Listed law firm Knights will not pay a final-year dividend for 2019/20 after suffering a 20% fall in instructions in the last few weeks due to the coronavirus crisis.
In an upbeat trading update, however, Knights said today that market conditions have recently stabilised. The highly acquisitive group expects to deliver a 44% rise in underlying pre-tax profits for the 12 months to 30 April.
Full-year revenue is forecast to be about £74m, 40% up on 2019, while underlying pre-tax profit is predicted to rise by 44% to £13.5m, reflecting a ’marked increase in margin’ in the second half.
Knights said it performed strongly during the initial lockdown period in March, but work diminished in April as activity slowed at law firms on the other side.
Strong cash management resulted in 'better than expected' year-end net debt of £15.9m. Knights said it retains a strong balance sheet and good liquidity, with a total of £24m in undrawn borrowing facilities for working capital.
Knights introduced cost-saving measures in March in response to Covid-19, including a 10% pay cut for all staff earning over £30,000. Homeworking will continue until at least September.
These actions have positioned the business well to trade through the crisis, which has resulted in a 20% decline in instructions in the last few weeks, the firm said. The board is ‘encouraged’ by early signs that market conditions have stabilised.
Knights’ diversified business model, aided by recent acquisitions, has seen higher levels of disputes and employment work mitigating a reduction in corporate transactions and some areas of real estate. But despite the group’s ‘strong financial position’, Knights said it would be inappropriate to recommend a dividend given recent cost-cutting.
David Beech, CEO of Knights, commented: ‘Beyond the near term, we anticipate that Covid-19 will only accentuate the opportunities for our resilient, well-invested, diversified and cash-generative business in the highly fragmented and often under-invested market for legal services outside London.’
Knights will report its annual results in July. The share price was unchanged this morning at 380p.