REG - Rosenblatt Group PLC - Preliminary Results & Dividend Declaration
30 April 2019
Rosenblatt Group Plc
("Rosenblatt" or the "Group" or the "Company")
Preliminary Results & Dividend Declaration
Results for the period ended 31 December 2018
Rosenblatt Group plc (AIM:RBGP), the professional legal services company, is pleased to announce its audited preliminary results for the period ended 31 December 2018.
Financial Highlights:
· Revenue of £12.5 million, up 19% (2017: £10.5 million*)
· Adjusted EBITDA of £4.3million, up 18% (2017: £3.6 million*),
· Profit before tax of £3.0 million (2017: £3.2million*)
· Profit after tax of £2.3 million, representing 18.4% of revenue
· Strong balance sheet with net assets of £35 million and no debt
· Cash and cash equivalents of £13.4 million
· First interim dividend for the eight months to 31 December 2018 of 2.8 pence per share will be paid to shareholders on the register as at 10 May 2019
* To provide a relative comparison on trading, reference is made to 8/12 of the income statement (i.e. 8 months of trading) from the prior year of Rosenblatt Solicitors as stated in the Historic Financial Information (HFI) , the business and certain of the assets of which were acquired by the Company on 8 May 2018 by the Company, that was incorporated on the 6 February 2018.
Operational Highlights:
· Group was successfully admitted to AIM on 8 May 2018
· The adjusted EBITDA margin of the business was 34%, driven in part by the strong performance in the Company's Litigation practice
· Annualised revenue per fee-earner[1] was £400,000
· In November 2018, established a separate arm to finance clients' external litigation costs. Currently have five cases under consideration for funding
Nicola Foulston, CEO, Rosenblatt Group plc, commented: "This has been an excellent start for Rosenblatt as a public company with annualised revenue and profit growing, as well as a strong balance sheet and no debt. As a business, we also focus on margin and productivity, which we believe differentiates us from our peers. We have delivered an adjusted EBITDA margin of 34% on the work we undertake, and our annualised revenue per fee earner is £400,000. We believe these metrics to be leading among our peers in the sector.
"At the time of flotation, we identified litigation funding as an area where we see considerable opportunity for growth and have established a separate arm to finance our clients' external litigation costs. Rosenblatt is the first law firm of its kind to offer such finance to its clients as well as to other law firms and we believe offers increased opportunities to monetise cases.
"In the year ahead, we expect to see continued strong organic growth driven by our dispute resolution practice. This growth will be despite the challenging economic environment caused by Brexit uncertainty, which has seen the pipeline of routine corporate and commercial transactions reduced. In addition to organic growth, we continue to see many M&A opportunities in the sector. We are committed to pursuing the right opportunities, which meet our investment criteria and provide shareholders with an appropriate return on investment."
Enquiries:
Rosenblatt Group plc
Nicola Foulston, CEO
Via Newgate Communications
Cenkos Securities plc (Nominated Adviser and Broker)
Tel: 020 7397 8900
Stephen Keys/Nick Wells
Newgate Communications (for media enquiries)
Robin Tozer
Tel: 020 3757 6880; rosenblatt@newgatecomms.com
Fiona Norman
About Rosenblatt Group plc
Rosenblatt Group plc is a professional legal services company, which includes one of the UK's leading dispute resolution practices. It provides a range of legal services to its diversified client base, which includes companies, banks, entrepreneurs and individuals. Complementing this is the Group's increasingly international footprint, advising on complex cross-jurisdictional cases in China, Israel, America and India. Rosenblatt's practice areas cover dispute resolution, corporate, banking and finance, insolvency and financial restructuring, construction and projects, employment, financial services, IP/technology/media, real estate, regulatory and tax.
Chief Executive's Statement
Overview
Our first annual results since we were admitted to AIM in May 2018 show that we have continued to grow since the implementation of our new structure. We have now completed the integration of the trade and specific assets of Rosenblatt Solicitors into the Group.
Our financial performance has been strong. Revenue is up 19% to £12.5 million, when compared with 8/12ths of the revenue of Rosenblatt Solicitors as stated in the Historic Financial Information (HFI) for the year ended 31 December 2017. This has been driven by strong organic growth in the practice areas focused on Contentious law, Dispute Resolution and Employment. This growth has positively benefited the bottom line with underlying EBITDA up 18% to £4.3 million and profit before tax of £3.0 million.
The Group has a strong balance sheet, with net assets of £35 million, and cash and cash equivalents of £13.4 million. This position and our lack of debt will support our growth plans. The combination of our healthy balance sheet and confidence in our outlook meant we had the confidence to announce our first interim dividend for the period to 31 December 2018 of 2.8 pence per share. This sum, which is ahead of expectations set at the time of our IPO, will be paid to shareholders on the register as at 10 May 2019.
Aside from the top-line financial metrics, there are specific measures that we focus on as a management team, which we believe differentiates the Group from its peers, specifically the margin we generate on the business we undertake and productivity, as measured by revenue per fee earner. Close monitoring of these KPIs deliver the successful performance of the Group.
The adjusted EBITDA margin of the business was 34%. This high margin was driven in part by the strong performance in our Dispute Resolution practice. This margin is consistent with the levels the Group aims to deliver, and we believe the highest of our peer group. We believe that our new litigation finance arm, established during the financial year, will help us maintain our high margins. By providing clients with the option to fund their cases through Rosenblatt partly, we can increase the number of cases we handle. Importantly, we can retain more of the margin, which would otherwise be paid to an external funder. Litigation funding is an area where we see considerable opportunity for growth, as outlined in more detail below.
In terms of productivity, we use revenue per fee earner as well as utilisation and recovery metrics. We currently have 22 partners and 47 fee-earners in total, which remained consistent during the period. Our annualised revenue per fee-earner was £400,000, a statistic of which we are proud. We will only add more fee earners, either organically or through acquisition, if we are confident we can maintain or increase our revenue per fee-earner per annum. This approach will ensure that our growth continues to be extremely profitable.
Utilisation has been strong since the IPO and we closed the period at 80%, with recoveries of 85%.
