REG - RBG Holdings PLC - Unaudited Interim Results
13/09/2022 07:00
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RNS Number : 1817Z RBG Holdings PLC 13 September 2022
13 September 2022
RBG Holdings plc
("RBG", the "Group", or the "Company")
Unaudited Interim Results for the six months ended 30 June 2022
Solid performance delivered by resilient business model
RBG Holdings plc (AIM: RBGP), the professional services group, is pleased to
announce its unaudited results for the six months ended 30 June 2022.
Group Financial Highlights 1 (#_ftn1) :
· Revenue (including gains from litigation assets) up 44.8% to
£26.6 million (2021: £18.3 million)
o £1.7 million of gains from litigation assets (2021: £1.5 million)
· EBITDA up 31.8% to £6.8 million (2021: £5.2 million)
o EBITDA margin is 25.6% (2021: 28.1%)
· Profit before tax up 10.8% to £4.4 million (2021: £3.9 million)
· Profit after tax up 13.3% to £3.5 million (2021: £3.1 million)
· Earnings per share up 4.4% to 3.62 pence (2021: 3.47 pence)
· Adjusted free cash flow generation in the period was £3.1
million (2021: £2.2 million)
· Net debt of £17.3 million (2021: net debt of £9.8 million)
· An interim dividend of 2 pence per share in respect of the six
months to 30 June 2022 will be paid on the 30 November 2022
Business Highlights:
RBG Legal Services Limited ("RBGLS") - Combination of the Rosenblatt and
Memery Crystal brands
· Revenue (including gains from litigation assets) up 74.2% to
£22.3 million (2021: £12.8 million)
· Legal services revenue up 74.9% to £20.7 million (2021: £11.8
million)
· EBITDA up 62.6% to £6.8 million (2021: £4.2 million)
· EBITDA margin is 30.7% (2021: 32.9%) with the decrease driven by
the changing revenue mix, as anticipated, following the acquisition of Memery
Crystal
· Successfully realised litigation asset sales with proceeds
totalling £2.3 million (2021: £1.6 million)
· Average revenue per fee earner of £363,000 (2021: £375,000)
reflects the diversification of the legal services business into more
non-contentious areas of law, following the acquisition of Memery Crystal
· Total lockup was 120 days (2021: 102 days) of which debtor days
were 51 (2021: 46) with the increase driven by the mix of the business
following the acquisition of Memery Crystal
· As at 30 June 2022, RBGLS had invested in 13 litigation cases
with an associated contingent WIP of £12.5 million (2021: £5.8 million) and
a total cash investment of £9.3 million (£4.9 million)
Convex Capital Limited ("Convex Capital")
· M&A activity has been strong in 2022: As at 30 June 2022,
Convex had completed five deals resulting in revenue of £4.2 million (2021:
£5.0 million)
· Strong pipeline as at 8 September 2022: 24 active deals, of which
three are in late stages of the completion process
Litigation Finance
· Since its launch in May 2020, LionFish Litigation Finance Limited
("LionFish") has invested in 12 cases, with one case having settled
successfully in 2021
· Current active cases have a total capital commitment of £11.3
million of which £5.5 million has been deployed (as at 30 June 2022).
Disposals since inception total £5.9 million
· In February 2022, LionFish agreed a £20.0 million litigation
investment arrangement with a large alternative investment firm which will
provide the business with flexible capital. They will invest 75% on any new
deals and have retrospectively invested £2.0 million in existing cases in
Rosenblatt and LionFish
· This year, LionFish is expected to generate the majority of its
gains from potential settlements, the timings of which are not within RBG's
control and are thus difficult to predict
Operational and Strategic Highlights:
· New RBGLS COO Jon Divers, appointed in February 2022, has
recently been confirmed in position and has full day-to-day operational
responsibility for the legal services division
· Memery Crystal business transferred into one legal entity, RBGLS,
which completed 1 September 2021
· The integration is almost complete with both businesses migrating
onto a single practice management system which is expected to be complete in
the fourth quarter of 2022
· With this integration, management has successfully delivered on a
key part of the Group's strategy which is to acquire high-value, strategically
additive assets and improve their performance
· The combination of Memery Crystal with the Group's pioneering law
firm Rosenblatt means the Group now has one of London's premier mid-tier law
firms
· The Group continues to pursue acquisition opportunities to build
and diversify the business to create long term shareholder value, where
financing allows, in line with its M&A strategy
· A number of acquisition opportunities have been identified which
adhere to the Group's highly selective criteria and the Group continues to
make progress on these
Outlook:
· The Group has had another solid six months which is reflected in
improved revenue and profit growth
· The Group's revenues and EBITDA have historically been second
half weighted on an organic (and standalone) basis. With consistent demand for
all the Group's services we are currently on track to meet our expectations
for the full year
Nicola Foulston, CEO, RBG Holdings plc, commented: "Overall, the Group has had
a solid first six months which is reflected in our continued revenue and
profit growth. Our diversified revenue model has proved to be resilient in
these uncertain times. We have built a strong platform from which to deliver
growth over the coming years.
"Our legal services business integration is almost complete with two trading
brands; Rosenblatt for contentious law and Memery Crystal for non-contentious
law. We are building one of London's premier mid-tier law firms providing
quality advice to entrepreneurs and high-net-worth individuals. The business
is receiving a high volume of new client instructions enabled by our expertise
and increased scale. All our legal services businesses have seen consistent
growth and steady flow of activity with our Corporate, Real Estate, and
Dispute Resolution practices having all performed well.
"LionFish continues to grow and is funding eleven active cases. By selling a
percentage of the invested assets, it has generated profit from day one of its
inception as well as helping to de-risk the Group's investment. The new
litigation investment arrangement will provide the business with flexible
capital to support its growth rather than the Group's balance sheet.
"Our M&A advisory business, Convex Capital, has performed well in the
first six months with five deals completing and remains well-positioned to
benefit in the current macro-economic environment.
"With consistent demand for all Group services, we are on track to meet our
expectations for the full year. While acknowledging the economic conditions
continue to be volatile, we look forward to the next six months with optimism
and are excited about the long-term prospects for the Group."
Concert Party
The Company set out specifics of a concert party in its Admission Document,
published 2 May 2018 ("Existing Concert Party"). Following consultation with
the Takeover Panel, the Existing Concert Party has now been disbanded and two
sub-concert parties formed (the "Sub-Concert Parties"). The individuals within
each Sub-Concert Party, together with their interests in the issued share
capital of the Company as at 12 September 2022, are set out below:
Interest Interest
(No. Ordinary Shares) (% of Ordinary Shares)
Sub-Concert Party 1
Cascades Limited* 11,410,000 11.97%
NF SIPP* 105,264 0.11%
Total 11,515,264 12.08%
Sub-Concert Party 2
Mr Ian Rosenblatt 16,911,214 17.74%
Ms Tania MacLeod 1,305,000 1.37%
Total 18,216,214 19.11%
*Entities in which Nicola Foulston has a beneficial interest
Total Issued Share Capital 95,331,236
Enquiries:
RBG Holdings plc Via SEC Newgate
Nicola Foulston, CEO
Singer Capital Markets (Nomad and Broker) Tel: +44 (0)20 7496 3000
Rick Thompson / Alex Bond / James Fischer (Corporate Finance)
Tom Salvesen (Corporate Broking)
SEC Newgate (Financial Communications) Tel: +44 (0)7540 106366
Robin Tozer/Max Richardson
rbg@secnewgate.co.uk
About RBG Holdings plc
RBG Holdings plc is a professional services group, which comprises the
following divisions:
RBG Legal Services Limited ("RBGLS")
RBGLS is the Group's legal services division which combines the businesses
previously operated by Rosenblatt Limited and Memery Crystal LLP.
Rosenblatt
Rosenblatt is one of the UK's pioneering legal practices and a leader in
dispute resolution. Rosenblatt provides a range of legal services to its
diversified client base, which includes companies, banks, entrepreneurs and
individuals. Complementing this is Rosenblatt's increasingly international
footprint, advising on complex cross-jurisdictional disputes.
