Revenue drops at ‘frustrated’ DSW

James Dow

Professional services challenger DSW Capital, owner of the Dow Schofield Watts brand, will report a £2m drop in revenue from for the year ending 31 March 2024 when it formally reports in early July 2024.

Network revenue for the year is expected to be £16m (FY23: £18.3m), reflecting the previously reported subdued mergers and acquisitions activity that has persisted since late 2021. 

In a statement to the stock market this morning the Daresbury headquartered group highlighted its “Adjusted Pre-Tax Profit” figure which it expects to be £0.5m (FY23: £1.4m), which is also below the bottom end of the range of £0.6m provided in a trading update in February 2024.

“This shortfall is attributable to the board’s decision to increase provisions in FY24 against balances owed by licensees, primarily relating to a departing licensee.”

James Dow, Chief Executive Officer of DSW Capital, said: “We remain frustrated that economic conditions continue to impact confidence in the SME M&A marketplace. However, our licensee businesses have shown remarkable resilience and entrepreneurship and, as a result, we have only seen a 10% reduction in Network Revenue.

“We invested significantly in recruitment in FY24, a strategy which rewarded us with an increase of 19% in Partners and 25% in licensee businesses, which will serve us well as M&A activity levels recover. The recent redundancies and restructurings at larger professional services firms have contributed to an increasing number of candidates looking for an alternative working model. DSW remains a desirable place to work for ambitious people who want to grow their own businesses.

“The Group remains well positioned to continue growing its Network and to capitalise on future upturns in SME and M&A activity.”

Income from advising on deals represented 68% of the total revenue, including a drop in the average revenue per fee earner over the period which was also lower at £153k (FY23: £193k).

The number of fee earners in the business increased from 97 to 107 and the number of partners increased from 42 to 50. 

DSW operates a licence model to entice teams of advisers from other firms to operate under their brand and service their contacts, often in a regional market, including specialists in the Midlands and Cardiff.

Over the year they added 5 new licensees to the 20 existing businesses in the stable, creating what they describe as “a stronger platform for organic growth as market conditions for M&A become more favourable.” 

New licensees are being sought in new service lines not reliant on M&A, to add to two complementary acquisitions in tax advisory and business recovery.

DSW’s balance sheet remains healthy with cash balances at 31 March 2024 of £2.6m (FY23: £4.6m), after the acquisitions of Bridgewood, an insolvency practice, and STS Europe, a tax advisory practice (£0.9m consideration), investment in new start-up licensees of £0.5m and paying dividends of £0.7m in the Period.

The Board remains confident in the long-term prospects for the business and continues to add new Partners and new licensee businesses to fuel future growth. While confidence in the long term performance of the Group remains unchanged, the Board acknowledges the suppressed earnings in the Period and has taken the decision to propose a reduced final dividend of 0.75p (FY23: 2.0p), giving a total dividend for FY24 of 2.0p (FY23: 3.76p). The Board anticipates maintaining dividends at a reduced level until market conditions improve and earnings return to growth.

A deputy CEO is to be appointed “in due course” after the shock resignation of Nicole Burstow, deputy CEO and CFO, who is due to leave the business shortly.

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