REG - DSW Capital PLC - Trading Update, Notice of Results and Presentation

DSW CapitalAnnouncement

07/11/2024 07:00

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RNS Number : 2669L  DSW Capital PLC  07 November 2024

 

7 November 2024

DSW CAPITAL PLC

("DSW Capital", "DSW" or the "Group")

(AIM: DSW)

 

Trading Update

and

Notice of Results and Online Investor Presentation

 

DSW Capital, a profitable, mid-market, challenger professional services
licence network and owner of the Dow Schofield Watts and DR Solicitors brands,
announces the following positive trading update ahead of the Group's Half Year
Results for the period ended 30 September 2024 ("H1 25" or the "Period"),
which will be released on 25 November 2024.

 

The board is very pleased to announce that, after securing H1 25 results in
line with management expectations, the Group delivered an outstanding
performance in October 2024, driven by exceptionally strong levels of M&A
activity and completions ahead of the Autumn Budget on 30 October 2024.

 

Following this exceptional month's trading and the transformative,
earnings-enhancing acquisition of DR Solicitors announced on 4 November 2024,
the board is providing updated guidance on the expected outcome for FY25.

 

Highlights

 

 •    H1 25 results in line with management expectations, as M&A activity
      gradually improved across the Period and gained momentum in September 2024
 •    Outstanding trading performance in October 2024, post half year end, driven by
      exceptionally high levels of M&A fee income ahead of the Autumn Budget
 •    The board anticipates M&A activity in November and December 2024 is likely
      to be subdued, as many transactions were brought forward to 'Beat the
      Budget'
 •    Activity levels for Q4 FY25 are anticipated to be as expected at the start of
      the financial year
 •    The acquisition of DR Solicitors is expected to contribute c.£1.5m to FY25
      Network Revenue and statutory revenue and c£0.3m to Adjusted Pre-Tax Profit
 •    Group results are typically weighted towards the second half of the financial
      year due to the recognition of profit share income
 •    Guidance for FY25 has been increased to consolidated network revenue of
      c.£23.0m (FY24: £16.0m), leading to total income of c.£4.7m (£2.4m)(1) and
      Adjusted Pre-Tax Profit(2) of c.£1.45m (FY24: £0.5m)

 

Trading Performance in H1 25

 

As noted in the FY24 results issued on 2 July 2024, the Group entered FY25
with a record number of Fee Earners and Partners, ensuring that it was well
positioned to benefit from an uptick in market activity. The Group's licensees
continued to show their resilience to achieve results in line with our
expectations, despite lower levels of M&A activity which gradually started
to improve across the Period before gaining momentum in September.

 

Network revenue in H1 FY25 was £7.8m (H1 FY24: £7.3m), resulting in total
income from licensees(1) in the Period of £1.1m (H1 FY24: £1.1m) and
Adjusted Pre-Tax Profit(2) of £0.1m (H1 FY24: £0.2m).

 

The momentum gained in September continued in October, generating exceptional
levels of M&A activity as businesses looked to complete transactions ahead
of the Autumn Budget on 30 October 2024. We are anticipating that deal volumes
in November and December are likely to be subdued, as many transactions were
brought forward. Activity levels in Q4 of FY25, however, are anticipated to be
as expected at the start of the financial year, leading to a
better-than-expected overall outcome for the full year.

 

Delivering our strategy

 

Our strategic aim remains to build a resilient and diversified group of
licensee businesses illustrated by our recent acquisition of DR Solicitors.
The acquisition is immediately and significantly earnings-enhancing, whilst
also reducing our historic dependency on M&A. Furthermore, it provides an
opportunity to expand into new, niche professional markets and reducing that
dependency on M&A further.

 

The board is anticipating DR Solicitors will contribute c£1.5m to Network
Revenue and statutory revenue and c£0.3m to Adjusted Pre-Tax Profit(2). This
reflects five months' contribution and interest costs, relating to the new
revolving credit facility used to help fund the deal, of £0.1m. DR Solicitors
also added a further 18 Fee Earners to the Group, taking the total to 133 as
at 07 November 2024 (November 2023: 106).

