Legal firm DWF sees longer billing times eat into profits

Legal and business services group DWF, which last month agreed a takeover deal with private equity firm Inflexion, said adjusted profits edged higher in the year to 30 April, but noted a "challenging environment" in the new financial year.

Adjusted pre-tax profit rose 4.7% to £43.3m, which the company described as at the "lower end of expectations", as revenues increased 8.6% to 451.6m. However, on an unadjusted basis, pre-tax profit slumped 23.1% to £17.2m.

Lock-up days, which representing the time between performing work and invoicing clients, increased by 17 days to 196, "due to a sector-wide trend towards extended billing and payment terms", DWF explained. The company's lock-up target is 170 days.

"Like other legal businesses, we have seen salary and inflationary pressures, the impact of interest rate increases and variable demand particularly in transactional areas," said chief executive Sir Nigel Knowles.

Net debt jumped by 29.9% to £101.7m for the period, while its leverage ratio (net debt dividend by adjusted EBITDA) increased from 1.08x to 1.46x.

Looking ahead, the company said it was "considering the achievability" of its lock-up target, as lock-up stretch continues to have an impact on the balance sheet and cash position.

"With the current trends not expected to abate, the board is not expecting to undertake any material M&A in the short term on a stand-alone basis as it seeks to address the ongoing challenges presented by lock-up stretch, increasing interest costs and the balance sheet leverage," the company said in a statement.

DWK announced on 21 July that it had received an all-cash offer for the group from Aquila Bidco, part of the Inflexion group, for £342m. The takeover, which the board unanimously recommends, is expected to complete during the final quarter of this calendar year.