REG - RBG Holdings PLC - Results for the Year Ended 31 December 2023
30/04/2024 07:00
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RNS Number : 5000M RBG Holdings PLC 30 April 2024
30 April 2024
RBG Holdings plc
("RBG", the "Group", or the "Company")
Audited results for the year ended 31 December 2023
RBG Holdings plc (AIM: RBGP), the legal services group, today announces its
audited results for the year ended 31 December 2023.
Highlights: 1 (#_ftn1)
● Revenue down 12.6% to £39.2m (2022: £44.9m, excluding proceeds on disposal
of damages based assets)
o Revenue (including discontinued operations) down 13.4% to £41.4m (2022:
£47.9m)
● Adjusted 2 (#_ftn2) EBITDA down 62.5% to £4.6m 3 (#_ftn3) (2022: £12.4m)
o Adjusted EBITDA (including discontinued operations) down 54.3% to £4.0m
(2022: £8.7m)
● Adjusted2 loss before tax of £0.7m (2022: £7.6m)
● Non-recurring costs of £10.6m (2022: £9.7m)
● Loss before tax £11.4m (2022: £2.1m)
● Loss from continuing operations of £11.0m (2022: £1.6m)
● Loss on discontinued operations (including goodwill impairment), net of tax
£12.9m (2022: loss £3.1m)
● Loss for the year (including discontinued operations) of £23.9m (2022:
£4.7m)
● Free cashflow outflow £3.1m (2022: inflow £4.0m)
● Net debt of £22.9m (2022: £19.2m). Cash at Bank on 26 April 2024 was £1.4m
● RBG Legal Services fee earner utilisation of 70% (2022: 76%)
RBG Legal Services fee earner realisation of 87% (2022: 90%)
Strategic highlights:
● Appointment of a new Chief Executive Officer, Jon Divers, and a new Chief
Financial Officer, Kevin McNair
● Disposal of LionFish, the Group's litigation finance operation
● Renewing the Group's banking facilities totalling £24.0m on terms deemed
favourable by the Board
● Implementation of a new Enterprise Resource Planning 'ERP' management
information system
● Scaling back from unfunded Damages Based Agreements
● A full comprehensive review of all aspects of the accounting treatment of work
in progress and debtors
Events after reporting date:
● On 22 February 2024, the Group raised £0.9 million before expenses through
the issue of new ordinary shares. A further £2.1 million before expenses was
raised through the issue of new ordinary shares on 12 March 2024. The
fundraising, which took place at a tight discount to the prevailing share
price, was strongly supported by existing institutional shareholders,
including certain directors who subscribed for £1.0 million of shares as part
of the fundraise. The purpose of the raise was to provide additional working
capital to the Group and to reduce the use of the Group's banking facilities
● On 28 March 2024, the Group completed the disposal of Convex Capital to a
joint venture led by its management team for an initial consideration of £2.0
million, with up to £600,000 of contingent consideration payable on
completion of certain subsequent transactions. Following the disposal, the
Group is focused purely on legal services, its core business
● Following the completion of the disposal of Convex Capital, Ian Rosenblatt
stepped down from the Board. Ian remains the Group's largest shareholder and
largest generator of revenue.
Outlook:
● Trading during the first quarter of 2024 has been in line with expectations.
Ignoring the impact of the unusually large piece of work that ran during mid
and late 2022 into January 2023, Legal Services has traded slightly ahead in
Q1 2024 compared to Q1 2023 on a like for like basis;
● Management is focused on specific areas of legal services which they believe
offer the best opportunities for organic growth. Some of these are existing
practices within the Group, others are complementary where the Group has
recently recruited new partners and is looking to add additional resource;
● The seven new partners that have joined in the past nine months have made an
encouraging start. They are closely aligned to the areas which management
believe offer the best growth and margin opportunities;
● There is, and there always will be, a heavy focus on cost reduction wherever
possible across the Group although management are conscious of the need to
maintain scalability within the support functions of the business;
● The Board is optimistic that 2023 marked the end of the pivot from the Group's
previous strategy and that there are opportunities for the Group to grow.
Marianne Ismail, Chair, RBG Holdings plc, said: "We recognise that 2023 was a
very challenging year for the Group. However, the significant progress in
realigning the business gives the Board confidence that the Group is on a much
stronger footing than it has been for some time. The new Executive team, led
by CEO Jon Divers, has made difficult decisions to reduce the Group's risk
profile, its cost base, and to refocus RBG on its core legal activities,
similar to the business that floated in 2018, where the Board believes profits
will be maximised."
Jon Divers, Chief Executive Officer, RBG Holdings plc, added: "We have made
significant improvements to the business in 2023 and we are now in a better
position to deliver the Board's strategy of building a high margin,
cash-generative, legal services group delivering sustained shareholder value.
We have enhanced our operations which will lead to sustained margin
improvements and have also added more fee earners. This, along with our
actions to derisk the business, drive organic growth, and to simplify and
strengthen the Group's balance sheet, give us a greater confidence about the
performance of the Company as the market improves."
Enquiries:
RBG Holdings plc Via SEC Newgate
Jon Divers, Chief Executive Officer
Kevin McNair, Chief Financial Officer
Tel: +44 (0)20 7496 3000
Singer Capital Markets (Nomad and Broker)
Rick Thompson / Alex Bond / James Fischer (Corporate Finance)
Tom Salvesen (Corporate Broking)
SEC Newgate (for media/analyst enquiries) Tel: +44 (0)7540106366
Robin Tozer / Molly Gretton rbg@secnewgate.co.uk (mailto:rbg@secnewgate.co.uk)
About RBG Holdings plc
· Further information about RBG Holdings plc is available at:
www.rbgholdings.co.uk (http://www.rbgholdings.co.uk)
· Further information about Rosenblatt (founded in 1989) is available
at: www.rosenblatt.co.uk (http://www.rosenblatt.co.uk)
· Further information about Memery Crystal (founded in 1979) is
available at: www.memerycrystal.com (http://www.memerycrystal.com)
Chair's statement
Overview
We recognise that 2023 was a challenging year, but it was also a year of
inflexion for the Group and the significant progress in realigning the
business gives the Board confidence that the Group is on a much stronger
footing than it has been for some time. The new Executive team, led by CEO Jon
Divers, has made difficult decisions to reduce the Group's risk profile, its
cost base and to refocus RBG on its core legal activities, similar to the
business that floated in 2018, where the Board believes profits can be
maximised.
It was clear that the strategy and approach adopted by the previous management
which deviated from the original strategy presented at IPO, was no longer
appropriate. The required resources to reorient to a new strategy drained the
business of profit and working capital, at a time when there have been
significant macro-economic challenges impacting the Group. Two significant
changes to derisk and strengthen the balance sheet were the 2023 disposal of
LionFish Litigation Finance Limited ("LionFish"), and the post-period end
disposal of Convex Capital Limited ("Convex Capital").
Today, the business is much closer to the one that floated in 2018 and in the
view of the Board is stronger. At IPO, we floated the law firm, Rosenblatt, to
which in 2021 we added Memery Crystal to form RBG Legal Services Limited
("RBGLS"). Rosenblatt and Memery Crystal are aligned to contentious and
non-contentious services to reflect their brand position within the market,
resulting in London's premier mid-tier law firm providing quality advice to
corporates, entrepreneurs and high net worth individuals.
Rosenblatt was ranked in Tier 1 in The Legal 500 (Legalease) in 2024 for
commercial litigation. Memery Crystal was ranked in 12 categories in The Legal
500 (Legalease) directory in 2024.
Both brands have over 30 years' proven trading history and the ability to
deliver solid revenues and profits. Driving the organic growth of these
businesses is at the heart of our strategy, and we believe that by focusing on
our core strengths, with a simpler balance sheet, and reduced levels of debt,
the market will be able to recognise the underlying value of the Group.
Financials 4 (#_ftn4)
· Revenue of £39.2m (2022: £44.9m, excluding gains on litigation
assets)
· Adjusted EBITDA of £4.6m (2022: £12.4m)
· Loss before tax £11.4m (2022: £2.1m)
· Loss from continuing operations £11.0m (2022: £1.6m)
· Loss on discontinued operations (including goodwill impairment), net
of tax £12.9m (2022: loss £3.1m)
The numbers we have reported for the 12-months to 31 December 2023 highlight
the headwinds the business has faced. Revenue and profit from our continuing
operations has reduced, largely due to lower corporate spend on legal
services, in particular relating to transactions such as IPOs and M&A. We
also had to make provisions in relation to the legacy the previous management
left in terms of unfunded Damaged Bases Agreements (DBAs) and historic
debtors.
As we progress through 2024, we do so with noticeably improved operating
processes that will begin feeding through in terms of improved margins. We
have taken steps to reduce our cost base, including the consolidation of our
property portfolio, and we have a much simpler balance sheet that will give
greater clarity to investors.
Our new agreement with HSBC and recent successful fundraise gives the
management team the operational headroom to deleverage the business more
quickly as it brings operational performance back up to acceptable levels.
At 31 December 2023, our net debt position was £22.9m (2022: £19.2m). The
Group has a £17.5m revolving credit facility and a £10.0m five-year term
loan taken to fund the Memery Crystal acquisition which has already been paid
down to £6.5m. In addition to this, the Group has two short term facilities
that were obtained in the current year of £0.3m and £0.5m. These respective
facilities have been paid down to £0.2m and £0.4m at year end. We are
committed to reducing debt as a core part of our strategy.
Strategy
The Group's strategy is to build a high margin, cash-generative, legal
services group with diversified revenue and profit streams to deliver organic
growth and sustained shareholder value.
The successful acquisition of Memery Crystal in 2021 diversified our legal
services revenue, which remains evenly split across three main practice areas;
Dispute Resolution, Corporate and Real Estate. While the prevailing economic
environment has been challenging, we see considerable opportunity in these
core business areas, as the economic outlook improves, and operational
improvements take hold. These improvements include the recruitment of seven
new partners, the implementation of a new ERP management information system to
enhance workflow across the different practices and focusing on improving the
performance of all fee earners through providing more timely and robust key
performance indicators (KPIs) pertaining to fee earner performance, such as
utilisation rates, recovery rates, and fee cost ratios.
Our emphasis will be on driving organic growth by recruiting and developing
new fee earners. In 2023, we added seven new partners, and as at 31 December
2023, RBG Legal Services had 128 fee earners overall.
To ensure the Business remains absolutely focused on its goal, the Board took
the decision to divest LionFish where litigation matters are run by
third-party solicitors and reduce the Group's exposure to third-party
litigation funding commitments. The proceeds from the sale were used for
working capital purposes. The Group will not participate in unfunded
Alternative Billing Arrangements due to their unpredictability.
After the period-end in March 2024, we also sold Convex Capital to its
management for a total consideration of up to £2.6 million, comprising an
initial cash consideration of £2.0 million paid on completion and an earn out
contingent on the completion of certain subsequent transactions. Convex
Capital is an excellent business, but the unpredictable nature of the M&A
market meant it was hard to forecast revenue flows in any one year. Convex
Capital also required working capital from the Group, which we believe can be
better deployed to support the core legal services business and to help reduce
debt.
Following the disposals, the Group is focused purely on legal services, and we
expect to go from strength to strength as a result.
Board Changes
On 31 January 2023, the employment contract of Nicola Foulston, CEO, was
terminated. The Group subsequently settled a claim from her and her management
company, Velocity Venture Capital Limited, which settles all outstanding
matters between the parties.
Jon Divers, the Group COO, was appointed to the Board as CEO. The Board was
further strengthened with the appointments of Tania MacLeod (Senior Partner,
Rosenblatt), Nick Davis (Senior Partner, Memery Crystal) and Ian Rosenblatt
OBE (largest shareholder and individual revenue generator) as Executive
Directors. In November, Kevin McNair, Interim Finance Director, was
appointed to the Board as Chief Financial Officer. Kevin replaced Suzanne
Drakeford-Lewis, who resigned from her role in June 2023, to take a six-month
sabbatical for personal reasons, and subsequently confirmed to the Board of
her decision not to return in 2024. Following the disposal of Convex Capital,
Ian Rosenblatt resigned from the Board. He joined the Board to support the
restructuring and refocusing of the business to legal services. Ian remains
fully committed to the Group and has circa four years remaining on his
restrictive covenants.
The Board now consists of four executive directors and three non-executive
directors, providing a blend of different experiences and backgrounds. All
non-executives are considered independent. We are in the process of recruiting
another independent non-executive director to strengthen the independence of
the Board and to ensure strong corporate governance. I Board hopes to complete
this process prior to the Company's 2024 Annual General Meeting expected to be
held in (or around) June 2024.
People
The strength of the Group is in our ability to retain and attract high-quality
people. Despite the challenging year, we have retained and added to our key
staff. I would like to sincerely thank everyone for their hard work and thanks
are also due to our shareholders for their continued support.
Sustainability, Equality, Diversity and Inclusion
We aim to build an organisation that delivers long-term value to our
shareholders, successful outcomes for our clients, and is a responsible
employer that supports its employees and has a positive impact in the
communities in which it operates. For example, this year we have partnered
with the Sutton Trust to run work experience and mentoring programs for
university students. We also elected KEEN London as our Charity of the Year
for 2023.
While the nature of the business means the Group does not have a significant
environmental impact, the Board believes that good environmental practices,
such as the recycling of paper waste and conservation of energy usage, will
support its strategy by enhancing the reputation of the Group. For example,
our Fleet Street address has 100% renewable power supply, and the waste is
100% recycled or waste converted to energy (no landfill).
We want to go further and are looking at ways we can improve as an employer,
and as a member of the business community to address the challenges society is
facing.
Outlook
We have made significant improvements to the business in 2023 and we are now
in a better position to deliver the Board's strategy of building a high
margin, cash-generative, legal services group delivering sustained shareholder
value. With much of the restructuring completed, and a better economic
outlook, the Group is in a much-improved position. The business has returned
to its roots, and is built around two highly successful law firms, with proven
track records across the whole economic cycle. We are continuing to reduce our
cost base and are making significant operational improvements to increase
revenue and improve margin. We look forward to the coming years with renewed
confidence.
Marianne Ismail
Chair
30 April 2024
Chief Executive Officer's statement
Overview
2023 has been a year of significant change in the business as we work to
deliver the Board's strategy of building a high margin, cash-generative, legal
services group delivering sustained shareholder value.
We have focused on reducing the risk profile of the Group by disposing of
non-core assets such as LionFish and Convex Capital and scaling back from
unfunded DBAs. We have also strengthened the balance sheet through a
successful fundraise and renewed banking facilities and there has been a
comprehensive review of all aspects of the accounting treatments of work in
progress and debtors.
Additionally, we are implementing significant operational improvements in our
core legal services business, RBGLS, to meet the goal of being a high margin,
cash-generative group. These changes will leave the Group in a far stronger
position than at the start of 2023, especially as the macro-economic
environment improves.