Divisional performance
Our primary practice areas, focused on contentious law, namely Dispute Resolution and Employment have performed well. In total, these generated revenue of £9.5 million with strong gross margins. Dispute Resolution remains the most significant contributor to the total revenue produced by the Group, representing 73%. The practice specialises in areas such as fraud, banking, professional negligence, contractual disputes, insolvency and defamation. Dispute Resolution is an area where we expect to see growth. Companies and individuals are increasingly using the Courts to resolve problems. This trend has been driven by the continued fall-out from the financial crisis as well as increased access to litigation funding and has remained robust through times of uncertainty in the UK economy.
Our second largest practice is our Corporate division which specialises in areas such as M&A, IPOs, and private equity transactions, and accounts for 15% of our total revenue. In line with our expectations, the division has not performed as strongly as last year. Like other sub-sectors of the legal market, it has been impacted by the cautious business environment in part caused by Brexit uncertainty. However, there is a good pipeline of new business and we are confident that, as the market environment improves, the division will contribute more.
Litigation Funding
In November 2018, we established a separate arm to finance our clients' external litigation cost, ahead of the timetable set out at Admission. £2.0 million of the proceeds of the float were initially allocated to this finance arm, and this will enable the Group to take on more cases where there is a third-party cost element. It means we can retain more of the funding margin that would otherwise be paid to an external funder.
Rosenblatt is the first law firm of its kind to offer such finance to its clients as well as to other law firms. This offers increased opportunities to monetise those matters we attract as well as structural challenges. As with any business challenge there exist opportunities. We believe these will come to be recognised in years to come from the correct structuring of this finance arm which remains, therefore, a work in progress.
We currently have five cases under consideration for funding and we believe there is a major market opportunity to expand this. We have initiated a new litigation funding product aimed at cases with a claim value in excess of £15 million, which are often uneconomic for the larger litigation funders but where there remains a substantial demand for financing. Our well-capitalised balance sheet means our cost of funding is low. The Group's in-house litigation expertise means we can make decisions more quickly, which also limits costs and helps deadlines to be met. This, combined with our consistently high success rate, means we expect to make a substantial return from even smaller cases. Once cases are secured, we will reduce our own risk, by selling portions of the case to other investors. We have established a network of family offices and small hedge funds that are attracted by the high potential returns, and Rosenblatt will also receive a success fee on such transactions.
To attract new cases, we will be targeting, and partnering with other law firms and litigation brokers, as well as undertaking direct marketing. These firms and brokers either lack the expertise to progress a case, or the capital to support the case. We will also target corporate entities that increasingly want to de-risk their balance sheets by removing litigation cost risk, but also increasingly see litigation as an asset class to be sold. As evidenced by the success of litigation funders, there is a lot of money chasing, what is an effect, a new asset class. We believe that a barrier to entry to this asset class is the speed of decision making by risk and investment committees, and the cost of such funding for both the client and law firm. Our USP in the market is therefore that we are faster, more flexible and cheaper.
Remuneration
As a people business, our approach to remuneration is critical in delivering our objective of creating a long-term profitable business. Our policy is to closely align remuneration with the interests of shareholders.
One of the significant changes since the float, and which again we believe is another differentiator from other firms, is the close link between remuneration and the profitable performance of the business. Our fee earners are now heavily incentivised through equity participation. Unlike in traditional law firms, fee earners are rewarded through a combination of basic salary, with dividends on their shareholdings acting as a bonus. In traditional law firms, bonuses are often awarded on how much a fee-earner bills. In our view, this creates too much focus on top line revenue growth, rather than a more commercially-minded focus on ensuring that the work we take on is profitable.
We believe, and our experience since the flotation supports this, that equity participation creates a culture of collaborative working and a commitment to controlling costs. Rather than relying on a sizeable and costly base of junior lawyers to do the work, our approach is to contract specialists to assist partners and fee earners working on cases as needed.
Our approach to remuneration also means that senior partners can retire with dividends providing a future income. Junior team members can rise up through the business and realise their ambitions. Increasingly, new entrants to the legal profession want much more flexibility in how they work and are rewarded. They are increasingly rejecting the traditional partner track, which sees very few reach the top of the profession. We believe our culture of flexible working, and performance-based reward will ensure we can continue to attract and retain talent.
M&A
We continue to assess potential acquisition opportunities that meet our strategic and valuation criteria. However, the Board has remained disciplined and will only pursue transactions that can demonstrate clear benefits for shareholders. The number of acquisition or lateral hire opportunities that meet our criteria has been limited, reflecting the cautious business environment. In what is a fast-changing market, we are well placed to move quickly and capitalise on opportunities as they arise.
Dividend
Over time, the Board will pursue a progressive dividend policy. On 29 April 2019, Rosenblatt Ltd declared a dividend, resulting in a distribution to Rosenblatt Group plc of £3,600,000. The directors will file relevant accounts as at that date with Companies' House, to support payment by Rosenblatt Group plc of a dividend of 2.8 pence per share on 24 May 2019. The first interim dividend since admission for the period to 31 December 2018 is ahead of expectations set at the time of the IPO and will be paid to shareholders on the register as at 10 May 2019. The Board expects to pay out at least 60 per cent of retained earnings in any financial year by way of dividend.
The Group is excited by the opportunities it has identified in Litigation Finance, which is discussed in more detail below. In line with these opportunities, the Board expects to pay special dividends in addition to the interim and final dividends, which will be announced at the time of the Group's half year and final results. The payments of these special dividends are expected to match the timing of cash receipts from Litigation Finance, rather than being on specific quarterly dates.
Board and Governance
Following our admission, we have strengthened the Board, adding additional commercial and public company experience.
Stephen Davidson became Chairman in July 2018, replacing Brook Land. Since then, we have appointed two experienced non-Executive Directors. Victoria Hull joined in September 2018, and Marianne Ismail in January 2019. Victoria has had an extensive legal career and is a former Executive Director and General Counsel of Invensys plc and Telewest Communications plc. Marianne was formerly Group CEO of Kingswood Holdings Limited, an AIM-listed integrated wealth management group. Marianne has worked in financial services for over 30 years in a variety of senior roles with extensive experience in managing all aspects of financial services in the UK, North America, Asia, Middle East and Latin America.
Finally, Robert Parker was appointed Chief Financial Officer in January 2019, after a successful spell in an interim role, following the departure of Patrick Firebrace in July 2018. Robert has over 20 years' experience with international businesses and has worked extensively with public funds, private equity and venture capital investors. Before joining Rosenblatt, his roles included interim CFO at Jungheinrich UK Limited and CLA Limited, as well as permanent positions at Ubisense PLC and Immedia Broadcasting plc.
