position date and are reflected in the financial statements. Deferred tax assets are measured at the rates that are expected to apply in the periods of the reversal. Deferred tax balances at 30 April 2019 have been calculated using the above rates.

7              Dividends

A dividend was not paid during the year ended 30 April 2019.

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting in September 2019 and has not been included as a liability in these financial statements. The proposed dividend is payable to all shareholders on the Register of Members on 30 August 2019. The total estimated dividend to be paid is 1p per share. The payment of this dividend will not have any tax consequences for the Group.

8              Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

 

 

2019

2018

 

£'000

£'000

Earnings from continuing operations for the purpose of basic earnings per share

12,184

21,124

 

 

 

 

 

 

 

Number

Number

Weighted average number of ordinary shares for the purposes of basic earnings per share

269,221,068

269,221,068

Effect of dilutive potential ordinary shares:

 

 

Future exercise of share awards and options

3,969,034

3,969,034

Weighted average number of ordinary shares for the purposes of diluted earnings per share

273,190,102

273,190,102

Basic earnings per share

4.5p

7.8p

Diluted earnings per share

4.5p

7.7p

 

Adjusted earnings per share is included as an Alternative Performance Measure ('APM'). Adjusted earnings per share has been calculated using adjusted earnings calculated as profit after taxation but before:

·    non-underlying items;

·    share based payment expense;

·    the tax effect of non-underlying items and share based payments expense; and

·  a tax adjustment included on a pro-forma basis to reflect a full year of normalised tax charge as if the corporate structure was in effect for the full year.

 

The calculation of adjusted basic and adjusted diluted earnings per share is based on:

 

2019

2018

 

£'000

£'000

Earnings from continuing operations for the purpose of adjusted earnings per share

12,184

21,124

Add/(remove):

 

 

Non-underlying items

12,569

1,904

Share based payments expense

1,202

-

Tax effect of adjustments above

(204)

-

Pro-forma tax adjustment

(5,275)

(4,393)

Adjusted earnings for the purposes of adjusted earnings per share

20,476

18,635

 

 

 

 

Number

Number

Weighted average number of ordinary shares for the purposes of adjusted earnings per share

269,221,068

269,221,068

Add:

 

 

Additional shares held in trust

26,809,898

26,809,898

Weighted average number of ordinary shares for the purposes of adjusted basic  earnings per share

296,030,966

296,030,966

Effect of dilutive potential ordinary shares:

 

 

Future exercise of share awards and options

3,969,034

3,969,034

Weighted average number of ordinary shares for the purposes of adjusted diluted earnings per share

300,000,000

300,000,000

Adjusted basic earnings per share

6.9p

6.3p

Adjusted diluted earnings per share

6.8p

6.2p

Tax adjustments of £5,275,000 (2018: £4,393,000) have been made in arriving at the adjusted earnings per share. This is based on an estimated full year equivalent effective tax rate of 21.0%, which is largely driven by the UK corporation tax rate of 19.0% adjusted upwards to take into account the effect of non-deductible expenses and higher overseas tax rates in certain territories.

Shares held in trust are i) issued shares that are owned by the EBT and RST and are recognised, on consolidation, as treasury shares; less ii) the future exercise of share awards and options.

 

 

9              Acquisitions of subsidiaries

    Acquisitions in the year to 30 April 2019

There have been no material acquisitions during the year.

Acquisitions in the year to 30 April 2018

On 1 May 2017, the Group laterally hired the staff of and acquired the trade receivables of NeoLaw from Keelys LLP for total consideration of £469,000. This consideration comprised of £469,000 cash. The principal activity of the team is Connected Services. The acquisition of NeoLaw has enabled the Group to expand the existing Birmingham cost team, contributing to the continued growth in the Connected Services division. The assets of the acquisition were hived up into DWF LLP.

On 1 December 2017, the Group acquired 100% control of Kaden Boriss an unlimited partnership, whose principal activity is that of Legal Services, for total consideration of £911,000. This consideration comprised of £365,000 cash and £546,000 of deferred consideration. Professional fees incurred in regards to the acquisition have been recognised in operating expenses in the income statement in amount of £205,600. Revenue generated post acquisition was £2,049,000 leading to the profit of £10,600 which has been included in the consolidated income statement and other comprehensive income. If the acquisition had taken place at the start of the year revenue and profit would have been £4,917,600 and £25,440 respectively. The acquisition of Kaden Boriss has provided the Group with expanded access to the Australian legal services market. The company became a wholly owned subsidiary of DWF LLP from the date shown above. The assets and liabilities of the acquisition were subsequently hived up into DWF (Australia).