RBG Legal Services ("RBGLS"): Rosenblatt and Memery Crystal
· Revenue down 12.6% to £39.2m (2022: £44.9m) reflecting reduced
corporate spend relating to transactions such as IPOs and M&A
· RBG Legal Services fee earner utilisation of 70% (2022: 76%)
· RBG Legal Services fee earner realisation of 87% (2022: 90%)
· At 31 December 2023, RBGLS employed 183 people, including 128 fee
earners
Our legal services business trades under two leading mid-tier law firm brands
- Rosenblatt and Memery Crystal, which have their own brand identities and
operate as two separately branded law firms. The two brands are aligned to
contentious (Rosenblatt) and non-contentious (Memery Crystal) legal services
to reflect their distinct position within the legal services market. RBGLS has
a balanced offering across the three main legal areas - Dispute Resolution
(via Rosenblatt), and Corporate and Real Estate (through Memery Crystal).
The organic growth of the two firms, primarily through accretive hires, is key
to our future success. We are focused on strengthening and growing in all
areas we work in, by improving the performance of all fee earners, and adding
seven new partners during 2023. Some strengthen our existing practices, and
others add new areas of expertise as we look to build a full-service law firm.
The recruitment has added two new areas so far, insolvency, and international
arbitration. The partners in these areas are already gaining traction in their
specific markets and are generating new revenue streams.
One of the keys to sustained operational improvement has been the
implementation of a new ERP management information system in May, and we are
already seeing the benefits. Ensuring all partners have access to the same
document and time management systems, not only enhances the workflow across
the different practices, but it also provides more timely and robust key
performance indicators (KPIs) pertaining to fee earner performance, such as
utilisation rates, recovery rates, and fee cost ratios. This consolidated
approach eliminates the inefficiencies associated with managing separate
systems, allowing for a more seamless flow of information, and enabling the
Group to make data-driven decisions that optimise resource allocation and
drive operational excellence.
As we enter 2024, the two businesses are fully integrated and based at one
office on Fleet Street in London, with work ongoing to rationalise our
property portfolio to reduce cost.
Discontinued Operations
LionFish Litigation Finance Limited ("LionFish")
On 12 July 2023, the Group completed the disposal of the non-core business,
LionFish, to Blackmead Infrastructure Limited ("Blackmead") which reduced the
Group's exposure to litigation funding commitments.
Convex Capital Limited ("Convex Capital")
· Completed three deals during 2023 delivering £2.2m of revenue (2022:
6 deals, £5.3m)
Convex Capital, the specialist sell-side corporate finance advisory business
based in Manchester, was acquired by the Group in September 2019, to broaden
the Group's exposure to the wider professional services sector and was sold in
March 2024 via a management buyout (MBO) of the business.
As with the sale of LionFish, the disposal was in line with the Group's
strategy to reduce its risk profile and to refocus on and invest in 'BG's
established legal services business-s - Rosenblatt and Memery Crystal - where
the Board believes it can best maximise profits.
The management of Convex Capital acquired the business from the Group for a
total consideration of up to £2.6 million, comprising an initial cash
consideration of £2.0 million paid on completion and an earn out. Under the
terms of the earn out, post completion of the disposal, the Company will
receive 38% of any gross fees received upon completion of four existing and
named Convex projects up to a maximum of £0.6 million in cash. The disposal
will result in a non-cash loss of £13.3 million.
While Convex Capital is an excellent business, its future is better served in
the hands of its management team. As with LionFish, its sale will mean
concentrating the resources of the Group on its core legal services businesses
to maximise profits, using the released cash to reduce RBG's net debt and to
invest in organic growth.
The disposal will reduce the demands on the Company's working capital, through
a reduction of circa £2.2million per annum in ongoing costs in relation to
Convex.
In the 12-months to 31 December 2023, Convex Capital generated revenues of
£2.2 million (FY22: £5.3 million) and losses after tax of £0.2 million
(FY22: profit of £0.9 million).
Jon Divers
Group Chief Executive Officer
30 April 2024
Financial Review
Key Performance Indicators (KPIs) 5 (#_ftn5)
· Revenue down 12.6% to £39.2m (2022: £44.9m, excluding proceeds on
disposal of damages based assets)
o Revenue (including discontinued operations) down 13.4% to £41.4m (2022:
£47.9m)
· Adjusted EBITDA down 62.5% to £4.6m (2022: £12.4m)
o Adjusted EBITDA (including discontinued operations) down 54.3% to £4.0m
(2022 restated: £8.7m)
· Adjusted loss before tax of £0.7m (2022: profit £7.6m)
· Non-recurring costs of £10.6m (2022: £9.7m)
· Loss before tax £11.4m (2022: £2.1m)
· Loss from continuing operations of £11.0m (2022: £1.6m)
· Loss on discontinued operations (including goodwill impairment), net
of tax £12.9m (2022: loss £3.1m)
· Loss for the year (including discontinued operations) of £23.9m
(2022: £4.7m)
· Free cashflow outflow £3.1m (2022: inflow £4.0m)
· Net debt of £22.9m (2022: £19.2m)
· RBG Legal Services fee earner utilisation of 70% (2022: 76%)
· RBG Legal Services fee earner realisation of 87% (2022: 90%)
2023 was a challenging year for the Group. However, the significant progress
in realigning the business gives the Board confidence that the Group is on a
much stronger footing than it has been for some time.
The Group has now noticeably improved operating processes that have begun
feeding through in terms of improved margins in 2024. Our new agreement with
HSBC alongside the recent successful fundraise gives the Group operational
headroom to de-leverage the business while Group performance begins to
improve.
There are early signs of recovery in some of the key areas of legal services
that were badly impacted in 2023. We expect revenue and profit to improve in
2024. Continuing to focus on the Group's operational efficiency, expanding
margins and generating cash are the key priorities for the Board.
Revenue
Group revenue for the period was £39.2m compared to £44.9m in 2022,
representing a 12.6% decrease. As Convex is treated as an asset held for sale,
the Group revenue reflects the performance of Legal Services.
Revenue across the Legal Services departments was impacted by different
factors. Dispute Resolution (42% of total revenue) was down 9.5%. This
department benefited from an unusually large case in H2 2022 so its
performance in 2023 was broadly in line with expectations.
Corporate revenue (38% of total revenue) was down 12.1%, reflecting the
depressed state of the equity capital markets and lower M&A activity.
M&A activity began to pick up in Q4 of 2023 and this continued in Q1
2024. There are early signs of improvement in the equity capital markets in
2024 but this is unlikely to turn into revenue growth until H2.
Real Estate (20% of total revenue) was down 22.2%. This reflects the
historically low levels of activity across all parts of the commercial real
estate sector. Although there are early signs of recovery in parts of the
sector, management expectations for revenue growth in 2023 are cautious.
Other operating income
Other operating income of £0.9m (2022: £0.2m) relates to net interest earned
on client monies held.
Disbursement asset revenue and expenditure
Disbursement asset revenue and expenditure relates to funds invested in
disbursements on RBGLS' Damages based agreement ('DBA') cases. Due to an error
identified in accounting policies, these cases are now accounted for under
IFRS 15. Refer to notes 2 and 8 for further explanation.
Staff costs 6 (#_ftn6)
Total staff costs in 2023 were £26.9m (2022: £27.2m), which includes £25.7m
for legal services. The average number of employees for the Group was 200
(2022: 211).
Overhead costs(6)
During 2022, the Group incurred overheads of £46.5m (before depreciation and
amortisation) (2022: £44.0m), of which staff costs were £26.9m (2022:
£27.2m).
Other overhead costs were £19.6m (2022 restated: £15.0m), of which
non-recurring costs, represented £10.6m (2022: £9.7m). Other costs included
insurances of £1.4m (2022: £1.8m), rates £0.7m (2022: £0.9m), and training
and recruitment £0.7m (2022 £0.6m).
Operationally, there remains a significant focus on IT and we have invested
sensibly over recent years and further enhanced both our internal and client
facing experiences of IT usage.
EBITDA and Adjusted EBITDA(6)
In assessing performance, the Group uses EBITDA and adjusted EBITDA as
important KPIs. EBITDA loss was a loss of £5.1m, including £10.6m of
non-underlying items (2022: EBITDA £2.7m including non-underlying items of
£9.7m).
Adjusted EBITDA for 2023 was £4.6m (11.8% of revenue) (2022 restated:
£12.4m, 27.5%). Legal Services adjusted EBITDA margin of 17.0% (2022: 33.2%)
was impacted by a decline in revenue, due to lower corporate spend on legal
services, in particular relating to transactions such as IPOs and M&A.
In the trading update announced on 18 December 2023, the Group indicated that
Adjusted EBITDA would be approximately £4.0m for the year. As part of the
audit process, it was concluded that certain assets relating to Damages Based
Agreements should be treated under IFRS 15, rather than IFRS 9. While a number
of factors impacted the final Adjusted EBITDA, the principal one was the
change in accounting treatment. The impact of this change in treatment is one
off in nature.
Profit before tax
Loss before tax for 2023 was £11.4m, (2022: £2.1m); this includes £10.6m of
non-underlying items (2022: £9.7m).
Adjusted loss before tax was £0.7m, (2022: profit £7.6m).
Corporation tax
The Group's tax benefit for the year is £0.3m with an effective tax rate of
2.8% (2022 restated: £0.5m, 22.2%).
Discontinued operations
On 12 July 2023, the Group completed the disposal of the non-core business,
LionFish to Blackmead Infrastructure Limited ("Blackmead") which reduced the
Group's exposure to litigation funding commitments.
Convex has been classified as held for sale and has been excluded from our
headline performance measures. Operating losses before non-underlying items
for Convex were £0.2m (2022: operating profit £1.2m). Total losses after tax
for the business for 2023 totalled £0.2m (2022: profit after tax £0.9m)
Details on discontinued operations are shown in Note 13.
Earnings Per Share (EPS) 7 (#_ftn7)
The weighted average number of shares in 2023 was 95.3 million which gives a
basic earnings per share (EPS) on continuing operations for the year of
(11.58p) (2022: restated (1.73p)) and diluted earnings per share (EPS) on
continuing operations for the year of (11.56p) (2022: (1.72p)).
Balance Sheet
2023 2022 8 (#_ftn8)
£'m £'m
Goodwill, intangible and tangible assets 55.1 55.3
Current Assets 19.1 27.9
Current Liabilities (13.8) (12.2)
Assets held for sale(7) 3.3 22.5
Liabilities held for sale (1.0) (7.5)
62.7 86.0
Net debt(7) (22.9) (19.2)
Non-Current Liabilities (11.4) (14.1)
Net assets 28.4 52.7
The Group's net assets as at 31 December 2023 decreased by £24.3m on the
prior year as a result of the losses recognised in 2023 as well as impairment
in Convex intangible assets.
Goodwill, Tangible and Intangible Assets(8)
During the year, the management team took the decision to write off all
remaining litigation assets from the balance sheet. This was tied to the
Board's decision to step back from significant Damages based agreement (DBA)
cases similar to those the Group had undertaken in the past.
Previously, disbursements incurred on these DBAs were held on the balance
sheet as litigation assets and measured under IFRS 9 at fair value through
profit or loss.
Based on the substances of the underlying agreements for the two damages based
agreements, the recovery from the client of disbursements represents a revenue
stream arising from costs to fulfil a contract with a customer and therefore
falls within the scope of IFRS 15, not IFRS 9. This is because IFRS 9 states
that it does not apply to "rights and obligations within the scope of IFRS 15
that are financial instruments, except for those that IFRS 15 specifies are
accounted for in accordance with IFRS 9".
Refer to notes 2, 3, 22 and 32 for further information on this prior period
adjustment.
Included within tangible assets is £12.4m (2022: £14.4m) which relates to
IFRS 16 right of use assets for the Group's property leases.
Total intangible assets of £40.5m (2022: £38.7m) incorporate the goodwill
and intangible assets acquired on the acquisitions of the Rosenblatt, and
Memery Crystal businesses. During the year, the Group extended Ian
Rosenblatt's restrictive covenant, refer to note 18 for further information.
The Group has considered the amounts at which goodwill and intangible assets
are stated on the basis of forecast future cash flows and concluded that
that these assets have not been materially impaired.
Working capital(10)
Management of lock up and cash generation has continued to be a key focus of
the Group over the year. For the 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.
Lock up days at 31 December 2023 were 127 (2022 restated: 137), with debtor
days being 49 (2022: 58 days) and WIP days being 77 days (2022: 79 days). Lock
up has decreased from the previous year due to the increase in provision made
against trade receivables. This is an area of significant focus for
management.
Trade debtors less provision for impairment at the end of the year were £8.0m
(2022: £9.9m) and contract assets (work in progress) at the year-end were
£8.2m (2022: £9.7m).
Net debt 9 (#_ftn9)
We have a revolving credit facility (RCF) of £17.5m and an acquisition term
loan of £10.0m, of which, a total of £3.5m had been repaid at 31 December
2023. Our net debt position at the year end was £22.9 million (2022: £19.2
million).
Cash Conversion
2023 2022 10 (#_ftn10)
£m £m
Cash flows from operating activities (5.1) 12.8
Movements in working capital 4.3 0.5
Increase in litigation assets (0.3) (7.8)
Net cash (used in)/generated from operations (1.1) 5.4
Interest (1.7) (1.3)
Capital expenditure (0.3) (0.2)
Free cash flow (3.1) 4.0
Underlying loss after tax (10.2) (4.7)
Cash conversion 30% (84%)
The cash conversion percentage measures the Group's conversion of its
underlying profit after tax into free cash flows. Cash conversion was 30% in
2023 (2022: (84%)).
Summary
We have made significant changes to the business in 2023 and we are now in a
better position to deliver the Board's strategy of building a high margin,
cash-generative, legal services group delivering sustained shareholder value.
Kevin McNair
Chief Financial Officer
30 April 2024
Consolidated statement of comprehensive income
For the year ended 31 December 2023
Note 1 January to 1 January to
31 December 2023 31 December 2022 11 (#_ftn11)
Restated
£ £
Revenue 5 39,209,854 44,873,908
Proceeds on disposal of damages based agreements 5 - 2,021,700
Other operating income 7 885,422 156,046
Disbursement asset revenue 8 1,221,854 2,847,487
Disbursement asset expenditure 8 (827,834) (3,241,507)
Personnel costs 10 (26,878,460) (27,184,117)
Depreciation and amortisation expense (3,251,607) (3,432,764)
Other expenses (19,606,276) (16,816,487)
(Loss) from operations 9 (9,247,048) (775,734)
EBITDA (5,995,440) 2,657,030
Non-underlying items 6
Costs of acquiring subsidiary 25,000 367,303
Contract assets - damages based agreement asset impairment - 6,670,481
Release of onerous contract provision 301,727 562,979
Trade receivables - provision against damages based agreement receivable 920,127 1,296,470
Costs associated with disposal of LionFish 5,648,109 -
Costs associated with re-financing project 787,193 -
Other one-off costs 2,081,890 -
Trade receivables provision change 1,038,163 -
Restructuring (release)/costs (168,167) 803,631
Adjusted EBITDA 4,638,602 12,357,894
Finance expense 11 (2,170,109) (1,333,663)
Finance income 11 51,318 14,509
Loss on sale of associate 21 - (21,643)
(Loss) before tax (11,365,839) (2,116,531)
Tax income/(expense) 12,13 322,721 469,118
(Loss) from continuing operations (11,043,839) (1,647,413)
Profit/(Loss) on discontinued operations, net of tax 13 818,932 (3,073,351)
Impairment associated with discontinued operation 20 (13,694,754) -
(Loss) for the year (23,918,940) (4,720,763)
Total (loss) and comprehensive income attributable to:
Owners of the parent (23,918,940) (4,335,201)
Non-controlling interest - (385,562)
(23,918,940) (4,720,763)
Earnings per share attributable to the ordinary equity holders of the parent 14
Basic (pence) from continuing operations (11.58) (1.73)
Diluted (pence) from continuing operations (11.58) (1.73)
Basic (pence) from total operations (25.09) (4.55)
Diluted (pence) from total operations (25.09) (4.55)
There were no elements of other comprehensive income for the financial year
other than those included in the income statement.