Memery Crystal
Memery Crystal offers legal services in a range of areas such as corporate
(including a market-leading corporate finance offering), real estate,
commercial, IP & technology (CIPT), banking & finance, tax &
wealth structuring and employment. Memery Crystal is one of the leading legal
practices in the UK to advise the emerging cannabis sector on a wide range of
business issues. Memery Crystal offers a partner-led service to a broad range
of clients, from multinational companies, financial institutions and
owner-managed businesses to individual entrepreneurs.
LionFish Litigation Finance Limited ("LionFish")
The Group also provides litigation finance in selected cases through a
separate arm, LionFish Litigation Finance Limited. LionFish finances
litigation matters being run by other solicitors in return for a significant
return on the outcome of those cases. As such, the Group has two types of
litigation assets - Rosenblatt's own client matters, and litigation matters
run by third-party solicitors. LionFish is positioned to be a unique,
alternative provider to the traditional litigation funders.
Convex Capital Limited ("Convex Capital")
Convex Capital is a specialist sell-side corporate finance boutique based in
Manchester. Convex Capital is entirely focused on helping companies,
particularly owner-managed and entrepreneurial businesses, realise their value
through sales to large corporates. Convex Capital identifies and proactively
targets firms that it believes represent attractive acquisition opportunities.
Chief Executive's Statement
Overview
The Group continues to evolve into a broad, high-quality professional services
group with a litigation finance business leveraging the Group's legal
expertise and building a diverse revenue base that removes dependence on any
one business or fee generator.
The integration of Memery Crystal is almost complete. With this we have
successfully delivered on a key part of the Group's strategy which is to
acquire high-value, strategically additive assets and improve their
performance. The combination of Memery Crystal with the Group's pioneering law
firm Rosenblatt means we now have one of London's premier mid-tier law firms.
Building on both the Rosenblatt and Memery Crystal brands, our legal
services businesses provide quality advice to entrepreneurs and high-net-worth
individuals.
The strategy of the Group is clear. We want to leverage our core professional
services businesses, which account for 90% of our revenue and profits and
capitalise on those areas that offer the highest returns for shareholders.
Furthermore, we use the expertise within the Group to maximise the potential
returns by selectively investing in contingent asset classes such as
litigation. We generate revenue through the sale of participation rights in
these assets, which also reduces the Group's risk.
Overall, the Group has performed well despite the macro-economic challenges
led by both of our professional services businesses, which have recorded
continuing revenue growth. The acquisition of Memery Crystal has added more
revenue diversification across the fee earners, deeper profitability across
the business, which will grow as the integration improves our pricing
structures, and operating efficiencies through the combination of business
support functions.
As a result of the solid performance across the Group, our revenue including
gains on litigation assets for the period grew 44.8% to £26.6 million (2021:
£18.3 million) with a gross margin of 40.2%.
Our sell-side M&A advisory boutique, Convex Capital, performed well in the
first six months, completing five deals and £4.2 million of revenue.
Importantly, momentum in deal flow remains strong in the current
macro-economic environment, and our pipeline continues to grow.
We continue to invest in litigation assets, with 13 live deals across
Rosenblatt and LionFish. LionFish has invested in 12 deals since its inception
in May 2020 with one completed. For the six months ended 30 June 2022, the
Group has delivered £2.5 million in participation rights sales (2021: £2.4
million). There were gains on litigation assets of £1.7 million (2021: £1.5
million).
Group EBITDA was up 31.8% to £6.8 million (2021: £5.2 million) at a margin
of 25.6% (2021: 28.1%). The year-on-year decline is due to a larger percentage
of our business now skewed toward legal services as a result of the Memery
Crystal acquisition, which in its nature is lower margin. As previously
disclosed, we are targeting an EBITDA margin of 35% or more, and remain
on-track to achieve a higher net margin by the year-end. The Group's profit
before tax was £4.4 million (2021: £3.9 million) and profit after tax was
£3.5 million (2021: £3.1 million).
Our net debt position as at 30 June 2022 was £17.3 million (2021: £9.8
million), in line with management expectations. This reflects the investment
in Memery Crystal and the £10.0 million term loan to fund the acquisition,
which will be paid down over five years. We have already paid back £2.0
million. In addition, the Group has an additional £15.0 million revolving
credit facility. We have drawn £14.0 million of the revolving credit facility
as the Group's working capital requirements have doubled since the acquisition
of Memery Crystal. There is further capacity to support the Group's growth.
The Group has continued to trade comfortably within its debt covenants.
RBG Legal Services Limited ("RBGLS")
Following the completion of the acquisition of Memery Crystal in May 2021, the
Group has almost concluded the integration of its two law firms, Rosenblatt
and Memery Crystal. The new legal services corporate entity, RBG Legal
Services Limited, will enable the Group to realise the synergies of the
transaction fully.
The two brands - Rosenblatt and Memery Crystal - are aligned to contentious
and non-contentious services to reflect their brand position within the
market. We are building one of London's premier mid-tier law firms providing
quality advice to entrepreneurs and high net worth individuals. As at 30 June
2022, the combined businesses had 182 people, including 126 fee earners, with
particular strength in Dispute Resolution, Corporate and Real Estate.
The combined businesses are winning a broad range of new instructions,
including corporate transactions, employment advisory work and financial
restructuring mandates. The significantly enhanced scale has enabled us to win
these mandates as well as improve the opportunity pipeline.
Due to the strong demand for legal services, revenue (and gains on the sale of
litigation assets) were up 74.2% to £22.3 million (2021: £12.8 million). The
consolidated business has helped diversify the legal services business. We
have a balanced business across the key areas of Dispute Resolution, Corporate
and Real Estate. The Dispute Resolution division is responsible for 31.6%
(2021: 63.3%) of RBGLS's revenue, Real Estate represents 24.4% (2021: 17.2%)
and Corporate is 44.0% (2021: 19.5%) of the combined business.
As well as the financial metrics, the other KPIs on which the Company is
focused have performed well. The average revenue per fee earner was £363,000
(2021: £375,000). Our revenue per fee earner is in the top 20 of all UK law
firms 2 (#_ftn2) . The small reduction reflects the diversification of the
legal services business into more non-contentious areas of law, following the
acquisition of Memery Crystal. This is less profitable work but more
consistent, which provides a natural hedge to the Group's dispute resolution
activities which, while more profitable, are more contingent.
In line with its strategy, the Group has increased the amount of contingent
work it has taken on, enabled by the Group's bigger balance sheet. This is
managed within the risk profile of the Group, where fee-paying work has to be
prioritised. Contingent litigation cases need to pass the Group's stringent
legal and commercial review process. Importantly, RBGLS can enter into more
Alternative Billing Arrangements (ABAs), which generate incremental margins on
a successful case outcome. No revenue is recognised by the Company until the
result of the case has occurred. Such revenue is considered contingent.
For the six months ended 30 June 2022, RBGLS invested £1.7 million in
external disbursements and counsel fees in relation to its litigation
investments. The amount of contingent work carried out by the legal services
business during the period was £1.2 million (2021: £1.9 million). As at 30
June 2022, RBGLS had invested a total of £9.3 million in external
disbursements and counsel fees in 13 litigation investments, with a total
contingent WIP of £12.5 million.
We have confirmed the appointment of a Chief Operating Officer for RBGLS, Jon
Divers. He was initially appointed in February 2022, and has recently been
confirmed in position, Jon has full day-to-day operational responsibility for
the legal services division. He brings over 20 years of senior management
experience at major companies including Mercedes Benz and Jungheinrich UK.
Convex Capital Limited ("Convex Capital")
Convex Capital, the specialist sell-side corporate finance advisory boutique
based in Manchester, was acquired by the Group in September 2019. Convex
Capital is entirely focused on helping companies, particularly owner-managed
and entrepreneurial businesses, realise their value through sales to large
corporates or Private Equity. Convex Capital identifies and proactively
targets businesses that it believes represent attractive acquisition
opportunities. Convex has a motivated, dynamic team of 14 people, of which 13
are fee-earners.
The acquisition of Convex Capital was part of the Board's strategy focusing on
other high-margin professional service areas. Convex Capital is an
entrepreneurial, cash-generative business operating across the UK and Europe
and will provide the Group with further funds for reinvestment into other
high-margin areas.
As at 30 June 2022, Convex Capital had completed five deals and delivered
£4.2 million of revenue. The strength of its pipeline and the agile nature of
the business has enabled Convex Capital to maintain deals through the first
half. As at 8 September 2022, Convex Capital had 24 active deals, of which
three are in late stages of the completion process.