Outlook
In the year ahead, we expect to see continued strong organic growth, driven by our Dispute
Resolution practice. This growth will be despite the challenging economic environment caused by Brexit uncertainty, which has seen the pipeline of routine corporate and commercial transactions reduced. We will benefit as and when the situation improves.
We are confident that revenue growth will translate to our bottom line. This conversion will come through our focus on high revenue per fee earner, operating margins, and cash generation.
To this end, the focus of the business remains on attracting complex litigation matters and litigation finance opportunities. We are actively targeting overseas markets, where access to litigation finance is harder for the client to obtain and is, therefore, less competitive and the margins are as high as we have experienced in the UK.
In addition to organic growth in contentious practice areas, we continue to see many M&A opportunities in the sector. We are committed to pursuing the right opportunities but only those that meet our investment criteria and provide shareholders with an appropriate return on investment.
We look forward to the coming year with confidence.
Nicola Foulston
Chief Executive Officer
Chief Financial Officer's Review
Income statement
I am pleased to report revenue for the eight months to 31 December 2018 of £12.5 million; an increase of 19% compared with 8/12ths of the revenue of Rosenblatt Solicitors as stated in the Historic Financial Information (HFI) for the year ended 31 December 2017. Revenue growth has been driven purely by organic growth, through increased productivity of our lawyers, supported by a small number of contracted staff in the last quarter. Our number of partners has remained constant at 22, with 47 fee earners and an annualised revenue per lawyer of £400k per annum.
Our strong performance was underpinned by the exceptional performance of our Dispute Resolution business, which generated 73% of our revenues, against 58% in the previous results of Rosenblatt Solicitors.
Gross profit
The gross profit margin of the business for the period was 63.8%, driven by the strong performance in Dispute Resolution.
Overhead costs
In the 8 months to 31 December 2018, the business incurred total overheads of £8.2 million (before non-underlying items and depreciation and amortisation), including a step up in the overhead base of £0.28 million, relating to professional fees associated with the change from a Private to a Public Company.
EBITDA
In assessing performance, the business uses EBITDA (before non-underlying items) as a KPI, as this excludes items which are non-recurring in nature. EBITDA (before non-underlying items) for the eight months was £4.3 million (34% of revenue) maintaining the 2017 EBITDA of Rosenblatt Solicitors in the Historic Financial Information, in spite of additional PLC running costs.
The EBITDA for 2018 was £3.3 million, including £1 million of IPO costs.
Flotation
Costs
On 8 May 2018, the Group was successfully admitted to AIM. The total cost directly attributable to the transaction was £3.4 million of which £2.4 million has been allocated to share premium with the balance being charged as a cost in the period.
Concert Party
Separately, the Company provides an update on certain shareholders who have previously been presumed to be acting in concert under the UK Takeover Code (the "Concert Party") following the Company's admission to trading on AIM. Full details of the Concert Party were set out in the Company's admission document dated 2 May 2018.
The Company announces that it has agreed with the Takeover Panel Executive that the: Salaried Partners, Other Fee Earners, Administrative Staff and the Employee Benefit Trust ("EBT"), who together hold 5,086,596 Ordinary Shares, representing approximately 6.4 per cent. of issued share capital, shall no longer be considered to be members of the Concert Party.
Accordingly, the Concert Party now consists of: Ian Rosenblatt, Cascades*, Tania MacLeod, Velocity Venture Capital Limited* and VV Capital LLP* who together hold 29,731,478 Ordinary Shares, representing approximately 37.1 per cent. of the Company's issued share capital.
Under Rule 9 of the Takeover Code, when:
(a) any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30% or more of the voting rights of a company; or
(b) any person, together with persons acting in concert with him, is interested in shares which in the aggregate carry not less than 30% of the voting rights of a company but does not hold shares carrying more than 50% of such voting rights, and such person, or any person acting in concert with him, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested.
That person is normally required to make a general offer in cash to all shareholders in the company at the highest price paid by him or any person acting in concert with him for an interest in such shares within the preceding 12 months.
Accordingly, given that the Concert Party hold shares representing approximately 37.1 per cent. of the Company's issued share capital, no member of the Concert Party (as reformulated and set out above), may acquire any further shares in the Company without triggering an obligation to make an offer under rule 9 of the Takeover Code.
Defined terms in this announcement shall have the same meaning as in the Company's admission document dated 2 May 2018 unless otherwise defined herein.
*These shares are held by Cascades Limited, Velocity Venture Capital LLP and VV Capital Ltd. Cascades Limited is ultimately owned by the trustee of 'The Foulston Family Trust' a trust of which Nicola Foulston is a beneficiary. Velocity Venture Capital Ltd is a company incorporated in England & Wales whose shares are all owned by Nicola Foulston. VV Capital LLP is a limited liability partnership incorporated in England and Wales and in respect of which Nicola Foulston owns 75 per cent of the membership interests and voting rights, the other 25 per cent is owned by Velocity Venture Capital Limited.
Taxation
The high effective tax rate of 24% results from expenses connected with the admission to AIM which are not deductible for tax purposes.
Earnings per share
The basic earnings per share, adjusted for non-underlying items, based on earnings after adding back floatation costs in 2018 and the weighted average number of shares of 60.3 million shares, was 5.41 pence. Whilst basic earnings per share, being net profit for the year divided by the number of shares used above, was 3.83 pence.
Cash
The Group's business model is focused on profitable services, the average earnings per lawyer of £400,000, which is well above the industry average and a strong commercial focus on the lock up, in particular the collection of debts. As such, the business generated underlying operating cash flows of £0.7 million after one-off IPO costs. Investing activities included £20 million for the specific assets and liabilities of the Rosenblatt Partnership and capital expenditure of £0.08 million. The successful AIM listing raised net proceeds of £32.7 million, which as indicated at the time of the Admission, was used to acquire the partnership, and set aside £5 million for future acquisitions and £5 million to fund contingent cases.
Net assets
The net assets of the Group are £35 million. This has been predominantly caused by the funds raised on listing. The Group has a cash balance of £13.3 million at the end of the year and is carrying no debt.