The attached notes form part of these financial statements.
Consolidated statement of financial position
As at 31 December 2023
Company registered number: 11189598 Note 31 December 2023 31 December 2022 12 (#_ftn12) 1 January 2022
Restated Restated
£ £ £
Assets
Current assets
Trade and other receivables 22 18,374,752 27,214,577 19,330,914
Current tax asset 22 725,723 656,982 -
Cash and cash equivalents 2,262,750 2,588,240 4,736,546
21,363,225 30,459,799 24,067,460
Non-current assets
Property, plant and equipment 16 2,047,706 2,208,091 2,582,911
Right-of-use assets 17 12,390,892 14,419,414 15,913,008
Intangible assets 18 40,488,453 38,693,983 55,859,230
Deferred tax 26 216,445 - -
Litigation assets 32 - - -
Trade and other receivables 22 - - 6,402,444
Investments in associates 21 - - 101,643
55,143,496 55,321,488 80,859,236
Assets held for sale 13 3,369,134 22,882,556 4,922,385
Total assets 79,875,854 108,663,843 109,849,081
Liabilities
Current liabilities
Trade and other payables 23 11,593,485 9,642,454 10,099,544
Leases 17 2,224,373 1,979,578 2,150,440
Current tax liabilities 23 - - 1,002,637
Provisions 25 75,000 605,556 164,291
Loans and borrowings 24 2,624,407 2,205,640 2,129,592
16,517,264 14,433,228 15,546,504
Non-current liabilities
Loans and borrowings 24 22,687,488 20,000,000 17,000,000
Deferred tax liabilities 26 - 229,361 850,042
Provisions 25 150,000 150,000 150,000
Leases 17 11,344,768 13,713,932 13,698,661
34,182,255 34,093,293 31,698,703
Liabilities held for sale 13 958,476 7,528,822 2,053,440
Total liabilities 51,657,996 56,055,344 49,298,647
NET ASSETS 28,217,858 52,608,500 60,550,434
Issued capital and reserves attributable to owners of the parent
Share capital 27 190,662 190,662 190,662
Share premium reserve 28 49,232,606 49,232,606 49,232,606
Retained (losses)/earnings 28 (21,205,410) 3,185,232 10,840,271
28,217,858 52,608,500 60,263,539
Non-controlling interest - - 286,895
TOTAL EQUITY 28,217,858 52,608,500 60,550,434
The attached notes form part of these financial statements
Consolidated statement of cash flows
For the year ended 31 December 2023
Note 2023 2022 13 (#_ftn13)
restated
£ £
Cash flows from operating activities
(Loss) for the year before tax from:
Continuing operations (11,365,839) (2,116,531)
Discontinued operations 673,594 (3,772,086)
Adjustments for:
Depreciation of property, plant and equipment 500,559 556,403
Amortisation of right-of-use assets 2,138,917 2,153,585
Amortisation of intangible fixed assets 738,611 837,413
Fair value movement of litigation assets net of realisations (1,168,566) 5,218,176
Impairment of contract assets (damages based agreement asset) - 6,670,481
Release of onerous contract provision 301,727 562,979
Trade receivables - provision against damages based agreement receivable 920,127 1,296,470
Finance income (51,646) (32,739)
Finance expense 2,213,795 1,361,514
Loss on sale of equity accounted associate - 21,643
(5,098,721) 12,757,308
Decrease/(increase) in trade and other receivables 3,788,638 (3,600,176)
Increase in trade and other payables 1,083,815 3,609,645
(Increase) in litigation assets (325,488) (7,781,846)
(Decrease)/increase in provisions (530,556) 441,265
Cash generated from operations (1,082,312) 5,426,196
Tax paid (899,649) (601,569)
Net cash flows (used in)generated from operating activities (1,981,961) 4,824,627
Investing activities
Purchase of property, plant and equipment (326,941) (199,741)
Sale of associate - 80,000
Purchase of other intangibles (2,500,000) -
Disposal of discontinued operations litigation assets 1,821,800
Consideration received (litigation assets) 3,782,098 -
Payment of deferred consideration - (2,248,319)
Interest received 51,646 32,739
Net cash generated from/(used in) investing activities 2,828,604 (2,335,321)
Financing activities
Dividends paid to holders of the parent (471,702) (4,736,071)
Proceeds from loans and borrowings 3,249,950 5,000,000
Repayment of loans and borrowings (718,888) (2,000,000)
Repayments of lease liabilities (1,841,233) (1,211,829)
Interest paid on loans and borrowings (1,197,725) (756,768)
Interest paid on lease liabilities (509,019) (528,698)
Net cash (used in) financing activities (1,488,617) (4,233,366)
Net (decrease) in cash and cash equivalents (641,974) (1,744,060)
Cash and cash equivalents at beginning of year 3,012,083 4,756,143
Cash and cash equivalents at end of year 2,370,109 3,012,083
Cash and cash equivalents - continuing operations 2,262,750 2,588,240
Cash and cash equivalents - discontinued operations 107,359 423,843
Cash and cash equivalents per consolidated balance sheet 2,370,109 3,012,083
The attached notes form part of these financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2023
Current year Share Capital Share Premium Retained Earnings Total attributable to equity holders of parent Non-controlling interest Total equity
£ £ £ £ £ £
Balance at 1 January 2023 as originally presented 190,662 49,232,606 11,996,470 61,419,738 - 61,419,738
Correction of error (refer to note 32) - - (8,811,238) (8,811,238) - (8,811,238)
Balance at 1 January 2023 190,662 49,232,606 3,185,232 52,608,500 - 52,608,500
Comprehensive income for the year
Loss for the year - - (23,918,940) (23,918,940) - (23,918,940)
Total comprehensive loss for the year - - (23,918,940) (23,918,940) - (23,918,940)
Contributions by and distributions to owners
Dividends - - (471,702) (471,702) - (471,702)
Total contributions by and distributions to owners - - (471,702) (471,702) - (471,702)
Balance at 31 December 2023 190,662 49,232,606 (21,205,410) 28,217,858 - 28,217,858
Prior year Share Capital Share Premium Retained Earnings Total attributable to equity holders of parent Non-controlling interest Total equity
£ £ £ £ £ £
Balance at 1 January 2022 as originally presented 190,662 49,232,606 11,113,365 60,536,633 286,895 60,823,528
Correction of error (refer to note 32) - - (273,094) (273,094) - (273,094)
Balance at 1 January 2022 (restated, refer to note 32) 190,662 49,232,606 10,840,271 60,263,539 286,895 60,550,434
Comprehensive income for the year
(Loss) for the year (restated, refer to note 32) - - (4,335,201) (4,335,201) (385,562) (4,720,763)
Total comprehensive Income for the year - - (4,335,201) (4,335,201) (385,562) (4,720,763)
Contributions by and distributions to owners
Dividends - - (4,736,071) (4,736,071) - (4,736,071)
Purchase of NCI share capital - - (98,767) (98,767) 98,667 (100)
Reversal of call option over shares of associate - - 500,000 500,000 - 500,000
Reversal of put option over shares of subsidiary - - 1,015,000 1,015,000 - 1,015,000
Total contributions by and distributions to owners - - (3,319,838) (3,319,838) 98,667 (3,221,171)
Balance at 31 December 2022 190,662 49,232,606 3,185,232 52,608,500 - 52,608,500
The attached notes form part of these financial statements.
Company statement of financial position
As at 31 December 2023
Company registered number: 11189598 Note 31 December 2023 31 December 2022
£ £
Assets
Current assets
Trade and other receivables 22 4,394,018 14,204,102
Cash and cash equivalents 340,549 413,635
Current tax assets 22 145,364 -
4,879,931 14,617,737
Non-current assets
Trade and other receivables 22 40,412,117 39,554,433
Property, plant and equipment 16 - 45
Investments in subsidiaries 20 13,806,624 27,501,378
54,218,741 67,055,856
Total assets 59,098,672 81,673,593
Liabilities
Current liabilities
Trade and other payables 23 4,219,262 4,290,801
Loans and borrowings 24 2,624,407 2,205,640
6,843,669 6,496,441
Non-current liabilities
Loans and borrowings 24 22,687,488 20,000,000
Deferred tax liabilities 26 199,505 635,334
22,886,993 20,635,334
Total liabilities 29,730,661 27,131,775
NET ASSETS 29,368,011 54,541,818
Issued capital and reserves attributable to owners of the parent
Share capital 27 190,662 190,662
Share premium reserve 28 49,232,606 49,232,606
Retained earnings 28 (20,055,257) 5,118,550
29,368,011 54,541,818
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 after tax of £24,702,105 for the year ended 31
December 2022 (2022: profit £4,419,482).
The attached notes form part of these financial statements.
Company statement of cash flows
For the year ended 31 December 2023
Note 2023 2022
£ £
Cash flows from operating activities
(Loss)/Profit for the year before tax (25,137,934) 3,491,188
Adjustments for:
Depreciation of property, plant and equipment 16 45 1,038
Impairment of investment in discontinued operation 13,694,754 -
Finance income (10,648) (14,164)
Finance expense 1,666,894 811,352
(9,786,889) 4,289,414
(Increase)/decrease in trade and other receivables (445,778) 1,329,641
Increase in trade and other payables 575,785 379,823
Cash (used in)/generated from operations (9,656,882) 5,998,878
Tax paid (145,362) -
Net cash flows (used in)/ generated from operating activities (9,802,244) 5,998,878
Investing activities
Sale of associate - 80,000
Purchase of NCI share capital - (100)
Amounts repaid by/ (loaned to) subsidiaries 9,398,176 (7,435,942)
Interest received 10,648 14,164
Net cash flows generated from/(used in) investing activities 9,408,824 (7,341,879)
Financing activities
Dividends paid to holders of the parent 15 (471,702) (4,736,071)
Amounts (repaid to)/borrowed from subsidiaries (647,324) 1,767,522
Proceeds from loans and borrowings 3,249,950 5,000,000
Repayment of loans and borrowings (718,888) (2,000,000)
Interest paid on loans and borrowings (1,091,703) (735,304)
Net cash flows generated from/(used in) financing activities 320,334 (703,853)
Net (decrease) in cash and cash equivalents (73,086) (2,046,854)
Cash and cash equivalents at beginning of year 413,635 2,460,489
Cash and cash equivalents at end of year 340,549 413,635
The attached notes form part of these financial statements.
Company statement of changes in equity
For the year ended 31 December 2022
Current year Share Capital Share Premium Retained Earnings Total
£ £ £ £
Balance at 1 January 2023 190,662 49,232,606 5,118,550 54,541,818
Comprehensive profit for the year
Loss for the year - - (24,702,105) (24,702,105)
Total comprehensive profit for the year - - (24,702,105) (24,702,105)
Contributions by and distributions to owners
Dividends - - (471,702) (471,702)
Total contributions by and distributions to owners - - (471,702) (471,702)
Balance at 31 December 2023 190,662 49,232,606 (20,055,257) 29,368,011
Prior year Share Capital Share Premium Retained Earnings Total
£ £ £ £
Balance at 1 January 2022 190,662 49,232,606 5,435,139 54,858,407
Comprehensive profit for the year
Profit for the year - - 4,419,482 4,419,482
Total comprehensive profit for the year - - 4,419,482 4,419,482
Contributions by and distributions to owners
Dividends - - (4,736,071) (4,736,071)
Total contributions by and distributions to owners - - (4,736,071) (4,736,071)
Balance at 31 December 2022 190,662 49,232,606 5,118,550 54,541,818
The attached notes form part of these financial statements.
Notes to the consolidated and company financial statements
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.
The Group and Company financial statements have been prepared in accordance
with UK adopted international accounting standards and those parts of the
Companies Act 2006 applicable to companies reporting under UK adopted
international accounting standards. These financial statements consolidate
those of the Company and its subsidiaries (together referred to as the
"Group"). 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 financial statements have been prepared for year ended 31 December 2023,
with a comparative year to 31 December 2022 (restated), and 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 year presented, unless otherwise stated.
The preparation of financial statements in compliance with UK adopted
international accounting standards 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
judgements 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.
Discontinued operations
During the year, the Board approved plans to dispose of the Group's interests
in Convex. Convex is classified as held for sale at the balance sheet date.
The net results of Convex have been presented as discontinued operations in
the Group statement of comprehensive income (for which the comparatives have
been restated). See Note 13 for further details.
Going concern
The Group has prepared financial projections to April 2025, the going concern
review period. The Board recognises that the Groups' financial performance in
2023 included a decline in revenue and a total reported loss (including
discontinued operations) after tax of £23,918,941. This loss included an
impairment of Convex Capital intangible assets of £13,694,754 and one-off
costs that are considered to be exceptional totalling £10,634,042. After the
reporting date, the Group raised a total of £3.0 million before expenses
through the issue of new ordinary shares and completed the disposal of Convex
Capital for an initial consideration of £2.0 million.
The Directors are confident that much of these losses were attributable to
factors that will not impact the Group going forward.
The financial projections performed form part of a three-year plan which shows
positive earnings and cash flow generation and projected compliance with
banking covenants at each testing date.
The Board confirm that they have a reasonable expectation that the Group has
adequate resources to continue in operational existence for at least 12 months
from the date of signing the financial statements.
This confirmation is made after reviewing assumptions about the future trading
performance. This process included a reverse 'stress test' used to inform
downside testing which identified the break point in the Group's liquidity.
Whilst the sensitivities applied do show an expected downside impact on the
Group's financial performance in future periods, for all scenarios modelled,
the Board have identified appropriate mitigating actions, including lowering
capital expenditure, reductions in personnel and overhead expenditure and
other short-term cash management activities within the Group's control as part
of their assessment of going concern.
Changes in accounting policies
a. New standards, interpretations and amendments effective from 1 January
2023
New standards that have been adopted in the annual financial statements for
the year ended 31 December 2023 but have not had a significant effect on the
Group are:
· Disclosure of Accounting Policies (Amendments to IAS 1 Presentation
of Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements);
· Definition of Accounting Estimates (Amendments to IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors);
· Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12 Income Taxes); and
· International Tax Reform - Pillar Two Model Rules (Amendment to IAS
12 Income Taxes) (effective immediately upon the issue of the amendments and
retrospectively)
b. New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January
2024:
· Liability in a Sale and Leaseback (Amendments to IFRS 16 Leases);
· Classification of Liabilities as Current or Non-Current (Amendments
to IAS 1 Presentation of Financial Statements);
· Non-current Liabilities with Covenants (Amendments to IAS 1
Presentation of Financial Statements); and
· Supplier Finance Arrangements (Amendments to IAS 7 Statement of Cash
Flows and IFRS 7 Financial Instruments: Disclosures)
The Group is currently assessing the impact of these new accounting standards
and amendments and does not expect that they will have a material impact on
the Group.
