DWF Group plc
(“DWF” or “the Company”)
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
DIRECTORATE CHANGES AND TRADING UPDATE
Directorate changes
DWF, the global legal business, today announces that Andrew Leaitherland has informed the Board of his intention to step down as Group Chief Executive Officer with immediate effect. Mr Leaitherland will also step down as Managing Partner of DWF Law LLP and DWF LLP.
Andrew has spent over 20 years at DWF and has been CEO and Managing Partner of the Group since May 2006. During his tenure, he has been instrumental in expanding the Group from two offices in the UK to 33 offices across four continents, and achieving the successful IPO of the Group in March 2019.
In responding to the challenges created by COVID-19, the Board believes that strong and experienced leadership is essential. The Board believes that Sir Nigel Knowles, Chairman, will provide this leadership and as a consequence, the Board has asked Sir Nigel Knowles to assume the role of Group Chief Executive Officer with immediate effect. Sir Nigel has over 40 years of experience in the legal sector, including extensive experience in building a global law firm as CEO and Chairman for more than 20 years.
Chris Sullivan, Senior Independent Non-executive Director, has been appointed as interim Chairman. A committee of independent directors has been formed to run a selection process for a permanent Chairperson over the coming weeks.
Chris Sullivan said: “On behalf of the Board and all our colleagues I would like to thank Andrew for his hard work and commitment over many years; we owe him a great deal and wish him every success in his future endeavours.
“In these unprecedented times the Board believes that Sir Nigel's extensive experience in building and leading a global legal business will be invaluable as Group Chief Executive Officer in ensuring that our strategy delivers sustainable growth and attractive returns for all our stakeholders.”
Andrew Leaitherland said: “It has been a privilege to be Group CEO of DWF for nearly 14 years and I am incredibly proud of the progress we have made in that time. It is a fantastic business with great people committed to delivering the best possible service to our clients. I wish Sir Nigel every success in taking the business forward.”
Sir Nigel Knowles commented: “I am very grateful to have had the opportunity to serve as the Group's Chairman and even more honoured to have been asked now to lead the Company as its Group Chief Executive Officer. Andrew helped build a great business for which we are very grateful and we wish him the very best.
“Whilst today's trading update shows there are near term challenges to be overcome, there is a significant opportunity to deliver attractive returns for our shareholders by consolidating the growth achieved to date and building an even stronger global platform centred around DWF's Complex, Managed and Connected delivery model. I look forward to working with the existing strong management team to both navigate through the near term challenges presented by the external environment and on executing on our stated longer term strategy.”
FY20 Trading Update
On 27 March 2020, the Company announced that the COVID-19 pandemic was impacting its business and that it therefore expected revenue growth of between 15% to 20% for the financial year. In the event, the disruption experienced in April was greater than anticipated and as a result revenues grew by c.11% over the financial year. The impact and timing of COVID-19 gave little opportunity for remedial action in this financial year, further reducing the Group's profit expectations for FY20, with expected FY20 EBITDA of c.£34m under IFRS16, with underlying adjusted EBITDA of c.£21m, excluding the application of IFRS16.
As experienced throughout the sector, a variety of short-term factors impacted trading in April as the worldwide lockdown affected work flows and some client demand, leading to a greater than anticipated reduction in activity for the month. The Group has seen activity levels strengthen in May with a number of new client wins, including panel appointments, and with a good pipeline of bid activity.
Although activity levels in April were impacted, April was the Group's strongest ever in terms of billings and cash collection, driven by a concerted action from the partners, with over £40m of billings and over £45m of cash collected. While April is a key cash collection month, the Group is seeing this trend continue in May, supported by the high level of billings in April and strong cash collections from its institutional client base.
As a result, period end net debt was better than expected at £64.9m, well within the Group's total available facilities of £122m. The Group operates and expects to continue to operate within the banking covenants agreed with its lenders under the terms of the RCF.
Divisional performance
DWF has a broad based and resilient business and the majority of the Group's businesses delivered a creditable performance for the financial year, given the challenging Q4 environment, alongside some specific areas of weakness where direct action is being taken. A substantial level of investment was made over the year as the Group positioned itself for growth in certain markets with a net 25 partners joining the business. However, the Q4 weakness has meant that new hire productivity levels have not increased as originally expected.
The Group's Insurance Services business delivered revenue growth in the mid single digits for the year, despite the COVID-related impact of a slowdown in instructions in the important end of year month, with a broadly flat gross margin. The Group believes prospects for this division remain resilient given the annuity type nature of these services.
The Group's International Division delivered revenue growth of c.50% for the year, however certain geographies such as the Middle East materially underperformed. In addition, European offices in Spain, Italy and France were particularly impacted in April, but activity levels have since recovered somewhat with the prospect of lockdowns easing. The Group continues to recognise the substantial growth potential of this Division, but has taken swift action to reduce some of the partner and new hire investment to ensure a focus on margin optimisation.
The Group's Connected Services Division delivered revenue growth of c.14% for the year, less than targeted due to a particular underperformance in the DWF360 business which experienced low demand and has since been restructured. Excluding this, the other business divisions delivered c.24% growth year on year with stable margins. With the largest part of this business represented by claims handling, the Group expects that future business demand should be supported as business interruption and employment claims build throughout the year.
The Group's Commercial Division underperformed with a decline in revenues of c.6%, driven by the impact of COVID-19. The investment in this division over the year meant gross margin declined markedly. Within Commercial, Litigation and Real Estate performed relatively better but did see some declines in activity, while the main impact was seen in Corporate and transactional work. As a result of this underperformance, the Group is planning further actions to protect margin.
While disappointed with this performance, the Group has a substantial number of opportunities in order to improve cash backed margins, including:
- The previously announced cost reduction plan has been implemented which will provide £10m of savings in FY21 and £13.5m of savings in FY22 at a full annualised run rate;
- Further incremental cost savings that can be achieved through remedial action;
- A greater focus on integration of recent acquisitions to better drive business opportunities and synergies;
- A renewed focus on billing, credit control and cash collection, the initial benefits of which were seen in April and May.
A further update on the steps taken to improve cash backed margins will be provided when the Group announces its full-year results.
Current trading
COVID-19 has caused significant disruption to the Group during March and April. However, early indications for May show improved activity compared to April as well as to the same period last year. DWF remains a strong and resilient business and has established an international platform which can provide best service to clients through its Complex, Managed and Connected delivery model.
While the macroeconomic environment remains challenging, the Group believes there is substantial opportunity to make the business more efficient, with a focus on delivering cash backed profit. The Group is working through its incremental cost efficiency plans which it will deploy as soon as possible within the current financial year.