      Effect of acquisitions

The acquisitions had the following effect on the Group's assets and liabilities.

 

NeoLaw

Kaden Boriss

 

Recognised fair value on acquisition

Recognised fair value on acquisition

 

£'000

£'000

Acquiree's net assets at acquisition date

 

 

Tangible assets

-

104

Intangible assets

-

1

Trade and other receivables

464

1,982

Cash

-

391

Trade and other payables

-

(588)

Other interest bearing loans and borrowings

-

(979)

Total net assets

464

911

Consideration paid

 

 

Initial cash consideration paid

469

365

Deferred consideration at fair value

-

546

Total consideration

469

911

 

 

 

Goodwill

5

-

10           Intangible assets and goodwill

 

 

Goodwill

Software costs

Capitalised development costs

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

At 1 May 2018

2,052

943

2,679

Additions through acquisitions

535

-

-

Additions - internally developed

-

-

581

Additions - externally purchased

-

639

-

Effect of movements in foreign exchange

2

(2)

-

-

At 30 April 2019

2,589

1,580

3,260

7,429

Amortisation and impairment

 

 

 

At 1 May 2018

321

152

1,400

Amortisation for the year

-

386

631

Effect of movements in foreign exchange

(2)

-

-

(2)

At 30 April 2019

319

538

2,031

2,888

Net book value

 

 

 

 

At 30 April 2019

2,270

1,042

1,229

4,541

At 1 May 2018

1,731

791

1,279

3,801

 

 

Goodwill

Software costs

Capitalised development costs

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 May 2017

2,022

358

1,060

3,440

Additions through acquisitions

5

9

-

14

Additions - internally developed

-

-

431

431

Additions - externally purchased

-

576

-

576

Transfers*

-

-

1,189

1,189

Effect of movements in foreign exchange

25

-

(1)

24

At 30 April 2018

2,052

943

2,679

5,674

Amortisation and impairment

 

 

 

 

At 1 May 2017

313

41

403

757

Additions through acquisitions

-

8

-

8

Amortisation for the year

-

103

534

637

Impairment charge

5

-

-

5

Transfers*

-

-

463

463

Effect of movements in foreign exchange

3

-

-

3

At 30 April 2018

321

152

1,400

1,873

Net book value

 

 

 

 

At 30 April 2018

1,731

791

1,279

3,801

At 1 May 2017

1,709

317

657

2,683

 

*Transfers relate to capitalised development costs previously recognised in computer equipment in property, plant and equipment. These have been transferred to intangibles during the year at net book value.

The above capitalised development costs relate to the development of software used internally and as products for clients of the Group.

Goodwill

Goodwill considered significant in comparison to the Group's total carrying amount of such assets have been allocated to cash generating units or Groups of cash generating units as follows:

 

 

2019

2018

 

£'000

£'000

Connected Services

382

382

International

1,221

682

Insurance Services

667

667

 

2,270

1,731

 

Goodwill arising on business combinations is not amortised but reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. Impairment reviews were performed by comparing the carrying value of goodwill with the recoverable amount of the cash generating units ('CGU') to which goodwill has been allocated. Recoverable amounts for cash generating units are the higher of fair value less costs of disposal, and value in use.

The recoverable amounts of each of the above CGUs are determined from value in use calculations. The calculations have been based on a discounted cash flow model covering a period of 5 years using forecast revenues and costs, extended to perpetuity. In each case, the calculations use a growth rate of 2% and a pre-tax discount rate of 10-20%. These pre-tax discount rates reflect current market assessments for the time value of money and the risks associated with the CGUs as the Group manages its treasury function on a Group-wide basis. The long-term growth rates used are based on management's expectations of future changes in the markets for each CGU.

No reasonably possible change in assumption would cause an impairment, as such no charge has been recognised in any of the disclosed periods, the recoverable amount of the goodwill in each case being in excess of the carrying amount.