The business is actively building the target pipeline with a data-driven
approach to generate deals rather than the traditional passive model where the
target company waits to be approached and then appoints a corporate finance
partner. In addition, Convex Capital's success is proving to be an active
producer of new leads. Completed deals lead to recommendations (which still go
through the active data driven qualification). It is the Board's expectation
that the current macro-economic environment will support the on-going
fundamentals that drive M&A.
LionFish Litigation Finance Limited ("LionFish")
Since our IPO in 2018, our strategy has been to develop our own litigation
finance business. The Group initially invested only in Rosenblatt's own client
matters, but on 1 May 2020 the Group launched LionFish. LionFish finances
litigation matters being run by other solicitors in return for a significant
return on the outcome of those cases. As such, the Group now has two types of
litigation investments - RBGLS's own client matters, and litigation matters
run by third-party solicitors.
Both types of litigation investments not only have significant return
potential, but they represent an opportunity to extract further value from the
Group's legal and commercial expertise and diversify its sources of income.
Rosenblatt has a proven record of accomplishment in evaluating the legal
merits of a litigation matter to optimise its profit. By leveraging this
ability, alongside the origination capabilities of LionFish, and the Group's
commercial acumen, the Group can identify third-party litigation cases and
make investments with strong risk-adjusted returns.
This approach creates further revenue potential from sales in participation
rights from litigation finance business beyond Rosenblatt's own client
matters. For the 6 months ended 30 June 2022, LionFish has delivered £0.2
million in participation rights sales (2021: £0.8 million). There were gains
on litigation assets of £0.1 million (2021: £0.5 million).
The Company believes it is important to reiterate the conservative approach we
adopt towards the handling of, and accounting for, our litigation investments.
We judge the fair value of investments to be equal to, or as close to, cost
plus disposal proceeds, which means fair values do not materially exceed net
cash disbursed, as well as having rules limiting the Group's cash and revenue
exposure.
Based on the Group's strategy to target a return of two times the money
invested, Lionfish is actively invested in 11 cases with a total capital
commitment of £11.3 million of which £5.5 million has been deployed as at 30
June 2022 with £5.8 million committed over the life of the cases, which is
circa three years. This year, LionFish is expected to generate the majority
of its gains from potential settlements, the timings of which are not within
RBG's control and are thus difficult to predict.
In February 2022, LionFish agreed a £20.0 million litigation investment
arrangement with a large alternative investment firm which will provide the
business with flexible capital. They will invest 75% on any new deals and have
retrospectively invested £2.0 million in existing cases in Rosenblatt and
LionFish.
M&A
We continue to assess M&A opportunities to build and diversify the
business to create long term shareholder value, where financing allows. Our
acquisition focus remains on high-margin, specialist businesses, which can
also create opportunities for cross-referrals but only at the right value and
with the right deal structure. The Group remains disciplined in its approach
to M&A but continues to actively review potential opportunities according
to its selective criteria.
Dividend
The Company's balance sheet remains solid, and the Board is committed to a
progressive dividend policy. In line with that policy, the Board normally
expects to pay up to 60 per cent of distributable retained earnings from the
core business in any financial year by way of dividend, subject to cash
requirements.
An interim dividend of 2 pence per share in respect of the six months to 30
June 2022 will be paid on 30 November 2022. The dividend record date is 23
September 2022, and the shares will be marked ex-dividend on 22 September
2022. The total dividend relating to the year ending 31 December 2021 was 5
pence per share.
Change of Auditor
Following a competitive tender process, the Group has appointed Moore Kingston
Smith LLP ("MKS") as its new external auditor. MKS will conduct the audit of
the Group's financial statements for the financial year ended 31 December
2022. Any proposal to re-appoint MKS in respect of the financial year
beginning 1 January 2023 will be subject to shareholder approval at the next
AGM.
BDO LLP has resigned by notice to the Group under section 516 of the Companies
Act 2006 and has confirmed that there are no matters connected with their
resignation that they consider need to be brought to the attention of the
members or creditors of the Group for the purposes of section 519 of the
Companies Act 2006.
Outlook
The Group has delivered another solid performance over the first half of the
year which is reflected in improved revenue and profit growth. With consistent
demand for all the Group's services, we remain on track to meet our
expectations for the full year the Group's revenues and EBITDA have
historically been second half weighted. While acknowledging that economic
conditions continue to be volatile, we look forward to the coming months with
optimism about the long-term prospects for the Group.
Nicola Foulston
Group Chief Executive Officer
12 September 2022
Chief Financial Officer's Review
Financial Review
During the first half of 2022 we have continued to build on our strong track
record of delivering a profitable business. We are growing our revenues and
EBITDA from diverse sources, de-risking each individual fee earner. The Group
is well positioned to manage the uncertain economic environment through a
strategy of business and services diversification, carefully selected
acquisitions that are well managed and delivering increasing profits.
Key Performance Indicators (KPIs)
· Group revenue (including gains from litigation assets): £26.6
million (2021: £18.3 million)
· EBITDA: £6.8 million, representing 25.6% of revenue (2021: £5.2
million, 28.1%)
· Profit before tax: £4.4 million, representing 16.4% of revenue
(2021: £3.9 million, 21.5% of revenue)
· Net debt of £17.3 million (2021: net debt of £9.8 million)
reflecting the £10.0 million acquisition term facility, of which £2.0
million has been repaid. The Group also has a £15 million revolving credit
facility, £1 million of which is available to be drawn down.
· Total lock up: 120 days (of which, debtor days were 52) (2021:
102 days, debtor days 46).
· RBG Legal Services revenue per fee earner: £363,000 (2021:
£375,000)
· RBGLS Utilisation/Realisation for the 6 months to June 2022 was
75%/88% (2021: Rosenblatt 86%/93% and Memery Crystal 102%/84%)
Revenue and Gains on Litigation Assets
Reported Group revenue and gains on litigation assets for the period is £26.6
million compared to £18.3 million in 2021, representing a 44.8% increase.
Staff costs
Total staff costs for the first half of 2022 were £15.9 million (2021: £10.6
million), which includes £2.1m for Convex (£0.7m in relation to the bonus
scheme on completed deals), £0.3 million for LionFish and £12.3m for RBGLS.
The average number of employees was 216 (2021: 121).
Overhead costs
During the half year to 30 June 2022, the Group incurred overheads of £19.8
million (before depreciation and amortisation) (2021: £13.2 million). Staff
costs were £15.9 million (2021: £10.6 million), of which contractors' costs
were £1.7 million (2021: £1.4 million).
Other operating costs were £3.9 million (2021: £2.6 million, of which the
cost of the acquisition represented £0.5 million, and incremental Memery
Crystal operating costs were £0.5 million).
EBITDA
EBITDA for the half year to 30 June 2022 was £6.8 million representing 25.6%
of revenue including gains from litigation assets (2021: £5.2 million,
28.1%).
Profit Before Tax
The profit before tax for the period was £4.4 million representing 16.4% of
revenue including gains from litigation assets (2021: £3.9 million, 21.5%).
Earnings Per Share (EPS)
The weighted average number of shares in 2021 was 95.3 million which gives a
basic earnings per share (Basic EPS) for the period of 3.62p (2021: 3.47p).
Balance Sheet
2022 2021
£m
£m
restated
Goodwill, intangible and tangible assets 89.0 84.1
Current Assets 17.5 17.1
Current Liabilities (11.7) (8.1)
94.8 93.1
Net debt (17.3) (9.8)
Non-Current Liabilities (15.6) (17.6)
Deferred consideration - (7.2)
Net assets 61.9 58.5
The Group's net assets as at 30 June 2022 increased by £3.4 million on the
prior year.
Goodwill, Tangible and Intangible Assets
Included within tangible assets is £15.4 million which relates to IFRS 16
right of use assets for the Group's leases. Within total intangible assets of
£55.4 million, £51.9 million relates to goodwill, £3.0 million relates to
brand and £0.2 million relates to customer contracts. The Company has
considered the amounts at which goodwill and intangible assets are stated on
the basis of forecast future cash flows and have concluded that these assets
have not been materially impaired.
