TIDMRBGP
RNS Number : 2675K
RBG Holdings PLC
21 April 2020
21 April 2020
RBG Holdings plc
("Rosenblatt", the "Group", or the "Company")
Full Year Results for the year ended 31 December 2019
RBG Holdings plc (AIM: RBGP), the professional services group,
which includes one of the UK's leading law firms, Rosenblatt
Limited, is pleased to announce its audited results for the year
ended 31 December 2019.
Financial Highlights:
-- Revenue and realised gains of GBP23.7 million, up 26% (2018
proforma*: GBP18.75 million, as reported GBP12.5 million)
-- EBITDA of GBP9.4 million, up 46% (2018 proforma*: GBP6.5
million as reported GBP4.3m)
-- Profit before tax of GBP7.6million, up 27% (2018 proforma*:
GBP6.0 million as reported GBP3 million)
-- Profit after tax of GBP6.2 million, up 34% (2018 proforma*:
GBP4.6 million as reported GBP2.3 million)
-- Balance sheet with net assets of GBP42.4 million, cash of
GBP1.9 million, and no debt
-- Decision on interim dividend delayed until May 2020
-- Earnings per share of 7.6p (2018: 3.8p);
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year; however, the modified
retrospective approach to adoption of IFRS 16 means both IFRS
measures and APMs are not fully comparable with those calculated in
the prior period.
Operational Highlights:
Rosenblatt Limited:
-- Total Revenue and realised gains of GBP21.8 million, up
16% (2018 proforma: GBP18.75 million*, as reported GBP12.5
million)
-- Dispute Resolution division performed well, in addition
to taking on more contingent work with associated unrecognised
revenue of GBP1.9 million
-- Corporate Division subdued due to market uncertainty, but
signs of improvement in the current financial year
-- Launched White Collar Fraud & Financial Crime division
-- Average revenue per fee earner GBP393,000; Total Lockup
was 122 days of which Debtor Days were 45 days
-- Total Lock up is average Debtor Days plus average accrued
income Days (2018 lock up days: 93; 2018 debtor days: 33
which is for the first 8 months of trading)
-- Won three cases subject to contingent fees since IPO including
Project Neptune, Project Blue Sky and one small unnamed
project
Litigation Finance Sales:
-- Successfully realised gains from litigation finance sales
in two cases totalling GBP3.8 million
-- These gains are from where the Group owns a % of the participation
rights in a settlement on a contingent case, financed through
a Damages-Based Agreement (DBA), and then sells on a percentage
of its participation rights
-- Cash investment of GBP2.2 million in 8 cases, with associated
unrecognised investment of time of GBP1.9 million in 2019
-- In total, the Group has 8 cases in progress in which it
has invested, and 6 under consideration for finance.
Convex Capital: (Other Professional Services)
-- In September 2019, acquired Convex Capital Limited ("Convex")
a specialist sell-side corporate finance boutique, based
in Manchester, UK for a total consideration of GBP15.8
million
-- Completed two transactions in the three months to the year-end,
generating revenue of GBP1.9 million, EBITDA margin of
42% and profit before tax margin of 41%
Post-period highlights:
-- Keith Hamill OBE appointed Chairman in January 2020, replacing
Stephen Davidson
-- Win at Trial for Project Neptune which is subject to an
Appeal which is expected to be heard in 2020. The Group
has also won the first interim hearing on Project Shango
which brings total wins to 19 out of 22 contingent cases
since 2011
-- Settlement of Project Blue Sky, a small internally funded
litigation case, with an ROI of 184% and IRR of 317%.
-- Lord Bernard Hogan-Howe named an adviser to the White-Collar
Fraud & Financial Crime division.
COVID-19 update:
-- All of the Group's 96 staff and directors are remote working
from home
-- Since moving to remote working, Rosenblatt has seen no
change in existing instructions with work proceeding as
planned across all practice areas. Furthermore, Rosenblatt
has received new instructions as a result of client need
for financial restructuring and employment-related issues.
-- At Convex, there remains a strong pipeline of transactions,
including those that were ongoing at the time of the Government
lockdown. However, the lockdown has the potential to delay
the completion of certain transactions.
Nicola Foulston, CEO, RBG Holdings plc, commented: "2019 was a
big year for the Group, not only in terms of our financial
performance but also operationally. Rosenblatt continued to grow
with the Dispute Resolution practice performing particularly well.
In contrast, other practice areas such as our Corporate division
were more subdued due to the uncertain business environment caused
by Brexit. We completed our first acquisition on excellent terms
that we believe are in the best interests of shareholders. By
acquiring Convex Capital, we have also diversified our income away
from the legal sector while providing opportunities for
cross-selling. We have expanded our litigation investment portfolio
with positive progress across many of the contingent cases we are
working on. While a small matter, we have demonstrated the
outstanding returns on offer with the successful conclusion of
Project Blue Sky.
"The new financial year has been dominated by the COVID-19
crisis. I am delighted with how the business has quickly adapted.
At Rosenblatt, we have been able to support all our clients
remotely, aided by the IT investment since the IPO. The Firm has
had many new client instructions, in particular, to handle complex
financial restructurings and employment issues, arising from the
crisis. At Convex, there is likely to be a delay in the completion
of specific transactions, but the pipeline is strong.
"Across the Group, we have proven experience in supporting
clients in times of upheaval. I believe that this gives us an
ability to better react to the opportunities and challenges the
crisis will inevitably offer. At this juncture, it is difficult to
predict exactly how the Group will fare this financial year, but we
have a solid balance sheet, but also services that will be in
demand. We are cautious but optimistic that the Group will continue
its positive progress over the coming months."
There will be a conference call for investors at 11am on 21
April 2020. The call details are as follows:
UK: 0800 640 6441 or (Local) 020 3936 2999; All other locations:
+44 20 3936 2999
Participant access code: 426663
Viewing the presentation: www.incommuk.com/customers/rgbholdings
Access Code: 426663
Enquiries:
RBG Holdings plc Via Newgate Communications
Nicola Foulston, CEO
Stifel (Nominated Adviser and Joint Tel: +44 (0)20 7710
Broker) 7600
Gareth Hunt
Stewart Wallace (QE)
Tom Marsh
N+1 Singer (Joint Broker) Tel: +44 (0)20 7496
Shaun Dobson / Alex Bond (Corporate 3000
Finance)
Tom Salvesen (Corporate Broking)
Newgate Communications (for media enquiries) Tel: +44 (0)20 3757
Robin Tozer/Tom Carnegie 6880; rosenblatt@newgatecomms.com
About RBG Holdings plc
RBG Holdings plc is a professional services group, which
includes one of the UK's leading law firms, Rosenblatt Limited,
which is a leader in dispute resolution.
Rosenblatt Limited provides a range of legal services to its
diversified client base, which includes companies, banks,
entrepreneurs and individuals. Complementing this is the Company's
increasingly international footprint, advising on complex
cross-jurisdictional matters. Rosenblatt Limited's practice areas
include dispute resolution, corporate, banking and finance,
insolvency and financial restructuring, construction and projects,
employment, financial services, IP/technology/media, real estate,
regulatory and tax resolution. The Group also provides litigation
finance in selected cases through a separate arm.
The Group also owns Convex Capital Limited, a specialist
sell-side corporate finance boutique, based in Manchester, UK.
Convex is entirely focused on helping companies, particularly
owner-managed and entrepreneurial businesses, realise their value
through sales to large corporates. Convex identifies and
proactively targets firms that it believes represent attractive
acquisition opportunities.
Chairman's Statement
Overview
On behalf of the Board, I am pleased to introduce our 2019
annual results. Considerable progress has been made during the year
and the Board is able to report a strong financial performance, in
line with market expectations. The results are significantly ahead
of the 2018 results (on a proforma basis) which is testament to the
work Nicky and the team have done against a challenging period for
the UK market.
The Group delivered robust growth during 2019, carrying on the
strategy to diversify our revenue. Within Rosenblatt Limited
("Rosenblatt" or "The Firm"), this was led by a strong performance
in Dispute Resolution and the growth of our Litigation Finance arm.
Also, the Group has broadened its reach and client service
proposition through the strategic acquisition of Convex Capital
Limited, a specialist Corporate Finance boutique, in September
2019.
However, in presenting these results, we must acknowledge the
significant impact that COVID-19 has had since the end of the
financial year. The Board and I are proud of how the Group and its
employees quickly adapted and continued to offer the highest
standards of service to clients. All businesses are experiencing an
unusual degree of uncertainty over future trading. In challenging
times history has shown companies and individuals increasingly
require the specialist advice that both Rosenblatt and Convex
provide. Over the coming months, we will be able to assess the full
impact, but the Board believes the Group is in a relatively strong
position with a sound balance sheet and significant borrowing
facilities.
Strategy
The strategy of the Group is clear: we want to grow our core
professional services businesses, thereby increasing the scope to
cross-sell services offered to clients. We can also use the
expertise within those businesses to maximise the potential returns
by selectively investing in contingent asset classes such as
litigation.
At the heart of our business is Rosenblatt, a pioneering law
firm, which celebrated its thirtieth anniversary in 2019. Our focus
is on maintaining high margins on the work we do while ensuring the
core business is cash generative and efficient. The management has
done well in achieving this, delivering revenues of GBP393,000 per
fee earner and a 57% gross margin. In addition, we have developed
new services, including the successful launch of a new White Collar
& Financial Crime Division, and grown the number of fee earners
in the business.
We have used our legal expertise to move into Litigation
Finance. This move allows the Group to monetise Rosenblatt's case
flow, and to diversify income. Over the last thirty years,
Rosenblatt has a track record in picking the right cases, with an
84% success rate delivering an Internal Rate of Return (IRR) of
200% on the previous Conditional Fee Arrangement (CFA).
The capital raised at IPO and cash generated by the operating
business has enabled us to increase the amount of work we do for
clients on a partly contingent basis in exchange for receiving a
pre-agreed proportion of any damages awarded. This approach means
we can retain the margin that would otherwise be paid to a
third-party funder. The business can increase the number of cases
that we can take on, allowing us to grow revenues, supported by our
strong litigation track record.
In line with our stated strategy, we have created a new
cash-generation opportunity, with Litigation Finance Sales. By
selectively selling a percentage of our participation rights in the
contingent cases that we invest in through Damages Based
Agreements. This also de-risks our investment by selling enough of
the position to cover the cash cost to the Group. Importantly for
shareholders, we have a stringent set of criteria in place to
assess the risk profile of each case and have adopted a
conservative approach, within the requirements of the accounting
standards, to minimise the scope for any unrealised revenue and
gain within our results and balance sheet.
The increasingly diversified model has allowed us to grow
Rosenblatt revenues and realised gains by 16% to GBP21.8 million
and increase gross margins to 64%.
The business model and growth prospects are not just dependant
on litigation finance or working at risk. To increase optionality,
our Litigation Finance Division also generates traditional legal
service revenues at attractive margins from contentious law. This
happens if the case dynamics or risk profiles do not meet our
selective criteria for investment. Our legal expertise, including
services across a range of disciplines, ensures that we maintain a
diversified legal offering.
M&A
We will continue to assess selective M&A to build and
diversify the business. We aim to grow our service offering by
taking advantage of what is a highly fragmented professional
services market to engage in consolidation - but only at the right
value, and with the right deal structure. Acquisitions will
diversify the business away from a reliance on legal revenues and
will help us fulfil our ambition of creating a broad, high-quality
professional services group.
Our acquisition focus will remain on high-margin, specialist
companies which can also create opportunities for cross-referrals.
The Group's first acquisition since the IPO, Convex Capital
Limited, exemplifies this. I am pleased to report that within its
first three months of trading since the purchase, Convex has
delivered two deals and the pipeline development as we entered the
new financial year remains strong. The transactions have generated
GBP1.9 million of incremental revenue for the Group, at a profit
before tax margin of 41%. However, COVID-19 may have the potential
to delay the completion of certain transactions.
The Company remains disciplined in its approach to M&A and
will continue to review potential opportunities according to its
selective criteria.