Robert Parker
Chief Financial Officer
Consolidated statement of comprehensive income for the period ended 31 December 2018
Note
6 February to
31 December 2018
£
Revenue
5
12,530,748
Personnel Costs
7
(6,112,040)
Depreciation and amortisation expense
(296,178)
Other expenses
(3,103,500)
_______
Profit from operations
6
3,019,030
Adjusted EBITDA
4,314,341
Depreciation and amortisation expense
6
(296,178)
Non-underlying items
Admission costs
(999,133)
Finance income
8
16,826
_______
Profit before tax
3,035,856
Tax expense
9
(727,491)
_______
Profit attributable to the ordinary equity holders of the parent
2,308,365
_______
Earnings per share attributable to the ordinary equity holders of the parent
10
Profit
Basic (pence)
3.83
Diluted (pence)
3.83
_______
The results for the period presented above are derived from continuing operations.
There were no elements of other comprehensive income for the financial period other than those included in the income statement.
Consolidated statement of financial position as at 31 December 2018
Company registered number: 11189598
Note
2018
£
Assets
Current assets
Trade and other receivables
16
6,175,450
Cash and cash equivalents
13,350,467
_______
19,525,917
Non-current assets
Property, plant and equipment
12
304,556
Intangible assets
13
17,985,221
_______
18,289,777
_______
Total assets
37,815,694
_______
Liabilities
Current liabilities
Trade and other payables
17
1,898,163
Current tax liabilities
17
753,527
Provisions
18
35,264
_______
2,686,954
Non-current liabilities
Deferred tax liability
19
144,062
_______
144,062
______
Total liabilities
2,831,016
_______
NET ASSETS
34,984,678
_______
Issued capital and reserves attributable to
owners of the parent
Share capital
20
160,184
Share premium reserve
32,516,129
Retained earnings
2,308,365
_______
TOTAL EQUITY
34,984,678
_______
Consolidated statement of cash flows for the period ended 31 December 2018
Note
2018
£
Cash flows from operating activities
Profit for the period before tax
3,035,856
Adjustments for:
Depreciation of property, plant and equipment
12
71,067
Amortisation of intangible fixed assets
13
225,111
Finance income
8
(16,826)
_______
3,315,208
Increase in trade and other receivables
(4,174,553)
Increase in trade and other payables
1,557,232
Increase in provisions
35,264
_______
Cash generated from operations
733,151
Tax paid
-
_______
Net cash flows from operating activities
733,151
_______
Investing activities
Purchases of property, plant and equipment
12
(75,823)
Purchase of business
23
(20,000,000)
Interest received
16,826
_______
Net cash used in investing activities
(20,058,997)
_______
Financing activities
20
Issue of ordinary shares
32,676,313
_______
Net cash from financing activities
32,676,313
_______
Net increase in cash and cash equivalents
13,350,467
Cash and cash equivalents at beginning of period
-
_______
Cash and cash equivalents at end of period
13,350,467
_______
Consolidated statement of changes in equity for the period ended 31 December 2018
Share capital
Share
Premium
Retained Earnings
Total attributable to equity holders of parent
£
£
£
£
Balance at 6 February 2018
-
-
-
-
Comprehensive loss for the period
Profit for the period
-
-
2,308,365
2,308,365
______
______
______
______
Total comprehensive Income for the period
-
-
2,308,365
2,308,365
______
______
______
______
Contributions by and distributions to owners
Issue of share capital
160,184
34,926,316
-
35,086,500
Share issue costs
-
(2,410,187)
-
(2,410,187)
______
______
______
______
Total contributions by and distributions to owners
160,184
32,516,129
-
32,676,313
______
______
______
______
Balance at 31 December 2018
160,184
32,516,129
2,308,365
34,984,678
______
______
______
______
Company statement of financial position as at 31 December 2018
Company registered number: 11189598
Note
2018
£
Assets
Current assets
Trade and other receivables
16
22,463,757
Cash and cash equivalents
9,078,495
_______
31,542,252
Non-current assets
Property, plant and equipment
12
14,014
Investments
15
100
_______
14,114
_______
Total assets
31,556,366
_______
Liabilities
Current liabilities
Trade and other payables
17
176,166
Current tax liabilities
17
-
Provisions
18
-
_______
176,166
Non-current liabilities
-
_______
Total liabilities
176,166
_______
NET ASSETS
31,380,200
_______
Issued capital and reserves attributable to
owners of the parent
Share capital
20
160,184
Share premium reserve
32,516,129
Retained earnings
(1,296,113)
_______
TOTAL EQUITY
31,380,200
_______
The Company has taken advantage of the exemption contained in S408 Companies Act 2006 and has not presented a separate income statement for the Company. The Company recorded a loss of £1,296,113 for the period ended 31 December 2018.
Company statement of changes in equity for the period ended 31 December 2018
Share Capital
Share premium
Retained Earnings
Total equity
£
£
£
£
Balance at 6 February 2018
-
-
-
-
Comprehensive loss for the period
Loss for the period
-
-
(1,296,113)
(1,296,113)
______
______
______
______
Total comprehensive loss for the period
-
-
(1,296,113)
(1,296,113)
______
______
______
______
Contributions by and distributions to owners
Issue of share capital
160,184
34,926,316
-
35,086,500
Share issue costs
-
(2,410,187)
-
(2,410,187)
______
______
______
______
Total contributions by and distributions to owners
160,184
32,516,129
-
32,676,313
______
______
______
______
Balance at 31 December 2018
160,184
32,516,129
(1,296,113)
31,380,200
______
______
______
______
Notes (forming part of the consolidated financial statements)
1. Basis of preparation
Rosenblatt Group plc is a public limited company incorporated on 6 February 2018 and domiciled in the United Kingdom.
The financial information set out in this release does not constitute the Company's full statutory accounts for the period ended 31 December 2018 for the purposes of section 434(3) of the Companies Act 2006, but it is derived from those accounts that have been audited. Statutory accounts for 2018 will be delivered after the forthcoming AGM. The auditors have reported on the accounts for the year ended 31 December 2018; their report was unqualified, and did not contain statements under s498(2) or (3) Companies Act 2006.
While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed for the use in the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements for the period ended 31 December 2018 that comply with IFRS on 30 April 2019.
The accounting policies set out below are in accordance with IFRS, as adopted by the European Union, and International Financial Reporting Interpretations Committee ('IFRIC') interpretations that were applicable for the period ended 31 December 2018.