Working Capital
Management of lock up has continued to be a key focus of the Group over the
period. Convex and LionFish are invoiced on a cash basis, but our legal
services business lock up days is a measure of the length of time it takes to
convert work done into cash. It is calculated as the combined debtor and WIP
days for the Group. This is a key focus for management and the Board as it
drives the cash generation necessary to support the growth strategy of the
Group. Lock up days at 30 June 2022 were 120 compared to 102 for the previous
year, with debtor days being 51 (2021: 46) with the increase driven by the mix
of the business following the acquisition of Memery Crystal.
Net Debt
We have a revolving credit facility of £15 million and an acquisition term
loan of £10 million repayable over 5 years. Our net debt position is £17.3
million at the end of the period (2021: £9.8 million), includes £8 million
of the term loan used to acquire Memery Crystal.
Cash Conversion
2022 2021
£m
£m
Cash flows from operating activities 7.6 5.2
Movements in working capital 1.1 (1.3)
Increase in litigation assets (4.9) (1.4)
Net cash generated from operations 3.8 2.5
Interest (0.6) (0.2)
Capital expenditure (0.1) (0.1)
Free cash flow 3.1 2.2
Underlying profit after tax 3.5 3.1
Cash conversion 90% 71%
The cash conversion percentage measures the Group's conversion of its
underlying profit after tax into free cash flows. Movements in working capital
have been adjusted for deferred consideration payments made to Memery Crystal
in the period. Net cash generated from operations includes £4.9 million
(2021: £1.4 million) of net litigation investments. Cash conversion of 90%
(2021: 71%) for the half year shows an increase from previous periods as a
result of the stronger six-month trading period. It is a further focus of the
business to drive to our target of 75 %, which has been exceeded by our strong
focus on cash conversion.
Net Debt / Net Cash and cash equivalents
Net debt at the end of the period was £17.3 million (2021: £9.8 million net
debt). The net decrease in cash and cash equivalents of £5.4 million for the
period included £3.2 million of inflows generated from operating activities
(net of £4.9 million of further investments in litigation assets). Investing
activities gave rise to an outflow of £2.4 million, of which £2.2 million
related to the deferred consideration payment made in relation to the
acquisition of Memery Crystal. Outflows from financing activities of £0.7
million is predominantly made up of £3.0 million net proceeds of revolving
credit facility less £2.8 million in dividends.
Summary
We are pleased with the profitability and performance of the Group during the
first half of the year. The business has responded well to the challenges of
the uncertain economy. However, it is important to acknowledge the continued
impact and it will be a significant challenge moving forward.
Robert Parker
Chief Financial Officer
12 September 2022
Unaudited consolidated statement of comprehensive income
For the period ended 30 June 2022
Unaudited Unaudited Audited
Note 1 January to 1 January to 1 January to
30 June 2022 30 June 2021 31 December 2021
£ £ £
Revenue 4 24,890,833 16,852,571 41,985,338
Gains on litigation assets 4 1,678,569 1,494,425 5,207,524
Personnel costs 5 (15,893,713) (10,628,767) (27,353,777)
Depreciation and amortisation expense (1,810,406) (975,334) (2,940,078)
Other expenses (3,884,264) (2,565,144) (6,915,433)
Profit from operations 4,981,019 4,177,751 9,983,574
EBITDA 6,791,425 5,153,085 12,923,652
Non-underlying items
Cost of acquiring subsidiary - 524,905 863,435
Adjusted EBITDA 6,791,425 5,677,990 13,787,087
Finance expense (619,598) (249,259) (801,659)
Finance income 8,666 16,178 22,676
Share of post-tax profits of equity accounted associates - - 21,643
Profit before tax 4,370,087 3,944,670 9,226,234
Tax expense (911,274) (891,448) (1,968,821)
Profit from continuing operations 3,458,813 3,053,222 7,257,413
(Loss) on discontinued operations, net of tax 6 (21,643) - -
Profit and total comprehensive income 3,437,170 3,053,222 7,257,413
Total profit and comprehensive income attributable to:
Owners of the parent 3,454,590 3,034,450 6,972,873
Non-controlling interest (17,420) 18,772 284,540
3,437,170 3,053,222 7,257,413
Earnings per share attributable to the ordinary equity holders of the parent
Profit
Basic and diluted (pence) 3.62 3.47 7.63
Unaudited consolidated statement of financial position
As at 30 June 2022
Company registered number: 11189598 Unaudited Unaudited Audited
Note 30 June 2022 30 June 2021 31 December 2021
restated
£ £ £
Assets
Current assets
Trade and other receivables 17,541,249 17,126,750 18,571,628
Cash and cash equivalents 4,842,012 10,194,188 4,756,143
22,383,261 27,320,938 23,327,771
Non-current assets
Property, plant and equipment 9 2,451,377 2,831,745 2,589,390
Right-of-use assets 10 15,369,432 17,035,042 15,913,008
Intangible assets 11 55,440,526 56,128,413 55,859,230
Litigation assets 12 15,696,605 7,981,999 11,571,052
Investments in associates 6 - 80,000 101,643
88,957,940 84,057,199 86,034,323
Total assets 111,341,201 111,378,137 109,362,094
Liabilities
Current liabilities
Trade and other payables 7,921,732 11,363,867 10,153,425
Leases 10 1,891,890 2,521,314 2,150,440
Current tax liabilities 1,572,876 1,235,177 1,490,495
Provisions 340,061 142,621 314,291
Loans and borrowings 13 2,182,163 2,000,000 2,129,592
13,908,722 17,262,979 16,238,243
Non-current liabilities
Deferred tax liability 1,078,987 803,223 851,662
Trade and other payables 250,000 2,090,000 750,000
Leases 10 14,175,692 14,713,596 13,698,661
Loans and borrowings 13 20,000,000 18,000,000 17,000,000
35,504,679 35,606,819 32,300,323
Total liabilities 49,413,401 52,869,798 48,538,566
NET ASSETS 61,927,800 58,508,339 60,823,528
Issued capital and reserves attributable to owners of the parent
Share capital 190,662 190,662 190,662
Share premium reserve 49,232,606 49,232,606 49,232,606
Retained earnings 12,235,057 9,063,944 11,113,365
61,658,325 58,487,212 60,536,633
Non-controlling interest 269,475 21,127 286,895
TOTAL EQUITY 61,927,800 58,508,339 60,823,528
The interim statements were approved by the Board of Directors and authorised
for issue on 12 September 2022.
