Source - LSE Regulatory
RNS Number : 1688I
DSW Capital PLC
01 December 2022
 

1 December 2022

DSW CAPITAL PLC

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

(AIM: DSW)

 

Half Year Results

Heightened profile following IPO helped to drive network growth

 

DSW Capital, a profitable, fast growing, mid-market, challenger professional services licence network and owner of the Dow Schofield Watts brand, is pleased to announce its half year results for the six-month period ended 30 September 2022 ("H1 23" or the "Period").

 

The Group has delivered a strong performance in the Period with network revenue rising to £9.8m, up 34.5% compared to the same period in the prior year (H1 22: £7.3m), and is currently on track to deliver results for the year ended 31 March 2023 ("FY23") in line with market expectations.

 

Financial highlights

 

·

Network Revenue up 34.5% at £9.8m (H1 22: £7.3m)

·

Total income from licensees up 40.4% at £1.6m (H1 22: £1.2m)

·

Adjusted Pre-Tax Profit £0.9m (H1 22: £0.8m)

·

Statutory Profit before tax £0.6m (H1 22: £0.7m)

·

Strong operating cash conversion of 85.1% with £4.6m cash at period end

·

Strong balance sheet with Net Assets of £7.8m (H1 22: £2.7m)

·

Interim dividend of 1.76p per share

 

Operational highlights

 

·

Fee Earners at the Period end increased to 93 (HY 22: 81), up 14.8% YoY, demonstrating the attractiveness of the licence model and the network's heightened profile following IPO, which are negating wider challenges in the recruitment market

·

Presence in Scotland expanded with two new offices, Edinburgh and Glasgow, and three new partners   

·

Additional partner welcomed to the Wealth Planning service line post Period end in October 2022

·

The Group has also entered into a commercial support arrangement with Freelands Finance Ltd, an Investor Relations Advisory business.  Working in collaboration with this business is expected to provide a source of referral opportunities to the DSW Network

·

Named by Experian* as the 10th most active corporate finance adviser in the UK in the first half of 2022, compared to 13th in the first half of 2021

·

Shortlisted for a number of awards, including 'Best Newcomer Award' at the AIM Awards 2022 and 'Flotation of the Year' at the Insider North West Dealmakers Awards 2022 

 

Current trading and outlook

 

·

Demand for the DSW Network's services, which are primarily SME focused, remains strong and the Business Recovery team is continuing to see an increase in activity

·

Fee Earners at 31 October 2022 increased to 97, as teams continue to recruit high calibre candidates

·

 

Opportunity for organic and acquisition driven growth remains significant and the Directors remain confident in the strength and resilience of the Group's business model   

·

Currently on track to meet market expectations for FY23  

 

* Experian Market IQ: H1 2022 Report

 

James Dow, Chief Executive Officer, said:

 

"Activity in the Network's primary market, the SME sector, has remained strong to date and resilient to the many economic challenges facing the UK. Whilst a downturn is likely to affect corporate finance and transaction services within the Network, we would expect some of that to be offset by an increase in the demand for insolvency, restructuring, and debt advisory services, for which we are already seeing strong demand as corporate distress levels rise.

 

We continue to seek to grow the Group through diversification with the addition and expansion of new service lines and to recruit professionals in other disciplines to reduce the M&A weighting of our licence fees."

 

Definitions

 

Network Revenue is defined as total revenue earned by licensees, as opposed to total revenue reported by the Company

Adjusted Pre-Tax Profit is defined as profit before tax adjusted to add back the items not considered part of underlying trading including share-based payment expense and IPO costs. It is a non-GAAP metric used by management and is not an IFRS disclosure.

Cash conversion is calculated as cash generated by operations divided by operating cash flows before movements in working capital

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

 

Online investor presentation

 

An online investor presentation and Q&A will be hosted by the management team today at 1pm. To participate, please register with PI World at: https://bit.ly/DSW_HY23.

 

Enquiries:

 

DSW Capital

James Dow, Chief Executive Officer

Nicole Burstow, Chief Financial Officer

 

 

Tel: +44 (0) 1928 378 029

Tel: +44 (0) 1928 378 039

Shore Capital (Nominated Adviser & Broker)

James Thomas / John More / Mark Percy

Guy Wiehahn (Corporate Broking)

 

Tel: +44 (0) 20 7408 4090

Belvedere Communications

Cat Valentine

Keeley Clarke

dsw@belvederepr.com

Tel: +44 (0) 7715 769 078

Tel: +44 (0) 7967 816 525

 

About DSW Capital

 

DSW Capital, owner of the Dow Schofield Watts brand, is a profitable, fast growing, 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, DSW is one of the first platform models disrupting the traditional model of accounting professional services firms. DSW operates licensing arrangements with 20 licensee businesses with 97 fee earners, across seven offices in England and three in Scotland. These trade primarily under the Dow Schofield Watts brand.