11        Property, plant and equipment

 

 

Leasehold improvements

Office equipment and fixtures and fittings

Computer equipment

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 May 2018

15,704

9,868

34,377

59,949

Additions

540

1,084

2,589

4,213

Effect of movements in foreign exchange

(14)

(8)

5

(17)

At 30 April 2019

16,230

10,944

36,971

64,145

Accumulated depreciation

 

 

 

 

At 1 May 2018

10,624

5,281

29,860

45,765

Charge for the year

1,041

770

2,537

4,348

At 30 April 2019

11,665

6,051

32,397

50,113

Net book value

 

 

 

 

At 30 April 2019

4,565

4,893

4,574

14,032

At 1 May 2018

5,080

4,587

4,517

14,184

 

 

Leasehold improvements

Office equipment and fixtures and fittings

Computer equipment

Total

 

£'000

£'000

£'000

£'000

Cost

 

 

 

 

At 1 May 2017

15,488

7,444

33,938

56,870

Additions through acquisitions

45

59

-

104

Additions

226

2,363

1,630

4,219

Disposals

(44)

(3)

-

(47)

Effect of movements in foreign exchange

(11)

5

(2)

(8)

Transfers*

-

-

(1,189)

(1,189)

At 30 April 2018

15,704

9,868

34,377

59,949

Accumulated depreciation

 

 

 

 

At 1 May 2017

8,906

4,533

27,145

40,584

Charge for the year

1,762

751

3,178

5,691

Disposals

(44)

(3)

-

(47)

Transfers*

-

-

(463)

(463)

At 30 April 2018

10,624

5,281

29,860

45,765

Net book value

 

 

 

 

At 30 April 2018

5,080

4,587

4,517

14,184

At 1 May 2017

6,582

2,911

6,793

16,286

 

*Transfers relate to capitalised development costs previously recognised in computer equipment. These have been transferred to intangibles during the year at net book value.

12        Trade and other receivables

 

 

2019

2018

 

£'000

£'000

Trade receivables (net of allowance for doubtful receivables)

86,022

82,804

Other receivables

5,108

4,064

Amounts recoverable from clients in respect of unbilled revenue

53,996

37,854

Unbilled disbursements

6,279

5,149

Prepayments and accrued income

11,911

10,252

Reimbursement asset*

852

852

 

164,168

140,975

Non-current

 

 

Other receivables

152

-

Deferred tax asset

933

-

 

1,085

-

 

* Reimbursement asset attributable to FOIL provision.

Trade receivables disclosed above include amounts which are past due at the reporting date but against which the Group has not recognised an allowance for doubtful receivables because there has not been a significant change in credit quality and the amounts are still considered recoverable.

Ageing of trade receivables

 

 


2019


2018

 

£'000

£'000

Trade receivables not past due

33,656

28,714

Trade receivables past due

 

 

0 - 90 days

37,368

40,354

91 - 180 days

7,548

7,052

181 - 270 days

4,820

2,990

271 - 365 days

2,172

1,642

More than 365 days

6,992

5,906

 

92,556

86,658

 

Lifetime expected credit losses are used to measure the loss allowance. These balances are held against trade receivables.

 

Movement in allowance for doubtful receivables

 

 

2019

2018

 

£'000

£'000

Brought forward provision

3,854

2,964

Impact of transition to IFRS 9

2,510

-

Provision utilised and other movements

(2,206)

(1,368)

Charges to profit and loss

2,376

2,258

 

6,534

3,854

 

These balances are held against trade receivables.

13           Cash and cash equivalents

 

 

2019

2018

 

£'000

£'000

Cash at bank and in hand

12,912

5,130

Bank overdrafts

(2,090)

(902)

Cash and cash equivalents per cash flow statement

10,822

4,228

 

 

14           Trade and other payables

 

2019

2018

 

£'000

£'000

 

 

 

Trade payables

24,756

23,306

Other payables

7,657

5,447

Other taxation and social security

9,879

9,969

Accruals and deferred income

10,291

9,024

Deferred consideration - cash settled

1,625

1,110

Operating lease incentives

1,412

525

 

55,620

49,381

Non-current

 

 

Deferred consideration - cash settled

208

1,833

Operating lease incentives

10,072

11,489

 

10,280

13,322

15           Other interest bearing loans and borrowings

This note provides information about the contractual terms of the Group's interest bearing loans and borrowings, which are measured at amortised cost.

