DWF seeks extra “headroom” from lenders

DWF: Resilient, counter-cyclical business model

DWF – the world’s largest listed law firm – is to seek more “headroom” from its lenders as a precaution to help deal with the impact of the coronavirus pandemic.

But the firm, which has 4,200 staff across the world, expressed confidence about the future, saying it has a “resilient, counter-cyclical business model that benefits from significant recurring revenues from institutional clients in its key industry sectors of insurance, financial services and real estate”.

The latest of the listed law firms to update the market, DWF told investors today that client feedback on its measures to have staff work on an agile basis and to mitigate the impact on client service “has been very positive and has generated a number of new opportunities that will benefit the group in the year ahead”.

Its financial year ends on 30 April and DWF said the final quarter was typically the most important to the group’s financial performance.

It estimated that revenue for the year would still show “high single-digit organic growth and total growth of between 15% and 20%, which is below management’s previous expectations”. Profit before tax should still see double-digit percentage growth but again it will be lower than expected.

“The group has already implemented cost savings during the course of the year and has accelerated its cost saving programme which is expected to deliver c.£10m in cash savings during FY21 and annualised savings of £13.5m in FY22.”

Lower profits will also mean higher-than-expected net debt, but the management was “confident that the group has sufficient liquidity to deal with current working capital requirements”.

DWF has a revolving credit facility with HSBC, NatWest and Lloyds of £80m and said it “currently expects to continue to operate within the limits of that facility”.

Nonetheless, the announcement said it was “prudent to seek additional contingency facilities from its lenders to ensure that the group has increased headroom for working capital purposes and a relaxation of certain covenants for a period of time.

“The group has a strong relationship with its lenders and has had positive initial discussions, which are ongoing.”

DWF predicted that its international and insurance divisions would deliver most of the revenue growth in this financial year, with its corporate, finance and real estate work all “adversely impacted” by Covid-19.

It concluded: “While the current environment is unprecedented, the board is confident that the group is well placed to continue to provide best service to its clients and benefit from future opportunities when the business environment normalises.

Another listed firm, Keystone, told investors today that it was in “a strong position to deal with the financial and operational impacts” of the virus – as all its lawyers work remotely anyway, it has been less affected than most.

“Keystone is highly liquid, being debt free and with a net cash position of £4.4m as at 31 January 2020. Furthermore, the group has been cash generative in the period since year end.

“The Keystone model itself is highly resilient to economic volatility due to the ‘capital light’ nature of the business and the high proportion of its cost base which is fully variable; most notably the lawyer fees which represent approximately 75% of revenue.

“These are not only fully variable but also on a paid when paid basis, thus underpinning the cash generative nature of the Keystone model.”

Keystone said it was well diversified, meaning it has no dependency on any single area of the economy or client, but that when it announces the full-year results for year to 31 January 2020, it would be “prudent” not to issue a dividend.

“We will resume dividend distributions when circumstances make it appropriate to do so.”

Earlier this week, both Gateley and Ince cancelled upcoming dividend payouts, while Knights has cut the pay of staff earning more than £30,000.

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