Unaudited consolidated statement of cash flows
For the period ended 30 June 2022
Unaudited Unaudited Audited
Note 30 June 2022 30 June 2021 31 December 2021
£ £ £
Cash flows from operating activities
Profit for the year before tax 4,370,087 3,944,670 9,226,234
Adjustments for:
Depreciation of property, plant and equipment 9 286,851 199,196 525,606
Amortisation of right-of-use assets 10 1,104,851 589,380 1,781,058
Amortisation of intangible fixed assets 11 418,704 186,757 633,414
Fair value movement of litigation assets net of realisations 811,381 - (318,814)
Finance income (8,666) (16,178) (22,676)
Finance expense 619,598 249,259 801,659
Share of post-tax profits of equity accounted associates - (21,643)
7,602,806 5,153,084 12,604,838
Decrease/(increase) in trade and other receivables 1,110,376 (872,208) (2,220,725)
Increase/(decrease) in trade and other payables 16,626 (442,862) 1,428,920
(Increase) in litigation assets 12 (4,936,934) (1,412,889) (4,683,128)
Increase in provisions 25,770 25,746 47,416
Cash generated from operations 3,818,644 2,450,871 7,177,321
Tax paid (601,566) (276,765) (1,077,855)
Net cash flows from operating activities 3,217,078 2,174,106 6,099,466
Investing activities
Purchase of property, plant and equipment 9 (148,838) (46,125) (130,179)
Acquisition of associate - (80,000) (80,000)
Acquisition of subsidiary, net of cash - (12,000,000) (12,000,000)
Payment of deferred consideration (2,248,319) - (4,518,585)
Dividend paid to non-controlling interest - - (200,000)
Interest received 8,666 16,178 22,676
Net cash used in investing activities (2,388,491) (12,109,947) (16,906,088)
Financing activities
Dividends paid to holders of the parent (2,832,898) (2,741,412) (4,430,414)
Proceeds from loans and borrowings 13 4,000,000 21,000,000 20,000,000
Repayment of loans and borrowings 13 (1,000,000) (11,000,000) (11,000,000)
Repayments of lease liabilities 10 (342,794) (401,485) (1,856,938)
Interest paid on loans and borrowings (303,126) (127,173) (279,497)
Interest paid on lease liabilities 10 (263,900) (122,085) (392,570)
Net cash from financing activities (742,718) 6,607,845 2,040,581
Net increase/(decrease) in cash and cash equivalents 85,869 (3,327,996) (8,766,041)
Cash and cash equivalents at beginning of year 4,756,143 13,522,184 13,522,184
Cash and cash equivalents at end of year 4,842,012 10,194,188 4,756,143
Consolidated statement of changes in equity
For the period ended 30 June 2022
Share Capital Share Premium Retained Earnings
£ £ £
Balance at 1 January 2021 171,184 37,565,129 9,070,906
Comprehensive profit for the period
Profit for the period - - 3,034,450
Total comprehensive profit for the period - - 3,034,450
Contributions by and distributions to owners
Dividends - - (2,541,412)
Issue of share capital 19,478 11,667,477 -
Grant of put option over shares of associate - - (500,000)
Total contributions by and distributions to owners 19,478 11,667,477 (3,041,412)
Balance at 30 June 2021 (unaudited and restated) 190,662 49,232,606 9,063,944
Total attributable to equity holders of parent Non-controlling interest Total equity
£ £ £
Balance at 1 January 2021 46,807,219 202,355 47,009,574
Comprehensive profit for the period
Profit for the period 3,034,450 18,772 3,053,222
Total comprehensive profit for the period 3,034,450 18,772 3,053,222
Contributions by and distributions to owners
Dividends (2,541,412) (200,000) (2,741,412)
Issue of share capital 11,686,955 - 11,686,955
Grant of put option over shares of associate (500,000) - (500,000)
Total contributions by and distributions to owners 8,645,543 (200,000) 8,445,543
Balance at 30 June 2021 (unaudited and restated) 58,487,212 21,127 58,508,339
Consolidated statement of changes in equity
For the period ended 30 June 2022 (continued)
Share Capital Share Premium Retained Earnings
£ £ £
Balance at 1 July 2021 190,662 49,232,606 9,063,944
Comprehensive profit for the period
Profit for the period - - 3,938,423
Total comprehensive profit for the period - - 3,938,423
Contributions by and distributions to owners
Dividends - - (1,889,002)
Total contributions by and distributions to owners - - (1,889,002)
Balance at 31 December 2021 (audited) 190,662 49,232,606 11,113,365
Total attributable to equity holders of parent Non-controlling Interest Total equity
£ £ £
Balance at 1 July 2021 58,487,212 21,127 58,508,339
Comprehensive profit for the period
Profit for the period 3,938,423 265,768 4,204,191
Total comprehensive profit for the period 3,938,423 265,768 4,204,191
Contributions by and distributions to owners
Dividends (1,889,002) - (1,889,002)
Total contributions by and distributions to owners (1,889,002) (1,889,002)
-
Balance at 31 December 2021 (audited) 60,536,633 286,895 60,823,528
Consolidated statement of changes in equity
For the period ended 30 June 2022 (continued)
Share Capital Share Premium Retained Earnings
£ £ £
Balance at 1 January 2022 190,662 49,232,606 11,113,365
Comprehensive profit for the period
Profit for the period - - 3,454,590
Total comprehensive profit for the period - - 3,454,590
Contributions by and distributions to owners
Dividends - - (2,832,898)
Release grant of put option over shares of associate - - 500,000
Total contributions by and distributions to owners - - (2,332,898)
Balance at 30 June 2022 190,662 49,232,606 12,235,057
Total attributable to equity holders of parent Non-controlling interest Total equity
£ £ £
Balance at 1 January 2022 60,536,633 286,895 60,823,528
Comprehensive profit for the period
Profit for the period 3,454,590 (17,420) 3,437,170
Total comprehensive profit for the period 3,454,590 (17,420) 3,437,170
Contributions by and distributions to owners
Dividends (2,832,898) - (2,832,898)
Release grant of put option over shares of associate 500,000 - 500,000
Total contributions by and distributions to owners (2,332,898) (2,332,898)
-
Balance at 30 June 2022 61,658,325 269,475 61,927,800
The attached notes form part of these financial statements.
Unaudited notes to the financial statements for the period ended 30 June 2022
1. Basis of preparation
RBG Holdings plc is a public limited company, incorporated in the United
Kingdom. The principal activity of the Group is the provision of legal and
professional services, including management and financing of litigation
projects.
Status of Interim Report
The Interim Report covers the six months ended 30 June 2022, with comparative
figures for the six months ended 30 June 2021 and the year ended 31 December
2021 and was approved by the Board of Directors on 12 September 2022. The
Interim Report is unaudited.
The interim condensed set of consolidated financial statements in the Interim
Report are not statutory accounts as defined by Section 434 of the Companies
Act 2006.
The statutory accounts for the year ended 31 December 2021 have been reported
on by the Group's auditors and delivered to the Registrar of Companies. The
audit report thereon was unqualified, did not include references to matters to
which the auditors drew attention by way of emphasis without qualifying the
report, and did not contain a statement under Section 498 of the Companies Act
2006.
The principal accounting policies adopted in the preparation of the unaudited
consolidated financial statements are set out in Note 2. The policies have
been consistently applied to the periods presented, unless otherwise stated.
The unaudited consolidated financial statements of the Group have been
prepared in accordance with IFRS as adopted by the UK and those parts of the
Companies Act 2006 applicable to companies reporting under IFRS. The
preparation of financial statements in compliance with IFRS requires the use
of certain critical accounting estimates. It also requires Group management to
exercise judgement in applying the Group's accounting policies. The areas
where significant judgements and estimates have been made in preparing the
financial statements and their effect are disclosed in Note 3.
Going concern
The Group financial statements are prepared on a going concern basis as the
Directors have a reasonable expectation that the Group has adequate resources
to continue in operational existence for at least twelve months from the date
of approval of the financial statements.
2. Significant accounting policies
Revenue
Revenue comprises the fair value of consideration receivable in respect of
services provided during the period, inclusive of recoverable expenses
incurred but excluding value added tax.
Legal and Other Professional services revenues
Where fees are contractually able to be rendered by reference to time charged
at agreed rates, the revenue is recognised over time, based on time worked
charged at agreed rates, to the extent that it is considered recoverable.
Where revenue is subject to contingent fee arrangements, including where
services are provided under Damages Based Agreements (DBAs), the Group
estimates the amount of variable consideration to which it will be entitled
and constrains the revenue recognised to the amount for which it is considered
highly probable that there will be no significant reversal. Due to the nature
of the work being performed, this typically means that contingent revenues are
not recognised until such time as the outcome of the matter being worked on is
certain.
Bills raised are payable on delivery and until paid form part of trade
receivables. The Group has taken advantage of the practical exemption in IFRS
15 not to account for significant financing components where the Group expects
the time difference between receiving consideration and the provision of the
service to a client will be one year or less. Where revenue has not been
billed at the balance sheet date, it is included as contract assets and forms
part of trade and other receivables.
Other professional services revenues
Other professional services revenue is contingent on the completion of a deal
and is recognised when the deal has completed. Bills raised are payable on
deal completion and are generally paid at that time.
Basis of consolidation
Where the company has control over an investee, it is classified as a
subsidiary. The company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
Non-Controlling interests
The total comprehensive income of non-wholly owned subsidiaries is attributed
to owners of the parent and to the non-controlling interests in proportion to
their relative ownership interests.
Where the Company has agreed a put option over the shares of a subsidiary held
by a non-controlling interest, the liability for the estimated exercise value
of the put option is recognised at fair value in the financial statements of
the Company and is recognised at present value in the financial statements of
the Group. Movements in the estimated liability after initial recognition are
recognised in the income statement.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
Group's interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired.
Cost comprises the fair value of assets given, liabilities assumed, and equity
instruments issued, plus the amount of any non-controlling interests in the
acquiree plus, if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree. Contingent
consideration is included in cost at its acquisition date fair value and in
the case of contingent consideration classified as a financial liability,
remeasured subsequently through profit or loss. Direct costs of acquisition
are recognised immediately as an expense.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated statement of comprehensive income.