Obligations under interest bearing loans and borrowings

2019

2018

 

£'000

£'000

Current liabilities

 

 

Bank loans

4,655

3,872

Corporate purchasing card facility

2,283

4,930

Bank overdrafts

2,090

902

 

9,028

9,704

Non-current liabilities

 

 

Bank loans

39,791

49,782

Capitalised loan arrangement fees

(595)

(260)

 

39,196

49,522

 

48,224

59,226

 

 

2019

2018

 

£'000

£'000

Terms of repayment of bank loans and overdrafts

 

 

Within one year

9,028

9,704

Between one and five years

39,196

49,522

Total bank loans and overdrafts

48,224

59,226

Contractual terms of interest bearing loans and borrowings

 

 

 

Nominal

Year of

Fair value

2019
Carrying amount

Fair value

2018
Carrying amount

Currency

interest rate

maturity

£'000

£'000

£'000

£'000

RCF

 GBP

 LIBOR+1.4%

2022

38,405

38,405

47,740

47,740

Unsecured bank loans

 GBP

 3.75%

2020

109

109

192

192

Unsecured bank loans

 EUR

 2.00%

2020

79

79

138

138

Unsecured bank loans

 AUD

 6.50%

2021

563

563

872

872

Unsecured bank loans

 GBP

    1.77%-2.84%

   2019-21

4,695

4,695

4,452

4,452

Corporate purchasing card facility

 GBP

 No rate

2019

2,283

2,283

4,930

4,930

Bank overdrafts

 GBP

 Base+1.15%

2019

2,090

2,090

902

902

 

 

 

 

48,224

48,224

59,226

59,226

DWF LLP acts as Guarantor for all loans denominated in AUD and EUR.

16           Provisions

Dilapidations provision

Dilapidation provisions are established for property leases, held at the date of the statement of financial position. Such provisions are estimated at the start of the lease and updated annually. The Group's current lease portfolio terminate over the course of the next 10 years.

FOIL provision

The Forum of Insurance Lawyers (FOIL) provision represents the total VAT (partial exemption) exposure on historic claims handling engagements. There is an attributable reimbursement asset, resulting in net exposure of £400,000 as at 30 April 2019 (2018: £400,000). The enquiry is ongoing and therefore it is not possible to estimate when the provision will crystallise.

 

 

2019

2018

 

£'000

£'000

Dilapidations provision

 

 

Balance at beginning of the year

119

678

Provisions made during the year

1,440

613

Provisions used during the year

(200)

(655)

Provisions reversed during the year

(30)

(517)

Balance at the end of the year

1,329

119

Non-current

1,329

119

Current

-

-

 

1,329

119

FOIL provision

 

 

Balance at beginning of the year

1,252

1,252

Provisions reversed during the year

-

-

Balance at the end of the year

1,252

1,252

Non-current

-

-

Current

1,252

1,252

 

1,252

1,252

Total provisions

 

 

Balance at beginning of the year

1,371

1,930

Provisions made during the year

1,440

613

Provisions used during the year

(200)

(655)

Provisions reversed during the year

(30)

(517)

Balance at the end of the year

2,581

1,371

Non-current

1,329

119

Current

1,252

1,252

 

2,581

1,371

17           Share capital

 

Number

Ordinary shares

Share premium

Total

 

of 1p each

£'000

£'000

£'000

Issued and fully paid ordinary shares

 

 

 

 

On incorporation

1

-

-

-

Shares issued

299,999,999

3,000

63,167

66,167

At 30 April 2019

300,000,000

3,000

63,167

66,167

DWF Group plc was incorporated on 10 September 2018 with 1 ordinary share of £1. The Group has applied merger accounting and therefore the share capital issued as part of the share for share exchange, as noted below, has been reflected in the comparative year in the consolidated financial statements.

On 11 March 2019, the 1 ordinary share was subdivided into 100 shares of £0.01 each.

On the same day, DWF Group plc issued 238,524,490 ordinary shares in a share-for-share exchange with the shareholders of DWF Holdings Limited creating share capital of £2,385,245. DWF Group plc then issued 1 bonus share with a nominal value of £225,042,865. This share was subsequently cancelled which created distributable reserves in the parent company of £225,042,865.

On 15 March 2019, DWF Group plc issued 61,475,410 ordinary shares as part of the Initial Public Offering in exchange for £75,000,000 of cash, represented by share capital of £614,754 and share premium of £74,385,246.

Issuance costs of £11,218,000 were recognised against share premium in accordance with the Companies Act 2006, section 610.

30,778,932 of treasury shares are held by the Group's trusts, of which 2,600,798 are held in the name of employees under restricted rewards. The cost to the trusts of acquiring the shares was £308.

18           Reserves

The following describes the nature and purpose of each reserve within equity:

Share premium

The amount subscribed for share capital in excess of the nominal value.

Treasury shares

The treasury shares reserve represents shares in DWF Group plc held by the Group's share trusts. The trusts are consolidated in the Group's financial statements.

Merger reserve

The difference between the nominal value of shares acquired by the Company in the share for share exchange with the former DWF LLP members and the nominal value of shares issued to acquire them.