 

DSW's vision is for the DSW Network to become the most sought-after destination for ambitious, entrepreneurial professionals to start and develop their own businesses. Through a licensing model, DSW gives professionals the autonomy and flexibility to fulfil their potential. Being part of the DSW Network brings support benefits in recruitment, funding and infrastructure. DSW's challenger model attracts experienced, senior professionals, predominantly with a "Big 4" accounting firm background, who want to launch their own businesses and recognise the value of the Dow Schofield Watts brand and the synergies which come from being part of the DSW Network.

 

DSW aims to scale its agile model through organic growth, geographical expansion, additional service lines and investing in "Break Outs" (existing teams in larger firms). The Directors are targeting high margin, complementary, niche service lines with a strong synergistic fit with the existing DSW Network.


 

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

I am pleased to report that the Group traded strongly in the Period under review to deliver a positive set of results, which were in line with the Board's expectations. The Board would like to thank all our network Partners and Employees for their hard work and commitment to the DSW brand.

 

Network Revenue rose to £9.8m, an increase of 34.5% compared to the same period in the prior year (H1 22: £7.3m), as the Group benefitted from its heightened profile following IPO. This generated a 40.4% increase in Total Income from Licensees in the Period of £1.6m (H1 22: £1.2m), more than covering the additional costs of the Group's AIM listing, with Adjusted Pre-Tax Profit rising by 12.5% to £0.9m (H1 22: £0.8m).

 

The largest increase in costs can be attributed to the costs of being listed, including professional fees, AIM Listing fees and PR. Further costs are a result of investment in central infrastructure and an increased share based-payment expense. We are generally protected from the impact of wage and cost inflation as our licensee partners bear most of these risks.

 

Vision and strategy

 

DSW Capital is the owner of the Dow Schofield Watts brand, which is the predominant brand it licences to licensee businesses. Our vision is to become the most sought-after destination for ambitious, entrepreneurial professionals to start and develop their own businesses. We aim to scale the business through organic growth, new service lines and geographic locations, and investing in "Break Outs" (existing teams in larger firms).

 

We further executed on our strategy in the Period Fee earners within our 20 licensed businesses rose by five in the Period to 93 at 30 September 2022, as the Group continued to benefit from its heightened profile following flotation (Fee earners at IPO: 82), and investment in a central recruitment resource. The growth in fee earners in the first half of the year was organic, underpinned by the continuous work of our existing partners, supported by our central team, to develop and build their own businesses through the recruitment of additional partners and fee earners.

 

As at 31 October 2022, the number of fee earners has increased to 97, bringing the increase in heads since IPO to 15, or 18.3%. Since the Period end, we have also seen the launch of our new Wealth Planning business, which will work with the existing network to further enhance our multi-disciplinary offering. 

 

The Group remains focused on attracting "breakout" teams to augment its organic growth and also the acquisition of licence fees. We are in constant dialogue to encourage teams to join DSW and are confident that our efforts will begin to bear fruit in the second half of the current financial year. Our geographical expansion in Scotland continued with the opening of a Glasgow and an Edinburgh office earlier in the period, strengthening our presence in the region and serving as a platform for further growth.

 

DSW's achievements and capabilities remain most noticeable in its original core service disciplines of corporate finance and due diligence. Our prominence and progression in M&A were highlighted, once again, by Experian, which marked DSW as the 10th Most Active Corporate Finance Advisor in the UK in the first half of 2022* compared to 13th for the first half of 2021.

 

Dividend

 

We maintain a robust cash position with strong cash generation and are pleased to declare an interim dividend of 1.76p per share.

 

Current trading and outlook

 

Activity in the network's primary market, the SME sector, has remained strong to date and resilient to the many economic challenges facing the UK. Whilst we continue to seek to grow the business through diversification with the addition and expansion of new service lines, corporate finance and due diligence currently comprise most of our network activity.  As such, we are not immune from a downturn in M&A activity, should this begin to impact the SME marketplace.

 

The Directors are mindful of the current economic uncertainty and the impact this may have on M&A activity. However, whilst a downturn might affect corporate finance and transaction services within the Network, we would expect some of that to be offset by an increase the demand for insolvency, restructuring, and debt advisory services, for which we are already seeing strong demand as corporate distress levels rise.

 

We remain confident in the strength and resilience of our business model and short-term macro challenges should give rise to long-term opportunities, as our candidate pool of new partners and employees is fuelled as much by personal dissatisfaction as it is by significant opportunity.