 

Expected Outcome for FY25

 

The Group's results, which are typically weighted towards the second half of
the financial year due to the recognition of profit share income, will benefit
both from the contribution of DR Solicitors and the exceptional M&A
performance in October 2024, which delivered increased deal volumes and deal
values.

 

As a result, the board is expecting FY25 consolidated network revenue to be
c.£23.0m (FY24: £16.0m), leading to total income of c.£4.7m (FY24: £2.4m)
and Adjusted Pre-Tax Profit of c.£1.45m (FY24: £0.5m).

 

Cash at 30 September 2024 was in line with management expectation at £2.3m
(30 September 2023: £2.8m), reflecting the dividend payment of £0.2m and
breakout incentives paid to new partners of £0.3m.

 

The board remains committed to its progressive dividend policy.

 

James Dow, Chief Executive Officer, said:

 

"Firstly, on behalf of the board, I must congratulate and thank everyone for
their contribution and resilience since October 2021 and for the truly
outstanding performance they delivered in October 2024.

 

"We are delivering on our stated strategy to diversify, with the acquisition
of DR Solicitors demonstrating our ability to attract new service lines to the
Group, as well as reducing our reliance on M&A significantly (from 67% of
revenue to about a third).

 

"While we are delighted to upgrade our guidance for FY25, and the board is
confident in the mid to long term prospects for the Group, we are mindful of
macro-economic and political uncertainties that may impact M&A activity.

 

"With increasing M&A activity, the recruitment market has tightened, but
opportunities across DSW and DR remain strong, and we look forward to updating
the market further, as the year progresses."

 

(1) Total income from licensees represents statutory revenue plus share of
results in associates

(2) Adjusted Pre-Tax Profit excludes share based payment charge and
transaction costs relating to the acquisition of DR Solicitors

 

Online Investor Presentation

 

The management team will host an online H1 25 Results presentation for
investors on Tuesday, 26 November 2024 at 3.00pm. Anyone wishing to join the
presentation should register at https://bit.ly/DSW_H125_results_webinar
(https://url.uk.m.mimecastprotect.com/s/brCgC3yDXtpG68mtgfrHQs8QL) .

 

Enquiries

 

 DSW Capital                                                     Tel: +44 (0) 1928 378 100

 James Dow, CEO

 Shru Morris, Deputy CEO

 Pete Fendall, COO & Interim CFO

 Shore Capital (Nominated Adviser & Broker)                      Tel: +44 (0)20 7408 4090

 James Thomas/Mark Percy/Rachel Goldstein (Corporate Advisory)

 Guy Wiehahn / Isobel Jones (Corporate Broking)

 Rawlings Financial PR Limited                                   dswcapital@rfpr.co.uk (mailto:dswcapital@rfpr.co.uk)

 Cat Valentine                                                   Tel: +44 (0) 7715 769 078

 

About DSW Capital

 

DSW Capital, owner of the Dow Schofield Watts and DR Solicitors brands, is a
profitable, mid-market, challenger professional services network with a cash
generative business model and scalable platform for growth. Originally
established in 2002, by three KPMG alumni, Dow Schofield Watts is one of the
first platform models disrupting the traditional model of accounting
professional services firms. DSW Capital operates licensing arrangements with
its businesses and has over 130 fee earners across 12 offices in the UK. These
businesses trade primarily under the Dow Schofield Watts and DR Solicitors
brands.

 

DSW Capital's vision is for our brands to become the most sought-after
destinations for ambitious, entrepreneurial professionals to start and develop
their own businesses. Through a licensing model, DSW Capital gives
professionals the autonomy and flexibility to fulfil their potential.

 

Being part of the DSW Capital Group brings support benefits in recruitment,
funding and infrastructure. DSW Capital's challenger model attracts
experienced, senior professionals, predominantly with a "Big 4" accounting
firm or "Magic Circle" legal background, who want to launch their own
businesses and recognise the value of DSW's brands and the synergies which
come from being part of the network.

 

DSW Capital aims to scale its agile model through organic growth, geographical
expansion, additional service lines and acquisitions. The Directors are
targeting high margin, complementary, niche service lines with a strong
synergistic fit with the existing network.

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