The following amendments are effective for the period beginning 1 January
2025:
· Lack of Exchangeability (Amendments to IAS 21 The Effects of Changes
in Foreign Exchange Rates)
c. Prior year restatement
During the current financial year, it was identified that previous accounting
policy to capitalise Rosenblatt disbursements (including counsel fees)
associated with its Damages Based Agreement ("DBA") matters as litigation
assets and measure the assets under IFRS 9 at fair value through profit and
loss was incorrect.
These disbursements constitute payments of costs to fulfil a contract under
IFRS 15 that could be reimbursed in the future depending on the outcome of the
case. They should be capitalised to the extent that they are expected to be
recovered.
There are two specific cases that this error impacts and each is treated
differently based on the terms of the agreement.
For the first case, the disbursements are payable to the Group, only if the
case wins or where the client or the Group terminates the engagement. Under
IFRS 15, this case is treated as a contract asset and an impairment assessment
is performed under IFRS 15. During the year ended 31 December 2022, the
probability of success was reduced from 90% to 50%, at this point, the
contract asset was written off and the case became an onerous contract and
costs to fulfil the contract were provided for.
For the second case, the disbursements are recoverable in a win or lose
situation. As such, the revenue recognition point is the point at which the
expense is incurred by the Group. IFRS 15 requires the presentation of any
unconditional rights to consideration as a receivable separately from contract
assets and an expected credit loss (ECL) assessment is performed at year end.
Refer to Note 32 Restatement of prior year for further information.
2. Accounting policies
Revenue
Revenue comprises the fair value of consideration receivable in respect of
services provided during the year, inclusive of recoverable expenses incurred
but excluding value added tax.
Legal 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.
The Group has two cases under Damages Based Agreements.
For the first case, the disbursements are recoverable either in the case of a
win, or where the client or the Group terminates the engagement. The recovery
of the disbursements are recognised as revenue under IFRS 15 to the extent it
is highly probable that a significant reversal in the amount will not occur in
the future. Under IFRS 15, this case is treated as a contract asset, and an
impairment assessment is performed in line with the standard.
For the second case, disbursements are recoverable in a win or lose situation.
As such, the revenue recognition point is the point at which the expense is
incurred by the Group, when a disbursement is incurred, the Group recognises
the expense incurred in the profit or loss and the associated revenue in
relation to the recovery of the disbursement. IFRS 15 requires the
presentation of any unconditional rights to consideration as a receivable
separately from contract assets. At each reporting date, the Group performs an
expected credit loss (ECL) assessment on the receivable line with IFRS 9, and
where applicable, an impairment is recognised.
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.
Corporate finance revenues
Corporate finance 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.
Interest received on client monies
Interest is recognised on client monies held, this is recognised in the profit
or loss based on the effective interest rate during the period. This forms
part of other income as this is driven by the ongoing operations of the
business,
Adjusted EBITDA and exceptionals
The Group presents adjusted EBITDA as an operating KPI utilised by management
to monitor performance.
EBITDA is adjusted for one-off costs that are considered to be exceptional,
being:
· One-off costs connected to acquisitions
· Contract assets - damages based agreement asset impairment
· Release of onerous contract provision
· Trade receivables - provision against damages based agreement
receivable
· Group costs associated with discontinued operations
· Costs associated with re-financing project
· Release of restructuring costs
· Trade receivables provision change
These costs are considered to be exceptional because they do not relate to the
ongoing trade and performance of the business. Without presenting adjusted
EBITDA, the EBITDA would not be consistent as it would be subject to
fluctuations that do not reflect underlying performance of the Group.
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
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.
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 units ('CGUs'). 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 under the amortised cost category,
the Group's accounting policy is as follows:
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 transactions
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.
Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the
consolidated statement of comprehensive income in the year to which they
relate.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognised
for the amount expected to be paid under short-term cash bonus or
profit-sharing plans if the Group has a present legal or constructive
obligation to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Share-based payments
Where equity settled share options are awarded to employees, the fair value of
the options at the date of grant is charged to the consolidated statement of
comprehensive income over the vesting period. Non-market vesting conditions
are taken into account by adjusting the number of equity instruments expected
to vest at each reporting date so that, ultimately, the cumulative amount
recognised over the vesting period is based on the number of options that
eventually vest. Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether
market vesting conditions are satisfied. The cumulative expense is not
adjusted for failure to achieve a market vesting condition or where a
non-vesting condition is not satisfied.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the consolidated statement of
comprehensive income over the remaining vesting period. Where equity
instruments are granted to persons other than employees, the consolidated
statement of comprehensive income is charged with the fair value of goods and
services received.
Leased assets
Identifying leases
The Group accounts for a contract, or a portion of a contract, as a lease when
it conveys the right to use an asset for a period of time in exchange for
consideration. Leases are those contracts that satisfy the following criteria:
(a) There is an identified asset;
(b) The Group obtains substantially all the economic benefits from use of
the asset; and
(c) The Group has the right to direct use of the asset
The Group considers whether the supplier has substantive substitution rights.
If the supplier does have those rights, the contract is not identified as
giving rise to a lease.
In determining whether the Group obtains substantially all the economic
benefits from use of the asset, the Group considers only the economic benefits
that arise from use of the asset, not those incidental to legal ownership or
other potential benefits.
In determining whether the Group has the right to direct use of the asset, the
Group considers whether it directs how and for what purpose the asset is used
throughout the period of use. If there are no significant decisions to be made
because they are pre-determined due to the nature of the asset, the Group
considers whether it was involved in the design of the asset in a way that
predetermines how and for what purpose the asset will be used throughout the
period of use. If the contract or portion of the contract does not satisfy
these criteria, the Group applies other applicable IFRSs rather than IFRS 16.
All leases are accounted for by recognising a right-of-use asset and a lease
liability except for:
· Leases of low value assets; and
· Leases with a term of 12 months or less
Lease liabilities are measured at the present value of the contractual
payments due to the lessor over the lease term, with the discount rate
determined by reference to the rate inherent in the lease unless this is not
readily determinable, in which case the Group's incremental borrowing rate on
commencement of the lease is used. Variable lease payments are only included
in the measurement of the lease liability if they depend on an index or rate.
In such cases, the initial measurement of the lease assumes the variable
element will remain unchanged throughout the lease term. Other variable lease
payments are expensed in the period to which they relate.
On initial recognition, the carrying value of the lease liability also
includes:
· amounts expected to be payable under any residual value guarantee
· the exercise price of any purchase option granted in favour of the
Group if it is reasonably certain to assess that option
· any penalties payable for terminating the lease, if the term of the
lease has been estimated on the basis of the termination option being
exercised
Right-of-use assets are initially measured at the amount of the lease
liability, reduced for any lease incentives received, and increased for:
· lease payments made at or before the commencement of the lease
· initial direct costs incurred and
· the amount of any provision recognised where the Group is
contractually required to dismantle, remove or restore the leased asset
Subsequent to initial measurement lease liabilities increase as a result of
interest charged at a constant rate on the balance outstanding and are reduced
for lease payments made. Right-of-use assets are amortised on a straight-line
basis over the remaining term of the lease or over the remaining economic life
of the asset if this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of any lease, it adjusts the
carrying amount of the lease liability to reflect the payments to make over
the revised term, which are discounted using a revised discount rate. The
carrying value of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate or index is revised,
except the discount rate remains unchanged. In both cases an equivalent
adjustment is made to the carrying value of the right-of-use asset, with the
revised carrying amount being amortised over the remaining lease term.
The lease calculations have been prepared up to the end of the lease term as
defined in the lease agreements. Where there has been a remeasurement or
rent-free-period, the lease calculations are adjusted accordingly.
For contracts that both convey a right to the Group to use an identified asset
and require services to be provided to the Group by the lessor for a variable
amount, the Group has elected to account for the right-of-use payments as a
lease and expense the service charge payments in the period to which they
relate.
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 14 - 19 years Straight line Estimated discounted cash flow
Customer contracts 1 - 2 years Nil In line with contract revenues Estimated discounted cash flow
Restrictive covenant extension 5 years 4 years Straight line Cost
Non-current investments
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 declared by the
directors. In the case of final dividends, this is when approved by the
shareholders at the AGM.
Income tax
Income tax expense represents the sum of the tax currently payable.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the statement of comprehensive
income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are not taxable
or tax deductible.
The Group's liability for current tax is calculated using tax rates (and tax
laws) that have been enacted or substantively enacted by the end of the
financial year.
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.
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.
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, and
subsequently stated at cost less any accumulated depreciation and impairment
losses. 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:
Leasehold improvements - Straight line over the life of the lease
Plant and equipment - 33% per annum straight line
Fixtures and fittings - 25% per annum straight line
Computer equipment - 33% per annum straight line
Share Capital
Ordinary shares are recorded at nominal value and proceeds received in excess
of nominal value of shares issued, if any, are accounted for as share premium.
Both ordinary shares and share premium are classified as equity.
Provisions
Professional indemnity provision
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, that can be reliably measured, and it
is probable that an outflow of economic benefits will be required to settle
the obligation. Where material, the impact of the time value of money is taken
into account by discounting the expected future cash flow at a pre-tax rate,
which reflects risks specific to the liability.
Insurance cover is maintained in respect of professional negligence claims.
This cover is principally written through insurance companies. Premiums are
expensed as they fall due with prepayments or accruals being recognised
accordingly. Expected reimbursements are recognised once they become
receivable. Where outflow of resources is considered probable and reliable
estimates can be made, provision is made for the cost (including related legal
costs) of settling professional negligence claims brought against the Group by
third parties and disciplinary proceedings brought by regulatory authorities.
Amounts provided for are based on Management's assessment of the specific
circumstances in each case. No separate disclosure is made of the detail of
such claims and proceedings, as to do so could seriously prejudice the
position of the Group. In the event the insurance companies cannot settle the
full liability, the liability will revert to the Group.
Dilapidations provision
The Group recognises a provision for the future costs of dilapidations on
leased office space. The provision is an estimate of the total cost to return
applicable office space to its original condition at the end of the lease
term.
Onerous contracts
The Group recognises a provision for the unavoidable costs of meeting a
contract where the obligations of the contract exceed the economic benefits to
be received under it.
Restatements
The 2022 comparative numbers have been restated for the following corrections
which is described fully in Note 32:
A prior period adjustment has been made for incorrect accounting policies that
were previously adopted in relation to disbursements incurred on two damages
based agreements. The disbursements were previously held on the balance sheet
as Litigation Assets and measured the assets under IFRS 9 at fair value
through profit and loss.
Based on the substances of the underlying agreements for the two damages based
agreements, the recovery from the client of disbursements represents a revenue
stream arising from a costs to fulfil a contract with a customer and therefore
falls within the scope of IFRS 15, not IFRS 9. This is because IFRS 9 states
that it does not apply to "rights and obligations within the scope of IFRS 15
that are financial instruments, except for those that IFRS 15 specifies are
accounted for in accordance with IFRS 9".
For the first case, the disbursements are payable to the Group, only if the
case wins or where the client or the Group terminates the engagement. Under
IFRS 15, this case is treated as a contract asset and an impairment assessment
is performed under IFRS 15. Management has reassessed the probability of
success during the year ended 31 December 2022and has reduced this from 90% to
50%, at this point, the contract asset was written off the case became an
onerous contract and costs to fulfil the contract were provided for.
The reassessment made for probability of success was based on management's
assessment of the information available at the time and hindsight has not been
applied in assessing the impact of the prior period adjustment. The write off
of the contract asset at the point of probability of success reducing was
£6,670,481. At that point, a provision for the onerous contract of £956,999
was recognised. £562,979 of this provision was released during the remaining
months of the year ended 31 December 2022.
For the second case, the disbursements are recoverable in a win or lose
situation. As such, the revenue recognition point is the point at which the
expense is incurred by the Group. IFRS 15 requires the presentation of any
unconditional rights to consideration as a receivable separately from contract
assets and an expected credit loss (ECL) assessment is performed at year end.
The Group performed an ECL assessment at each year end for this case and
determined that the disbursements are not recoverable if the case were to lose
and therefore have been provided for.
The assessment on the ECL has been made based on management's knowledge of the
case and the parties involved, hindsight has not been applied for the of
assessing the impact of the prior period adjustment. The impact of this ECL
assessment was that opening reserves were reduced by £273,094 for the
provision recognised against the receivable. The provision for receivables was
increased at 31 December 2022 for £1,296,470, and an additional £920,127
recognised against the receivable at 31 December 2023.
The 2022 comparative numbers have been restated to reflect Convex being
disclosed as a discontinued operation in the current year, refer to Note 13.
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.
Disbursements incurred in association with DBAs are recognised initially under
IFRS 15 as they constitute payments for costs incurred as part of the
provision of legal services to the Group's client that could be reimbursed in
the future depending on the outcome of the case.
The Group has two DBA cases which are recognised as follows:
For the first case, the disbursements are payable to the Group, only if the
case wins or where the client or Group terminates the engagement. Under IFRS
15, this case is treated as a contract asset and an impairment assessment is
performed under IFRS 15 regarding the probability of success of the case, when
it becomes probable that the case will not be successful, an impairment is
required, and the contract becomes onerous. Different views on the probability
of success could impact whether an impairment is recognised. This change in
accounting estimate has resulted in an impairment of nil in the current year
(2022: £6,670,481).
For the second case, the disbursements are recoverable in a win or lose
situation. As such, the revenue recognition point is the point at which the
expense is incurred by the Group. IFRS 15 requires the presentation of any
unconditional rights to consideration as a receivable separately from contract
assets and an expected credit loss (ECL) assessment is performed by management
at year end. Different views on the ability to recover the receivable could
impact the amount of provision required. This change in accounting estimate
has resulted in an increase in the provision of receivables for disbursements
on this case of £920,127 (2022: £1,296,470).
The change in accounting estimate as a result of the above prior period
adjustment has resulted in a material change from the amounts published in the
2023 interim results. The interim results recorded a write off of £11.0m
associated with these DBA cases within 2023. The prior period adjustment
identified above, has resulted in the first disbursement asset case being
recorded as a contract asset and impaired within the year ending 31 December
2022, the second case is recorded as a trade receivable and has been assessed
for expected credit loss impairment at each year end. Refer to notes 22 and 32
for further information.
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. During the year
ended 31 December 2023, the Group changes it's accounting for impairment
provisions, they are now recognised based on the ageing of invoices with
invoices over 270 days being fully provided for, management also make an
assessment for invoices under 270 days old to determine their collectability.
This change in accounting estimate has resulted in an impairment provision
against trade receivables for legal services of £3,787,379 (2022: £745,523).
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.
In the year ending 31 December 2021, the Company was informed that HMRC had
started an inquiry into the valuation of employee related securities issued by
the Company in April 2018 prior to the IPO, this inquiry is on-going. For full
details, refer to Note 33.
4. Financial instruments - Risk Management
The Group is exposed through its operations to the following financial risks:
· Credit risk
· Interest rate 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.
There have been no substantive changes in the Group's exposure to financial
instrument risks, its objectives, policies and processes for managing those
risks or the methods used to measure them from the previous period unless
otherwise stated in this note.