 

With trading remaining strong, the Board believes the Group is currently on track to deliver FY23 results in line with market expectations.

 

James Dow

Chief Executive Officer

30 November 2022


 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 


Six months ended 30 Sept 2022

 

Six months ended 30 Sept 2021

 


Note

£'000

 

£'000

 


 

 

 

 

 

Continuing operations





 

Revenue

5

1,509


1,119

 

Gross profit


1,509


1,119

 

Share of results of associates


124


44

 

Share of results of jointly controlled entity


-


17

 

Administrative expenses


(1,075)


(525)

 

Operating profit

 

558

 

655

 






 

Adjusted operating profit1


872

 

850

 

IPO Expenses


-


(92)

 

Share based payments expense


(314)


(103)

 






 

Operating profit


558


655

 

Finance income


43


42

 

Impairment of loans due from associated undertakings


-


-

 

Finance costs


(13)


(46)

 

Profit before tax


588


651

 

Income tax


(170)


(135)

 






 

Profit for the half-year


418


516

 






 

Total comprehensive income for the half-year attributable to owners of the Company


418

 

516

 

Earnings per share

 

 

 

 

 

From continuing operations





 

Basic

3

£0.02


£0.27

 

Diluted

3

£0.02


£0.27

 

1

Adjusted operating profit, which is defined as operating profit adjusted for items not considered part of underlying trading, including IPO costs and share based payments, is a non GAAP metric used by management and is not an IFRS disclosure

 



INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 


Note

 

As at 30 Sept 2022

 

As at 31 March 2022



 

£'000

 

£'000

Non-current assets






Intangible assets



770


794

Property, plant and equipment



470


525

Investments



922


922

Investments in associates



187


290

Interests in jointly controlled entities



31


23

Prepayments and Accrued Income

7


170


175

Deferred Tax asset



4


4




2,554


2,733

Current assets






Trade receivables

7


895


832

Prepayments and Accrued Income

7


393


362

Other receivables

7


451


369

Cash and bank balances



4,567


4,722




6,306


6,285

Total assets



8,860


9,018

 



 


 

Current liabilities






Trade payables



86


86

Other taxation



228


210

Other payables



61


54

Accruals and Deferred Income



70


163

Current tax liabilities



170


63

Lease liability



85


83




700

 

659

Net current assets



5,606


5,626




 


 

Lease liability



259


302

Dilapidation provision



73


72




332


374

Total liabilities



1,032


1,033

Net assets



7,828


7,985

 



 


 

 

Equity






Share capital



55


54

Share premium



5,280


5,280

Share-based payment reserve



1,488


1,174

Retained earnings



1,005


1,477

Total Equity attributable to owners of the Company



7,828


7,985

 

 

 

 

 

 

 

The interim statements were approved and authorised for issue by the Board of Directors on 30 November 2022 and were signed on its behalf by:

 

James Dow

Chief Executive Officer


 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY


Share capital

Share premium

Share-based payments reserve

Retained earnings

Total equity


£'000

£'000

£'000

£'000

£'000

Balance at 01 April 2021

2

-

7

2,203

2,212

Profit for the half-year

-

-

-

604

604

Dividends

-

-

-

(127)

(127)

Share-based payments

-

-

103

-

103

Balance at 30 Sept 2021

2

-

110

2,680

2,792

Loss for the half-year

-

-

-

(938)

(938)

Dividends

-

-

-

(253)

(253)

Share-based payments

-

-

1,064

-

1,064

Issue of shares in period

52

5,280

-

(12)

5,320

Balance at 1 April 2022

54

5,280

1,174

1,477

7,985

Profit for the half-year

-

-

-

418

418

Dividends

-

-

-

(890)

(890)

Share-based payments1

-

-

314

-

314

Issue of shares in period

1

-

-

-

1

Balance at 30 Sept 2022

55

5,280

1,488

1,005

7,828

 

1

SBP issued within six month period from 01 April 2022 - 30 September 2022


 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

 



Six months ended 30 Sept 2022

 

Six months ended 30 Sept 2021


Note

£'000

 

£'000


 

 

 

 

Profit for the half-year

 

418

 

516

Adjustments for:


 

 

 

Income tax expense


170


135

Net interest (income)/expense


(30)


4

Depreciation of property, plant and equipment


69


18

Amortisation of intangible assets


23


19

Bonus shares / LTIP awards


1


-

Share-based payment expense


314


103

Operating cash flows before movements in working capital


965

 

795






(Increase)/decrease in trade and other receivables


(171)


450

Increase/(decrease) in trade and other payables


(68)