Dividend
The Company's balance sheet remains solid, and the Board is
committed to a progressive dividend policy. Under that policy, the
Board normally expects to pay out a minimum of 60 percent of
retained earnings from the core business, in any financial year by
way of dividend, subject to cash requirements.
In line with the Group's dividend policy, the Company had
intended to pay an interim dividend for the six months to 31
December 2019 of 3 pence per share on 22 May 2020 to shareholders
on the register as at 1 May 2020. This payment would have followed
the 2 pence per share paid for the first six months of the current
year.
However, given the current uncertainty, the Board has postponed
the decision about whether to pay this until May.
Board Changes
I took over as Chairman in January 2020, replacing Stephen
Davidson. Stephen stepped down to focus on his other Board
commitments. On behalf of the Company, I would like to thank him
for his work, which has helped the Company progress considerably
since its flotation in 2018.
People
The dedication and expertise of our employees are what defines
this business. We have 50 fee earners within the Group. Our revenue
per fee earner is one of the highest in the listed legal sector. I
want to thank everyone for their hard work in delivering this set
of results, and their resilience during the current problems.
Keith Hamill
Chairman
21 April 2020
Chief Executive's Statement
Overview
I am pleased to report that the Group performed well in its
first full year as a listed company. Despite a challenging market
backdrop during that time, we are pleased to have delivered year on
year growth at high net margins, in-line with our stated strategy.
The business has evolved into a broader high-quality professional
services group, with a pioneering law firm at its heart, an
ambitious litigation finance arm and a disruptive M&A
business.
Revenue and realised gains for the period was GBP23.7 million
(2018 pro-forma: GBP18.75 million*; as reported: GBP12.5 million)
with gross margins of 63%. This growth validates our strategy and
represents an exceptional performance within our market, and I
would like to thank our staff for the contribution they have
made.
EBITDA grew to GBP9.4 million (2018 pro-forma: GBP6.5 million*;
as reported: GBP4.3 million), with EBITDA margins of 40%. As
previously disclosed, we target margins of 35% or more, which we
believe are best in class.
Even taking into consideration the impact of COVID-19, the Group
has a sound balance sheet, with net cash of GBP0.9 million as at 20
April 2020. Cash collections remain as forecast. The Company also
has a GBP10 million revolving credit facility with HSBC. Our
balance sheet will support our growth plans, including
acquisitions, continued investment in litigation finance
opportunities, and the dividend.
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year as proforma; however, the
modified retrospective approach to adoption of IFRS 16 means both
IFRS measures and APMs are not fully comparable with those
calculated in the prior period.
COVID-19 Update
Before I review the 2019 financial year, we must acknowledge the
impact of COVID-19 on business life. COVID-19 has been a challenge,
and I am hugely grateful for how all our employees have
successfully adapted to the evolving situation.
All of the Group's 96 staff and directors are remote working
from home. This move has been supported by the Group's in-house IT
capability, which has benefitted from the significant investment
made in IT since its IPO. The Group's law firm Rosenblatt has
always encouraged flexible working as part of its business model.
This culture has smoothed the switch to remote working and enabled
the Firm to operate at standard capacity. The Group will pay
salaries in full as usual while staff are working as normal.
At Rosenblatt, workflows since the UK General Election in
December 2019 have been strong. As such, the Group is not
experiencing an impact on trading. However, like all businesses,
the Company is conducting regular stress tests and reducing all
non-essential costs.
Convex is also working remotely. There remains a strong pipeline
of transactions, including those that were ongoing at the time of
the Government lockdown. However, the lockdown has the potential to
delay the completion of certain transactions.
Rosenblatt Limited
During 2019, Rosenblatt had a steady performance with revenues
and realised gains up 16% to GBP21.8 million (2018 pro-forma:
GBP18.75 million*; as reported: GBP12.5million) delivering GBP14.0
million of contribution (2018 pro-forma: GBP12 million***; as
reported GBP8 million) with a focus on contentious law, including
Dispute Resolution and realisation of litigation finance gains.
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year as proforma; however, the
modified retrospective approach to adoption of IFRS 16 means both
IFRS measures and APMs are not fully comparable with those
calculated in the prior period.
The delivery of the core business has allowed the Group to
increase the amount of contingent work that it has taken on.
Importantly, when RBL enters into CFAs, which can generate
incremental margins on a successful case outcome, no revenue is
recognised until the outcome of the event has occurred. Such
revenue is considered contingent, and in 2019 the amount of
contingent work carried out increased by GBP1.9 million (2018:
GBP1.4 million).
As previously communicated in our interim results, the Firm's
Corporate division, which is focused on commercial transactions,
saw reduced billings due to the impact of the cautious business
environment caused by Brexit uncertainty. Following the decisive
election result, the Group was beginning to see a significant
increase in the number of live transactions as client confidence
returned to pre-Brexit levels, but this will be impacted by the
COVID-19 and the uncertainty it has created.
In January 2020, Lord Bernard Hogan-Howe became an adviser to
the White-Collar Fraud & Financial Crime division. Lord
Hogan-Howe QPM was the head of London's Metropolitan Police as
Commissioner of Police of the Metropolis from 2011 until 2017, the
most senior role in British Policing. The organisation is
responsible for leading the UK's counter-terrorist network for the
United Kingdom and policing London. His distinguished career
includes leading Merseyside Police as Chief Constable, and as Her
Majesty's Inspector of Constabularies, he led nationally on the
themes of counterterrorism and serious and organised crime. He will
help not only enhance our service to our clients but also establish
Rosenblatt as one of the leaders in this area.
Furthermore, since these financial results t he Group has won
three additional cases including Project Neptune, one small unnamed
project together with the first interim hearing on Project Shango.
This success brings our total wins to 19 out of 22 cases since
2011. Project Neptune will be the subject of an appeal that we
anticipate will be heard later in 2020. As this case precedes
further work on Project Neptune will be subject to payment on a
non-contingent basis as it has external funding.
Litigation Finance
Our significant legal expertise ensures that Litigation Finance
represents an incremental opportunity for the Group to monetise our
case flow, and to diversify our income streams. It allows us to
retain the margin that would otherwise be paid to a third-party
funder. We can increase the number of cases we can take on, but
also create a new revenue opportunity in terms of our ability to
sell participation rights in the cases we invest in. This is in
line with our strategy to de-risk our investments.
We are pleased with the progress in Litigation Finance. During
the period, we have invested GBP1.9 million in external third-party
costs across eight litigation cases. The Group has also generated
GBP3.8 million in realised gains from the sale of a percentage of
our participation rights in two contingent cases. Currently, the
Group has 8 cases in progress, and six under consideration.
Case duration is hard to predict, but the returns on investment
are high. In January 2020, the Group announced the pre-trial
settlement of Project Blue Sky, one of its internally funded
litigation cases. The return on the Company's investment in the
case, in terms of cash and time, was 184% (with an IRR of 317%)
underpinning our rationale for pursuing this strategy. The
settlement, while not material in terms of the Group's forecast
full-year financial results for 2020, is, however, the first
successful completion of a case that the Group had invested in
since its IPO. It demonstrates the significant returns that can be
achieved through the Group's litigation finance strategy.
It is essential to reiterate the conservative approach we adopt
towards the handling of and accounting for our litigation
investments.
First, to date, we have only financed cases where we run the
litigation and have an intimate knowledge of the case. As our
Chairman referenced in his commentary, we have an excellent track
record in litigation which gives us the confidence we are good at
assessing legal risk.
Second, we have decided to deploy our capital gradually and do
so subject to the guidelines I detail below. While we believe we
are in a good position to estimate the cost, likely duration and
strength of any litigation matter, we are nevertheless aware that
we are investing shareholders' capital. We have, therefore adopted
a more gradual approach to capital deployment than other sector
participants. We expect to increase our investment commitments
progressively over time as results are generated.
Third, we have adopted a conservative approach within the
requirements of the accounting standards. We judge the fair value
of investments to be equal to or as close to cost, which means we
do not account for unrealised gains.
Fourth, we believe successful management of litigation finance
requires access to a team with strong legal capabilities and
decades of experience of the judiciary. Furthermore, decisions on
making investments need strong commercial principles, the ability
to approach cases innovatively and the option to de-risk them.
Rosenblatt has all the skills required to succeed in house, with
a long-term track record of assessing, minimising and controlling
financial risk, predating its acquisition by the Group. Rosenblatt
has more than 30 years of experience in undertaking litigation on
behalf of clients, and within the last ten years, some cases have
been on a risk basis. In these cases, Rosenblatt conducted them
based on either a CFA, providing time for free, or at partial cost
recovery. Before deciding to undertake work on a contingent basis,
Rosenblatt follows a set of core principles:
-- To limit the revenue exposure - the Group will only commit
up to 25% of the revenue of Rosenblatt, limiting what the
fee-earners can spend on a contingent case.
-- To limit the Group's cash exposure - total investment in
cases (such as spend on third party resource) is limited
to 25% of the net assets of the Group. In any one case,
the maximum cash exposure is 50% of the cash liability,
with the rest to be provided by external investors or other
funders.
The Company is very excited about the potential for litigation
investing to contribute to shareholder returns.
Convex Capital
The strategy remains to diversify the Group beyond legal
services, focusing on other high-margin professional service areas
which will also create opportunities for the cross-referral of
business.
In line with this strategy, in September 2019, we completed the
acquisition of Convex Capital, a specialist sell-side M&A
corporate finance boutique based in Manchester, UK. Convex is
entirely focussed on helping companies, particularly owner-managed
and entrepreneurial businesses, realise their value through sales
to large corporates. Convex identifies and proactively targets
firms that it believes represent attractive acquisition
opportunities.
Convex is an entrepreneurial, high-margin and cash-generative
business in the professional services sector, operating across the
UK and Europe. Convex was established in 2011 by Chairman, Mike
Driver. It has completed on over GBP1 billion in transaction value
over the last four years and completed two deals since we acquired
the business in late 2019, with EBITDA margins of more than 40
percent during the period. With a strong pipeline for the next two
years the business looks to build on its previous success that has
consistently completed 12 deals a year at an average of GBP700,000
a deal.
It is expected that Convex will help generate a regular flow of
fee-based work for Rosenblatt's Corporate division. Also, there
will be an opportunity to cross-sell services to the client bases
of both companies.
Rosenblatt will use Convex's Manchester base to house a regional
corporate team. The Group will market its expanded corporate legal
services offering from the hub, where the cost savings on
back-office functions have already been realised.
The acquisition was structured in accordance with the Board's
M&A strategy. This strategy means that the majority of the
consideration is to be paid in shares, with a maximum of 40% to be
paid in cash. A significant proportion of the consideration is
deferred, to lock in the new business and the talent being
acquired. This approach ensures the acquisition value is protected,
and that the management of Convex are appropriately incentivised to
deliver returns for Rosenblatt shareholders as well as
themselves.
The total consideration for the acquisition, including expected
earn-out and deferred consideration payments measured at fair
value, is GBP15.75 million. The consideration was structured as
follows:
-- An initial consideration at fair value, payable on completion
of GBP11.37 million. Of this GBP11.37 million, GBP6.3
million was paid in cash from the Company's existing resources,
and GBP5.1 million was satisfied by the issue of 5.5 million
new Rosenblatt shares (the "Initial Consideration Shares")
based on a fair value price of 92 pence per share.
-- A deferred consideration, payable after one year, of GBP4.38
million. Of this GBP4.38 million, GBP1.8 m million will
be paid in cash, and GBP2.58 million will be satisfied
by the issue of 4.7 million new Rosenblatt shares (the
"Deferred Consideration Shares"), at a fair value price
of 92 pence per share. The number of Deferred Consideration
Shares to be issued depends upon the EBITDA achieved by
Convex in the period from 16 September 2019 to 16 September
2020.
Key management and employees of Convex have agreed to a
long-term lock-in for the Group's shares and agreed to non-compete
clauses. The Initial Consideration Shares and the Deferred
Consideration Shares will be subject to a lock-in of three years
from their respective issuance dates. Management and employees of
Convex will also join the Rosenblatt performance bonus scheme to
ensure close alignment with the interests of shareholders.