Where the fair value of identifiable assets, liabilities and contingent
liabilities exceed the fair value of consideration paid; the excess is
credited in full to the consolidated statement of comprehensive income on the
acquisition date.
Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. The Group's
accounting policy for each category is as follows:
Fair value through profit or loss
Litigation assets relate to the provision of funding to litigation matters in
return for a participation share in the settlement of that case. Investments
are initially measured at the sum invested and are subsequently held at fair
value through the profit or loss.
When the Group disposes of a proportion of its participation share in the
settlement of the case to a third party under an uninsured ("naked") contract,
where the percentage of the litigation asset being disposed of and the
percentage return remain proportionate irrespective of the final outcome of
the litigation, the difference between the disposal proceeds and the cost of
investment disposed gives rise to a profit on disposal which is recognised
through the profit and loss when the sale is agreed. These sales are
non-recourse and, if the case is successful, the relevant % of the settlement
received is paid to the third party. For uninsured cases, the Group uses the
value of third-party disposals to calculate the gross value of the proportion
of the investment retained by the Group and deducts the expected cost of
investment to be borne by the Group to give the fair value of the Group's
investment. The proportion of each investment retained is calculated using the
expected total return on the investment, the expected return payable to the
onward investor and the expected total return retained by the Group.
For insured cases, when the Group disposes of a proportion of its
participation share in the settlement of the case to a third party, where the
third-party return is calculated as a fixed percentage daily rate irrespective
of the settlement value of a successful litigation outcome, the derecognition
requirements under IFRS 9 para 3.2.2 are not met and no sale or profit on
disposal arise. The Group retains the full litigation asset and the proceeds
of disposal under the third-party contract are included as litigation
liabilities. The fair value of the litigation asset is calculated using the
expected total return retained by the Group in the different possible outcomes
factored by Management's expectation of the likelihood of each outcome.
Amortised cost
These assets arise principally from the provision of goods and services to
customers (e.g., trade receivables), but also incorporate other types of
financial assets where the objective is to hold these assets in order to
collect contractual cash flows and the contractual cash flows are solely
payments of principal and interest. They are initially recognised at fair
value plus transaction costs that are directly attributable to their
acquisition or issue, and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.
Impairment provisions for current and non-current trade receivables are
recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses.
During this process the probability of the non-payment of the trade
receivables is assessed. This probability is then multiplied by the amount of
the expected loss arising from default to determine the lifetime expected
credit loss for the trade receivables. For trade receivables, which are
reported net, such provisions are recorded in a separate provision account
with the loss being recognised in profit or loss. On confirmation that the
trade receivable will not be collectable, the gross carrying value of the
asset is written off against the associated provision.
From time to time, the Group elects to renegotiate the terms of trade
receivables due from customers with which it has previously had a good trading
history. Such renegotiations will lead to changes in the timing of payments
rather than changes to the amounts owed and, in consequence, the new expected
cash flows are discounted at the original effective interest rate and any
resulting difference to the carrying value is recognised in the consolidated
statement of comprehensive income (operating profit).
Impairment provisions for receivables from related parties and loans to
related parties, including those from subsidiary companies, are recognised
based on a forward looking expected credit loss model. The methodology used to
determine the amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of the financial
asset. This annual assessment considers forward-looking information on the
general economic and specific market conditions together with a review of the
operating performance and cash flow generation of the entity relative to that
at initial recognition. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For those
that are determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
The Group's financial assets measured at amortised cost comprise trade and
other receivables and cash and cash equivalents in the consolidated statement
of financial position. Cash and cash equivalents includes cash in hand,
deposits held at call with banks, and other short term highly liquid
investments with original maturities of three months or less.
Financial liabilities
The Group classifies its financial liabilities depending on the purpose for
which the liability was acquired.
Other financial liabilities
All the Group's financial liabilities are classified as other financial
liabilities, which include the following items:
Bank borrowings are initially recognised at fair value net of any transaction
costs directly attributable to the issue of the instrument. Such
interest-bearing liabilities are subsequently measured at amortised cost using
the effective interest rate method, which ensures that any interest expense
over the period to repayment is at a constant rate on the balance of the
liability carried in the consolidated statement of financial position. For the
purposes of each financial liability, interest expense includes initial
transaction costs and any premium payable on redemption, as well as any
interest or coupon payable while the liability is outstanding.
Trade payables and other short-term monetary liabilities, which are initially
recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and
subsequently amortised over their useful economic lives.
Intangible assets are recognised on business combinations if they are
separable from the acquired entity or give rise to other contractual/legal
rights. The amounts ascribed to such intangibles are arrived at by using
appropriate valuation techniques.
The significant intangibles recognised by the Group, their useful economic
lives and the methods used for amortisation and to determine the cost of
intangibles acquired in a business combination are as follows:
Intangible asset Useful economic life Remaining useful economic life Amortisation method Valuation method
Brand 20 years 16-19 years Straight line Estimated discounted cash flow
Customer contracts 1-2 years 1-2 years In line with contract revenues Estimated discounted cash flow
Restrictive covenant extension 2 years 1-2 years Straight line Cost
Dividends
Dividends are recognised when they become legally payable. In the case of
interim dividends to equity shareholders, this is when declared by the
directors. In the case of final dividends, this is when approved by the
shareholders at the AGM.
3. Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on actual experience
and other factors, including expectations of future events that are believed
to be reasonable under the circumstances. In the future, actual experience may
differ from these estimates and assumptions. The estimates and assumptions
that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial period are
discussed below.
Judgements, estimates and assumptions
Estimated impairment of intangible assets including goodwill
Determining whether an intangible asset is impaired requires an estimation of
the value in use of the cash generating units to which the intangible has been
allocated. The value in use calculation requires the entity to estimate the
future cash flows expected to arise from each cash generating unit and
determine a suitable discount rate. A difference in the estimated future cash
flows or the use of a different discount rate may result in a different
estimated impairment of intangible assets.
Revenue recognition
Where the group performs work that is chargeable based on hours worked at
agreed rates, assessment must be made of the recoverability of the unbilled
time at the period end. This is on a matter by matter basis, with reference to
historic and post year-end recoveries. Different views on recoverability would
give rise to a different value being determined for revenue and a different
carrying value for unbilled revenue.
Where revenue is subject to contingent fee arrangements, the Group estimates
the amount of variable consideration to which it will be entitled and
constrains the revenue recognised to the amount for which it is considered
highly probable that there will be no significant reversal. Due to the nature
of the work being performed, this typically means that contingent revenues are
not recognised until such time as the outcome of the matter being worked on is
certain. Factors the Group considers when determining whether revenue should
be constrained are whether:-
a) The amount of consideration receivable is highly susceptible to factors
outside the Group's influence
b) The uncertainty is not expected to be resolved for a long time
c) The Group has limited previous experience (or limited other evidence)
with similar contracts
d) The range of possible consideration amounts is broad with a large
number of possible outcomes
Different views being determined for the amount of revenue to be constrained
in relation to each contingent fee arrangement may result in a different value
being determined for revenue and also a different carrying value being
determined for unbilled amounts for client work.
Where the group enters into Damages Based Agreements ("DBAs") that include
both the provision of services and the provision of litigation finance, the
Group must apportion the total expected settlement between that arising as
conditional revenue for services and that arising as a return on
participation. This requires estimation of the total amount of time cost and
disbursements that will be incurred on a matter and the expected settlement
value; the allocation of the DBA to revenue is made with reference to standard
returns on contingent fee work. Different views will impact the level of
unrecognised contingent revenue and also the recognised financial asset
relating to the DBA participation.
Where non-contingent fees as well as contingent revenue are earned on DBAs,
the group must make a judgement as to whether non-contingent amounts represent
revenue or a reduction in funding, with reference to the terms of the
agreement and timing and substance of time worked and payments made. Where
non-contingent revenue arises, the Group must match it against the services to
which it relates. This requires Management to estimate work done as a
proportion of total expected work to which the fee relates. Different views
could impact the level of non-contingent revenue recognised.