(63)

(Increase)/decrease in amounts owed from associates in relation to profit share


95


(44)






Cash generated by operations


821

 

1,138

Income taxes paid


(63)


(257)

Net cash from operating activities


758

 

881






Investing activities





Purchases of property, plant and equipment


(14)


(15)

Net cash used in investing activities



(15)

Financing activities





Dividends paid

6

(890)


(127)

Finance lease payments


(51)


-

Interest received


42


16

Repayments of loans and borrowings


-


(195)

Proceeds from loans and borrowings


-


-

Proceeds from issue of ordinary shares net of share issue costs


-


-

Net cash used in financing activities


(899)


(306)

 





Net increase/(decrease) in cash and cash equivalents


(155)


560

Cash and cash equivalents at beginning of half-year


4,722


609





 

Cash and cash equivalents at end of half-year


4,567


1,169


 

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL INFORMATION

1. General Information

The Company was incorporated as DSW Capital Limited on 23 March 2010 under the Companies Act 2006 (Registration number: 07200401). The Company was re-registered as DSW Capital plc on 26 October 2021. The Company is incorporated and domiciled in England and Wales. The principal activity of the Company and its subsidiary, DSW Services LLP, (together referred to as the 'Group') is the licensing of the Dow Schofield Watts brand and associated brand names for use in the professional services sector.

The address of the Company's registered office is:

7400 Daresbury Park

Daresbury

Warrington

WA4 4BS

 

2. Basis of preparation

This condensed consolidated interim financial information for the 6 months to 30 September 2022 has been prepared in accordance with IAS 34 'Interim financial reporting' and also in accordance with the measurement and recognition principles of UK adopted international accounting standards. It does not include all of the information required for full annual financial statements and should be read in conjunction with the Annual Report and Accounts for the year ended 31 March 2022. This condensed consolidated interim financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006.  The Interim Report has not been audited or reviewed in accordance with the International Standard on Review Engagement 2410 issued by the Auditing Practices Board.

The interim condensed consolidated financial information is presented in the Group's functional currency of Pounds Sterling and all values are rounded to the nearest thousand (£'000) except when otherwise indicated.

Significant Accounting Policies

The accounting policies used in the preparation of the interim financial information for the six months ended 30 September 2022 are in accordance with the recognition and measurement criteria of UK Adopted International Accounting Standards and are consistent with those which were adopted in the annual statutory financial statements for the year ending 31 March 2022.

Use of estimates and judgements

There have been no material revisions to the nature of estimates and judgements of amounts reported in prior periods.

Going concern

The interim financial information has been prepared on a going concern basis as the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has no debt, £4.6m cash at 30 September 2022, is strongly cash generative, and has a strong trading performance. The Group's forecasts and projections show that the Group has sufficient resources for both current and anticipated cash requirements.

Accounting Developments

There have been no new standards or interpretations, relevant to the Group's operations, applied in the interim financial information for the first time.

Adjusted PBT

Adjusted PBT is utilised as a key performance indication for the Group and is calculated as follows:

 

 

Six months ended

30 September 2022

 

Six months ended

30 September 2021

 

 

£'000

 

£'000

Profit before tax


588


651

Share based payments


314


103

IPO costs


-


92

Adjusted PBT


902

 

846


3. Earnings per share

From continuing operations

The calculation of the basic and diluted earnings per share is based on the following data:


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021

Earnings

 

£'000

 

£'000

Earnings for the purposes of basic earnings per share being net profit attributable to owners of the Company


418


516

Effect of dilutive potential ordinary shares:


-


-

Earnings for the purposes of diluted earnings per share

 

418

 

516







 

Six months ended 30 September 2022


Six months ended 30 September 2021

Number of shares





Weighted average number of ordinary shares for the purposes of basic earnings per share

 

21,065,045


1,900,000

Effect of dilutive potential ordinary shares:

 




Share Options

 

509,629


-

Weighted average number of ordinary shares for the purposes of diluted earnings per share

 

21,574,674

 

1,900,000






 

From continuing operations


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021

Earnings

 

£

 

£

Basic earnings per share


0.02


0.27

Diluted earnings per share


0.02


0.27

 

Adjusted earnings per share is included as an Alternative Performance Measure ('APM') and is not presented in accordance with IAS 33. It has been calculated using adjusted earnings calculated as profit after tax but before:

 

·    Share-based payments expense;

·    IPO costs; and

·    The tax effect of the above items

 

The calculation of adjusted basic and adjusted diluted earnings per share is based on:

 


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021


 

£'000

 

£'000

Profit after tax on continuing operations


418


516

Adjusted for:





Share-based payment expense


314


103

IPO Costs




92

Tax effect of adjustments above


-


-

Adjusted earnings for the purposes of adjusted basic and adjusted diluted earnings per share

 

732

 

711







 

Six months ended 30 September 2022

 

Six months ended 30 September 2021

Earnings

 

£

 

£

Adjusted basic earnings per share


0.03


0.37

Adjusted diluted earnings per share


0.03


0.37

 

Shares held in trust are issued shares that are owned by the Group's employee benefit trusts for future issue to employees as part of share incentive schemes. The future exercise of the share awards and options is the dilutive effect of share awards granted to employees that have not yet vested.