Share based payments reserve

The cumulative share-based payment expense net of release of amounts in respect of option exercised.

Translation reserve

Gains/losses in translating the net assets of overseas operations into GBP.

(Accumulated losses)/ retained earnings

All other net gains and losses and transactions with owners not recognised elsewhere.

19           Share based payments

Charge to the income statement

The charge to the income statement is set out below:

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

£'000

Share plans:

 

Equity Incentive Plan IPO award - shares granted in the year

193

Buy-As-You-Earn Plan award - shares granted in the year

860

 

1,053

Social security expenses

149

Total expense

1,202

 

During the period ended 30 April 2019, the Group operated the following share based payment plans, all of which are equity settled.

Share awards under the DWF Group plc 2019 Equity Incentive Plan ('EIP')

Details of Directors' share awards are set out in the Directors' Remuneration Report. In addition to Directors, a limited number of the senior management team received EIP share awards.

During the period ending 30 April 2019 an IPO share award was granted on Admission, consisting of conditional and restricted share awards made to a certain Director and a limited number of the senior management team.

Movements in the number of shares outstanding and their exercise prices are set out below:

 

Year of grant

Share price per award

Exercise price per award

Date of vesting

Number of shares for which awards outstanding 15 March 2019

Awards granted during the period

Awards vested during the period

Awards lapsed during the period

Number of shares for which awards outstanding  30 April 2019

2019

1.25

Nil

July 2020

-

633,306

-

-

633,306

2019

1.25

Nil

July 2021

-

633,306

-

-

633,306

2019

1.25

Nil

July 2022

-

633,306

-

-

633,306

2019

1.25

Nil

July 2023

-

633,306

-

-

633,306

2019

1.25

Nil

July 2024

-

633,306

-

-

633,306

 

The weighted average fair value of these awards granted during the period was £1.25 per award.

The 2019 EIP IPO awards were valued using the Black Scholes method with the following assumptions:

·    Expected volatility (%) 14.19 (average volatility across the tranches granted)

·    Expected life (years) 3.34 (average life across the tranches granted)

·    Expected dividend yield (%) Nil

Expected volatility was determined by reference to the historical volatility of the FTSE All Share Support Services Index, as there was insufficient trading history in the Groups' shares. The expected life used is the vesting date of the award. There is an entitlement to receive dividends or dividend equivalents.  Management estimate that 100% of the shares will vest.

Share awards under the DWF Group plc 2019 Buy-As-You-Earn Plan ('BAYE')

During the period ending 30 April 2019 an IPO share award was granted on Admission, consisting of free share awards made to eligible employees.

Movements in the number of shares outstanding and their exercise prices are set out below:

 

Year of grant

Share price per award

Exercise price per award

Date of vesting

Number of shares for which awards outstanding 15 March 2019

Awards granted during the period

Awards vested during the period

Awards lapsed during the period

Number of shares for which awards outstanding 30 April 2019

2019

1.25

Nil

July 2020

-

5,815,415

-

-

5,815,415

2019

1.25

Nil

July 2021

-

5,815,415

-

-

5,815,415

 

The weighted average fair value of these awards granted during the period was £1.14 per award.

The 2019 BAYE IPO free share awards were valued using the Black Scholes method with the following assumptions:

·    Expected volatility (%) 13.49 (average volatility across the tranches granted)

·    Expected life (years) 1.84 (average life across the tranches granted)

·    Expected dividend yield (%) 5.00

Expected volatility was determined by reference to the historical volatility of the FTSE All Share Support Services Index, as there was insufficient trading history in the Group's shares. The expected life used is the vesting date of the award. There is no entitlement to receive dividends or dividend equivalents. The expected dividend yield is a management assumption. Management estimate that there will be 10% annualised leavers from the Plan.

20           Operating leases

At the statement of financial position date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Buildings

Others

Buildings

Others

 

2019

2019

2018

2018

 

£'000

£'000

£'000

£'000

 

 

 

 

 

Within one year

11,367

1,124

11,849

964

Between one and five years

37,990

749

40,923

643

More than five years

21,982

-

25,191

-

 

71,339

1,873

77,963

1,607

Operating lease payments represent rentals payable by the Group of its office properties. Leases are negotiable for an average term of 10 years and rentals are fixed for an average of 10 years with an option to extend for a further 10 years at the then prevailing market rate.

Lease payments under operating leases are recognised as an expense in the income statement in the year.

