15 May 2024

DSW CAPITAL PLC

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

(AIM: DSW)

TRADING UPDATE AND NOTICE OF FINAL RESULTS

Network Revenue for FY24 in line with revised market expectations

DSW Capital, a profitable mid-market, challenger professional services licence network and owner of Dow Schofield Watts brand, announces the following trading update ahead of its final results for the year ended 31 March 2024 ("FY24" or the "Period"), which will be released on 2 July 2024.

Network Revenue and Total Income from Licensees for FY24 are expected to be in line with current market expectations.

Network Revenue in FY24 is expected to be £16.0m (FY23: £18.3m), reflecting the previously reported subdued M&A activity that has persisted since late 2021. Adjusted Pre-Tax Profit¹ is expected to be £0.5m (FY23: £1.4m), which is below the bottom end of the range of £0.6m provided in the February Trading Update (RNS number: 1972D). 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.

M&A activity represented 68% of Network Revenues in the Period. Given the prevailing conditions in this sector throughout the year, Average Revenue per Fee Earner in the Period was lower at £153k (FY23: £193k).

Fee Earners increased from 97 to 107 in the Period, with the number of Partners increasing from 42 to 50. This strong growth in numbers reflects a full year's investment in Partner recruitment capabilities.

The Group has entered the new financial year with 25 licensee businesses (FY23: 20), creating a stronger platform for organic growth as market conditions for M&A become more favourable. The Board continues to deliver on its strategic objectives to expand DSW's presence geographically, with two new businesses in the Midlands and Cardiff in the Period, and to diversify in new service lines not reliant on M&A, with two complementary acquisitions in tax advisory and business recovery.

The Group'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.

Board Update

The Board is pleased to announce that it has concluded the recruitment process for a Deputy CEO and looks forward to announcing details of the appointment in due course.

As previously announced, Pete Fendall will join the Board as Interim CFO on 17 May 2024, when Nicole Burstow, Deputy CEO and CFO, leaves the business.

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."

¹ Adjusted Pre-Tax Profit excludes share based payment charge.

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Notes to Editors  

About DSW Capital

DSW Capital, owner of the Dow Schofield Watts brand, 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, DSW is one of the first platform models disrupting the traditional model of accounting professional services firms. DSW operates licensing arrangements with 25 licensee businesses with 107 fee earners, eleven offices across the UK. 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.