(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
· Floating-rate bank loans
(ii) Financial instruments by category
Financial assets - Group Fair value through profit or loss Amortised cost
31 December 2023 31 December 2022 31 December 2023 31 December 2022
restated restated
£ £ £ £
Cash and cash equivalents - - 2,262,750 2,588,242
Trade and other receivables - - 17,354,918 25,701,508
Total financial assets - - 19,617,668 28,289,750
On 31 December 2023, financial assets held at fair value through profit or
loss of £nil were transferred to assets held for sale (2022: £4,895,514).
Financial assets held at amortised cost of £103,173 were transferred to
assets held for sale (2022: £5,167,655). Refer to note 13 for further
details.
Financial assets - Company Fair value through profit or loss Amortised cost
31 December 2023 31 December 2022 31 December 2023 31 December 2022
£ £ £ £
Cash and cash equivalents - - 340,549 413,635
Trade and other receivables - - 44,806,135 53,758,535
Total financial assets - - 45,146,684 54,172,170
Financial Liabilities - Group Fair value through profit or loss Amortised cost
31 December 2023 31 December 2022 31 December 2023 31 December 2022
Restated
£ £ £ £
Trade payables and accruals - - 9,291,151 7,381,930
Loans and borrowings - - 25,311,894 22,205,640
Other payables - - 108,261 100
Total financial liabilities - - 34,711,306 29,587,670
On 31 December 2023, financial liabilities carried at amortised cost of
£103,972 were transferred to liabilities held for sale (2022: £1,340,455),
refer to note 13.
Financial Liabilities - Company Fair value through profit or loss Amortised cost
31 December 2023 31 December 2022 31 December 2023 31 December 2022
£ £ £ £
Trade payables and accruals - - 4,219,262 4,290,801
Total financial liabilities - - 4,219,262 4,290,801
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, trade and other payables, loans and
borrowings.
Due to their short-term nature, the carrying value of cash and cash
equivalents, trade and other receivables, and 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 Group Finance Director 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. The Group is mainly exposed to credit risk from credit sales. 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.
Interest rate risk
The Group is exposed to cash flow interest rate risk from borrowings under the
Term Facility and Revolving Credit Facility at variable rate. The Board
reviews the interest rate exposure on a regular basis.
During 2023 and 2022, the Group's borrowings at variable rate were denominated
in sterling. At 31 December 2023, if interest rates on sterling denominated
borrowings had been 150 basis points higher/lower with all other variables
held constant, profit after tax for the year would have been £291,600
lower/higher, mainly as a result of higher/lower interest expense on
floating-rate borrowings. The directors consider that 150 basis points is the
maximum likely change in sterling interest rates over the next year, being the
period up to the next point at which the Group expects to make these
disclosures.
Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
finance charges and principal repayments on its debt instruments. It 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 for the
Group on a regular basis as well as information regarding cash balances.
In December 2023, the Group renewed and extended its existing borrowing
facilities with HSBC.
The renewed facility which runs until 31 December 2025, total £24.0 million
and consists of a £17.5 million revolving credit facility and a £6.5 million
term loan. The renewed facility replaces the facilities which were due for
renewal in April 2024. The interest rate on the renewed facility will remain
the same as for the previous facilities, paying a margin of 2.4% - 3.15% over
the Sterling Overnight Index Average (SONIA), resulting in a current effective
rate of 8.3%.
The facility is secured by the debenture which grants first ranking fixed and
floating security of the property and assets of the Group as referenced in
Notes 16 and 18.
Additionally, the Group drew down £0.8m from two short term loans that are
repayable over two years.
At the year end the Group had £2.3 million in cash, and so a net debt
position of £22.9 million (2022: £19.2 million).
At the end of the financial year, cash flow projections indicated that the
Group expected to have sufficient liquid resources to meet its obligations,
including scheduled lease payments (Note 17), under all reasonably expected
circumstances.
Capital Management
The Group monitors "adjusted capital" which comprises all components of equity
(i.e., share capital, share premium, non-controlling interest 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 by pricing products and
services commensurately with the level of risk
5. 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)
· Professional Services - Provision of sell-side M&A corporate
finance services, (professional services are provided by Convex and have been
reclassified to discontinued operations, Note 13)
2023 Legal services Total
£ £
Segment revenue 39,209,854 39,209,854
Disbursement asset revenue 1,221,854 1,221,854
Disbursement asset expenditure (827,834) (827,834)
Segment contribution 17,180,771 17,180,771
Costs not allocated to segments
Personnel costs (3,569,936)
Depreciation and amortisation (3,251,607)
Other operating expense (19,606,277)
Net financial expenses (2,118,791)
Group loss for the year before tax on continuing operations (11,365,839)
2022 (restated) Legal services Third party participation rights Total
£ £ £
Segment revenue 44,873,908 - 44,873,908
Segment gains on litigation assets comprising:
Proceeds on disposal of damages based assets - 2,021,700 2,021,700
- 2,021,700 2,021,700
Disbursement asset revenue 2,847,487 2,847,487
Disbursement asset expenditure (3,241,507) (3,241,507)
Segment contribution 22,461,803 - 22,461,803
Segment gains on litigation assets - 2,021,700 2,021,700
Costs not allocated to segments
Personnel costs (5,035,073)
Depreciation and amortisation (3,432,764)
Other operating expense (16,791,399)
Net financial expenses (1,319,155)
Loss on sale of equity accounted associate (21,643)
Group profit for the year before tax on continuing operations (2,116,531)
Total assets and liabilities by operating segment are not reviewed by the
chief operating decision makers and are therefore not disclosed.
A geographical analysis of revenue is given below:
Revenue by location of clients
2023 2022
£ £
restated
United Kingdom 28,976,058 37,960,608
Europe 1,838,158 1,528,152
North America 2,514,385 567,170
Other 5,881,253 4,817,978
39,209,854 44,873,908
Revenues from Legal Services clients that account for more than 10% of Group
revenue was £5,326,686 (2022: £6,632,334).
Contract assets - work in progress
2023 2022
Group £ £
At 1 January 9,703,812 5,976,258
Transfers in the period from contract assets to trade receivables (5,059,785) (3,039,106)
Impairment of contract assets (733,191) (412,125)
Excess of revenue recognised over cash (or rights to cash) being recognised 4,332,502 7,178,785
during the year
At 31 December 8,243,338 9,703,812
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. Material profit or loss items
The Group has identified a number of items which are material due to the
significance of their nature and/or amount. These are listed separately here
to provide a better understanding of the financial performance of the Group.
The below items have been identified as non-underlying and therefore are
adjusted for in the calculation of adjusted EBITDA.
Notes 2023 2022
£ £
Non-underlying items
Costs of acquiring subsidiary a 25,000 367,303
Contract assets - damages based agreement asset impairment b - 6,670,481
Release of onerous contract provision b 301,727 562,979
Trade receivables - provision against damages based agreement receivable c 920,127 1,296,470
Costs associated with discontinued operations d 5,648,109 -
Costs associated with re-financing project e 787,193 -
Other one-off costs f 2,081,890 -
Trade receivable provision g 1,038,163 -
Restructuring (release)/costs h (168,167) 803,631
6a Cost of acquiring subsidiary
Costs associated with the failed acquisition of a subsidiary within 2022. The
cost incurred within 2023 relates to additional invoice received within the
year, relating to the project from 2022.
6b Contract assets - damages based agreement impairment
Damages based agreement assets are initially recognised as revenue under IFRS
15 to the extent it is highly probable that a significant reversal in the
amount will not occur in the future and a disbursement asset will be
recognised in the balance sheet. The Group has two cases under damaged based
agreements.
For the first case, disbursements are recoverable either in the case of a win
or where the client or the Group terminate the agreement. Under IFRS 15, this
case is treated as a contract asset and an impairment assessment is performed
under IFRS 15.
During the year ended 31 December 2022, the probability of success of this
case was reduced from 90% to 50% and the value of the contract asset at this
point in time (£6,670,481) was written off. At this point in time, the
contract became onerous and the Group recognised a provision for costs to
fulfil the contract.
6c Trade receivables - provision against damages based agreement
For the second damages based agreement asset that the Group has, the
disbursements are recoverable in a win or lose situation. As such, the revenue
recognition point is the point at which the expense is incurred by the Group.
IFRS 15 requires the presentation of any unconditional rights to consideration
as a receivable separately from contract assets and an expected credit loss
(ECL) assessment is performed at year end.
As a result of the ECL assessment, the Group has fully provided against the
receivable for this damages based agreement.
6d Costs associated with disposal of LionFish
During the year ended 31 December 2023, the Group disposed of its subsidiary
LionFish Litigation. As a result of this disposal, the Group wrote off a
portion of the intercompany balance owed by LionFish.
Additionally, as part of the consideration received for the sale of LionFish,
the Group retained Litigation Assets relating to previous cases which LionFish
had invested in and had lost at point of sale, so the remaining balance sheet
value associated with these cases was written off.
6e Costs associated with re-financing project
During the year ended 31 December 2023, the Group carried out and completed a
re-financing project which result in the extension of its existing facilities.
The Group engaged with a third-party consultancy Group to assist with the
management of this project.
6f Other one-off costs
During the year ended 31 December 2023, the Group has incurred a number of
one-off or non-recurring costs, they have been classified as non-underlying as
they do not represent costs incurred in the normal course of business. These
costs include legal fees for settlement claims, costs associated with
settlements and public relation costs associated with these settlements.
6g Trade receivables provision - estimate change
During the year ended 31 December 2023, the Group reviewed the accounting
estimate for expected credit losses on trade receivables and determined there
was not sufficient coverage. As a result, an amount has been recognised as
non-underlying items that represents the change in provision as at 31 December
2023.
6h Restructuring (release)/costs
During the year ended 31 December 2022, there were restructuring costs
incurred by the Group, the release within the year ended 31 December 2023
represents the portion of the 2022 cost that was not incurred/paid out and
therefore required the accrual to be released.
7. Other operating income
2023 2022
£ £
Other income - 159,280
Bank interest on client monies 885,422 (3,234)
885,422 156,046
8. Disbursement asset revenue/expenditure
2023 2022
£ £
Disbursement asset revenue 1,221,854 2,847,487
Disbursement asset expenditure
Costs incurred 1,221,854 2,847,487
Provision (released)/recognised (394,020) 394,020
(827,834) (3,241,507)
The costs relate directly to the contract, the first case met the definition
of an onerous contract at the end of 2022, therefore a provision was made
within 2022 for costs to meet the obligations of the contract. During the year
ended 31 December 2023, the provision was released against the costs incurred.
This case lost during the current year and therefore no asset was recognised
for these costs. The costs associated with the second case were recognised as
an asset from costs to fulfil a contract, this asset was reviewed for ECL and
was impaired based on the Group's assessment that the costs would not be
recoverable from the client.
9. Profit from operations and auditor's remuneration
2023 2022
restated
£ £
Profit from operations is stated after charging:
Fees payable to the company's auditors:
Audit fees 351,765 290,000
Other services - pursuant to legislation/regulation 3,035 36,684
Depreciation of property, plant and equipment 484,412 530,529
Amortisation of right-of-use assets 2,028,585 2,064,823
Amortisation/impairment of intangible assets 738,610 837,412
For the year ended 31 December 2023, depreciation of property, plant and
equipment of £12,091 (2022 restated: £25,874) was transferred to
discontinued operations. Amortisation of right of use assets of £110,332
(2022: £88,762) was transferred to discontinued operations.
The Alternative Performance Measures used by Management are shown below:
2023 2022
restated
£ £
Operating (loss)/profit (9,247,048) (775,734)
Depreciation and amortisation expense 3,251,607 3,432,764
Non-underlying items 10,634,043 9,700,864
Adjusted EBITDA 4,638,601 12,357,894
2023 2022
Restated
£ £
(Loss)/Profit before tax (11,635,839) (2,116,531)
Non-underlying items 10,634,043 9,700,864
Adjusted Profit before tax (731,797) 7,584,333
10. Employees
Group
2023 2022
restated
£ £
Staff costs (including directors) consist of:
Wages and salaries 19,639,680 20,060,891
Short-term non-monetary benefits 265,217 254,585
Cost of defined contribution scheme 762,278 695,206
Share-based payment expense - 6,244
Social security costs 2,394,358 2,619,683
23,061,533 23,636,609
Personnel costs stated in the consolidated statement of comprehensive income
includes the costs of contractors of £3,816,927 (2022 restated: £3,547,508).
Staff costs transferred to discontinued operations during the year of
£324,474 (2022 restated: £3,654,197)
Contractors' costs transferred to discontinued operations during the year of
£866 (2022 restated: £356,986)
The average number of employees (including directors) during the year was as
follows:
2023 2022
Number Number
Legal and professional staff 136 138
Administrative staff 64 73
200 211
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 for continuing operations to the funds and
amounted to £762,278 (2022 restated: £693,157).
Contributions amounting to £189,132 (2022: £256,340) were payable to the
funds at year end and are included in Trade and other payables.
Company
The average number of employees (excluding directors) during the period was
four (2022: nine); all other personnel are employed by subsidiary
undertakings.
Details of the Directors' remuneration payable in the year is set out below:
Basic Salary and/or Directors Fees Employer Pension Contributions Total
£ £ £
31 December 2023
M Ismail 85,000 - 85,000
P Baker 40,000 - 40,000
D Wilkinson 40,000 - 40,000
N Davis (appointed 3 Mar 2023) 288,845 13,083 301,928
T MacLeod (appointed 3 Mar 2023) 298,254 8,648 306,902
I Rosenblatt (appointed 27 Jul 2023) 2,258,834** - 2,258,834
J Divers (appointed 3 Mar 2023) 372,593 12,500 385,093
K McNair (appointed 28 Nov 23) 20,833 938 21,771
K Hamill (resigned 22 Jun 2023) 45,000 - 45,000
S Drakeford-Lewis (resigned 30 Jun 2023) 127,500 3,825 131,325
N Foulston (terminated 31 Jan 2023) 37,152 - 37,152
3,614,011 38,994 3,653,005
** Of this amount, £637,500 remained payable as at 31 December. Ian
Rosenblatt subsequently agreed to receive this amount in shares as part of the
equity that was announced in February 2024.
Basic Salary and/or Directors Fees Employer Pension Contributions Total
£ £ £
31 December 2022
S Drakeford-Lewis 14 (#_ftn14) - - -
N Foulston (terminated 31 Jan 2023) 445,820 (333) 445,487
K Hamill 90,000 - 90,000
M Ismail 40,000 - 40,000
R Parker (resigned 31 Dec 2022) 611,000 24,000 635,000 15 (#_ftn15)
P Baker 37,737 - 37,737
D Wilkinson 37,737 - 37,737
1,262,294 23,667 1,285,961
Directors who have an interest in the shares of the Company will benefit
through dividend payments.
During the year the following bonuses were received by directors and are 31 December 2023 16 (#_ftn16) 31 December 2022
included within Basic Salary and/or Directors' Fees.
£ £
J Divers 122,593 -
N Davis 17,178 -
S Drakeford-Lewis 25,000 -
R Parker - 50,000
Details of the transactions with Directors are included in Note 30. The
directors are considered to be the key management personnel.
