Gateley Reports Strong H1 Revenue Growth but Profits Dip Amid Pre-Budget Slowdown

Gateley H1 FY26: Revenue Up 9.3% While Margins Tighten on Pre‑Budget Slowdown

Gateley (Holdings) PLC delivered a solid top-line in the six months to 31 October 2025 (H1 26), with strong organic growth across the Group despite a sharp Q2 pause in deal-making ahead of the UK Autumn Budget. Profits dipped on an underlying basis as the Group continued to invest and navigated slower transactional activity, but management remains confident of meeting full-year consensus.

Key numbers (H1 26)	H1 26	H1 25	Change
Group revenue	£94.3m	£86.3m	+9.3%
Organic revenue growth	8.6%	3.2%	–
Legal services revenue	£67.2m	£60.6m	+10.9% (all organic)
Consultancy revenue	£27.1m	£25.7m	+5.5% (3.2% organic)
Underlying operating margin	9.2%	10.5%	-130 bps
Underlying profit before tax	£9.5m	£10.6m	-10.8%
Reported profit before tax	£6.3m	£3.3m	+90.4%
Basic EPS	3.73p	1.44p	+159.1%
Underlying diluted EPS	5.65p	6.63p	-14.8%
Net debt (period end)	£19.6m	£1.2m net cash	–
Interim dividend	3.3p	3.3p	Unchanged

What drove growth: pricing discipline and higher utilisation

Organic revenue rose 8.6% thanks to tighter pricing and better conversion of work-in-progress into fees. Fee earner utilisation – the proportion of chargeable time spent on client work – nudged up to 89% (H1 25: 88%). Training on pricing, plus the roll-out of revenue management software in H2, is already showing results, with conversion up 6% on a like-for-like basis.

Legal services did the heavy lifting, growing entirely organically by 10.9% to £67.2m. Consultancy rose 5.5% to £27.1m, with 3.2% organic and an extra £0.6m from the acquisition of trademark attorney firm Groom Wilkes & Wright (GWW) in September.

Margins: the pre‑Budget pause hurt, but should unwind in H2

Underlying operating margin slipped to 9.2% (H1 25: 10.5%). Management estimates that pre‑Budget “transactional inertia” reduced H1 revenue by about £3m. If that work had landed in H1, margins would have been consistent with full-year expectations. The Group expects those delayed mandates to come through in H2.

Important definitions: “Underlying” excludes non‑trading items such as acquisition-related charges, share-based payments and exceptional costs. Reported profit includes a £3.2m gain on bargain purchase from GWW, which lifted statutory PBT and EPS.

Platform performance: Property shines; Corporate resilient; People mixed

• Property Platform: Revenue up 14.3% to £50.3m, all organic, with contribution margin advancing to 35.7% (H1 25: 31.6%). Standouts were Residential Development (+24.9%) and Construction (+27.8%). Consultancy units Gateley RJA (+56.3%) and Gateley Smithers Purslow (+8.0%) also grew.
• Business Services Platform: Revenue up 7.2% to £15.4m. Disputes performed well – Commercial Dispute Resolution (+9.2%), Complex International Dispute Resolution (+7.3%), and Regulatory and Business Defence was strong. Contribution margin dipped to 30.3% (H1 25: 36.8%) due to ongoing investment.
• Corporate Platform: Essentially flat at £18.6m (down 0.5%), reflecting the Q2 transactional slowdown. Banking was the bright spot (+15.2%). Contribution margin eased to 36.0% (H1 25: 42.9%).
• People Platform: Revenue up 8.4% to £10.0m, with Pensions up 14.7% and Employment on track. Private Client remained challenging. Contribution margin fell to 27.1% (H1 25: 37.2%).

Cash, debt and capital allocation: investment phase continues

Net debt was £19.6m at period end, reflecting acquisition payments, working capital and share purchases by the Employee Benefit Trust (EBT) to support the Restricted Share Award (RSA) plan. The Revolving Credit Facility (RCF) totals £80m to April 2028 at 1.2% over SONIA, with undrawn headroom of £49.5m. The Group also notes bank borrowings of £30.2m in non‑current liabilities.

Operating cash outflow was £(7.0)m (H1 25: £0.5m inflow) as working capital stretched. Gross lock‑up – the time cash is tied up in work‑in‑progress (WIP) and receivables – lengthened to 170 days (H1 25: 162), driven by debtor days rising to 97 (H1 25: 91). WIP days were stable at 73. Free cash flow was £(5.0)m (H1 25: £0.5m).

The interim dividend is held at 3.3p per share, payable on 31 March 2026 to holders on 20 February 2026.

GWW acquisition: ahead of expectations with a bargain purchase

Gateley acquired GWW for initial cash of £4.29m plus deferred and contingent amounts, augmenting the Group’s IP and trademark attorney capabilities. The deal generated a £3.2m gain on bargain purchase and is performing ahead of initial expectations. Integration is said to be progressing smoothly.

Operational levers: pricing, systems, Dubai and disciplined hiring

Average fee earner headcount declined 1.8% to 1,062 through deliberate churn management, while nine lateral partners joined. A new eight‑strong corporate legal team in Dubai was added, and the Middle East operation moved into the Dubai International Financial Center. Personnel cost increases were said to be wholly due to the Autumn 2024 NICs rise.

System upgrades continue, including phase two of the new business management platform (3E) and investment in AI capabilities. The immediate goal is margin improvement through pricing, WIP management and conversion, with a near‑term target to lift underlying operating margin to not less than 13.5%.

Outlook and my take: eyes on H2 unwind, margins and cash

Management says overall activity levels are ahead of H1 25 and expects the pre‑Budget slowdown to unwind in H2. Recent organic investments are delivering, the Property Platform is firing, and GWW should contribute a full half. The Board reiterates confidence in meeting FY26 consensus for £189.4m revenue and £23.8m underlying PBT.

Positives

• Strong organic growth at 8.6%, with legal services up 10.9% entirely organically.
• Pricing and conversion improvements are tangible, with utilisation at 89%.
• Property Platform momentum and clear sector niches (e.g. Building Safety Act work).
• GWW performing ahead of expectations and margin enhancing relative to Group.

Watch‑outs

• Underlying margin at 9.2% leaves execution to do to reach the 13.5% target.
• Working capital: debtor days increased to 97 and lock‑up to 170 days; cash from operations was negative.
• Consultancy growth slower and mixed, though H2 is expected to improve.

Net-net, this is a credible H1 given the macro headwinds. If the estimated £3m of delayed transactions lands and pricing discipline sticks, H2 should look cleaner. For investors, the focus into year-end is simple: margin rebuild, cash conversion, and evidence that the Dubai and IP expansions are compounding growth.

Jargon buster

• Underlying profit: strips out non‑trading items (e.g. acquisition‑related charges, share‑based payments, exceptional costs) to show core trading performance.
• Utilisation: the percentage of a fee earner’s time billed to clients.
• Contribution margin: profit contribution from a business unit before central costs.
• WIP and lock‑up days: work‑in‑progress plus receivables measured in days of revenue; a proxy for how long cash is tied up.
• RCF: Revolving Credit Facility, a flexible debt line the company can draw and repay as needed.
• Bargain purchase: accounting gain when the fair value of acquired net assets exceeds the consideration paid.
• EBT/RSA: Employee Benefit Trust buying shares to satisfy Restricted Share Awards without diluting shareholders.