Impairment of trade receivables
Receivables are held at cost less provisions for impairment. Impairment
provisions are recognised based on the simplified approach within IFRS 9 using
a provision matrix in the determination of the lifetime expected credit
losses. A different assessment of the impairment provision with reference to
the probability of the non-payment of trade debtors or the expected loss
arising from default, may result in different values being determined.
Litigation assets and fair value
LionFish
For each of LionFish's uninsured ("naked") investments, a third party disposal
has been made. To calculate the profit on disposal, the Group allocates the
corresponding proportion of the total expected cost of the investment against
the proportion of the investment sold. The total expected cost of each
investment involves an assumption regarding the total expected drawdown on
that investment, which may be less than the total value of funds committed. To
calculate the proportion of each investment retained, the Group has estimated
the expected total return on the investment and the expected return payable to
the onward investor. As returns are dependent on the timing of the settlement,
these estimates are driven by assumptions over the most likely timing of
settlement. The sales prices of the part disposal are used to value the gross
value of the proportion of the litigation asset retained by the Group and the
estimated remaining capital to invest is deducted to give the fair value of
the Group's investment. The estimates used in these calculations are based on
semi-annual individual case by case reviews by Management.
The fair value of LionFish's insured investments is calculated using the
expected total return retained by the Group in the different possible outcomes
factored by Management's expectation of the likelihood of each outcome. As
returns are dependent on the timing of the settlement, these estimates are
driven by assumptions over the most likely timing of settlement. The total
expected cost of each investment involves an assumption regarding the total
expected drawdown on that investment, which may be less than the total value
of funds committed. The expected total returns retained by the Group in the
different possible outcomes are then factored by Management's expectation of
the likelihood of each outcome. The estimates used in these calculations, are
based on semi-annual individual case by case reviews by Management.
The recorded profits on disposal and carrying values are relatively
insensitive to assumptions made, with the exception that matters for which
capital invested is insured are sensitive to the estimated settlement date and
the success likelihood factor applied. In general, the later the anticipated
settlement date, the greater the carrying value of the investment. Management
has exercised caution in its assessment of settlement dates. Management have
used historic success rates on contingent contentious cases to factor the
returns for the different possible outcomes.
Rosenblatt
Unlike LionFish's investments, the total return on Rosenblatt's litigation
assets is a proportion of damages awarded, rather than being dependent on
timing of settlement. As this figure is potentially large and uncertain, and
has a strong impact on fair value calculations, where possible the Group
avoids using it as an input to its fair value calculations.
Where a recent disposal of an interest in a damage-based agreement has been
made, the sales price of the disposal has been used to value the gross value
of the interest in damages retained by the Group. The sales price is adjusted
downwards for the cost of the Group's ongoing funding of the matter, which is
not borne by the onward investor. This involves an estimate of the likely
amount and timing of disbursements over the course of the matter, the minimum
being funds already disbursed at the balance sheet date. As management
believes the sales price of disposals to represent the floor level, having
been used to create a market and de-risk the original investment, the minimum
level of disbursements has also been used in valuing the investment. If the
present value of the maximum level of disbursements were applied against the
value of damages based on disposal price, this would reduce the fair value of
the investment to zero. Conversely, if a discounted cash flow method of
valuation were used, including an estimate of the likely amount of damages on
settlement, the value of the investment would be significantly increased.
It is presumed that fair value and cost approximate to each other on initial
recognition and where a damage-based agreement is at an early stage, such that
the level of time worked is de minimis, the financial asset has been valued at
cost, subject to assessment for overstatement.
Where there has been minimal activity on a damage-based agreement from period
to period, the prior year valuation is taken as the initial indication of fair
value, subject to assessment for overstatement.
Put options over shares held by non-controlling interest
The following key estimates and judgements have been used in determining the
present value of put options over the shares held by the non-controlling
interest in LionFish: -
a) It has been assumed that the option holder will exercise at the
earliest possible opportunity, being 12 August 2022
b) The value at the date of exercise, which is calculated as a multiple of
average profit over the preceding two years has been based on the actual
profit after tax for the period ended 31 December 2020 and 31 December 2021
In determining the fair value of the put options, it has been assumed that
fair value of the put shares in LionFish is equal to the fair value of the
shares in the Company for which they would be exchanged, and that the fair
value of the option is zero.
Claims and regulatory matters
The Group from time to time receives claims in respect of professional service
matters. The Group defends such claims where appropriate but makes provision
for the possible amounts considered likely to be payable, having regard to any
relevant insurance cover held by the Group. A different assessment of the
likely outcome of each case or of the possible cost involved may result in a
different provision or cost.
The Company has been informed that HMRC has started an inquiry into the
valuation of employee related securities issued by the Company in April 2018
prior to the IPO.
4. Segment information
The Group's reportable segments are strategic business groups that offer
different products and services. Operating segments are reported in a manner
consistent with the internal reporting provided to the chief operating
decision maker, which has been identified as the Board of Directors of RBG
Holdings plc.
The following summary describes the operations of each reportable segment:
· Legal services - Provision of legal advice, by RBGLS (trading
under two brands, Rosenblatt and Memery Crystal)
· Litigation finance - Sale of litigation assets, by Rosenblatt and
LionFish
· Other Professional services - Provision of sell-side M&A
corporate finance services, by Convex
Unaudited 6 months ended 30 June 2022 Legal services Litigation finance Other Professional services Total
£ £ £ £
Segment revenue 20,692,323 - 4,198,510 24,890,833
Segment gains on litigation assets comprising:
Proceeds on disposal of litigation assets - 2,489,950 - 2,489,950
Realisation of litigation assets - (811,381) - (811,381)
Profit on disposal of litigation assets - 1,678,569 - 1,678,569
Fair value movement on litigation assets - - - -
- 1,678,569 - 1,678,569
Segment contribution 9,778,777 - 2,033,580 11,812,357
Segment gains on litigation assets - 1,678,569 - 1,678,569
Costs not allocated to segments
Personnel costs (2,818,933)
Depreciation and amortisation (1,810,406)
Other operating expense (3,880,568)
Net financial expenses (610,932)
Group profit for the period before tax 4,370,087
4. Segment information (continued)
Unaudited 6 months ended 30 June 2021 Legal services Litigation finance Other Professional services Total
£ £ £ £
Segment revenue 11,833,512 - 5,019,059 16,852,571
Segment gains on litigation assets comprising:
Proceeds on disposal of litigation assets - 2,386,000 - 2,386,000
Realisation of litigation assets - (1,116,059) - (1,116,059)
Profit on disposal of litigation assets - 1,269,941 - 1,269,941
Fair value movement on litigation assets - 224,484 - 224,484
- 1,494,425 - 1,494,425
Segment contribution 5,515,276 - 2,403,649 7,918,925
Segment gains on litigation assets - 1,494,425 - 1,494,425
Costs not allocated to segments
Personnel costs (1,701,228)
Depreciation and amortisation (975,334)
Other operating expense (2,559,037)
Net financial expenses (233,081)
Group profit for the period before tax 3,994,670
4. Segment information (continued)
Audited 12 months ended 31 December 2021 Legal services Litigation finance Other Professional services Total
£ £ £ £
Segment revenue 32,570,661 - 9,414,677 41,985,338
Segment gains on litigation assets comprising:
Proceeds on disposal of litigation assets - 4,888,711 - 4,888,711
Realisation of litigation assets - (2,162,031) - (2,162,031)
Profit on disposal of litigation assets - 2,726,680 - 2,726,680
Fair value movement on litigation assets - 2,480,844 - 2,480,844
- 5,207,524 - 5,207,524
Segment contribution 15,007,758 - 4,288,915 19,296,673
Segment gains on litigation assets - 5,207,524 - 5,207,524
Costs not allocated to segments
Personnel costs (4,668,749)
Depreciation and amortisation (2,940,078)
Other operating expense (6,911,796)
Net financial expenses (757,340)
Group profit for the period before tax 9,226,234
5. Employees
Unaudited Unaudited Audited
6 mos ended 6 mos ended Year ended
30 Jun 2022 30 Jun 2021 31 Dec 2021
Group £ £ £
Staff costs (including directors) consist of:
Wages and salaries 12,174,082 7,951,210 20,868,566
Short-term non-monetary benefits 138,244 63,203 214,208
Cost of defined contribution scheme 365,071 185,761 673,817
Share-based payment expense - - 72,000
Social security costs 1,537,870 999,835 2,526,064
14,215,267 9,200,009 24,354,655
Personnel costs stated in the consolidated statement of comprehensive income
includes the costs of contractors of £1,678,446 (HY2021: £1,428,758, FY2021:
£2,999,122).