 

 

21           Employee information and their pay and benefits

The average number of persons employed by the Group (including Executive Directors) during the year, analysed by category, and the aggregate payroll costs of these persons were as follows:

 

2019

2018

 

No.

No.

Legal advisers

1,626

1,548

Support staff

1,089

1,108

 

2,715

2,656

 

 

 

 

 

 

 

£'000

£'000

Wages and salaries

110,156

101,976

Social security costs

11,369

9,628

Contributions to defined contribution plans

4,854

3,107

 

126,379

114,711

 

Defined contribution plans

The Group operates a number of defined contribution pension plans. The amounts charged to the income statement in respect of these scheme represents contributions payable in respect of the accounting period. The total annual pension cost for the defined contribution scheme was £4,854,000 at 30 April 2019 (30 April 2018: £3,107,000) and the outstanding balance at year end was £914,000 at 30 April 2019 (30 April 2018: £550,000).

22           Cash generated from operations

 

2019

2018

 

£'000

£'000

Cash flows from operating activities

 

 

Profit before tax

12,322

21,216

Adjustments for:

 

 

Non-underlying items

12,569

1,904

Share based payments expense

1,202

-

Depreciation, amortisation and impairment

5,365

6,333

Net finance expense

2,131

1,293

Operating cash flows before movements in working capital

33,589

30,746

Increase in trade and other receivables

(24,601)

(16,348)

Increase/(decrease) in trade and other payables

1,455

(1,391)

Increase/(decrease) in provisions

1,210

(559)

Decrease in amounts due to members of partnerships in the Group

(22,198)

(21,987)

Cash used in operations before adjusting items

(10,545)

(9,539)

 

 

 

 

Decrease in amounts due to members of partnerships in the Group can be analysed as follows:

 

 

 

Members' remuneration charged as an expense

31,014

25,452

Drawings

(52,803)

(47,439)

Decrease in amounts due to members of partnerships in the Group

(21,789)

(21,987)

Analysis of cash and cash equivalents and other interest bearing loans and borrowings:

 

1 May 2018

Cash flow

Exchange movement

Non-cash movement

30 April 2019

 


£'000


£'000


£'000

£'000

£'000

Cash and cash equivalents

4,228

6,618

(24)

-

10,822

Bank loans

(53,394)

9,185

13

345

(43,851)

Corporate purchasing card

(4,930)

2,647

-

-

(2,283)

Total net debt

(54,096)

18,450

(11)

345

(35,312)

 

      b) Free cash flows

 

2019

2018

 

£'000

£'000

Free cash flows

 

 

Operating cashflows before movements in working capital

33,589

30,746

Net working capital movement

(21,936)

(18,298)

Amounts due to members of partnerships in the Group

(22,198)

(21,987)

Net interest paid

(2,112)

(2,133)

Tax paid

(50)

(69)

Purchase of property, plant and equipment

(4,196)

(4,211)

Purchase of other intangible assets

(1,222)

(1,028)

Free cash flow

(18,125)

(16,980)

 

 

      c) Working capital measures

 

2019

2018

 

£'000

£'000

WIP days

 

 

Amounts recoverable from clients in respect of unbilled revenue

53,996

37,854

Unbilled disbursements

6,279

5,149

Total WIP

60,275

43,003

Net revenue

272,361

236,488

WIP days

81

66

 

 

 

Debtor days

 

 

Trade receivables (net of allowance for doubtful receivables)

86,022

82,804

Other receivables

5,108

4,064

Total debtors

91,130

86,868

Net revenue

272,361

236,488

Debtor days

122

134

 

 

 

Gross lock-up days

 

 

Total WIP

60,275

43,003

Total debtors

91,130

86,868

Total gross lock-up

151,405

129,871

Net revenue

272,361

236,488

Gross lock-up days

203

200

23           Events after the reporting period

On 20 May 2019, DWF Law LLP, a partnership controlled by DWF Group plc, acquired the Legal Services business K&L Gates Jamka sp.k ('K&L Gates') which is registered and operates in Poland.  Consideration equal to the Net Asset Value of the business, provisionally estimated at £3.0m, will be paid in several instalments over the next two years. K&L Gates is expected to generate £7.0m of revenue in the financial year ending 30 April 2020.

Due to the proximity of the approval of these financial statements, it is not practical to include full IFRS 3 'Business Combinations' disclosures. The Group will provide full IFRS 3 disclosures in the Group's Annual Report and Financial statements for the year ending 30 April 2020.

 


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Full year results for the year ended 30 April 2019 - RNS