Outlook
2019 was a big year for the Group, not only in terms of our
financial performance but also operationally. Rosenblatt continued
to grow with the Dispute Resolution practice performing
particularly well. In contrast, other practice areas such as our
Corporate division were more subdued due to the uncertain business
environment caused by Brexit. We completed our first acquisition on
excellent terms that we believe are in the best interests of
shareholders. By acquiring Convex Capital, we have also diversified
our income away from the legal sector while providing opportunities
for cross-selling. We have expanded our litigation investment
portfolio with positive progress across many of the contingent
cases we are working on. While a small matter, we have demonstrated
the outstanding returns on offer with the successful conclusion of
Project Blue Sky.
The new financial year has been dominated by the COVID-19
crisis. I am delighted with how the business has quickly adapted.
At Rosenblatt, we have been able to support all our clients
remotely, aided by the IT investment since the IPO. The Firm has
had many new client instructions, in particular, to handle complex
financial restructurings and employment issues, arising from the
crisis. At Convex, there is likely to be a delay in the completion
of specific transactions, but the pipeline is strong.
Across the Group, we have proven experience in supporting
clients in times of upheaval. I believe that this gives us an
ability to better react to the opportunities and challenges the
crisis will inevitably offer. At this juncture, it is difficult to
predict exactly how the Group will fare this financial year, but we
have a solid balance sheet and also services that will be in
demand. We are cautious but optimistic that the Group will continue
its positive progress over the coming months.
Nicola Foulston
Chief Executive Officer
21 April 2020
Chief Financial Officer's Review
Financial Review
During 2019, we have continued to build on our strong track
record of profitable growth, increasing revenue, and maintaining
our EBITDA margins, which are leading among those of the listed
legal sector. The Group is well positioned to deliver its growth
strategy through product diversification, high-quality recruitment,
and carefully selected acquisitions.
Key Performance Indicators (KPIs)
-- Revenue and realised gains: GBP23.7 million (2018 proforma:
GBP18.75 million, as reported: GBP12.5 million)
-- EBITDA: GBP9.4 million, 40% of revenue (2018 proforma: GBP6.5
million***, 34%; as reported GBP4.3 million, 34%)
-- Profit Before Tax: GBP7.6 million ,32% of revenue (2018:
proforma GBP6.0 million, 32%; as reported GBP3 million 24%)
-- Total lock up: 122 days (Debtor days 45) (2018: 93 days,
((debtor days 33) for the first 8 months of trading).
-- Revenue Per Fee Earner: GBP393,000 (2018: GBP400,000)
-- Utilisation / Realisation: 77% / 96% (2018: 80%/85%)
-- EPS: 7.6p (2018: 3.8p)
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year; however, the modified
retrospective approach to adoption of IFRS 16 means both IFRS
measures and APMs are not fully comparable with those calculated in
the prior period.
Revenue and realised gains
Reported Group revenue and realised gains for the period is
GBP23.7 million compared to GBP18.75 million on a pro-forma basis*
in 2018 (as reported: GBP12.5 million) representing a 26%
increase.
Of this increase, 10% (or GBP1.9 million) was a result of the
acquisitions made during the financial year with the balance
relating to organic growth. The organic revenue growth of 16% arose
due to an increase in the level of litigation realisation through
the sale of participation rights and a strong performance from the
dispute resolution department. The number of partners in our legal
services business has remained constant at 22 with 46 fee earners
and an annualised revenue per fee earner of GBP393,000.
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year; however, the modified
retrospective approach to adoption of IFRS 16 means both IFRS
measures and APMs are not fully comparable with those calculated in
the prior period.
Divisional Highlights:
Rosenblatt Limited:
-- Total Revenue and realised gains of GBP21.8 million, up
16% (2018 proforma: GBP18.75 million*, as reported GBP12.5
million)
-- Dispute Resolution division performed well, in addition
to taking on more contingent work with associated unrecognised
revenue of GBP1.9 million
-- Corporate Division subdued due to market uncertainty, but
signs of improvement in the current financial year
-- Launched White Collar Fraud & Financial Crime division
-- Average revenue per fee earner GBP393,000; Total Lockup
was 122 days of which Debtor Days were 45 days
-- Total Lock up is average Debtor Days plus average accrued
income Days (2018 lock up days: 93; 2018 debtor days: 33
which is for the first 8 months of trading)
-- Won three cases subject to contingent fees since IPO including
Project Neptune, Project Blue Sky and one small unnamed
project
Litigation Finance Sales:
-- Successfully realised gains from litigation finance sales
in two cases totalling GBP3.8 million
-- These gains are from where the Group owns a percentage
of the participation rights in a settlement on a contingent
case, financed through a Damages-Based Agreement (DBA),
and then sells on a proportion of its participation rights
-- Cash investment of GBP2.2 million in 8 cases, with associated
unrecognised investment of time of GBP1.9 million in 2019
-- In total, the Group has 8 cases in progress in which it
has invested, and 6 under consideration for finance.
--
Convex Capital: (Other Professional Services)
-- In September 2019, acquired Convex Capital Limited ("Convex")
a specialist sell-side corporate finance boutique, based
in Manchester, UK for a total consideration of GBP15.8
million
-- Completed two transactions in the three months to the year-end,
generating revenue of GBP1.9 million, EBITDA margin of
42% and profit before tax margin of 41%
Staff costs
Total staff costs in 2019 were GBP11.5 million, includes GBP0.9m
for Convex. In total, this represents 48.5% of revenue compared to
48.7% in 2018.
The acquisition of Convex has added 18 staff to Group's
headcount, which at the year-end now totals 95 (2018:73) average
for the year 81 (70).
Overhead costs
During 2019, the Group incurred overheads of GBP14.3 million
(before depreciation and amortisation) (Proforma 2018: GBP13.8
million, including GBP1m of IPO costs). Staff costs being GBP9.4
million (2018: Proforma GBP8.1m), contractors costs being GBP2.0m
(Proforma 2018 GBP0.9m).
Other operating costs were GBP2.8 million, which Convex
represented GBP0.2 million, other costs include Insurances GBP0.5
million, Rates GBP0.3 million Training and recruitment GBP0.2
million and Books & Subscriptions of GBP0.2 million. The impact
of the adoption of IFRS 16 is that Other operating costs have been
reduced by GBP0.9 million. This arises because rent payments, which
formerly represented an operating cost to the business, are now
capitalised and amortised.
* To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year; however, the modified
retrospective approach to adoption of IFRS 16 means both IFRS
measures and APMs are not fully comparable with those calculated in
the prior period.
EBITDA
In assessing performance, the Group uses EBITDA as a KPI. EBITDA
for 2019 was GBP9.4m (40% of revenue). In 2018 we adjusted EBITDA
to remove non-underlying items, being costs related to the IPO.
When extrapolated for the year, proforma* adjusted EBITDA for 2018
was GBP6.5 million (34% of revenue), and 2019 EBITDA represents a
46% increase on this figure. 2018 adjusted EBITDA as reported was
GBP4.3m (unadjusted GBP3.3m).
*To provide a relative comparison on trading, we have taken the
eight months of trading in 2018 following the IPO (May to December)
and extrapolated for the full year
Profit Before Tax
The profit before tax for the year has increased by 27% to
GBP7.6 million on 2018: proforma of GBP6 million and as reported
GBP3 million. In calculating the 2018 proforma profit before tax
was adjusted to extrapolate for a full year and to remove IPO
costs. The 2019 PBT of GBP7.6 million represents 32% of revenue and
realised gains compared to 32% in the prior year.
Earnings Per Share (EPS)
The weighted average number of shares in 2019 was 81.7 million
which gives a basic earnings per share (Basic EPS) for the year of
7.56p (2018: 3.83p).
Corporation tax
The Group's tax charge for the year is GBP1.47 million with an
effective tax rate of 19% (2018: GBP0.73 million, 24%) which is
made up of a current corporation tax charge of GBP1.55 million
offset by a GBP0.08 million credit in relation to deferred tax. The
deferred tax credit arose largely from the reversal of the deferred
tax on acquired intangible assets.
Balance Sheet
2019 2018
GBPm GBPm
Goodwill, intangible and tangible assets 44.7 18.3
------ ------
Current Assets(7) 11.1 6.2
------ ------
Current Liabilities (5.0) (2.7)
------ ------
50.8 21.8
------ ------
Cash and cash equivalents 1.9 13.3
------ ------
Non-Current Liabilities (6.3) (0.1)
------ ------
Deferred consideration (4.0)
------ ------
Net assets 42.4 34.9
------ ------
The Group's net assets as at 31(st) December 2019 increased by
GBP7.5 million an increase in the trading for the year, the
resultant profit that was generated over the year against the 8
months of last year and the increase in goodwill and intangible
assets resulting from the acquisition during the year.
(7) comprises net trade receivables, net contract assets and
liabilities as shown in more detail in the glossary at the end of
this announcement.
Goodwill, Tangible and Intangible Assets
Included within tangible assets GBP6.7 million relates to IFRS
16 right of use for the group's leases. Within intangible assets
and goodwill is GBP35m of intangible assets identified, on current
and prior year acquisitions, such as customer relationships, brand.
The Board carries out an impairment review of goodwill each year to
ensure the carrying value is supportable. As at 31(st) December
2019 the Board concluded that the goodwill and intangible assets
are not impaired.
Working Capital
Management of lock up has continued to be a key focus of the
Group over the period. Lock up days is a measure of the length of
time it takes to convert work done into cash. It is calculated as
the combined debtor and WIP days for the Group. This is a key focus
for management and the Board as it drives the cash generation
necessary to support the growth strategy of the Group. Lock up days
at 31(st) December 2019 were 122 compared to 93 the previous year.
Management are satisfied with the level of lock up at the year-end
which remains significantly ahead of the industry average for
quoted legal firms.
The Group's strong control over debtors is reflected in a low
level of bad debts. Total bad debt charge for the year was
GBP350.
Net Bank Debt
We do not have any bank debt, but during the year put in place a
Rolling Credit facility of GBP10 million. This positions the Group
well to deliver its strategy into 2020 and also support the
business through the uncertainty of Covid 19.
Cash Conversion
2019 2018*
GBP'M GBP'M
Net cash generated
from operating activities 3.7 0.7
------- -------
Interest 0.2
------- -------
Capital expenditure (0.5) (0.1)
------- -------
Free cash flow 3.4 0.6
------- -------
Underlying profit
after tax 6.2 2.3
------- -------
Cash conversion 55% 29%
------- -------
The cash conversion percentage measures the Group's conversion
of its underlying profit after tax into free cash flows. Cash
conversion of 55% for the year shows an increase from previous
periods as a result of 12-month trading period and is a further
focus of the business to drive to our targets of 75%
Cash and cash Equivalents
Cash at the end of the year was GBP1.9m (2018; GBP13.2m) the
movement during the year included an additional GBP2m generated
from operating activities, less GBP6m paid out on the acquisition
of Convex, GBP2.2m on litigation investments, GBP3.8m in Dividends,
GBP0.5m in capex and GBP1m in operating leases.
Capital Expenditure
During the year the Group continued to invest in its systems and
premises to ensure our professionals have a high-quality working
environment and consistent systems across the Group to aid
integration and support our one firm culture. To this end we have
invested over GBP0.5 million in our existing IT systems and
offices.
Capital spend relates to general investment in IT,
communications and infrastructure to support our programme of
rolling IT replacements to ensure our technology is up to date and
sufficient to meet the needs of the business.
The investment during the year also enabled the ability to work
remotely when required, as a result of COVID-19 this investment
enable a smooth transition of the whole business to work remotely
in a short period of time, enabling staff to provide those services
in a seamless fashion.
Acquisitions
The initial cash payment on the Convex acquisition was GBP6.3
million in addition there is a further GBP1.8m deferred
consideration which is earned on the successful completion of
deals. During 2019 GBP0.4 million in deferred consideration was
paid out.