The consolidated financial statements are presented in Sterling, which is also the Group's functional currency.
The principal accounting policies adopted in the preparation of the consolidated financial statements are set out in note 2. The policies have been consistently applied to the period presented, unless otherwise stated.
The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 3.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for the following items (refer to individual accounting policies for details):
- Financial instruments - fair value through profit or loss
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 the foreseeable future. On 8 May 2018 the Group was admitted to AIM and acquired, through its subsidiary Rosenblatt Limited, the trade and certain assets of Rosenblatt Solicitors. Rosenblatt Limited, and the Group, are cash generative on an underlying basis, with a strong trading performance since the acquisition.
Changes in accounting policies
a) New standards, interpretations and amendments effective from 1 January 2018
The Group has adopted all of the new and revised standards and interpretations issued by the IASB that are relevant to its operations and are currently effective.
b) New standards, interpretations and amendments not yet effective
There are a number of standards and interpretations which have been issued by the International Accounting Standards Board that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these is:
· IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019).
IFRS 16 Leases
Adoption of IFRS 16 will result in the group recognising right of use assets and lease liabilities for all contracts that are, or contain, a lease. For leases currently classified as operating leases, under current accounting requirements the group does not recognise related assets or liabilities, and instead spreads the lease payments on a straight-line basis over the lease term, disclosing in its annual financial statements the total commitment.
The Group has decided it will apply modified retrospective adoption of IFRS 16, and therefore will only recognise leases on balance sheet as at 1 January 2019. In addition, it has decided to measure right-of-use assets by reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net assets on that date. At 31 December 2018 operating lease commitments amounted to £8.2 million. The effect of discounting those commitments is anticipated to result in right-of-use assets and lease liabilities of approximately £7.1 million being recognised on 1 January 2019.
Instead of recognising an operating expense for its operating lease payments, the group will instead recognise interest on its lease liabilities and amortisation on its right-of-use assets. This will increase reported EBITDA by the amount of its current operating lease cost, which for the period ended 31 December 2018 was approximately £0.6 million.
Other
The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the group.
2. Accounting policies
Revenue
Revenue comprises the fair value of consideration receivable in respect of professional services provided during the period, inclusive of recoverable expenses incurred but excluding value added tax.
Revenue is recognised when the Group has performed services in accordance with the agreement with the relevant client and has obtained a right to consideration for those services. Where such income has not been billed at the balance sheet date, it is included as accrued income and forms part of Trade and other receivables.
Where the Group enters into contingent fee arrangements, no revenue is recognised until the contingent event has occurred, as the Directors consider to do so would give rise to the risk of significant reversals.
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.
Goodwill
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the 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.
Impairment of non-financial assets (excluding inventories, investment properties and deferred tax assets)
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial period end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating unit ('CGU'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.
Foreign currency
Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.
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 has not classified any of its financial assets as held to maturity.
Amortised cost
These assets arise principally from the provision of goods and services to customers (eg trade receivables). 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 within cost of sales in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties 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. 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.
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).
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, other short term highly liquid investments with original maturities of three months or less., and - for the purpose of the statement of cash flows - bank overdrafts. Bank overdrafts are shown within loans and borrowings in current liabilities on the consolidated statement of financial position.
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:
- 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.
Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the period to which they relate.
Leased assets
Where substantially all of the risks and rewards incidental to ownership of a leased asset are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Amortisation is included in the Depreciation and amortisation expense in the Consolidated statement of other comprehensive income.
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 to determine the cost of intangibles acquired in a business combination are as follows:
Intangible asset
Useful economic life
Valuation method
Brand
20 years
Estimated discounted cash flow
Customer contracts
8 months
Estimated discounted cash flow
Investments
Fixed asset investments are stated at cost less provision for any impairment in value.
Investments in subsidiary undertakings are stated at cost less amounts written off for impairment. Investments are reviewed for impairment where events or circumstances indicate that their carrying amount may not be recoverable.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividend is paid. In the case of final dividends, this is when approved by the shareholders at the AGM.
Deferred taxation
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:
- The initial recognition of goodwill
- The initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit, and
- Investments in subsidiaries and joint arrangements where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.
Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
- The same taxable group company, or
- Different group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.
Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:
Plant and machinery
-
33% per annum straight line
Fixtures and fittings
-
25% per annum straight line
Computer equipment
-
33% per annum straight line
Residual values and useful economic lives of the assets are reviewed annually.
Provisions
The group has recognised provisions for liabilities of uncertain timing or amount. The provision is measured at the best estimate of the expenditure required to settle the obligation at the reporting date, discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the liability.
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
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.
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.
- Impairment of trade receivables
Receivables are held at cost less provisions for impairment. Provisions for impairment represent an allowance for doubtful debts that is estimated based on current observable data. A different assessment of the recoverability of the balance with reference to either the ability or willingness of the client to pay, may result in different values being determined.
- Revenue recognition
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 not considered likely to be reversed.
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:-
i) The amount of consideration receivable is highly susceptible to factors outside the Group's influence.
ii) The uncertainty is not expected to be resolved for a long time.
iii) The Group has limited previous experience (or limited other evidence) with similar contracts.
iv) 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.
In calculating revenue from fixed price contracts, the Group makes certain estimates as to the stage of completion of those contracts. In doing so, the Group estimates the remaining time and external costs to be incurred in completing contracts and the clients' willingness to pay for the services provided. A different assessment of the outturn of the contract may result in a different value being determined for the revenue and also a different carrying value being determined for unbilled amounts for client work.
- Share issue and IPO
Judgement was required in determining a fair method of apportionment of costs incurred jointly for the share issue and IPO. A different method of apportionment may have resulted in a different allocation to the share premium account and a different cost being charged to the Statement of Comprehensive Income in the period.
It is the directors' judgment that the issue of shares in Rosenblatt Group plc prior to its IPO was unrelated to the subsequent IPO and purchase of the trade and certain assets from Rosenblatt Solicitors, and to ongoing services provided to the Group by those who purchased these shares.
- 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. A different assessment of the likely outcome of each case or of the possible cost involved may result in a different provision or cost.
4. Financial instruments - Risk Management
The Group is exposed through its operations to the following financial risks:
- Credit risk
- Foreign exchange risk and
- Liquidity risk.
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.