 

Shares held in trust are deducted from the weighted average number of shares for basic earnings per share. For its adjusted basic measure, the group uses the weighted average number of ordinary shares.

 

4. Profit for the year

Profit for the year has been arrived at after charging:


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021


 

£'000

 

£'000

Depreciation of property, plant and equipment


69


18

Amortisation


23


19

Employee pension


3


1

IPO costs


-


92

 

5. Revenue

The disclosure of revenue by product line is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8.

 

Disaggregation of revenue


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021


 

£'000

 

£'000

External revenue by product line

 

 

 

 

License Fee Income


1,491


1,094

Profit Share Income


18


25

Total

 

1,509

 

1,119






 

A further breakdown of revenue by reporting line is shown below:

 


 

Six months ended 30 September 2022

 

Six months ended 30 September 2021


 

£'000

 

£'000

External revenue by reporting line





License fees attributable to Mergers & Acquisitions (M&A)


1,142


769

License fees attributable to Other


349


325

Profit share attributable to M&A


18


23

Profit share attributable to Other


-


2

Total Revenue by reporting line

 

1,509

 

1,119

Other income

 

-

 

-

Total Revenue

 

1,509

 

1,119

 

6. Dividends

The final ordinary dividend for the year ended 31 March 2022 consisting of an interim catch up dividend of 0.56 pence per share and a final dividend of 3.66 pence per share as proposed in the 31 March 2022 financial statements and approved at the Group's AGM was paid on 30 September 2022.

 

In addition, since the end of the half-year the Directors have recommended the payment of an interim dividend of 1.76 pence per fully paid ordinary share. The dividend will be paid on 11 January 2023 to shareholders on the register on 16 December 2022 with the shares going ex-dividend on 15 December 2022. In accordance with IAS10 "Events after the Balance Sheet Date", these dividends have not been reflected in the Interim Report.

 

7. Trade and other receivables


Group

As at 30 September 2022

 

Group         

As at 31 March 2022


£'000

 

£'000

Trade receivables

973


910

Loss allowance

(78)


(78)


895

 

832

Other receivables

753


686

Loss Allowance

(302)


(317)


451

 

369

Prepayments and Accrued Income

655


629

Loss Allowance

(92)


(92)


563

 

537


1,909

 

1,738

 

Included in prepayments and accrued income are £170k (March 2022: £175k) due in greater than 1 year. Other receivables are made up from loans due from licensees and prepayments and accrued income relates to profit share due from licensees. Amounts due from subsidiary undertakings, in other receivables on the consolidated statement of financial position, are interest free and repayable on demand.

8. Related party transactions

Balances and transactions between the Company and its subsidiary, which are related parties, have been eliminated on consolidation and are not disclosed in this note.  Transactions between the Group and its related parties are disclosed below.

Related parties are those licensees where the Company is a member of the related LLP or has significant influence over an entity either via voting rights or shareholding.

 

Revenue and Cost Recharges

Group entities entered into the following transactions with related parties who are not members of the Group. All entities other than DSW Investments 2 LLP are licensee businesses. DSW Investments 2 LLP is an entity owned by current shareholders.


Six months ended 30 September 2022

 

Six months ended 30 September 2021


Revenue and Cost Recharges

 

Revenue and Cost Recharges


£'000

 

£'000

PHD Equity Partners

-


5

PHD Industrial Holdings

137


83

DSW Investments 2 LLP

51


43

Other investments

320


300

Totals

508


431

Other investments relate to routine and similar transactions which arose in the ordinary course of business, with DSW CF Leeds, DSW TS Leeds and DSW Business Recovery.

 

Amounts due from/to related parties

Group entities had the following balances, including loans to related parties, outstanding at year end with related parties who are not members of the Group:


As at 30 September 2022


As at 30 September 2021


Amounts due from/(to) related parties


Amounts due from/(to) related parties


£'000


£'000

PHD Equity Partners

-


3

PHD Industrial Holdings

24


28

DSW Investments 2 LLP

(32)


-

Other investments

290


259

Totals

282


290

 

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