Corporation Tax- cash flow impact
Going forward the Group will fall under the large Quarterly
Payments regime for its corporation tax. This will have the effect
of advancing the corporation tax payments such that the full
estimated corporation tax is paid during the year rather than only
50%.
Management expect post tax cash conversion to average out at
c.75% going forward.
Summary
We are pleased with the growth in profitability during the year.
The investment in the Group puts us in a strong position to grow
the business both organically through recruitment, and through
selective acquisition opportunities. However, it is important to
acknowledge the impact of COVID-19 on business life. COVID-19 has
and will be a significant challenge moving forward, that will
create greater uncertainty until the full impact is more
visible.
Robert Parker
Chief Financial Officer
21 April 2020
Consolidated statement of comprehensive income
For the year ended 31 December 2019
Note 1 January 6 February
to to
31 December 31 December
2019 2018
GBP GBP
Revenue 5 19,941,240 12,530,748
Realised fair value gains 5 3,800,000 -
Personnel costs 7 (11,496,875) (6,112,040)
Depreciation and amortisation expense (1,576,180) (296,178)
Other expenses (2,808,567) (3,103,500)
_______ _______
Profit from operations 6 7,859,618 3,019,030
EBITDA 9,435,798 3,315,208
Adjusted EBITDA 9,435,798 4,314,341
Depreciation and amortisation expense 6 (1,576,180) (296,178)
Non-underlying items
Admission costs - (999,133)
---------------------------------------------- ----- ------------- ------------
Finance expense 8 (253,210) -
Finance income 8 41,027 16,826
_______ _______
Profit before tax 7,647,435 3,035,856
Tax expense 9 (1,470,837) (727,491)
_______ _______
Profit and total comprehensive income
attributable to the ordinary equity holders
of the parent 6,176,598 2,308,365
_______ _______
Earnings per share attributable to the
ordinary equity holders of the parent 10
Profit
Basic (pence) 7.56 3.83
Diluted (pence) 7.50 3.83
_______ _______
The results for the year presented above are derived from
continuing operations.
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 2019
Company registered number: 11189598 Note 31 December 31 December
2019 2018
Assets GBP GBP
Current assets
Trade and other receivables 18 11,088,812 6,175,450
Cash and cash equivalents 1,910,156 13,350,467
_______ _______
12,998,968 19,525,917
Non-current assets
Property, plant and equipment 12 638,382 304,556
Right-of-use assets 13 6,760,198 -
Intangible assets 14 35,137,871 17,985,221
Litigation investments 17 2,209,886 -
_______ _______
44,746,337 18,289,777
_______ _______
Total assets 57,745,305 37,815,694
_______ _______
Liabilities
Current liabilities
Trade and other payables 19 6,710,936 1,898,163
Current tax liabilities 19 1,395,489 753,527
Provisions 20 75,000 35,264
Leases 13 811,105 -
_______ _______
8,992,530 2,686,954
Non-current liabilities
Deferred tax liability 21 422,144 144,062
Leases 13 5,920,697 -
_______ _______
6,342,841 144,062
_______ _______
Total liabilities 15,335,371 2,831,016
_______ _______
NET ASSETS 42,409,934 34,984,678
_______ _______
Issued capital and reserves attributable
to
owners of the parent
Share capital 22 171,184 160,184
Share premium reserve 23 37,565,129 32,516,129
Retained earnings 23 4,673,621 2,308,365
_______ _______
TOTAL EQUITY 42,409,934 34,984,678
_______ _______
The financial statements on pages 38 to 86 were approved and
authorised for issue by the Board of Directors on 20 April 2020 and
were signed on its behalf by:
Director
The attached notes form part of these financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2019
Note 2019 2018
GBP GBP
Cash flows from operating activities
Profit for the period before tax 7,647,435 3,035,856
Adjustments for:
Depreciation of property, plant and
equipment 12 232,728 71,067
Amortisation of right-of-use assets 13 891,794 -
Amortisation of intangible fixed assets 14 451,658 225,111
Finance income 8 (41,027) (16,826)
Finance expense 8 253,210 -
_______ _______
9,435,798 3,315,208
(Increase) in trade and other receivables (5,091,691) (4,174,553)
(Decrease)/increase in trade and other
payables (710,714) 1,557,232
Increase in provisions 39,736 35,264
_______ _______
Cash generated from operations 3,673,129 733,151
Tax paid (1,637,610) -
_______ _______
Net cash flows from operating activities 2,035,519 733,151
_______ _______
Investing activities
Purchases of property, plant and equipment 12 (534,155) (75,823)
Purchase of business - (20,000,000)
Acquisition of subsidiary, net of cash 24 (6,008,389) -
Interest received 41,027 16,826
Litigation investments 17 (2,209,886) -
_______ _______
Net cash used in investing activities (8,711,403) (20,058,997)
_______ _______
Financing activities
Issue of ordinary shares - 32,676,313
Dividends paid to holders of the parent 11 (3,811,342) -
Proceeds from loans and borrowings 1,637,608 -
Repayment of loans and borrowings (1,637,608) -
Repayments of lease liabilities 13 (699,875) -
Interest paid on loans and borrowings (27,564) -
Interest paid on lease liabilities 13 (225,646)
_______ _______
Net cash from financing activities (4,764,427) 32,676,313
_______ _______
Net (decrease)/increase in cash and
cash equivalents (11,440,311) 13,350,467
Cash and cash equivalents at beginning 13,350,467 -
of period
_______ _______
Cash and cash equivalents at end of
period 1,910,156 13,350,467
_______ _______
The attached notes form part of these financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2019
Total attributable
to equity
Share Share Retained holders
Capital Premium Earnings of parent
GBP GBP GBP GBP
Balance at 1 January 2019 160,184 32,516,129 2,308,365 34,984,678
Comprehensive income for
the period
Profit for the period - - 6,176,598 6,176,598
______ ______ ______ ______
Total comprehensive Income
for the period - - 6,176,598 6,176,598
______ ______ ______ ______
Contributions by and distributions
to owners
Dividends - - (3,811,342) (3,811,342)
Issue of share capital 11,000 5,049,000 - 5,060,000
______ ______ ______ ______
Total contributions by and
distributions to owners 11,000 5,049,000 (3,811,342) 1,248,658
______ ______ ______ ______
Balance at 31 December 2019 171,184 37,565,129 4,673,621 42,409,934
______ ______ ______ ______
The attached notes form part of these financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2019 (continued)
Total attributable
to equity
Share Share Retained holders
Capital Premium Earnings of parent
GBP GBP GBP GBP
Balance at 6 February 2018 - - - -
Comprehensive income for
the period
Profit for the period - - 2,308,365 2,308,365
______ ______ ______ ______
Total comprehensive Income
for the period - - 2,308,365 2,308,365
______ ______ ______ ______
Contributions by and distributions
to owners
Issue of share capital 160,184 34,926,316 - 35,086,500
Share issue costs - (2,410,187) - (2,410,187)
______ ______ ______ ______
Total contributions by and
distributions to owners 160,184 32,516,129 - 32,676,313
______ ______ ______ ______
Balance at 31 December 2018 160,184 32,516,129 2,308,365 34,984,678
______ ______ ______ ______
The attached notes form part of these financial statements.
Company statement of financial position
As at 31 December 2019
Company registered number: 11189598 Note 2019 2018
GBP GBP
Assets
Current assets
Trade and other receivables 18 26,492,958 22,463,757
Cash and cash equivalents 359,684 9,078,495
_______ _______
26,852,642 31,542,252
Non-current assets
Property, plant and equipment 12 10,427 14,014
Investments 16 15,813,422 100
_______ _______
15,823,849 14,114
_______ _______
Total assets 42,676,491 31,556,366
_______ _______
Liabilities
Current liabilities
Trade and other payables 19 4,326,969 176,166
_______ _______
4,326,969 176,166
Non-current liabilities
Non current - Deferred tax liability 21 1,773 -
_______ _______
Total liabilities 4,328,742 176,166
_______ _______
NET ASSETS 38,347,749 31,380,200
_______ _______
Issued capital and reserves attributable
to
owners of the parent
Share capital 22 171,184 160,184
Share premium reserve 23 37,565,129 32,516,129
Retained earnings 23 611,436 (1,296,113)
_______ _______
TOTAL EQUITY 38,347,749 31,380,200
_______ _______
The Company has taken advantage of the exemption contained in
S408 Companies Act 2006 and has not presented a separate income
statement for the Company. The Company recorded a profit of
GBP5,718,891 for the year ended 31 December 2019 (2018:
GBP1,296,113 Loss).
The financial statements on pages 38 to 86 were approved and
authorised for issue by the Board of Directors on 20 April 2020 and
were signed on its behalf by:
Director
The attached notes form part of these financial statements.
Company statement of cash flows
For the year ended 31 December 2019
Note 2019 2018
GBP GBP
Cash flows from operating activities
Profit for the period before tax 5,720,664 (1,296,113)
Adjustments for:
Depreciation of property, plant and
equipment 12 5,212 1,486
Finance income 8 (11,269) -
Finance expense 8 25,945 -
_______ _______
5,740,552 (1,294,627)
(Increase) in trade and other receivables (4,029,201) (22,463,757)
(Decrease)/increase in trade and other
payables (289,197) 176,166
_______ _______
Cash generated from operations 1,422,154 (23,582,218)
Tax paid - -
_______ _______
Net cash flows from operating activities 1,422,154 (23,582,218)
_______ _______
Investing activities
Purchases of property, plant and equipment 12 (1,625) (15,500)
Acquisition of subsidiary, net of cash 24 (6,313,322) (100)
Interest received 11,269 -
_______ _______
Net cash used in investing activities (6,303,678) (15,600)
_______ _______
Financing activities
Issue of ordinary shares - 32,676,313
Dividends paid to holders of the parent 11 (3,811,342) -
Proceeds from loans and borrowings 1,637,608 -
Repayment of loans and borrowings (1,637,608) -
Interest paid on loans and borrowings (25,945) -
_______ _______
Net cash from financing activities (3,837,287) 32,676,313
_______ _______
Net (decrease)/increase in cash and
cash equivalents (8,718,811) 9,078,495
Cash and cash equivalents at beginning 9,078,495 -
of period
_______ _______
Cash and cash equivalents at end of
period 359,684 9,078,495
_______ _______
The attached notes form part of these financial statements.
Company statement of changes in equity
For the year ended 31 December 2019
Retained Total
Share Capital Share premium Earnings
GBP GBP GBP GBP
Balance at 1 January 2019 160,184 32,516,129 (1,296,113) 31,380,200
Comprehensive profit for
the period
Profit for the period - - 5,718,891 5,718,891
______ ______ ______ ______
Total comprehensive profit
for the period - - 5,718,891 5,718,891
______ ______ ______ ______
Contributions by and distributions
to owners
Dividends - - (3,811,342) (3,811,342)
Issue of share capital 11,000 5,049,000 - 5,060,000
______ ______ ______ ______
Total contributions by and
distributions to owners 11,000 5,049,000 (3,811,342) 1,248,658
______ ______ ______ ______
Balance at 31 December 2019 171,184 37,565,129 611,436 38,347,749
______ ______ ______ ______
The attached notes form part of these financial statements.
Company statement of changes in equity
For the year ended 31 December 2019 (continued)
Retained Total
Share Capital Share premium Earnings
GBP GBP GBP GBP
Balance at 6 February 2018 - - - -
Comprehensive profit for
the period
Loss for the period - - (1,296,113) (1,296,113)
______ ______ ______ ______
Total comprehensive profit
for the period - - (1,296,113) (1,296,113)
______ ______ ______ ______
Contributions by and distributions
to owners
Issue of share capital 160,184 34,926,316 - 35,086,500
Share issue costs - (2,410,187) - (2,410,187)
______ ______ ______ ______
Total contributions by and
distributions to owners 160,184 32,516,129 - 32,676,313
______ ______ ______ ______
Balance at 31 December 2018 160,184 32,516,129 (1,296,113) 31,380,200
______ ______ ______ ______
The attached notes form part of these financial statements.