The average number of employees (including directors) during the period was as
follows:
Unaudited Unaudited Audited
6 mos ended 6 mos ended Year ended
30 June 2022 30 Jun 2021 31 Dec 2021
Number Number Number
Legal and professional staff 142 75 113
Administrative staff 74 46 62
216 121 175
Defined contribution pension schemes are operated on behalf of the employees
of the Group. The assets of the schemes are held separately from those of the
Group in independently administered funds. The pension charge represents
contributions payable by the Group to the funds and amounted to £365,071
(HY2021: £185,761, FY2021: £673,817). Contributions amounting to £136,336
(HY2021: £106,619, FY2021: £127,296) were payable to the funds at period end
and are included in trade and other payables.
6. Discontinued operations
In June 2022, the Group sold its 40% interest in Adnitor Limited which is the
only operation presented as a discontinued operation in 2022.
The post-tax loss on disposal of discontinued operations was determined as
follows:
Unaudited 6 mos ended 30 June 2022
£
Cash consideration received 80,000
Total consideration received 80,000
Net assets disposed (other than cash):
Investment in associate 101,643
Loss on disposal of discontinued operation, net of tax (21,643)
On 1 February 2021, the Company agreed a call option over the shares of
Adnitor Limited held by the majority shareholder. Under this agreement, the
Company was required to purchase the remaining shares in Adnitor Limited by
the fifth anniversary of the agreement, with consideration based on a multiple
of Adnitor's profits, settled by the issue of ordinary shares in the Company.
On the disposal of the Group's interest in Adnitor Limited this agreement was
terminated and the present value of the option released through the Statement
of Changes in Equity (2021: £500,000).
7. Earnings per share
Unaudited Unaudited Audited
6 mos ended 6 mos ended Year ended
30 June 2022 30 June 2021 31 Dec 2021
Numerator £ £ £
Profit for the period and earnings used in basic and diluted EPS 3,454,590 3,034,450 6,972,873
Non-Underlying items
Costs of acquiring subsidiary - 524,905 863,435
Less: tax effect of above items - - (69,242)
Profit for the period adjusted for non-underlying items 3,454,590 3,559,355 7,767,066
Denominator Number Number Number
Weighted average number of shares used in basic and diluted EPS 95,331,236 87,421,556 91,408,901
Earnings per share is calculated as follows:
Unaudited Unaudited Audited
6 mos ended 6 mos ended 2021
30 June 2022 30 June 2021
Pence Pence Pence
Basic and diluted earnings per ordinary share 3.62 3.47 7.63
Basic and diluted earnings per ordinary share adjusted for non-underlying 3.62 4.07 8.50
items
Clawback arrangements over certain shares of Cascades Ltd would have an
anti-dilutive effect on earnings per share and therefore no impact on diluted
earnings per share.
8. Dividends
On 22 February 2022, an interim dividend of 3 pence per share was paid in
respect of the 2021 financial year.
9. Property, plant and equipment
Group Leasehold improvements Fixtures and fittings Computer equipment Total
£ £ £ £
Cost
At 1 January 2022 2,710,279 251,294 791,516 3,753,089
Additions 7,471 85,160 56,207 148,838
At 30 June 2022 2,717,750 336,454 847,723 3,901,927
Accumulated Depreciation and Impairment
At 1 January 2022 487,148 116,989 559,562 1,163,699
Charge for the period 143,113 47,441 96,297 286,851
At 30 June 2022 630,261 164,430 655,859 1,450,550
Net book value
At 1 January 2022 2,223,131 134,305 231,954 2,589,390
At 30 June 2022 2,087,489 172,024 191,864 2,451,377
Under debentures signed and registered on 19 April 2021, HSBC UK Bank plc have
fixed and floating charges over the property, plant and equipment of the
Group.
10. Leases
The Group leases its business premises in the United Kingdom. The lease
contracts either provide for annual increases in the periodic rent payments
linked to inflation or for payments to be reset periodically to market rental
rates.
Right-of-Use Assets
Land and buildings Total
£ £
At 1 January 2022 15,913,008 15,913,008
Amortisation (1,104,851) (1,104,851)
Variable lease payment adjustment 561,275 561,275
At 30 June 2022 15,369,432 15,369,432
Lease liabilities
Land and buildings Total
£ £
At 1 January 2022 15,849,101 15,849,101
Interest expense 263,900 263,900
Variable lease payment adjustment 561,275 561,275
Lease payments (606,694) (606,694)
At 30 June 2022 16,067,582 16,067,582
At 30 June 2022, lease liabilities were falling due as follows:
Group Up to 3 months Between 3 and 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total
£ £ £ £ £ £
Lease liabilities 340,385 1,551,505 4,411,902 7,546,964 2,216,826 16,067,582
11. Intangible assets
Group Goodwill Customer Contracts Brand Other Total
£ £ £ £ £
Cost
At 1 January 2022 51,862,168 1,706,578 3,360,474 1,000,000 57,929,220
At 30 June 2022 51,862,168 1,706,578 3,360,474 1,000,000 57,929,220
Accumulated amortisation and impairment
At 1 January 2022 - 1,466,599 270,058 333,333 2,069,990
Amortisation charge - 84,696 84,008 250,000 418,704
At 30 June 2022 - 1,551,295 354,066 583,333 2,488,694
Net book value
At 1 January 2022 51,862,168 239,979 3,090,416 666,667 55,859,230
At 30 June 2022 51,862,168 155,283 3,006,408 416,667 55,440,526
Under debentures signed and registered on 19 April 2021, HSBC UK Bank plc have
fixed and floating charges over the intangible assets of the Group.
12. Litigation assets
The table below provides analysis of the movements in the Level 3 financial
assets.
Unaudited 30 June 2022 Unaudited 30 June 2021 Audited 31 December 2021
Level 3 Level 3 Level 3
restated
£ £ £
At 1 January 11,571,052 6,569,110 6,569,110
Additions 4,936,934 2,304,464 4,683,128
Realisations (811,381) (1,116,059) (2,162,031)
Fair value movement - 224,484 2,480,845
At 30 June / 31 December 15,696,605 7,981,999 11,571,052
Sensitivity of Level 3 valuations
Following investment, the Group engages in a semi-annual review of each
investment's fair value. At 30 June 2022, should the value of investments have
been 10% higher or lower than provided for in the Group's fair value
estimation, while all other variables remained constant, the Group's income
and net assets would have increased and decreased respectively by £1,569,661
(HY2021 restated: £798,200, FY2021: £1,157,105).
13. Loans and borrowings
The book value and fair value of loans and borrowings which all denominated in
sterling are as follows:
Unaudited Unaudited Unaudited Unaudited Audited Audited
Book value Fair value Book value Fair value Book value Fair value
30 Jun 22 30 Jun 2022 30 Jun 2021 30 Jun 2021 31 Dec 2021 31 Dec 2021
£ £ £ £ £ £
Non-current
Bank loans
Secured 20,000,000 20,000,000 18,000,000 18,000,000 17,000,000 17,000,000
Current
Bank loans
Secured 2,182,163 2,182,163 2,000,000 2,000,000 2,129,592 2,129,592
At 30 June/31 December 22,182,163 22,182,163 20,000,000 20,000,000 19,129,592 19,129,592
The rate at which Sterling denominated loans and borrowings are payable is
2.65% above SONIA (2021: 2.40% above SONIA).
The bank loans are secured by fixed and floating charges over the assets of
the Group. The Group has £1 million undrawn committed borrowing facilities
available at 30 June 2022 (HY2021: £5 million, FY2021: £5 million).
1 (#_ftnref1) Figures for 2021 include one month of contribution from Memery
Crystal following the completion of the acquisition at the end of May 2021.
2 (#_ftnref2) Revenue per fee earner data taken from The Lawyer UK 200: Top
100 latest data. UK firms are ranked 1-100 by firm-wide revenue (year end
2020/21)
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