(i) Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
- Trade receivables
- Cash and cash equivalents
- Trade and other payables
(ii) Financial instruments by category
Financial assets
Financial assets at amortised cost
2018
£
Cash and cash equivalents
13,350,467
Trade and other receivables
5,725,885
_______
Total financial assets
19,076,352
_______
Financial liabilities
Financial liabilities at amortised cost
2018
£
Trade and other payables
(977,164)
_______
Total financial liabilities
(977,164)
_______
Trade and other payables are due within twelve months.
(iii) Financial instruments not measured at fair value
Financial instruments not measured at fair value includes cash and cash equivalents, trade and other receivables, and trade and other payables.
Due to their short-term nature, the carrying value of cash and cash equivalents, trade and other receivables, trade and other payables approximates their fair value.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The Board receives monthly reports from the Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a client or counterparty to a financial instrument fails to meet its contractual obligations. It is Group policy to assess the credit risk of new and irregular clients before entering contracts and to require money on account of work for these clients. The Group reviews, on a regular basis, whether to perform further work where clients have unpaid bills. The Group works with a broad spread of long standing reputable clients to ensure there are no significant concentrations of credit risk.
Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. Cash and cash equivalents are invested with banks with an A+ credit rating.
Foreign exchange risk
Foreign exchange risk refers to the risk that the value of a financial commitment or recognised asset or liability will fluctuate due to changes in foreign currency rates. At the balance sheet date the net monetary assets of the group denominated in foreign currencies translated into Sterling totalled £Nil. Management does not consider this to be a significant risk to the Group.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group's policy is to ensure that it will always have sufficient cash (or agreed facilities) to allow it to meet its liabilities when they become due and to take advantage of business opportunities. The Board reviews the projected financing requirements annually when agreeing the Group's budget and receives rolling 12-month cash flow projections on a regular basis as well as information regarding cash balances. At the end of the financial period, these projections indicated that the Group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.
Capital Management
The Group monitors "adjusted capital" which comprises all components of equity (i.e. share capital, share premium and retained earnings).
The Group's objectives when maintaining capital are:
- to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, and
- to provide an adequate return to shareholders.
The Group expects to pursue a progressive dividend policy over time, driven primarily by the level of cash retained within the business as well as investment opportunities available to the Group and from time to time review the continued appropriateness of such policy.
5. Segment information
The chief operating decision makers (CODMs) are the Board of Directors of Rosenblatt Group plc. The Group has the following four strategic business groups, which are its reportable segments. These business groups offer different services and are reported separately because of the different specialisms from the legal teams in those business groups.
The following summary describes the operations of each reportable segment:
- Real Estate - Provision of legal advice in respect of construction, planning, real estate and residential property development services.
- Employment - Provision of legal advice in respect of employment and pension services.
- Corporate - Provision of legal advice in respect of corporate, private client and taxation services.
- Dispute Resolution - Provision of legal advice in respect of commercial dispute resolution.
2018
Real Estate
Employment
Corporate
Dispute Resolution
Total
£
£
£
£
£
Segment revenue
1,096,619
401,648
1,891,306
9,141,175
12,530,748
_______
_______
_______
_______
_______
Segment contribution
532,282
231,214
466,719
6,767,047
7,997,262
_______
_______
_______
_______
_______
Costs not allocated to segments
Personnel costs
(1,589,812)
Depreciation and amortisation
(296,178)
Other operating expense
(3,092,242)
Net financial expenses
16,826
_______
Group profit for the period before tax
3,035,856
_______
Total assets and liabilities by operating segment are not reviewed by the CODM and are therefore not disclosed.
A geographical analysis of revenue is given below:
External revenue by location of clients
2018
£
United Kingdom
11,565,335
Europe
241,390
North America
349,155
Other
374,868
_______
12,530,748
_______
Revenues from clients that account for more than 10% of revenue total £6,739,505.
Contract balances
2018
Group
£
At 6 February
-
Acquired through business combinations
1,230,845
Transfers in the period from contract assets to trade receivables
(1,005,015)
Excess of revenue recognised over cash (or rights to cash) being recognised during the period
2,814,322
_______
3,040,152
_______
Contract assets are included within "trade and other receivables" on the face of the statement of financial position. They arise when the Group has performed services in accordance with the agreement with the relevant client and has obtained right to consideration for those services but such income has not been billed at the balance sheet date.
6. Expenses and auditor's remuneration
2018
£
Operating profit is stated after charging:
Fees payable to the company's auditors
- Audit fees
65,000
- Taxation services
8,500
- Other services
12,000
Depreciation of property, plant and equipment
71,067
Amortisation/impairment of intangible assets
225,111
Operating lease expense:
- Plant and machinery
6,164
- Property
566,998
7. Employees
2018
Group
£
Staff costs (including directors) consist of:
Wages and salaries
4,684,210
Short-term non-monetary benefits
55,211
Social security costs
571,156
Cost of defined contribution scheme
148,032
_______
5,458,609
_______
Personnel Costs stated in the Consolidated statement of comprehensive income includes the costs of contractors who are not employees.
The average number of employees (including directors) during the period was as follows:
2018
Number
Legal and professional staff
44
Administrative staff
26
_______
70
_______
A defined contribution pension scheme is operated by the group on behalf of the employees of one of the subsidiary undertakings. The assets of the scheme are held separately from those of the group in an independently administered fund. The pension charge represents contributions payable by the group to the fund and amounted to £148,032. Contributions amounting to £73,454 were payable to the fund at year end and are included in Trade and other payables.
Company
The company has no employees (excluding directors); all personnel are employed by subsidiary undertakings.
Details of the Directors' remuneration, share interests and transactions with directors are included in the Directors' Remuneration Report on pages 18 to 19 and in Note 24. The directors are considered to be the key management personnel.
8. Finance income and expense
Recognised in profit or loss
2018
Finance income
£
Interest received on bank deposits
16,826
_______
Net finance income recognised in profit or loss
16,826
_______
9. Tax expense
2018
£
Current tax expense
Current tax on profits for the period
753,527
_______
Total current tax
753,527
Deferred tax expense
Origination and reversal of temporary differences (Note 19)
(26,036)
_______
Total tax expense
727,491
_______
The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the United Kingdom applied to profits for the period are as follows:
2018
£
Profit on ordinary activities before taxation
3,035,856
_______
Tax using the Company's domestic tax rate of 19%
576,813
Expenses not deductible for tax purposes
150,678
_______
Total tax expense
727,491
_______
Changes in tax rates and factors affecting the future tax charge
A reduction in the UK corporation tax rate to 17% (effective 1 April 2020) was announced in the Budget on 16 March 2016. The deferred tax liability at 30 April 2018 has been calculated based on this rate. This will reduce the Group's future current tax charge accordingly.