Notes
(forming part of the consolidated financial statements)
1 Basis of preparation
RBG Holdings plc (formerly Rosenblatt Group plc) is a public
limited company incorporated on 6 February 2018 and domiciled in
the United Kingdom.
The financial information set out in this release does not
constitute the Company's full statutory accounts for the year ended
31 December 2019 for the purposes of section 434(3) of the
Companies Act 2006, but it is derived from those accounts that have
been audited. Statutory accounts for 2018 have been delivered to
the registrar of companies, and those for 2019 will be delivered
after the forthcoming AGM. The auditors have reported on the
accounts for the period ended 31 December 2018 and the year ended
31 December 2019; their reports were unqualified, and did not
contain statements under s498(2) or (3) Companies Act 2006.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement principles of International Financial Reporting
Standards (IFRS) as endorsed for the use in the European Union,
this announcement does not itself contain sufficient information to
comply with IFRS. The Company expects to publish full financial
statements for the year ended 31 December 2019 that comply with
IFRS on 21 April 2020.
The accounting policies set out below are in accordance with
IFRS, as adopted by the European Union, and International Financial
Reporting Interpretations Committee ('IFRIC') interpretations that
were applicable for the year ended 31 December 2019.
The financial statements have been prepared for year ended 31
December 2019, with a comparative period from incorporation on 6
February 2018 to 31 December 2018, 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 period presented,
unless otherwise stated.
The preparation of financial statements in compliance with IFRS
requires the use of certain critical accounting estimates. It also
requires Group management to exercise judgment in applying the
Group's accounting policies. The areas where significant judgments
and estimates have been made in preparing the financial statements
and their effect are disclosed in Note 3.
Basis of measurement
The consolidated financial statements have been prepared on a
historical cost basis, except for the following items (refer to
individual accounting policies for details):
- Litigation investments - fair value through profit or loss
- Contingent consideration - fair value through profit or loss
Going concern
The Group financial statements are prepared on a going concern
basis as the Directors have a reasonable expectation that the Group
has adequate resources to continue in operational existence for at
least twelve months from the date of approval of the financial
statements.
COVID-19
It is important to acknowledge the impact of COVID-19 on
business life. COVID-19 has been and will be a significant
challenge, and our business and all our employees will have to
adapt to the evolving situation.
All of the Group's 96 staff and directors are remote working
from home. This move has been supported by the Group's in-house IT
capability, which has benefitted from the significant investment
made in IT since its IPO. The Group's law firm, Rosenblatt Limited
("Rosenblatt" or the "Firm"), has always encouraged flexible
working as part of its business model. This culture has smoothed
the switch to remote working and enabled the Firm to operate at
normal capacity.
At Rosenblatt Limited, workflows for legal services since the UK
General Election in December 2019 have been strong: chargeable time
in the first quarter of 2020 has been strong and there has been no
deterioration in invoicing or debt collection. For the corporate
finance business within Convex Capital Limited there remains a
strong pipeline of transactions, including those that were ongoing
at the time of the Government lockdown. However, the lockdown has
the potential to delay the completion of certain transactions.
Notes (continued)
1 Basis of preparation (continued)
In addition to its regular budgeting, the group has prepared
sensitised projections for 2020 and 2021, to assess the impact on
business of possible adverse consequences of COVID-19, in
particular, failure to complete corporate finance transactions and
a fall in legal services work, resulting in reduction in operating
cash flow. These projections support the expectation that the Group
will be able to continue to trade within its cash resources, which
include a GBP10m revolving credit facility with HSBC, for the
foreseeable future. They also demonstrate that the Group's assets
are not impaired.
Changes in accounting policies
a) New standards, interpretations and amendments effective from
1 January 2019
New standards impacting the group that have been adopted in the
annual financial statements for the year ended 31 December 2019 and
which have given rise to changes in the Group's accounting policies
are:
-- IFRS 16 Leases (IFRS 16)
Details of the impact that this standard has had are given in
Note 26. Other new and amended standards and Interpretations issued
by the IASB that will apply for the first time in the next
financial statements are not expected to impact the Group as they
are either not relevant to the Group's activities or require
accounting which is consistent with the Group's current accounting
policies.
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 2020:
-- IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors
(Amendment - Definition of Material)
-- Interest Rate Benchmark reform (Amendments to IFRS9, IAS 39 and IFRS 7)
-- Revised Conceptual Framework for Financial Reporting
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.
Notes (continued)
2 Accounting policies
Revenue
Revenue comprises the fair value of consideration receivable in
respect of services provided during the period, inclusive of
recoverable expenses incurred but excluding value added tax.
Legal and Other Professional services revenues
Where fees are contractually able to be rendered by reference to
time charged at agreed rates, the revenue is recognised over time,
based on time worked charged at agreed rates, to the extent that it
is considered recoverable.
Where revenue is subject to contingent fee arrangements,
including where services are provided under Damages Based
Agreements (DBAs), the Group estimates the amount of variable
consideration to which it will be entitled and constrains the
revenue recognised to the amount for which it is considered highly
probable that there will be no significant reversal. Due to the
nature of the work being performed, this typically means that
contingent revenues are not recognised until such time as the
outcome of the matter being worked on is certain.
Bills raised are payable on delivery and until paid form part of
Trade receivables. The Group has taken advantage of the practical
exemption in IFRS 15 not to account for significant financing
components where the Group expects the time difference between
receiving consideration and the provision of the service to a
client will be one year or less. Where revenue has not been billed
at the balance sheet date, it is included as contract assets and
forms part of Trade and other receivables.
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.
Notes (continued)
2 Accounting policies (continued)
Goodwill (continued)
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 into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. The Group's accounting policy for each category
is as follows:
Fair value through profit or loss
Litigation investments relate to the provision of funding to
litigation matters in return for a participation share in the
settlement of that case (Damages Based Award). Investments are
initially measured at the sum invested and are subsequently held at
fair value through the profit and loss.
Where the Group sells an interest in its entitlement to any
award under a Damages Based Award to a third party, this gives rise
to a realised fair value gain through the profit and loss when the
sale is agreed. These sales are non-recourse and, if the case is
successful, the relevant % of the settlement received is paid to
the third party.
Notes (continued)
2 Accounting policies (continued)
Amortised cost
These assets arise principally from the provision of goods and
services to customers (eg 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
within cost of sales in the consolidated statement of comprehensive
income. On confirmation that the trade receivable will not be
collectable, the gross carrying value of the asset is written off
against the associated provision.
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 liabilitie s
All the Group's financial liabilities are classified as other
financial liabilities, which include the following items:
- Trade payables and other short-term monetary liabilities,
which are initially recognised at fair value and subsequently
carried at amortised cost using the effective interest method.
Notes (continued)
2 Accounting policies (continued)
Defined contribution schemes
Contributions to defined contribution pension schemes are
charged to the consolidated statement of comprehensive income in
the period to which they relate.
Leased assets
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.
Notes (continued)
2 Accounting policies (continued)
Leased assets (continued)
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 reasonable 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 discount at the
same discount rate that applied on lease commencement. 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. 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.
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.
Notes (continued)
Externally acquired intangible assets (continued)
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 Remaining Amortisation Valuation method
life useful economic method
life
Brand 20 years 18-20 years Straight Estimated discounted
line cash flow
Customer contracts 1-2 years 1-2 years In line Estimated discounted
with contract cash flow
revenues
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.
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.
Notes (continued)
2 Accounting policies (continued)
Property, plant and equipment
Items of property, plant and equipment are initially recognised
at cost. As well as the purchase price, cost includes directly
attributable costs and the estimated present value of any future
unavoidable costs of dismantling and removing items. The
corresponding liability is recognised within provisions.
Depreciation is provided on all items of property, plant and
equipment so as to write off their carrying value over their
expected useful economic lives. It is provided at the following
rates:
Plant and machinery - 25-33% per annum straight line
Fixtures and fittings - 25% per annum straight line
Computer equipment - 33% per annum straight line
Provisions
The group has recognised provisions for liabilities of uncertain
timing or amount including those for leasehold dilapidations and
legal claims. The provision is measured at the best estimate of the
expenditure required to settle the obligation at the reporting
date, discounted at a pre-tax rate reflecting current market
assessments of the time value of money and risks specific to the
liability. Where a legal claim is within the scope of an insurance
policy held by the Group, provision will be made up to the level of
the excess payable on the insurance claim.
Notes (continued)
3 Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the
future. Estimates and judgements are continually evaluated based on
actual experience and other factors, including expectations of
future events that are believed to be reasonable under the
circumstances. In the future, actual experience may differ from
these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial period are discussed below.
Estimates and assumptions
- Estimated impairment of intangible assets including goodwill
Determining whether an intangible asset is impaired requires an
estimation of the value in use of the cash generating units to
which the intangible has been allocated. The value in use
calculation requires the entity to estimate the future cash flows
expected to arise from each cash generating unit and determine a
suitable discount rate. A difference in the estimated future cash
flows or the use of a different discount rate may result in a
different estimated impairment of intangible assets.
- Impairment of trade receivables
Receivables are held at cost less provisions for impairment.
Impairment provisions are recognised based on the simplified
approach within IFRS 9 using a provision matrix in the
determination of the lifetime expected credit losses. A different
assessment of the impairment provision with reference to the
probability of the non-payment of trade debtors or the expected
loss arising from default, may result in different values being
determined.
- Other receivables
Judgement has been exercised in respect of interests sold in
Damages Bases Agreements and where the amount remains
outstanding.
- 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:-
i) The amount of consideration receivable is highly susceptible
to factors outside the Group's influence.
ii) The uncertainty is not expected to be resolved for a long time.
iii) The Group has limited previous experience (or limited other
evidence) with similar contracts.
iv) The range of possible consideration amounts is broad with a
large number of possible outcomes.
Different views being determined for the amount of revenue to be
constrained in relation to each contingent fee arrangement may
result in a different value being determined for revenue and also a
different carrying value being determined for unbilled amounts for
client work.
Notes (continued)
3 Critical accounting estimates and judgements (continued)
Where the group enters into Damages Based Agreements that
include both the provision of services and the provision of
litigation finance, the Group must apportion the total expected
settlement between that arising as conditional revenue for services
and that arising as a return on participation. This requires
estimation of the total amount of time cost and disbursements that
will be incurred on a matter and the expected settlement value; the
allocation of the DBA to revenue is made with reference to standard
returns on contingent fee work. Different views will impact the
level of unrecognised contingent revenue and also the recognised
financial asset relating to the DBA participation.
Where non-contingent fees as well as contingent revenue are
earned on DBAs, the group must make a judgement as to whether
non-contingent amounts represent revenue or a reduction in funding,
with reference to the terms of the agreement and timing and
substance of time worked and payments made. Where non-contingent
revenue arises, the Group must match it against the services to
which it relates. This requires Management to estimate work done as
a proportion of total expected work to which the fee relates.
Different views could impact the level of non-contingent revenue
recognised.
- 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.
- Fair value measurement
A number of assets and liabilities included in the Group's
financial statements require measurement at and/or disclosure of,
fair value.
The fair value measurement of the Group's financial and
non-financial assets and liabilities utilises market observable
inputs and data as far as possible. Inputs used in determining fair
value measurements are categorised into different levels based on
how observable the inputs used in the valuation technique utilised
are (the 'fair value hierarchy'):
- Level 1 : Quoted prices in active markets for identical items (unadjusted)
- Level 2 : Observable direct or indirect inputs other than Level 1 inputs
- Level 3 : Unobservable inputs (i.e. not derived from market data)
The classification of an item into the above levels is based on
the lowest level of inputs used that has a significant effect of
the fair value measurement of the item. Transfers of items between
levels are recognised in the period they occur.
- Accounting for business combinations and fair value
Business combinations are accounted for at fair value. Valuation
of acquired intangibles requires estimates of future growth rates,
profitability, remaining useful lives and discount rates for input
to the business combination valuation methodology. A difference in
the estimated future growth rates, profitability, the use of a
different discount rate, or the selection of a different valuation
method may result in a different assessment of fair value of the
asset or liability acquired as part of the business
combination.