11. Finance income and expense
2023 2022
£ £
Recognised in profit or loss
Finance income
Interest received on bank deposits 51,318 14,509
Net finance income recognised in profit or loss 51,318 14,509
Finance expense
Interest expense on financial liabilities measured at amortised cost (1,687,122) (811,352)
Interest expense on lease liabilities (482,987) (522,311)
(2,170,109) (1,333,663)
Net finance (expense) recognised on profit or loss (2,118,791) (1,319,154)
The above financial income and expense include the following in respect of
assets/(liabilities) not at fair value through profit or loss:
2023 2022
£ £
Total interest income on financial assets 51,318 14,509
Total interest expense on financial liabilities (1,687,122) (811,352)
(1,635,804) (796,843)
12. Tax expense
2023 2022
restated
£ £
Current tax expense
Current tax on profits for the year - -
Adjustment for under provision in prior years - (443,490)
Total current tax - (443,492)
Deferred tax expense
Origination and reversal of temporary differences in current period (Note 26) (445,317) (747,939)
Origination and reversal of temporary differences in prior period (Note 26) - 23,575
Total tax expense (445,317) (1,167,854)
Tax charge attributable to:
Profit from continuing operations (322,720) (469,118)
Profit/(loss) from discontinued operations (122,597) (698,736)
Tax expense excluding share of tax of equity accounted associate (455,317) (1,167,854)
(455,317) (1,167,854)
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 year are as follows:
2023 2022
restated
£ £
(Loss) for the year from:
Continuing operations (11,043,119) (1,647,413)
Discontinued operations (12,875,822) (3,073,350)
(23,918,941) (4,720,763)
Income tax expense (including income tax on associate) attributable to: (445,317) (1,167,854)
Continuing operations (322,720) (469,118)
Discontinued operations (122,597) (698,737)
Profit before income taxes (24,364,258) (5,888,617)
Tax using the Company's domestic tax rate of 23.5% (2022: 19%) (5,725,601) (1,118,837)
Fixed asset differences 91,463 (675)
Expenses not deductible for tax purposes 3,480,519 91,370
Income not taxable for tax purposes (350,666) -
Timing differences not recognised in the computation (42,036) -
Adjustments in respect of prior periods - 8,341
Adjustments in respect of prior periods (deferred tax) - 23,575
Remeasurement of deferred tax for changes in tax rates (32,552) (171,627)
Movement in deferred tax not recognised 2,133,556 -
Total tax expense (445,317) (1,167,854)
Changes in tax rates and factors affecting the future tax charge
On 1 April 2023, the UK corporation tax rate increased from 19% to 25%. The
effect of the new rate on the Group's tax charge has been applied to the
financial statements.
13. Discontinued operations
Convex Capital Limited
During the year ended 31 December 2023, the Board made the decision to dispose
of Convex Capital Limited ("Convex").
Financial performance and cash flow information
The financial performance and cash flow information presented are for the 12
months ending 31 December 2023 and 31 December 2022
Summary of discontinued operations - reconciliation to profit or loss
2023 2022
£ £
Revenue 2,221,674 956,050
Expenses other than finance costs (2,871,945) (4,609,684)
Finance costs (43,358) (6,387)
Non-underlying items 1,490,928 (112,066)
Impairment of intangible assets (13,694,754) -
Tax credit/(expense) 122,597 698,737
Loss from selling discontinued operations after tax (90,964) -
Profit/(Loss) for the year (12,875,822) (3,073,350)
Reconciliation to statement of cash flows
2023 2022
£ £
Net cash (outflow)/inflow from operating activities (796,422) 1,388,283
Net cash (outflow) from investing activities (2,586) (12,964)
Net cash inflow/(outflow) from financing activities 482,524 (1,139,753)
Net (decrease)/increase in cash generated (316,484) 235,566
Cash and cash equivalents at beginning of period 423,843 188,277
Cash and cash equivalents at end of period 107,359 423,843
Breakdown of discontinued operations by entity:
2023 2022
Discontinued operations - Convex £ £
Revenue 2,234,800 5,274,075
Expenses other than finance costs (2,539,273) (4,109,076)
Finance costs (26,220) (6,387)
Non-underlying items - (31,177)
Tax credit/(expense) 122,597 (215,899)
(Loss)/Profit for the year (208,096) 911,536
Attributable to:
Equity holders of the parent (208,096) 911,536
2023 2022
Cash flow £ £
Net cash (outflow)/inflow from operating activities (893,119) 1,396,086
Net cash (outflow) from investing activities (2,586) (12,575)
Net cash inflow/(outflow) from financing activities 590,626 (1,139,753)
Net (decrease)/increase in cash generated (305,079) 243,758
Assets and liabilities of disposal group held for sale
The following major classes of assets and liabilities in relation to Convex
have been classified as held for sale in the consolidated statement of
financial position.
2023 2022
£ £
Property, plant and equipment 10,661 21,867
Right-of-use assets 544,386 654,718
Intangible assets 2,600,000 16,327,834
Trade and other receivables 106,728 118,582
Cash and cash equivalents 107,359 412,438
Assets held for sale 3,369,134 17,535,439
Trade and other payables 240,181 (176,486)
Leases 541,610 654,452
Amounts due to parent company 82,692 -
Tax liabilities 93,944 587,799
Liabilities held for sale 958,476 1,065,765
Lionfish Litigation Finance Limited
In December 2022, the Board announced its intention to dispose of LionFish
Litigation Finance Limited ("LionFish").
On 12 August 2020, the Company agreed put options over the shares of LionFish
held by the non-controlling interest. Under this agreement, the holder of the
shares could require the Company to buy the shares in LionFish, with
consideration based on a multiple of LionFish profits, settled by the issue of
ordinary shares in the Company. On 8 December 2022, the minority shares were
transferred to the Group for £nil and this agreement was terminated, during
the year ended 31 December 2022 the present value of the put option was
released through the Statement of Changes in Equity.
In July 2023 the Group completed its disposal of LionFish to Blackmead
Infrastructure Limited.
The post-tax loss on disposal of discontinued operation was determined as
follows:
31-Dec-23
£
Cash consideration received 1,074,734
Other consideration received 3,782,098
Total consideration received 4,856,832
Cash disposed of 4,000
Net cash inflow of disposal of discontinued operation 4,852,832
Net assets disposed (other than cash):
Property, plant and equipment (742)
Trade and other receivables (1,136)
Litigation assets (5,603,898)
Trade and other payables 661,980
(4,943,796)
Pre-tax loss on disposal of discontinued operation (90,964)
Related tax benefit 22,741
Loss on disposal of discontinued operation (68,223)
Financial performance and cash flow information
The financial performance and cash flow information presented are for the 12
months ending 31 December 2023 and 31 December 2022
2023 2022
Discontinued operations - LionFish £ £
(Loss) on litigation assets (23,126) (4,318,025)
Expenses other than finance costs (332,672) (500,608)
Finance costs (17,138) -
Non-underlying items 1,490,928 (80,889)
Tax credit/(expense) - 914,635
Loss from selling discontinued operation after tax (90,964) -
Profit/(Loss) for the year 1,027,028 (3,984,887)
Attributable to:
Equity holders of the parent 1,027,028 (3,599,325)
Non-controlling interests - (385,562)
1,028,028 (3,984,887)
2023 2022
Cash flow £ £
Net cash inflow/(outflow) from operating activities 96,697 (7,803)
Net cash outflow from investing activities - (389)
Net cash outflow from financing activities (108,102) -
Net (decrease) in cash generated (11,405) (8,192)
Assets and liabilities of disposal group held for sale
The following major classes of assets and liabilities in relation to LionFish
have been classified as held for sale in the consolidated statement of
financial position.
2023 2022
£ £
Property, plant and equipment - 2,770
Litigation investments - 5,331,698
Trade and other receivables - 1,244
Cash and cash equivalents - 11,405
Assets held for sale - 5,347,117
Trade and other payables - 1,283,883
Amounts due to parent company - 4,766,624
Tax liabilities - 412,551
Liabilities held for sale - 6,463,058
14. Earnings per share
Total Total
2023 2022
Restated
Numerator £ £
Profit for the year and earnings used in basic and diluted EPS:
From continuing operations (11,043,118) (1,647,413)
From discontinued operations 818,932 (2,687,789)
Non-Underlying items
Costs of acquiring subsidiary 25,000 367,303
Contract assets - damage based agreement asset impairment 6,670,481
Release of onerous contract provision 301,727 562,979
Trade receivables - provision against damages based agreement receivable 920,127 1,296,470
Group costs associated with discontinued operations 5,648,109 -
Costs associated with re-financing project 787,193 -
Other one-off costs 2,081,890 -
(Release)/accrual of restructuring costs (168,167) 803,631
Trade receivable provision change 1,038,163 -
Less: tax effect of above items (2,658,511) (1,824,410)
Profit for the year adjusted for non-underlying items from continuing (3,067,586) 6,229,042
operations
Denominator Number Number
Weighted average number of shares used in basic EPS 95,331,236 95,331,236
Impact of share options 188,392 188,392
Weighted average number of shares used in diluted EPS 95,519,628 95,519,628
2023 2022
Pence Pence
Restated
Basic earnings per ordinary share from continuing operations (11.58) (1.73)
Diluted earnings per ordinary share from continuing operations (11.58) * (1.73) *
Basic earnings per ordinary share from discontinued operations 0.86 (2.82)
Diluted earnings per ordinary share from discontinued operations 0.86 (2.82) *
Basic earnings per ordinary share from total operations (25.09) (4.55)
Diluted earnings per ordinary share from total operations (25.09) * (4.55) *
Basic earnings per ordinary share adjusted for non-underlying items from (3.22) 6.53
continuing operations
Diluted earnings per ordinary share adjusted for non-underlying items from (3.22) * 6.52
continuing operations
* The potentially dilutive instruments were anti-dilutive during 2022 and
2023.
On 22 February and 12 March 2024, the Group issued shares of 9,533,125 and
23,814,521 respectively. Following the Second Admission (12 March 2024), it
issued share capital comprised 128,678,882 shares.
Earnings per share have been recalculated based on a weighted average of the
number of shares at 31 December 2023 and following the Second Admission on 12
March 2024.
Denominator Number
Weighted average number of shares used in basic EPS 112,005,059
Impact of share options 188,392
Weighted average number of shares used in diluted EPS 112,193,451
2023
Pence
Basic earnings per ordinary share from continuing operations (9.86)
Diluted earnings per ordinary share from continuing operations (9.86) *
Basic earnings per ordinary share from discontinued operations 0.73
Diluted earnings per ordinary share from discontinued operations 0.73
Basic earnings per ordinary share from total operations (21.36)
Diluted earnings per ordinary share from total operations (21.36) *
Basic earnings per ordinary share adjusted for non-underlying items from (2.74)
continuing operations
Diluted earnings per ordinary share adjusted for non-underlying items from (2.76) *
continuing operations
* The potentially dilutive instruments were anti-dilutive during 2023.
15. Dividends
2023 2022
£ £
Interim dividend of 0.5p (2022: 3p) per ordinary share proposed and paid 471,702 2,832,898
during the year relating to the previous year's results
Interim dividend of nil (2022: 2p) per ordinary share paid during the year - 1,903,173
471,702 4,736,071
16. Property, plant and equipment
Group
Leasehold improvements Fixtures and fittings Computer Equipment Total
£ £ £ £
Cost
At 1 January 2022 2,710,279 251,294 779,546 3,741,119
Additions 7,471 87,883 103,998 199,352
Transferred to assets held for sale (20,197) (10,602) (56,552) (87,351)
At 31 December 2022 (restated) 2,697,553 328,575 826,992 3,853,120
At 1 January 2023 (restated) 2,697,553 328,575 826,992 3,853,120
Additions - 3,713 320,314 324,027
At 31 December 2023 2,697,553 332,288 1,147,306 4,177,147
Accumulated depreciation and impairment
At 1 January 2022 487,148 116,989 554,071 1,158,208
Charge for the period 285,370 109,399 157,536 552,305
Transferred to assets held for sale (17,216) (7,847) (40,421) (65,484)
At 31 December 2022 (restated) 755,302 218,541 671,186 1,645,029
At 1 January 2023 (restated) 755,303 218,540 671,186 1,645,029
Charge for the year 246,723 89,439 148,250 484,412
At 31 December 2023 1,002,026 307,979 819,436 2,129,441
Net book value
At 1 January 2022 2,223,131 134,305 225,475 2,582,911
At 31 December (restated) 1,942,250 110,035 155,806 2,208,091
At 31 December 2023 1,695,527 24,309 327,870 2,047,706
Property, plant and equipment transferred to held for sale at 31 December 2023
of £10,661 (2022: £24,637).
The Group has no contractual commitments for the acquisition of property,
plant and equipment.
Company
Computer Equipment Total
£ £
Cost
At 1 January 2022 18,750 18,750
Additions - -
At 31 December 2022 18,750 18,750
At 1 January 2023 18,750 18,750
Additions - -
At 31 December 2023 18,750 18,750
Accumulated depreciation and impairment
At 1 January 2022 17,667 17,667
Charge for the year 1,038 1,038
At 31 December 2022 18,705 18,705
At 1 January 2023 18,705 18,705
Charge for the year 45 45
At 31 December 2023 18,750 18,750
Net book value
At 1 January 2023 45 45
At 31 December 2023 - -
Under a debenture signed and registered on 19 April 2021, HSBC UK Bank plc
have a fixed charge over the property, plant and equipment of the Group.
The Company has no contractual commitments for the acquisition of property,
plant and equipment.
17. 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.
The percentages in the table below reflect the current proportions of lease
payments that are either fixed or variable. The sensitivity reflects the
impact on the carrying amount of lease liabilities and right-of-use assets if
there was an uplift of 5% on the balance sheet date to lease payments that are
variable.
At 31 December 2023 Lease Contract Variable Payments Sensitivity
Number % £000
Property leases with payments linked to inflation 1 38.7% +/- 174
Property leases with periodic uplifts to market rentals 1 61.3% +/- 574
2 100.0% +/- 748
The percentages in the table below reflect the proportions of lease payments
that are either fixed of variable for the comparative period.
At 31 December 2022 Lease Contract Variable Payments Sensitivity
Number % £000
Property leases with payments linked to inflation 1 78.3% +/- 218
Property leases with periodic uplifts to market rentals 1 21.7% +/- 653
2 100.0% +/- 872
Right-of-use Assets
Land and buildings Total
£ £
At 1 January 2022 15,913,008 15,913,008
Amortisation (2,153,585) (2,153,585)
Variable lease payment adjustment 1,314,709 1,314,709
Transferred to assets held for sale (654,718) (654,718)
At 31 December 2022 (restated) 14,419,414 14,419,414
At 1 January 2023 14,419,414 14,419,414
Amortisation (2,028,522) (2,028,522)
At 31 December 2023 12,390,892 12,390,892
Lease liabilities
Land and buildings Total
£ £
At 1 January 2022 15,849,101 15,849,101
Interest expense 528,698 528,698
Variable lease payment adjustment 1,314,709 1,314,709
Lease payments (1,740,524) (1,740,524)
Transferred to assets held for sale (258,474) (258,474)
At 31 December 2022 (restated) 15,693,510 15,693,510
At 1 January 2023 15,693,510 15,693,510
Interest expense 472,410 472,410
Lease payments (2,596,779) (2,596,779)
At 31 December 2023 13,569,141 13,569,141
At 31 December 2023, 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 546,845 1,677,528 2,318,301 4,183,776 4,842,691 13,569,141
The aggregate undiscounted commitments for low-value leases as at 31 December
2023 was £nil (2022: £nil).