10. Earnings per share
Total
2018
Numerator
£
Profit for the period and earnings used in basic EPS
2,308,365
Add Non Underlying items
- Admission costs
999,133
Less tax effect of above items
(189,835)
_______
Profit for the period adjusted for Non Underlying items
3,117,663
_______
Denominator
Number
Weighted average number of shares used in basic and diluted EPS
60,305,232
_______
Earnings per share is calculated as follows:
2018
Pence
Basic and diluted earnings per ordinary share
3.83
Basic and diluted earnings per ordinary share adjusted for Non Underlying items
5.17
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.
11. Dividends
On 29 April 2019, Rosenblatt Ltd declared a dividend, resulting in a distribution to Rosenblatt Group plc of £3,600,000. The directors will file relevant accounts as at that date with Companies' House, to support payment by Rosenblatt Group plc of a dividend of 2.8p per share on 24 May 2019. This dividend has not been accrued in the consolidated statement of financial position as it has been proposed after the reporting period.
12. Property, plant and equipment
Group
Plant and
Fixtures
Computer
Machinery
and fittings
Equipment
Total
£
£
£
£
Cost
At 6 February 2018
-
-
-
-
Additions
9,768
435
65,620
75,823
Acquired through
business combinations
299,800
-
-
299,800
Disposals
-
-
-
-
_______
_______
_______
_______
At 31 December 2018
309,568
435
65,620
375,623
_______
_______
_______
_______
Accumulated Depreciation and Impairment
At 6 February 2018
-
-
-
-
Charge for the period
67,436
63
3,568
71,067
Disposals
-
-
-
-
_______
_______
_______
_______
At 31 December 2018
67,436
63
3,568
71,067
_______
_______
_______
_______
Net book value
At 6 February 2018
-
-
-
-
At 31 December 2018
242,132
372
62,052
304,556
_______
_______
_______
_______
12.
Property, plant and equipment
Company
Computer
equipment
Total
£
£
Cost
At 6 February 2018
-
-
Additions
15,500
15,500
Acquired through
business combinations
-
-
Disposals
-
-
_______
_______
At 31 December 2018
15,500
15,500
_______
_______
Accumulated Depreciation and Impairment
At 6 February 2018
-
-
Charge for the period
1,486
1,486
Disposals
-
-
_______
_______
At 31 December 2018
1,486
1,486
_______
_______
Net book value
At 6 February 2018
-
-
At 31 December 2018
14,014
14,014
_______
_______
13. Intangible assets
Group
Goodwill
Customer
Brand
Total
Contracts
£
£
£
£
Cost
At 6 February 2018
-
-
-
-
Acquired through business combinations
17,260,221
200,111
750,000
18,210,332
_______
_______
_______
_______
At 31 December 2018
17,260,221
200,111
750,000
18,210,332
_______
_______
_______
_______
Accumulated amortisation and impairment
At 6 February 2018
-
-
-
-
Amortisation charge
-
200,111
25,000
225,111
Impairment losses
-
-
-
-
_______
_______
_______
_______
At 31 December 2018
-
200,111
25,000
225,111
_______
_______
_______
_______
Net book value
At 6 February 2018
-
-
-
-
At 31 December 2018
17,260,221
-
725,000
17,985,221
_______
_______
_______
_______
On 8 May 2018, Rosenblatt Limited acquired the trade and specific assets and liabilities of Rosenblatt Partnership. Details of the goodwill arising on the business combination are set out in Note 23.
14. Impairment of goodwill and other intangible assets
The Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the determination of a discount rate in order to calculate the present value of the cash flows. The recoverable amount was determined to be higher than the carrying amount of goodwill so no impairment loss was recognised.
The recoverable amount has been determined from value in use calculations based on an extrapolation of the cash flow projections from the formally approved budget. Values assigned to the key assumptions represent management's estimate of expected future trends and are as follows:
· A post-tax discount rate of 15% was applied in determining the recoverable amount. The discount rate is based on the average weighted cost of capital.
· Growth rates of between 2-4% are based on management's understanding of the market opportunities for services provided
· Increases in costs are based on current inflation rates and expected levels of recruitment needed to generate predicted revenue growth.
· Cash flows have been assessed over ten years with the assumption that the business will be ongoing at the end of that period.
The review demonstrated significant headroom such that the estimated carrying value is not sensitive to changes in assumptions. Having reviewed the key assumptions used the Directors do not believe that there is a reasonably possible change in any of the key assumptions that require further disclosure.
15. Subsidiaries
The principal activity of the Rosenblatt Group during the period was the provision of legal and professional services.
The principal subsidiaries of Rosenblatt Group plc, which are incorporated and operate in England and Wales and have been included in these consolidated financial statements, are as follows:
Name
Principal Activity
Proportion interest of ownership
2018
Rosenblatt Limited
Legal Services
100%
Rosenblatt Litigation Funding Limited
Dormant
100%
16. Trade and other receivables
Group
Company
2018
2018
£
£
Trade receivables
2,302,733
-
Less: provision for impairment of trade receivables
(27,790)
-
_______
_______
Trade receivables - net
2,274,943
-
Accrued income
3,040,152
-
Amounts due from subsidiaries
-
22,458,257
Other receivables
410,790
5,500
_______
_______
Total financial assets other than cash and cash equivalents classified as amortised cost
5,725,885
22,463,757
Prepayments
449,565
-
_______
_______
Total trade and other receivables
6,175,450
22,463,757
_______
_______
The carrying value of trade and other receivables classified at amortised cost approximates fair value.
The Group does not hold any collateral as security.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision for trade receivables. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The expected loss rates are based on the Group's credit losses experienced over the period adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers. The Group has identified the gross domestic product (GDP), unemployment rate and inflation rate as the key macroeconomic factors in the countries where the Group operates.