Notes (continued)
3 Critical accounting estimates and judgements (continued)
- Litigation investments and fair value
Where the group enters in to Damages Based Agreements that
include both the provision of services and provision of litigation
finance, the Group must apportion the total expected settlement
between that arising as conditional revenue for services and that
arising as a return on participation. The judgements arising in
this regard are explained under revenue above. Litigation
investments are held at fair value based on a semi annual review of
each investment's fair value. Fair values are determined on the
specifics of each investment and will typically change upon an
investment having a return entitlement or progressing in a manner
that, in the Group's judgement, would result in a third party being
prepared to pay an amount different from the original sum invested
for the Group's rights in connection with the investment.
The fair value estimation process is inherently subjective.
Awards and settlements are hard to predict and often have a wide
range of possible outcomes. Furthermore, there is much
unpredictability in the actions of courts, litigants and defendants
and because of the large number of variables involved there is a
consequent difficulty of predictive analysis. In addition, there is
little activity in transacting investments and hence little
relevant data for benchmarking the effect of investment progression
on fair value, although the existence of secondary market
transactions is a valuation input. In the Group's opinion there are
no inputs or variables to which the values of the investments are
correlated and whilst the Group's fair value estimation is its best
assessment of the current fair value of each investment, the use of
different possible outcomes and relative probabilities may result
in a different Group income and investment valuation. In the
current period, the Group has sold interests in its DBA
participation rights to third parties, and has used the selling
price as a benchmark for the fair value of the remaining asset,
reducing it for expected future costs to be incurred. Where the
Group sells an interest in a DBA, the proceeds are recognised as
realised fair value gain.
-
Notes (continued)
4 Financial instruments - Risk Management
The Group is exposed through its operations to the following
financial risks:
- Credit 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
- Litigation investments
- Trade and other payables
(ii) Financial instruments by category
Financial assets
Fair value through Amortised cost
profit or loss
31 December 31 December 31 December 31 December
2019 2018 2019 2018
GBP GBP GBP GBP
Cash and cash equivalents 1,910,156 13,350,467
Trade and other receivables 10,393,807 5,725,885
Litigation investments 2,209,886 - - -
_______ _______ _______ _______
Total financial assets 2,209,886 - 12,303,963 19,076,352
_______ _______ _______ _______
Financial liabilities
Fair value through Amortised cost
profit or loss
31 December 31 December 31 December 31 December
2019 2018 2019 2018
GBP GBP GBP GBP
Trade payables and
accruals - - 1,555,988 977,164
Other payables 4,070,000 - - -
_______ _______ _______ _______
Total financial liabilities 4,070,000 - 1,555,988 977,164
_______ _______ _______ _______
Trade and other payables are due within twelve months.
Notes (continued)
4 Financial instruments - Risk Management (continued)
Principal financial instruments (continued)
(iii) Financial instruments not measured at fair value
Financial instruments not measured at fair value includes cash
and cash equivalents, trade and other receivables, and trade
payables and accruals.
Due to their short-term nature, the carrying value of cash and
cash equivalents, trade and other receivables, trade payables and
accruals approximates their fair value.
(iv) Financial instruments measured at fair value
Litigation investments are classified as level 3 in the fair
value hierarchy of financial instruments.
The methods and procedures to fair value litigation investments
may include, but are not limited to: (i) obtaining information
provided by third parties when available; (ii) performing
comparisons of comparable or similar investment matters; (iii)
calculating the present value of future cash flows; (iv) assessing
other analytical data and information relating to the investment
that is an indication of value; (v) reviewing the amounts invested
in these investments; (vii) entering into a market transaction with
an arm's length party.
The material estimates and assumptions used in the analysis of
fair value include the status and risk profile of the risks
underlying the investment, the timing and expected amount of cash
flows based on the investment structure and agreement, the
appropriateness of discount rates used, if any, and in some cases,
the timing of, and estimated minimum proceeds from, a favourable
outcome. Significant judgement and estimation goes into the
assumptions which underlie the analyses, and the actual values
realised with respect to investments could be materially different
from values obtained based on the use of the estimates.
The reconciliation of the opening and closing fair value balance
of the level 3 financial instruments is provided in Note 17
together with a sensitivity analysis.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the
Group's finance function. The Board receives monthly reports from
the Chief Financial Officer through which it reviews the
effectiveness of the processes put in place and the appropriateness
of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below:
Credit risk
Credit risk is the risk of financial loss to the Group if a
client or counterparty to a financial instrument fails to meet its
contractual obligations. It is Group policy to assess the credit
risk of new and irregular clients before entering contracts and to
require money on account of work for these clients. The Group
reviews, on a regular basis, whether to perform further work where
clients have unpaid bills. The Group works with a broad spread of
long standing reputable clients to ensure there are no significant
concentrations of credit risk.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. Cash and cash
equivalents are invested with banks with an A+ credit rating.
Notes (continued)
4 Financial instruments - Risk Management (continued)
General objectives, policies and processes (continued)
Foreign exchange risk
Foreign exchange risk refers to the risk that the value of a
financial commitment or recognised asset or liability will
fluctuate due to changes in foreign currency rates. The Group
invoices in Sterling and purchases denominated in foreign
currencies are insignificant. At the balance sheet date, the net
monetary assets of the Group denominated in foreign currencies
translated into Sterling totalled GBPNil. Management does not
consider this to be a significant risk to the Group.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall due.
The 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. 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.
Further to this, on 25(th) October 2019, the Group signed a
GBP10,000,000 three-year revolving credit facility with HSBC UK
Bank plc. The Group may utilise any proportion of the facility,
paying an interest margin of 1.75-2.25% over LIBOR on utilisations
and a commitment fee on the unutilised facility. 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 12 and 14. The Group made no drawdowns on the
facility during the year and had cash of GBP1.9m and no debt at the
year end.
At the end of the financial period, cash flow projections
indicated that the Group expected to have sufficient liquid
resources to meet its obligations, including scheduled lease
payments (Note 13), under all reasonably expected
circumstances.
Even taking into consideration the impact of COVID-19, the Group
has a sound balance sheet. Cash collections remain as forecast. The
Group also has a GBP10 million revolving credit facility with HSBC
detailed above.
Capital Management
The Group monitors "adjusted capital" which comprises all
components of equity (i.e. share capital, share premium and
retained earnings).
The Group's objectives when maintaining capital are:
- to safeguard the entity's ability to continue as a going
concern, so that it can continue to provide returns for
shareholders and benefits for other stakeholders, and
- to provide an adequate return to shareholders.
The Group expects to pursue a progressive dividend policy over
time, driven primarily by the level of cash retained within the
business as well as investment opportunities available to the Group
and from time to time review the continued appropriateness of such
policy.
Notes (continued)
5 Segment information
The chief operating decision makers are the Board of Directors
of RBG Holdings plc. In line with the developments in the business
during the year, the Group now considers the following three
strategic business groups to be its reportable segments. These
business groups offer different services and are reported
separately because of the different specialisms in these business
groups.
The following summary describes the operations of each
reportable segment:
- Legal services - Provision of legal advice, by Rosenblatt
Limited.
- Litigation finance - Sale of litigation investments, by
Rosenblatt Limited.
- Other Professional services -Provision of sell-side M&A
corporate finance services, by Convex.
2019 Legal Litigation Other Total
services finance Professional
services
GBP GBP GBP GBP
Segment revenue 18,089,740 - 1,851,500 19,941,240
_______ _______ _______ _______
Segment realised fair value
gains -- 3,800,000 -- 3,800,000
_______ _______ _______ _______
Segment contribution 10,231,521 - 1,037,839 11,269,360
_______ _______ _______
Segment realised fair value
gains -- 3,800,000 -- 3,800,000
_______ _______ _______
Costs not allocated to segments
Personnel costs (2,861,240)
Depreciation and amortisation (1,576,180)
Other operating expense (2,772,322)
Net financial expenses (212,183)
_______
Group profit for the period
before tax 7,647,435
_______
Notes (continued)
5 Segment information (continued)
Following the change in the composition of reportable segments,
the corresponding items of segment information for 2018 has been
restated as below.
2018 Legal Litigation Other Total
services finance Professional
services
GBP GBP GBP GBP
Segment revenue 12,530,748 - - 12,530,748
_______ _______ _______ _______
Segment realised fair value gains - - - -
_______ _______ _______ _______
Segment contribution 7,997,262 - - 7,997,262
_______ _______ _______
Segment realised fair value gains - - - -
_______ _______ _______
Costs not allocated to segments
Personnel costs (1,589,812)
Depreciation and amortisation (296,178)
Other operating expense (3,092,242)
Net financial expenses 16,826
_______
Group profit for the period before
tax 3,035,856
_______
Total assets and liabilities by operating segment are not
reviewed by the chief operating decision makers and are therefore
not disclosed.
A geographical analysis of revenue is given below:
Revenue by location
of clients
2019 2018
GBP GBP
United Kingdom 17,420,189 11,565,335
Europe 301,799 241,390
North America 71,591 349,155
Other 2,147,661 374,868
_______ _______
19,941,240 12,530,748
_______ _______
Revenues from Legal services clients that account for more than
10% of Group revenue total GBP7,905,967 (2018:GBP6,739,505).
Notes (continued)
Contract assets
2019 2018
Group GBP GBP
At 1 January 2019 3,040,152 -
Acquired through business combinations - 1,230,845
Transfers in the period from contract assets
to trade receivables (2,692,814) (1,005,015)
Excess of revenue recognised over cash (or
rights to cash) being recognised during the
period 3,449,814 2,814,322
_______ _______
At 31 December 2019 3,797,152 3,040,152
_______ _______
Contract assets are included within "trade and other
receivables" on the face of the statement of financial position.
They arise when the Group has performed services in accordance with
the agreement with the relevant client and has obtained right to
consideration for those services but such income has not been
billed at the balance sheet date.
6 Profit from operations and auditor's remuneration
2019 2018
GBP GBP
Profit from operations is stated after charging:
Fees payable to the company's auditors
- Audit fees 147,750 65,000
- Other services 12,500 12,500
Depreciation of property, plant and equipment 232,729 71,067
Amortisation of right-of-use assets 891,794 -
Amortisation/impairment of intangible assets 451,658 225,111
Operating lease expense:
- Plant and machinery - 6,164
- Low value - 566,998
Lease expense:
- Short term - -
- Low value 1,872 -
The Alternative Performance Measures used by Management are
shown below:
2019 2018
GBP GBP
Operating profit 7,859,618 3,019,030
Depreciation and amortisation expense 1,576,180 296,178
Non-underlying items - 999,133
_______ _______
Adjusted EBITDA 9,435,798 4,314,341
_______ _______
Notes (continued)
6 Profit from operations and auditor's remuneration (continued)
2019 2018
GBP GBP
Profit before tax 7,647,435 3,035,856
Non-underlying items - 999,133
_______ _______
Adjusted PBT 7,647,435 4,034,989
_______ _______
7 Employees
2019 2018
Group GBP GBP
Staff costs (including directors)
consist of:
Wages and salaries 8,071,730 4,684,210
Short-term non-monetary benefits 114,448 55,211
Social security costs 981,110 571,156
Cost of defined contribution scheme 262,998 148,032
_______ _______
9,430,286 5,458,609
_______ _______
Personnel Costs stated in the Consolidated statement of
comprehensive income includes the costs of contractors of
GBP2,066,589 (2018: GBP653,431).
The average number of employees (including directors) during the
period was as follows:
2019 2018
Number Number
Legal and professional staff 50 44
Administrative staff 31 26
_______ _______
81 70
_______ _______
Defined contribution pension schemes are operated on behalf of
the employees of the group. The assets of the schemes are held
separately from those of the group in independently administered
funds. The pension charge represents contributions payable by the
group to the funds and amounted to GBP262,998 (2018: GBP148,032).