18. 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
Additions - - - - -
Transferred to assets held for sale (15,775,039) (1,167,673) (661,596) - (17,604,308)
At 31 December 2022 (restated) 36,087,129 538,905 2,698,878 1,000,000 40,324,912
At 1 January 2023 36,087,129 538,905 2,698,878 1,000,000 40,324,912
Additions - - - 2,500,000 2,500,000
At 31 December 2023 36,087,129 538,905 2,698,878 3,500,000 42,824,912
Accumulated amortisation and impairment
At 1 January 2022 - 1,466,599 270,058 333,333 2,069,990
Amortisation charge - 169,389 168,024 500,000 837,413
Transferred to assets held for sale - (1,167,673) (108,801) - (1,276,474)
At 31 December 2022 - 468,315 329,281 833,333 1,630,929
At 1 January 2023 - 468,315 329,281 833,333 1,630,929
Amortisation charge - 70,590 134,940 500,000 705,530
At 31 December 2023 - 538,905 464,221 1,333,333 2,336,459
Net book value
At 1 January 2022 51,862,168 239,979 3,090,416 666,667 55,859,230
At 31 December 2022 (restated) 36,087,129 70,590 2,369,597 166,667 38,693,983
At 31 December 2023 36,087,129 - 2,234,657 2,166,667 40,488,453
Under a debenture signed and registered on 19 April 2021, HSBC UK Bank plc
have a fixed charge over the intangible assets of the Group.
During the year, intangible assets with an opening net book value of
£16,327,834 relating to Convex Capital were transferred to assets held for
sale. Further amortisation of £33,080 was charged to these intangible assets
during the year ended 31 December 2023. An impairment assessment was performed
on these intangible assets where it was determined that an impairment of
£13,694,754 was required.
19. Impairment of goodwill and other intangible assets
The Group is required to test, on an annual basis, whether goodwill and other
intangible assets have suffered any impairment. The recoverable amounts are
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
amounts were determined to be higher than the carrying amounts and so no
impairment losses were recognised.
The recoverable amounts have 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 pre-tax discount rate of 25% was applied in determining the
recoverable amount. The discount rate is based on the average weighted cost of
capital
· Growth rates over the longer term of between 0-3% 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 sufficient headroom such that the estimated carrying
values from continuing operations are 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.
An impairment in relation to Convex Capital goodwill and intangible assets was
made during the financial year.
20. Subsidiaries
The principal subsidiaries of RBG Holdings plc, which are incorporated in
England and Wales and have been included in these consolidated financial
statements, are as follows:
Name Principal Activity Registered Number Proportion of ownership interest
2023 2022
RBL Law Limited Legal Services 09986118 100% 100%
RBG Legal Services Limited Legal Services 13287062 100% 100%
Convex Group (Holdings) Limited Holding Company 11490871 100% 100%
Convex Capital Limited Professional Services 11491052 100% 100%
LionFish Litigation Finance Limited 17 (#_ftn17) Litigation Finance 12165991 - 100%
Islero Assignments Limited Dormant 12754244 - 100%
Memery Crystal Limited Dormant 13600674 100% 100%
Rosenblatt Limited Dormant 13601148 100% 100%
The principal place of business of Convex Group (Holdings) Limited and Convex
Capital Limited is Bass Warehouse, 4 Castle Street, Manchester, M3 4LZ. The
principal place of business and registered office of RBG Legal Services
Limited is 165 Fleet Street, London, England, EC4A 2DY. The principal place of
business of the other subsidiaries and the registered address of each
subsidiary is 165 Fleet Street, London, England, EC4A 2DY.
For the year ending 31 December 2023, the principal subsidiary companies, set
out above, were exempt from the requirements of the Companies Act relating to
the audit of individual accounts by virtue of section 479A of the Companies
Act 2006. RBG Holdings plc, has given a statement of guarantee under the
Companies Act 2006 section 479C, whereby RBG Holdings plc will guarantee all
outstanding liabilities to which the respective subsidiary companies are
subject as at 31 December 2023.
Company
2023 2022
£ £
Cost and net book value
At 1 January 27,501,378 27,501,278
Investments in subsidiaries - 100
Impairment in subsidiary held for sale (13,694,754) -
At 31 December 13,806,624 27,501,378
Impairment in subsidiary held for sale relates to Convex Capital Limited which
was classified as a discontinued operation at 31 December 2023 and
subsequently sold in March 2024.
This impairment has been arrived at by reviewing intangible assets held in
Convex, less consideration received.
21. Investments in associate
In June 2022, the Group sold its 40% interest in Adnitor Limited. The post-tax
loss on disposal of investment in associate was determined as follows:
2023 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)
22. Trade and other receivables
Group
Group Group Group
31 Dec 2023 31 Dec 2022 1 Jan 2022
Restated Restated
£ £ £
Trade receivables 14,131,346 12,229,829 10,456,340
Less: provision for impairment of trade receivables (6,170,819) (2,315,087) (828,694)
Trade receivables - net 7,960,527 9,914,742 9,627,646
Contract assets 8,243,338 9,703,812 12,378,702
Amounts due from discontinued operations 82,692 4,766,624 760,081
Corporation tax receivable 725,723 656,982 -
Other taxes and social security - - -
Other receivables 1,068,361 659,347 1,003,079
Total financial assets other than cash and cash equivalents classified as 18,080,641 25,701,508 23,769,508
amortised cost
Prepayments 1,019,834 2,170,051 1,963,850
Total trade and other receivables 19,100,475 27,871,559 25,733,358
Due within one year or less 19,100,475 27,871,559 19,330,914
Due after more than one year - 6,402,444
19,100,475 27,871,559 25,733,358
At 31 December 2023, trade and other receivables of £106,728 (2022:
£119,806) were transferred to assets held for sale - discontinued operations.
Trade receivables are made up of the following:
Group Group Group
31 Dec 2023 31 Dec 2022 1 Jan 2022
£ £ £
Trade receivables for legal services revenue (a) 11,641,655 10,660,265 10,183,246
Trade receivables for damages based agreement (b) 2,489,691 1,569,564 273,094
14,131,346 12,229,829 10,456,340
(a) Trade receivables from legal services revenue relates to balances due on
work invoiced for the supply of legal services.
(b) Trade receivables for damaged based agreement relates to a case the Group
has entered into and the disbursements are recoverable from the client whether
the case wins or loses. At each reporting date, an ECL assessment is performed
on the asset in line with IFRS 9 and an impairment is recognised as
appropriate.
The Group have performed an ECL assessment at each year end and have
determined that in the event of a loss, the disbursements are not recoverable
and have therefore impaired the asset.
Contract assets are made up of the following:
Group Group Group
31 Dec 2023 31 Dec 2022 1 Jan 2022
£ £ £
Work in progress (a) 8,243,338 9,703,812 5,976,258
Damages based agreement assets (b) - - 6,402,444
8,243,338 9,703,812 12,378,702
(a) Work in progress relates to time recorded by fee earners that has not been
billed at balance sheet date.
(b) Where revenue is subject to contingent fee arrangements, including
services provided under Damages based agreements (DBAs) the Group recognises
an asset for the disbursements on these cases. The Group has two cases that
fall under damages based agreements.
For the first case, disbursements are recoverable either in the case of a win
or where the client or the Group terminate the agreement. Under IFRS 15, this
case is treated as a contract asset and an impairment assessment is performed
under IFRS 15. During the year ended 31 December 2022, the probability of
success was reduced from 90% to 50%, at this point, the case became an onerous
contract and costs to fulfil the contract were provided for.
The table below provides analysis of the movements in damages based agreement
assets:
2023 2022
restated
£ £
At 1 January - 6,402,444
Additions - 988,037
Realisations - (720,000)
Write off of damages based agreement asset - (6,670,481)
At 31 December - -
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
and contract assets. To measure expected credit losses on a collective basis,
trade receivables and contract assets are grouped based on similar credit risk
and aging. The contract assets have similar risk characteristics to the trade
receivables for similar types of contracts.
The expected loss rates are based on the Group's credit losses experienced
over the period since incorporation, 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.
The lifetime expected credit loss provision for trade receivables and contract
assets is as follows:
Current More than 30 days past due More than 60 days past due More than 120 days past due Total
£
31 December 2023
Expected loss rate 18.0% 3.9% 7.9% 52.4%
Gross carrying amount - trade receivables 2,536,027 1,247,100 1,664,689 6,193,839 11,641,655
Gross carrying amount - contract assets (Work in Progress) 8,243,338 - - - 8,243,338
Gross carrying amount - trade receivables - DBA assets 2,489,691 - - - 2,489,691
Loss provision 2,507,392 48,029 131,270 3,484,129 6,170,819
31 December 2022
Expected loss rate 10.2% 2.7% 3.8% 18.6%
Gross carrying amount - trade receivables 4,733,325 1,832,694 820,647 3,273,600 10,660,265
Gross carrying amount - contract assets (Work in Progress) 9,703,812 - - - 9,703,812
Gross carrying amount - trade receivables - DBA assets 1,569,564 - - - 1,569,564
Loss provision 1,626,725 49,528 30,947 607,887 2,315,087
None of the trade receivables and contract assets have been subject to a
significant increase in credit risk since initial recognition.
Movements in the impairment allowance for trade receivables are as follows:
2023 2022
£ £
At 1 January 2,315,087 828,694
Increase during the year 4,008,754 1,544,896
Receivable written off during the year as uncollectible (62,595) (24,247)
Unused amounts reversed (90,427) (34,257)
At 31 December 6,170,820 2,315,087
Included in other receivables is £17,872 (2022: £12,475) which is owed by
the Employee Benefit Trust.
Company
2023 2022
£ £
Amounts due from group companies 43,934,885 53,167,678
Corporation tax receivable 145,364 -
Other taxes and social security 347,822 -
Other receivables 361,110 403,633
Total financial assets other than cash and cash equivalents classified as 44,789,181 53,571,311
amortised cost
Prepayments 162,318 187,224
Total trade and other receivables 44,951,499 53,758,535
Due within one year or less 4,539,382 14,204,102
Due after more than one year 40,412,117 39,554,433
44,951,499 53,758,535
The loans due from RBG Legal Services and LionFish Litigation Finance are on
demand and interest free.
Management considers that there is no increase in credit risk on the related
party loans. Given that the loans are 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 losses to be close to
nil.
23. Trade and other payables
Group Company Group Company
2023 2023 2022 2022
restated
£ £ £ £
Trade payables 4,911,641 547,550 3,927,448 -
Corporation tax payable - - - -
Other taxes and social security 2,194,073 - 2,260,424 -
Amounts due to discontinued operations - - 647,324
Amounts due to group companies - 2,318,419 - 2,873,359
Derivative financial liabilities - - - -
Other payables 108,261 100 100 100
Accruals 4,379,510 1,353,193 2,807,158 1,417,342
At 31 December 11,593,485 4,219,262 9,642,454 4,290,801
Due within one year or less 11,593,485 4,219,262 9,642,454 4,290,801
Due after more than one year - - - -
11,593,485 4,219,262 9,642,454 4,290,801
The carrying value of trade and other payables classified as financial
liabilities measured at amortised cost approximates fair value.
At 31 December, trade and other payables of £334,175 (2022 restated:
£2,107,747) were transferred to liabilities held for sale - discontinued
operations (refer to note 13).
24. Loans and borrowings
The book value and fair value of loans and borrowings which are all
denominated in sterling are as follows:
Book value Fair value Book value Fair value
31 Dec 23 31 Dec 23 31 Dec 22 31 Dec 22
£ £ £ £
Non-current
Bank loans
Secured 22,687,488 22,687,488 20,000,000 20,000,000
Current
Bank loans
Secured 2,624,407 2,624,407 2,205,640 2,205,640
At 31 December 25,311,894 25,311,894 22,205,640 22,205,640
The rate at which Sterling denominated loans and borrowings are payable is
3.15% above SONIA (2022: 2.90%).
The bank loans are secured by fixed and floating charges over the assets of
the Group. The bank loans are repayable over four years, during the year
ending 31 December 2023, the Group signed an amendment and restatement deed
which postponed the termination date. The Group has £nil undrawn committed
borrowing facilities available at 31 December 2023 (2022: £nil).
25. Provisions
Group
Leasehold dilapidations Legal disputes Onerous contracts Total
£ £ £ £
At 1 January 2022 150,000 164,291 - 314,291
Charged to profit or loss - 47,245 956,999 1,004,244
(Released) through profit or loss - - (562,979) (562,979)
At 31 December 2022 150,000 211,536 394,020 755,556
At 1 January 2023 150,000 211,536 394,020 755,556
(Release) through profit or loss - (136,536) (394,020) (530,556)
At 31 December 2023 150,000 75,000 - 225,000
Due within one year or less - 75,000 - 75,000
Due after more than one year 150,000 - - 150,000
150,000 75,000 - 225,000
Leasehold dilapidations relate to the estimated cost of returning a leasehold
property to its original state at the end of the lease in accordance with the
lease terms. The main uncertainty relates to estimating the cost that will be
incurred at the end of the lease.
The Group is currently involved in a number of legal disputes. The amount
provided represents the directors' best estimate of the Group's liability
having taken legal advice. Uncertainties relate to whether claims will be
settled out of court or if not whether the Group is successful in defending
any action. Because of the nature of the disputes, the directors have not
disclosed further information on the basis that they believe that this would
be seriously prejudicial to the Group's position in defending the cases
brought against it.
The Group recognises a contract asset in line with IFRS 15 for one of its
damages based agreement cases. Management re-assessed the probability of
success of the case based on the information available at the time and the
probability of success was reduced from 90% to 50% during the year ended 31
December 2022 and the contract asset associated with this was impaired. At
this point in time, the case became an onerous contract and as such, a
provision was made for costs to fulfil the contract.
26. Deferred Tax
Deferred tax is calculated in full on temporary differences under the
liability method using a tax rate of 25% (2022: 25%).
On 1 April 2023, the UK corporate tax rate increased from 19% to 25% on 1
April 2023. As IFRS requires deferred tax to be measured at tax rates that
have been substantively enacted at the reporting date, the Group's deferred
tax balances have been re-measured accordingly and the impact has been
reflected within the consolidated financial statements.