At 31 December 2018 the lifetime expected loss provision for trade receivables and is as follows:
More than
More than
More than
30 days
60 days
120 days
Total
Current
past due
past due
past due
£
Expected loss rate
0%
1%
3%
5%
Gross carrying amount
1,297,771
412,212
239,929
352,821
2,302,733
Loss provision
-
4,122
6,598
17,069
27,790
Movements in the impairment allowance for trade receivables are as follows:
2018
£
At 6 February
-
Increase during the period
27,790
_______
At 31 December
27,790
_______
Company
The loan due from Rosenblatt Limited is on demand and interest free.
Management considers that there is no increase in credit risk on the related party loan. Given that the loan is on demand, lifetime credit losses and 12 month credit losses will be the same. Having considered different recoverability scenarios which incorporated macroeconomic information (such as market interest rates and growth rates), current and forward looking information, management consider the expected credit loss to be close to nil.
17. Trade and other payables
Group
Company
2018
2018
£
£
Trade payables
577,723
-
Corporation tax payable
753,527
-
Other taxes and social security
920,999
-
Accruals
399,441
176,166
_______
_______
2,651,690
176,166
_______
_______
The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.
18. Provisions
Group
Other provisions
£
At 6 February 2018
-
Charged to profit or loss
35,264
_______
At 31 December 2018
35,264
_______
Due within one year or less
35,264
_______
35,264
_______
Other provisions represent the amount equal to the insurance excess payable on outstanding claims against the Group which are covered by the Group's professional indemnity insurance policy. The amount or timing of amounts payable in these cases is uncertain as the resolution of the cases is unknown at the period end.
19. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 17%. A reduction in the UK corporation tax rate to 17% (effective 1 April 2020) was announced in the Budget on 16 March 2016. This new rate has been applied to deferred tax balances which are expected to reverse after 1 April 2020, the date on which that new rate becomes effective.
The movement on the deferred tax account is as shown below:
Group and Company
2018
£
At 6 February
-
Recognised in profit and loss
Tax expense
(26,036)
_______
(26,036)
Arising on business combination
170,098
_______
At 31 December
144,062
_______
20. Share capital
Authorised
2018
2018
Number
£
Ordinary shares of 0.2p each
80,092,106
160,184
_______
_______
Allotted, issued and fully paid
2018
2018
Number
£
Ordinary shares of 0.2p each
At 6 February
-
-
Other issues for cash during the period
80,092,106
160,184
_______
_______
At 31 December
80,092,106
160,184
_______
_______
Ordinary shares rank equally as regards to dividends, other distributions and return on capital. Each ordinary share carries the right to one vote.
Between 4 April 2018 and 20 April 2018, 43,249,999 ordinary shares were issued at 0.2p per share, with a nominal value of 0.2p per share.
On 8 May 2018, there was a placing of 36,842,106 ordinary shares at 95p per share, with a nominal value of 0.2p per share.
21. Reserves
Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.
The following describes the nature and purpose of each reserve within equity:
Reserve
Description and purpose
Share capital
Amount subscribed for share capital at nominal value.
Share premium
Amount subscribed for share capital in excess of nominal value less transaction costs.
Retained earnings
All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
22. Leases
Operating leases
At 31 December 2018, the Group's total future minimum lease payments under non-cancellable operating leases were as follows:
Land & buildings
Other
£
£
Not later than one year
890,068
8,778
Later than one year and not later than five years
3,741,882
18,267
Later than five years
3,523,742
-
_______
_______
8,155,692
27,045
_______
_______
23. Business combinations during the period
On 8 May 2018, Rosenblatt Limited acquired the trade and specific assets and liabilities of Rosenblatt Solicitors. The acquisition was made in line with the business strategy to acquire legal services businesses and Rosenblatt is an established business in the Group's target market.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
Provisional
Adjustment
Fair
Value
Value
£
£
£
Property, plant and equipment
299,800
-
299,800
Brand value
-
750,000
750,000
Customer contracts
-
200,111
200,111
Trade and other receivables
2,274,159
(273,262)
2,000,897
Trade and other payables
(340,931)
-
(340,931)
Deferred tax liability
-
(170,098)
(170,098)
_______
_______
_______
Total net assets
2,233,028
506,751
2,739,779
_______
_______
_______
The acquisition of the trade, certain assets and liabilities was settled with cash amounting to £20,000,000. Trade and other receivables with a fair value of £2,000,897 were acquired, representing receivables of £770,052 and contract assets of £1,230,845.
Fair value of consideration paid
£
Cash
20,000,000
_______
Total consideration
20,000,000
_______
Goodwill (note 13)
17,260,221
_______
The goodwill arising on the acquisition of £17,260,221 is not deductible for tax purposes.
Since the acquisition date, the trade of Rosenblatt Partnership has contributed £12,530,748 to group revenues and £3,035,856 to group profit. If results for the post-acquisition period are extrapolated, as if the acquisition had occurred on 6 February 2018, group revenues and profit for the period would have been £17,230,000 and £3,680,000 respectively.
24. Related party transactions
Group
During the period Group companies entered into the following transactions with related parties (companies controlled by Nicola Foulston) who are not members of the Group:
Related party
Supply of
Purchase of
Amounts
Amounts
Services
services
owed by
owed to
related party
related party
2018
2018
2018
2018
£
£
£
£
Velocity Venture Capital Ltd
7,610
100,473
2,400
-
Motorsport Circuit Management Limited
11,680
-
3,000
-
WDK Motorsport Limited
28,460
-
21,675
-
Sales and purchase of services to related parties were conducted on an arm's length basis on normal trading terms. The Group has not made any allowance for bad or doubtful debts in respect of related party debtors nor has any guarantee been given or received during 2018 for related party transactions.
Details of directors' remuneration are given in the Directors' Report on pages 18 to 19.
Ian Rosenblatt is not a director of any company in the Group, nor a member of key management personnel, nor does he have a significant influence over the Group. Therefore the directors do not consider him to be a related party.
There are various other companies controlled by Nicola Foulston, which use the Group's office as their registered address, with which there have been no transactions during the period.
Company
In addition to the amounts disclosed in the Directors' Report on pages 18 to 19, the Company has entered into the following transactions with related parties:
Related party Relationship
Type of Transaction
Transaction amount
Balance owed
2018
2018
£
£
Subsidiaries
Fees and expenses reimbursed to
related party
75,358
-
Intercompany loan
-
22,458,257
25. Events after the reporting date
Since the reporting date, there have been no events which would require disclosure in these financial statements.
[1] Based on 47 fee-earners in total
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