Contributions amounting to GBP42,308 (2018: GBP73,454) were payable
to the funds at period end and are included in Trade and other
payables.
Company
The company has no employees (excluding directors); all
personnel are employed by subsidiary undertakings.
Details of the Directors' remuneration, share interests and
transactions with directors are included in the Directors' Report
on pages 28 to 31 and in Note 25. The directors are considered to
be the key management personnel.
Notes (continued)
8 Finance income and expense
Recognised in profit or loss
2019 2018
Finance income GBP GBP
Interest received on bank deposits 41,027 16,826
_______ _______
Net finance income recognised in profit
or loss 41,027 16,826
_______ _______
Finance expense GBP GBP
Interest expense on financial liabilities (27,565) -
measured at amortised cost
Interest expense on lease liabilities (225,645) -
_______ _______
(253,210) -
_______ _______
Net finance (expense)/income recognised
in profit or loss (212,183) 16,826
_______ _______
The above financial income and expense include the following in
respect of assets (liabilities) not at fair value through profit or
loss:
Total interest income on financial
assets 41,027 16,826
Total interest expense on financial (27,565) -
liabilities
_______ _______
13,462 16,826
_______ _______
9 Tax expense
2019 2018
GBP GBP
Current tax expense
Current tax on profits for the period 1,487,925 753,527
Adjustment for under provision in 61,538 -
prior periods
_______ _______
Total current tax 1,549,463 753,527
Deferred tax expense
Origination and reversal of temporary
differences (Note 21) (78,626) (26,036)
_______ _______
Total tax expense 1,470,837 727,491
_______ _______
Notes (continued)
9 Tax expense (continued)
The reasons for the difference between the actual tax charge for
the period and the standard rate of corporation tax in the United
Kingdom applied to profits for the period are as follows:
2019 2018
GBP GBP
Profit on ordinary activities before
taxation 7,647,435 3,035,856
_______ _______
Tax using the Company's domestic tax
rate of 19% 1,453,013 576,813
Expenses not deductible for tax purposes 31,715 150,678
Adjustments in respect of prior periods 61,539 -
Adjustments in respect of prior periods (11,816) -
(deferred tax)
Adjust closing deferred tax to average (61,980) -
rate
Adjust opening deferred tax to average (1,634) -
rate
_______ _______
Total tax expense 1,470,837 727,491
_______ _______
Changes in tax rates and factors affecting the future tax
charge
A reduction in the UK corporation tax rate to 17% (effective 1
April 2020) was announced in the Budget on 16 March 2016. The
deferred tax liability at 31 December 2019 has been calculated
based on this rate. This will reduce the Group's future current tax
charge accordingly.
Notes (continued)
10 Earnings per share
Total Total
2019 2018
Numerator GBP GBP
Profit for the period and earnings
used in basic and diluted EPS 6,176,598 2,308,365
Add Non Underlying items
* Admission costs - 999,133
Less tax effect of above items - (43,835)
_______ _______
Profit for the period adjusted for
Non Underlying items 6,176,598 3,263,663
_______ _______
Denominator Number Number
Weighted average number of shares
used in basic EPS 81,704,435 60,305,232
Effect of:
Contingent share consideration on 603,422 -
business combination
_______ _______
Weighted average number of shares
used in diluted EPS 82,307,857 60,305,232
_______ _______
Earnings per share is calculated as follows:
2019 2018
Pence Pence
Basic earnings per ordinary share 7.56 3.83
Diluted earnings per ordinary share 7.50 3.83
Basic earnings per ordinary share adjusted
for Non Underlying items 7.56 5.41
Diluted earnings per ordinary share adjusted
for Non Underlying items 7.50 5.41
Clawback arrangements over certain shares of Cascades Ltd would
have an anti-dilutive effect on earnings per share and therefore no
impact on diluted earnings per share.
Notes (continued)
11 Dividends
2019 2018
GBP GBP
Interim dividend of 2.8p (2018: 0p) 2,228,300 -
per Ordinary share proposed and paid
during the year relating to the previous
year's results
Interim dividend of 2.0p (2018: 0p) 1,583,042 -
per Ordinary share paid during the
year
_______ _______
3,811,342 -
_______ _______
As announced in the Trading and COVID-19 update on 6 April 2020,
while the Board considers the Group to be in a strong position, it
has decided to postpone the decision on the payment of the
Company's interim dividend until May 2020.
12 Property, plant and equipment
Group Plant and Fixtures Computer
Machinery and fittings Equipment Total
GBP GBP GBP GBP
Cost
At 1 January 2019 309,568 435 65,620 375,623
Additions 2,933 109,045 422,177 534,155
Acquired through
business combinations 12,011 6,778 13,611 32,400
_______ _______ _______ _______
At 31 December 2019 324,512 116,258 501,408 942,178
_______ _______ _______ _______
Accumulated Depreciation
and Impairment
At 1 January 2019 67,436 63 3,568 71,067
Charge for the period 104,861 9,034 118,834 232,729
_______ _______ _______ _______
At 31 December 2019 172,297 9,097 122,402 303,796
_______ _______ _______ _______
Net book value
At 1 January 2019 242,132 372 62,052 304,556
At 31 December 2019 152,215 107,161 379,006 638,382
_______ _______ _______ _______
Notes (continued)
12 Property, plant and equipment (continued)
Company Computer
equipment Total
GBP GBP
Cost
At 1 January 2019 15,500 15,500
Additions 1,625 1,625
Acquired through
business combinations - -
_______ _______
At 31 December 2019 17,125 17,125
_______ _______
Accumulated Depreciation
and Impairment
At 1 January 2019 1,486 1,486
Charge for the period 5,212 5,212
_______ _______
At 31 December 2019 6,698 6,698
_______ _______
Net book value
At 1 January 2019 14,014 14,014
At 31 December 2019 10,427 10,427
_______ _______
Under a debenture signed and registered on 25 October 2019, HSBC
UK Bank plc have a fixed charge over the property, plant and
equipment of the Group.
13 Leases
IFRS 16 was adopted 1 January 2019 without restatement of
comparative figures. For an explanation of the transitional
requirements that were applied as at 1 January 2019, see Note
26.
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 Group also leases an
item of office equipment, with fixed payments over the lease
term.
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.
Notes (continued)
13 Leases (continued)
At 31 December 2019 Lease Contracts Fixed Payments Variable Sensitivity
Payments
Number % % GBP000
Property leases with
payments linked to
inflation 1 - 89.7% +/- 323
Property leases with
periodic uplifts to
market rentals 1 - 9.7% +/- 13
Leases of plant and
equipment 1 0.7% - -
_______ _______ _______ _______
3 0.7% 99.4% +/-336
_______ _______ _______ _______
Right-of-Use Assets
Land and Computer Total
buildings equipment
GBP GBP GBP
At 1 January 2019 7,294,194 16,518 7,310,712
Acquired through business combinations 274,380 - 274,380
Amortisation (885,187) (6,607) (891,794)
Variable lease payment adjustment 66,900 - 66,900
_______ _______ _______
At 31 December 2019 6,750,287 9,911 6,760,198
_______ _______ _______
Lease liabilities
Land and Computer Total
buildings equipment
GBP GBP GBP
At 1 January 2019 7,073,880 16,518 7,090,398
Acquired through business combinations 274,380 - 274,380
Interest expense 225,187 459 225,646
Variable lease payment adjustment 66,900 - 66,900
Lease payments (918,615) (6,906) (925,521)
_______ _______ _______
At 31 December 2019 6,721,732 10,071 6,731,803
_______ _______ _______
Notes (continued)
13 Leases (continued)
At 31 December 2019, lease liabilities were falling due as
follows:
Group Up to 3 Between Between Between Over 5 years Total
months 3 and 12 1 and 2 2 and 5
months years years
GBP GBP GBP GBP GBP GBP
Lease liabilities 198,071 613,035 852,878 2,613,429 2,454,390 6,731,803
The aggregate undiscounted commitments for low-value leases as
at 31 December 2019 was GBP5,460.
Notes (continued)
14 Intangible assets
Group Goodwill Customer Brand Total
Contracts
GBP GBP GBP GBP
Cost
At 6 February 2018 - - - -
Acquired through
business combinations 17,260,221 200,111 750,000 18,210,332
_______ _______ _______ _______
At 31 December 2018 17,260,221 200,111 750,000 18,210,332
_______ _______ _______ _______
At 1 January 2019 17,260,221 200,111 750,000 18,210,332
Acquired through
business combinations 15,775,039 1,167,673 661,596 17,604,308
_______ _______ _______ _______
At 31 December 2019 33,035,260 1,367,784 1,411,596 35,814,640
_______ _______ _______ _______
Accumulated amortisation
and impairment
At 6 February 2018 - - - -
Amortisation charge - 200,111 25,000 225,111
Impairment losses - - - -
_______ _______ _______ _______
At 31 December 2018 - 200,111 25,000 225,111
_______ _______ _______ _______
At 1 January 2019 - 200,111 25,000 225,111
Amortisation charge - 404,602 47,056 451,658
Impairment losses - - - -
_______ _______ _______ _______
At 31 December 2019 - 604,713 72,056 676,769
_______ _______ _______ _______
Net book value
At 6 February 2018 - - - -
At 31 December 2018 17,260,221 - 725,000 17,985,221
At 31 December 2019 33,035,260 763,071 1,339,540 35,137,871
_______ _______ _______ _______
The intangible assets arose on the acquisition of Convex Group
(Holdings) Limited, by RBG Holdings plc on 16 September 2019.
Under a debenture signed and registered on 25 October 2019, HSBC
UK Bank plc have a fixed charge over the intangible assets of the
Group.
Notes (continued)
15 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 post-tax discount rate of 15% was applied in determining
the recoverable amount. The discount rate is based on the average
weighted cost of capital.
-- Growth rates of between 2-4% are based on management's
understanding of the market opportunities for services
provided.
-- Increases in costs are based on current inflation rates and
expected levels of recruitment needed to generate predicted revenue
growth.
-- Cash flows have been assessed over ten years with the
assumption that the business will be ongoing at the end of that
period.
The review demonstrated significant headroom such that the
estimated carrying values 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.
16 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 Proportion of ownership
Number interest at 31
December
2019 2018
Rosenblatt Limited Legal Services 09986118 100% 100%
Convex Group (Holdings)
Limited Holding Company 11490871 100% -
Convex Capital Professional
Limited Services 11491052 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 of
Rosenblatt Limited and the registered address of each subsidiary is
9-13 St. Andrew Street, London, England EC4A 3AF.
For the year ending 31 December 2019 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.
Notes (continued)
17 Litigation investments
The table below provides analysis of the movements in the Level
3 financial assets.
2019
Level 3
GBP
At 1 January 2019 -
Additions 2,209,886
Realisations (3,800,000)
Fair value movement 3,800,000
_______
At 31 December 2019 2,209,886
_______
Sensitivity of Level 3 valuations
Following investment, the Group engages in a semi-annual review
of each investment's fair value. At 31 December 2019, should the
value of investments have been 10% higher or lower than provided
for in the Group's fair value estimation, while all other variables
remained constant, the Group's income and net assets would have
increased and decreased respectively by GBP220,988 (2018:
GBPNil).