The movement on the deferred tax account is as shown below:
Group Company Group Company
restated
£ £ £ £
At 1 January 229,361 635,333 729,985 660,270
Recognised in profit or loss
Tax expense (323,209) (435,828) (682,668) (24,937)
Transferred to held for sale - discontinued operations (122,597) - 182,044 -
At 31 December (asset)/liability (216,445) 199,505 229,361 635,333
Details of the deferred tax liability and amounts recognised in the profit or
loss are as follows:
Group Accelerated capital allowances Business combinations Other temporary and deductible differences Total
£ £ £ £
Balance 1 January 2022 55,230 832,599 (37,787) 850,042
Charges/(credited) to profit or loss 1,657 (84,353) (641,668) (724,364)
Transferred to held for sale - discontinued operations 103,683 - - 103,683
Balance 31 December 2022 160,570 748,246 (679,455) 229,361
Balance 1 January 2023 160,570 748,246 (679,455) 229,361
Charges/(credited) to profit or loss 52,003 (322,993) (174,327) (445,317)
Transferred to held for sale - discontinued operations (489) - - (489)
Balance 31 December 2023 212,084 425,253 (853,782) (216,445)
Company Accelerated capital allowances Reversal of deferred consideration Other temporary and deductible differences Total
£ £ £ £
Balance 1 January 2022 270 660,000 - 660,270
Charges/(credited) to profit or loss (260) - (24,677) (24,677)
Balance 31 December 2022 10 660,000 (24,677) 635,333
Balance 1 January 2023 10 660,000 (24,677) 635,333
Charges/(credited) to profit or loss - - (435,828) (435,828)
Balance 31 December 2023 10 660,000 (460,505) 199,505
27. Share capital
Authorised
2023 2023 2022 2022
Number £ Number £
Ordinary shares of 0.2p each 95,331,236 190,662 95,331,236 190,662
Allotted, issued and fully paid
2023 2023 2022 2022
Number £ Number £
Ordinary shares of 0.2p each
At 1 January 95,331,236 190,662 95,331,236 190,662
Other issues for cash during the year - - - -
At 31 December 95,331,236 190,662 95,331,236 190,662
Ordinary shares rank equally as regards to dividends, other distributions and
return on capital. Each ordinary share carries the right to one vote.
28. 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.
29. Share-based payment
The Group operates two equity settled share-based remuneration schemes: a
United Kingdom tax authority approved scheme and an unapproved scheme. Under
the schemes the only vesting condition is that the individual remains an
employee of the Group over the vesting period.
2023 2023 2022 2022
Weighted average exercise price Weighted average exercise price
£ Number £ Number
Outstanding 1 January - 285,953 - 153,437
Granted during the year - - 0.11 1,264,977
Forfeited during the year - - 0.04 (1,132,461)
Exercised during the year - - - -
Outstanding at 31 December 0.36 285,953 0.35 285,953
The exercise price of options outstanding at 31 December 2023 ranged between
£nil and £1.05 (2022: £nil and £1.03) and their weighted contractual life
was 8 years (2022: 9 years). Of the total number of options outstanding at 31
December 2023, 23,437 had vested and were exercisable (2022: 20,000). No
options were exercised in the year. No options were granted during the year
(2022: fair value of each option granted was £0.92).
No options were granted during the year ended 31 December 2023, The following
information is relevant in the determination of the fair value of options
granted during the year ended 31 December 2022 under the equity settled
share-based remuneration schemes operated by the Group.
2022
Option pricing model used Black-Scholes
Weighted average share price at date of grant £1.18
Contractual life (in days) 3,653
Expected volatility 24%
Expected dividend yield 5%
Risk-free interest rate 1%
The share-based remuneration expense disclosed in Note 10 relates entirely to
equity settled schemes. The Group did not enter into any share-based payment
transactions with parties other than employees during the year.
30. Related party transactions
Group
During the year, Group companies entered into the following transactions with
related parties who are not members of the Group:
Related party Supply of services Purchase of services Supply of services Purchase of services
2023 2023 2022 2022
£ £ £ £
Velocity Venture Capital Ltd 18 (#_ftn18) - - (713) 222,733
Motorsport Circuit Management Ltd(14) - - 11,250 -
N Davis 19 (#_ftn19) 654 - - -
SEC Newgate 20 (#_ftn20) 13,323 315,920 - -
Oliver Rosenblatt 1,534 - - -
Senbla Limited 668 - - -
Winros 21 (#_ftn21) 22 (#_ftn22) - 3,229,543 - 794,458
In addition, at 31 December 2023, the Group owed £375,000 to Nicola Foulston
as part of the settlement agreement (total settlement was £500,000, £125,000
was paid before year end).
In addition, during the year, £8,687 of contingent work was performed by the
Group in relation to a Conditional Fee Agreement with Winros (2022: £19,480).
At 31 December, amounts due to related parties were as follows:
2023 2022
£ £
SEC Newgate 150,620 -
Winros 102,412 -
At 31 December, amounts due from related parties were as follows:
2023 2022
£ £
SEC Newgate 5,285 -
N Davis(19) 163 -
Senbla Limited 668
Sales and purchase of services to related parties were conducted on an arm's
length basis on normal trading terms.
Total remuneration of Key Management Personnel during the year was £3,653,005
(2022: £1,285,916). Further details of directors' remuneration are given in
the Directors' Report.
30. Related party transactions (continued)
Company
In addition to the amounts disclosed in the Directors' Report, the Company has
entered into the following transactions with related parties.
During 2023, the Company reimbursed fees and expenses paid on its behalf by
RBGLS totalling £642,109 (2022: £2,571,884). At 31 December 2023, the
company was owed £43,532,103 by RBGLS (2021: £48,401,054) and owed
£2,318,419 to RBL Law (2022: £2,226,035).
During 2023, Convex Capital Limited reimbursed fees and expenses paid on its
behalf by the Company totalling £887,016 (2022: £571,264). At 31 December
2023, the company was owed £82,692 by Convex Capital Limited (2022: £647,324
owed to Convex Capital Limited).
During 2023, LionFish Litigation Finance Limited reimbursed fees and expenses
paid on its behalf by the Company totalling £564,203 (2022: £1,067,602). At
31 December 2023, there were no amounts owing to or from LionFish Litigation
Finance Limited (2022: £4,766,624 owed by LionFish Litigation Finance
Limited).
31. Notes supporting statement of cash flows
Non-cash transactions from financing activities are shown in the
reconciliation of liabilities from financing transactions below:
Non-current loans and borrowings Current loans and borrowings Total
£ £ £
At 1 January 2022 17,000,000 2,129,592 19,129,592
Cash flows (net) 3,000,000 - 3,000,000
Non-cash flows
Interest accruing in year - 76,048 76,048
At 31 December 2022 20,000,000 2,205,640 22,205,640
At 1 January 2023 20,000,000 2,205,640 22,205,640
Cash flows (net) 2,687,488 (156,425) 2,531,063
Non-cash flows
Interest accruing in year - 575,191 575,191
At 31 December 2023 22,687,488 2,624,406 25,311,894
32. Restatement of prior year
The 2022 comparatives have been restated in these financial statements to
include the effect of the adjustments as stated in Note 2. The following table
presents the impact of these restatements.
Restatement to 2022 opening balances
31 December 2021 1 January 2022
As originally presented Adjustment (i) Restated
£ £ £
Non-current assets
Trade and other receivables 23 (#_ftn23) 6,675,538 (273,094) 6,402,444
Equity
Retained earnings 11,113,365 (273,094) 10,840,271
Restatement to 2022 statement of comprehensive income:
31 December 2022 31 December 2022
As originally presented Adjustment (i) Restated
£ £ £
Gains on litigation assets 3,821,700 (1,800,000) 2,021,700
Disbursement asset revenue - 2,847,487 2,847,487
Disbursement asset expenditure - (3,241,507) (3,241,507)
Non-underlying items:
Contract assets - damage based agreement asset impairment - (6,670,481) (6,670,481)
Release of onerous contract provision - (562,979) (562,979)
Trade receivables - provision against damages based agreement receivable - (1,296,470) (1,296,470)
Tax expense 1,932,586 (2,401,704) (469,118)
Breakdown of tax adjustment
Transferred to assets held for sale (Note 13) (215,898)
Restatement (i) (2,185,806)
(2,401,704)
31 December 2022 31 December 2022
As originally presented Adjustment (i) Restated
£ £ £
Earnings per share attributable to the ordinary equity holders of the parent
Basic (pence) from continuing operations 8.18 (9.91) (1.73)
Diluted (pence) from continuing operations 8.17 (9.89) (1.72)
Basic (pence) from total operations 4.41 (8.96) (4.55)
Diluted (pence) from total operations 4.40 (8.94) (4.54)
Restatement to 2022 statement of financial position:
31 December 2022 1 January 2023
As originally presented Adjustment (i) Restated
£ £ £
Non-current assets
Trade and other receivables 24 (#_ftn24) 10,603,024 (10,603,024) -
Current liabilities
Provisions (211,536) (394,020) (605,556)
Tax liabilities (1,601,655) 2,258,637 656,983
Non-current liabilities
Deferred tax (744,328) 514,967 (229,361)
Equity
Retained earnings 11,996,470 (8,811,238) 999,426
Breakdown of tax adjustments
Tax liabilities:
Transferred to assets held for sale (Note 13) 690,559
Restatement (i) 1,568,079
2,258,637
Deferred tax:
Transferred to assets held for sale (Note 13) (102,760)
Restatement (i) 617,727
514,967
(i) A prior period adjustment has been made for incorrect accounting policies
that were previously adopted in relation to disbursements incurred on two
damages based agreements.
The disbursements were previously held on the balance sheet as Litigation
Assets and measured the assets under IFRS 9 at fair value through profit and
loss.
Based on the substances of the underlying agreements for the two damages based
agreements, the recovery from the client of disbursements represents a revenue
stream arising from a costs to fulfil a contract with a customer and therefore
falls within the scope of IFRS 15.
For the first case, the disbursements are payable to the Group, only if the
case wins or where the client or the Group terminates the engagement. Under
IFRS 15, this case is treated as a contract asset and an impairment assessment
is performed under IFRS 15. Management have reassessed the probability of
success in this case and determined that during the year ended 31 December
2022, the probability of success reduced from 90% to 50%, this reassessment is
based on the information available at that point in time, hindsight was not
applied when making this reassessment. The reduction in the probability of
success resulted in a write off of the contract asset at that time.
Additionally, the reduction in probability of success from 90% to 50% resulted
in this case becoming an onerous contract and as such, the costs to fulfil the
contract were provided for.
For the second case, the disbursements are recoverable in a win or lose
situation. As such, the revenue recognition point is the point at which the
expense is incurred by the Group. IFRS 15 requires the presentation of any
unconditional rights to consideration as a receivable separately from contract
assets and an expected credit loss (ECL) assessment is performed at each year
end.
The Group has performed an ECL assessment as each period end and based on
management's knowledge of the case and parties involved at each period end,
hindsight has not been applied in making this assessment. The receivable
associated with this damages based agreement has been fully provided for at
each year end.
33. Contingent liabilities
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. HMRC have queried the issue of shares between 4 April 2018
and 16 April 2018 at a par value. A valuation of the shares at above the issue
price could result in a liability to the recipient of the issued shares which
would be required to be collected by the Company and paid to HMRC. Any
liability would be re-imbursed in full by the recipient. The directors' belief
is that the investigation is without merit.
The Group is involved in two claims from current or previous employees. The
claim related to a previous employee has gone to a tribunal and the Group is
awaiting the outcome of that tribunal. The claim related to a current employee
has not yet reached a tribunal. Based on legal advice taken, management is
confident that both claims are without merit and await a successful outcome to
both. As such, no contingent liability has been recognised during the period
in relation to them.
34. Events after the reporting date
On 22 February 2024, the Group raised £0.9 million before expenses through
the issue of new ordinary shares. A further £2.1 million before expenses was
raised through the issue of new ordinary shares on 12 March 2024. The
fundraising was strongly supported by existing institutional shareholders.
Additionally, certain directors subscribed for £1.0 million of shares as part
of the fundraise. The purpose of the raise was to provide additional working
capital to the Group.
On 28 March 2024, the Group completed the disposal of Convex Capital to a
joint venture led by its management team. Under the terms of the agreement,
the Group received initial consideration of £2.0 million with up to another
£600,000 payable on completion of certain subsequent transactions.
Following the completion of the disposal of Convex, Ian Rosenblatt stepped
down from the Board. Ian remains the Group's largest shareholder and largest
revenue earner.
1 (#_ftnref1) All measures apart from net debt and including prior year
comparatives are shown on a continuing operations basis unless otherwise
stated (Convex Capital and LionFish Litigation Finance are treated as
discontinued operations)
2 (#_ftnref2) The Group presents adjusted EBITDA and loss before tax as an
operating KPI, they are adjusted for one off costs that are considered to be
exceptional, refer to Note 1 for further information
3 (#_ftnref3) In the trading update announced on 18 December 2023, the Group
indicated that Adjusted EBITDA would be approximately £4.0m for the year. As
part of the audit process, it was concluded that certain assets relating to
Damages Based Agreements should be treated under IFRS 15, rather than IFRS 9.
While a number of factors impacted the final Adjusted EBITDA, the principal
one was the change in accounting treatment. The impact of this change in
treatment is one off in nature.
4 (#_ftnref4) All measures apart from net debt and including prior year
comparatives are shown on a continuing operations basis unless otherwise
stated (Convex Capital and LionFish Litigation Finance are treated as
discontinued operations)
5 (#_ftnref5) All measures apart from net debt are shown on a continuing
operations basis unless otherwise stated. Prior year comparatives are also
shown on a continuing operations basis. Further details on discontinued
operations can be found in Note 13.
6 (#_ftnref6) All measures apart from net debt are shown on a continuing
operations basis unless otherwise stated. Prior year comparatives are also
shown on a continuing operations basis. Further details on discontinued
operations can be found in Note 12.
7 (#_ftnref7) All measures apart from net debt are shown on a continuing
operations basis unless otherwise stated. Prior year comparatives are also
shown on a continuing operations basis. Further details on discontinued
operations can be found in Note 13.
8 (#_ftnref8) Comparatives have been restated to present Convex as a
discontinued operation. Refer to Notes 1 and 13 for further details.
9 (#_ftnref9) All measures apart from net debt are shown on a continuing
operations basis unless otherwise stated. Prior year comparatives are also
shown on a continuing operations basis. Further details on discontinued
operations can be found in Note 13.
10 (#_ftnref10) Comparatives have been restated to present Convex as a
discontinued operation. Refer to Notes 1 and 13 for further details.
11 (#_ftnref11) Comparatives have been restated to present Convex Capital as
a discontinued operation. Refer to Note 13 for further details.
12 (#_ftnref12) Comparatives have been restated to present Convex as a
discontinued operation. Refer to Note 13 for further details.
13 (#_ftnref13) Comparatives have been restated to present Convex as a
discontinued operation. Refer to Note 13 for further details.
14 (#_ftnref14) No remuneration disclosed as S Drakeford-Lewis was appointed
on 31 December 2022
15 (#_ftnref15) £292,500 of the total related to termination payment
16 (#_ftnref16) Bonuses paid during the year ended 31 December 2023 relate
to 31 December 2022 results.
17 (#_ftnref17) LionFish Litigation Finance Limited was sold in July 2023.
18 (#_ftnref18) A company controlled by Nicola Foulston
19 (#_ftnref19) Invoice raised during 2023, relating to services supplied
during 2022, invoice paid post year end
20 (#_ftnref20) Included within purchase of services is £103,920 relating
to non-underlying items
21 (#_ftnref21) A partnership in which Ian Rosenblatt is a partner
22 (#_ftnref22) Included within purchase of services is £209,456 relating
to disbursements
23 (#_ftnref23) Damages based agreements originally presented as "litigation
assets"
24 (#_ftnref24) Damages based agreements originally presented as "litigation
assets"
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