18 Trade and other receivables
Group Company Group Company
2019 2019 2018 2018
GBP GBP GBP GBP
Trade receivables 3,469,642 - 2,302,733 -
Less: provision for impairment
of trade receivables (64,923) - (27,790) -
_______ _______ _______ _______
Trade receivables - net 3,404,719 - 2,274,943 -
Contract assets 3,797,152 - 3,040,152 -
Amounts due from subsidiaries - 25,995,864 - 22,458,257
Other receivables 3,191,936 489,677 410,790 5,500
_______ _______ _______ _______
Total financial assets other
than cash and cash equivalents
classified as amortised cost 10,393,807 26,485,541 5,725,885 22,463,757
Prepayments 695,005 7,417 449,565 -
_______ _______ _______ _______
Total trade and other receivables 11,088,812 26,492,958 6,175,450 22,463,757
_______ _______ _______ _______
Notes (continued)
18 Trade and other receivables (continued)
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 loss provision for trade receivables and
contract assets is as follows:
31 December 2019 More than More than More than
30 days 60 days 120 days Total
Current past due past due past due GBP
Expected loss rate 0 % 2% 2% 5%
Gross carrying
amount 5,894,884 365,492 402,330 604,088 7,266,795
Loss provision 14,684 8,406 9,254 32,579 64,923
31 December 2018 More than More than More than
30 days 60 days 120 days Total
Current past due past due past due GBP
Expected loss rate 0% 1% 3% 5%
Gross carrying
amount 4,337,923 412,212 239,929 352,821 5,342,885
Loss provision - 4,122 6,598 17,070 27,790
None of the trade receivables and contract assets have been
subject to a significant increase in credit risk since initial
recognition.
Notes (continued)
18 Trade and other receivables (continued)
Movements in the impairment allowance for trade receivables are
as follows:
2019
GBP
At 1 January 2019 27,790
Increase during the period 37,133
_______
At 31 December 2019 64,923
_______
Company
The loan due from Rosenblatt Limited is on demand and interest
free.
Management considers that there is no increase in credit risk on
the related party loan. Given that the loan is on demand, lifetime
credit losses and 12 month credit losses will be the same. Having
considered different recoverability scenarios which incorporated
macroeconomic information (such as market interest rates and growth
rates), current and forward looking information, management
consider the expected credit loss to be close to nil.
19 Trade and other payables
Group Company Group Company
2019 2019 2018 2018
GBP GBP GBP GBP
Trade payables 789,857 - 577,723 -
Corporation tax payable 1,395,489 - 753,527 -
Other taxes and social security 1,084,948 - 920,999 -
Amounts due to group companies - 44,321 - -
Other payables 4,070,000 4,070,000 - -
Accruals 766,131 212,648 399,441 176,166
_______ _______ _______ _______
8,106,425 4,326,969 2,651,690 176,166
_______ _______ _______ _______
With the exception of Other payables, the carrying value of
trade and other payables classified as financial liabilities
measured at amortised cost approximates fair value.
Other payables represents the outstanding deferred consideration
in respect of the acquisition of Convex, which is measured at fair
value (Note 24).
Notes (continued)
20 Provisions
Group Other provisions Other provisions
2019 2018
GBP GBP
At 1 January 35,264 -
Charged to profit or loss 39,736 35,264
_______ _______
At 31 December 75,000 35,264
_______ _______
Due within one year or
less 75,000 35,264
Due after more than one _______- _______-
year
75,000 35,264
_______ _______
Other provisions represent the amount equal to the insurance
excess payable on outstanding claims against the Group which are
covered by the Group's professional indemnity insurance policy. The
amount or timing of amounts payable in these cases is uncertain as
the resolution of the cases is unknown at the period end.
21 Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate of 17%. A reduction in
the UK corporation tax rate to 17% (effective 1 April 2020) was
announced in the Budget on 16 March 2016. This new rate has been
applied to deferred tax balances which are expected to reverse
after 1 April 2020, the date on which that new rate becomes
effective.
Following an announcement in the Budget on 11 March 2020, which
was substantively enacted on 17 March 2020, the UK corporation tax
rate applicable from 1 April 2020 now remains at 19%, rather than
the previously enacted reduction to 17%. If this tax rate was
applied to the closing deferred tax balances at the 31 December
2019, the impact would be an increase in the deferred tax liability
of GBP61,980 (Note 9).
The movement on the deferred tax account is as shown below:
Group Company Group Company
2019 2019 2018 2018
GBP GBP GBP GBP
At 1 January 144,062 - - -
Recognised in profit
and loss
Tax expense (78,626) 1,773 (26,036) -
_______ _______ _______ _______
65,436 1,773 (26,036) -
Arising on business
combination 356,708 - 170,098 -
_______ _______ _______ _______
At 31 December 422,144 1,773 144,062 -
_______ _______ _______ _______
Notes (continued)
22 Share capital
Authorised
2019 2019 2018 2018
Number GBP Number GBP
Ordinary shares of 0.2p each 85,592,106 171,184 80,092,106 160,184
_______ _______ _______ _______
Allotted, issued and fully paid
Allotted, issued and fully 2019 2019 2018 2018
paid
Number GBP Number GBP
Ordinary shares of 0.2p each
At 1 January 80,092,106 160,184 - -
Other issues for cash during
the period - - 80,092,106 160,184
Other issues during the period 5,500,000 11,000 - -
_______ _______ _______ _______
At 31 December 85,592,106 171,184 80,092,106 160,184
_______ _______ _______ _______
Ordinary shares rank equally as regards to dividends, other
distributions and return on capital. Each ordinary share carries
the right to one vote.
On 16 Sepember 2019, RBG Holdings plc acquired Convex Group
(Holdings) Limited (Note 24) and 5,500,000 ordinary shares with a
nominal value of 0.2p each, were allotted and issued in
consideration for the transfer of the shares in Convex Group
(Holdings) Limited in a share for share exchange.
23 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.
Notes (continued)
24 Business combinations during the year
On 16 September 2019, RBG Holdings plc acquired Convex Group
(Holdings) Limited and its fully owned subsidiary Convex Capital
Limited ("Convex"). Convex is a specialist sell-side corporate
finance boutique, based in Manchester. Convex helps companies,
particularly owner-managed and entrepreneurial businesses, realise
their value through sales to large corporates. The acquisition was
made in line with the business strategy to acquire complementary,
high gross margin, professional services businesses and Convex is
an established business in the Group's target market.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
Provisional Adjustment Fair value
value
GBP GBP GBP
Property, plant and equipment 32,399 - 32,399
Right-of-use assets - 274,380 274,380
Intangible assets 4,411,440 (4,411,440) -
Brand value - 661,596 661,596
Customer contracts - 1,167,673 1,167,673
Cash 304,933 - 304,933
Trade and other receivables 117,572 (75,587) 41,985
Trade and other payables (1,083,487) - (1,083,487)
Tax liabilities (730,108) - (730,108)
Lease liabilities - (274,380) (274,380)
Deferred tax liability - (356,708) (356,708)
_______ _______ _______
Total net assets 3,052,749 (3,014,466) 38,283
_______ _______ _______
Trade and other receivables with a fair value of GBP41,985 were
acquired, representing trade debtors of GBP600 and prepayments of
GBP41,385.
Fair value of consideration paid
GBP
Cash 6,313,322
Ordinary shares issued 5,060,000
Deferred cash consideration 1,800,000
Contingently issuable ordinary shares 2,640,000
_______
Total consideration 15,813,322
_______
Goodwill (Note 14) 15,775,039
_______
Acquisition costs of GBP147,900 arose as a result of the
transaction. These have been recognised as part of Other expenses
in the statement of comprehensive income.
Notes (continued)
24 Business combinations during the period (continued)
The initial consideration for the acquisition was settled with
cash amounting to GBP6,313,322 and the issue of 5,500,000 ordinary
shares with a nominal value of 0.2p each. The fair value of the
ordinary shares has been based on the acquisition date share price
(GBP0.92 per share). In addition, there is a deferred cash
consideration of GBP1,800,000, which is payable as a percentage of
revenue on deals completed post acquisition. Two deals completed in
the period between completion and the year end, resulting in the
payment of GBP370,000, leaving an outstanding balance of
GBP1,430,000 at the year end. The deferred consideration due to be
settled in shares is contingent on profits generated by Convex over
a year following the date of the acquisition. In the event of the
target being achieved, the Company is obliged to issue a further
4,714,286 shares to the vendors. The fair value of the contingent
consideration has been based on the acquisition date share price
(GBP0.92 per share) with adjustments to reflect the likelihood of
the target being achieved. Both elements of deferred consideration
are included within Other Payables.
The goodwill recognised will not be deductible for tax
purposes.
Since the acquisition date, Convex has contributed GBP1,851,500
to group revenues and GBP619,427 to group profit. If the
acquisition had occurred on 1 January 2019, group revenue would
have been GBP26,968,000 and group profit for the period would have
been GBP7,147,000.
25 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 Purchase of Supply of Purchase
of
Services services Services Services
2019 2019 2018 2018
GBP GBP GBP GBP
Velocity Venture
Capital Ltd* 18,886 194,836 7,610 100,473
Motorsport Circuit
Management Limited* 1,000 - 11,680 -
WDK Motorsport Limited* (2,550) - 28,460 -
Cascades Ltd ** 2,500 - - -
Note: *A company controlled by Nicola Foulston, ** A company
wholly owned by the Foulston Family Trust of which Nicola Foulston
is a beneficiary.
At 31 December 2019, there were no amounts due to any related
party (2018: GBPnil) and no amounts due by any related party (2018:
Velocity Venture Capital Ltd GBP2,400, Motorsport Circuit
Management Limited GBP3,000, and WDK Motorsport Limited
GBP21,675).
Sales and purchase of services to related parties were conducted
on an arm's length basis on normal trading terms. The Group has not
made any allowance for bad or doubtful debts in respect of related
party debtors nor has any guarantee been given or received during
2019 for related party transactions.
Notes (continued)
25 Related party transactions (continued)
Details of directors' remuneration are given in the Directors'
Report on pages 28 to 31 .
Ian Rosenblatt is not a director of any company in the Group,
nor a member of key management personnel, nor does he have a
significant influence over the Group. Therefore the directors do
not consider him to be a related party.
As announced on 24 January 2020, Rosenblatt Limited has
negotiated with Ian Rosenblatt an extension and broadening of the
restrictive covenants put in place at the IPO (and described in the
Company's admission document) to an additional two-year term
through to 2023. In consideration of this arrangement, Rosenblatt
Limited will make a one off payment to Mr Rosenblatt of GBP1m.
The above arrangement is classified as a related party
transaction under the AIM Rules for Companies. The Directors
consider, having consulted with Stifel as nominated adviser, that
the terms of the agreement are fair and reasonable, insofar as
shareholders are concerned.
There are various other companies controlled by Nicola Foulston,
which use the Group's office as their registered address, with
which there have been no transactions during the year.
Company
In addition to the amounts disclosed in the Directors' Report on
pages 28 to 31, the Company has entered into the following
transactions with related parties.
During 2019, the company reimbursed fees and expenses paid on
its behalf by Rosenblatt Limited totalling GBP151,653 (2018:
GBP75,358). At 31 December 2019, the company was owed GBP25,995,864
by Rosenblatt Limited (2018: GBP22,458,257).
At 31 December 2019, the company owed Convex Capital Limited
GBP44,321 in respect of an intercompany loan (2018: GBPNil).
Notes (continued)
26 Effects of changes of accounting policies
The Group adopted IFRS 16 with a transition date of 1 January
2019. The Group has chosen not to restate comparatives on the
adoption of the standard, and therefore, the revised requirements
are not reflected in the prior year financial statements. Rather,
these changes have been processed at the date of initial
application (i.e. 1 January 2019) and recognised in the opening
equity balances. Details of the impact this standard has had are
given below. Other new and amended standards and Interpretations
issued by the IASB did not impact the Group as they are either not
relevant to the Group's activities or require accounting which is
consistent with the Group's current accounting policy.
IFRS 16, effective 1 January, has replaced IAS 17 Leases and
IFRIC 4 Determining whether an Arrangement contains a Lease.
IFRS 16 provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, together with
options to exclude leases where the lease term is 12 months or
less, or where the underlying asset is of low value. IFRS 16
substantially carries forward the lessor accounting in IAS 17, with
the distinction between operating leases and finance leases being
retained. The Group does not have any leasing activities acting as
a lessor.
Transition Method and Practical Expedients Utilised
The Group adopted IFRS 16 using the modified retrospective
approach, with recognition of transitional adjustments on the date
of initial application (1 January 2019), without restatement of
comparative figures.
The Group elected to apply the practical expedient to not
reassess whether a contract is, or contains a lease at the date of
initial application. Contracts entered into before the transition
date that were not identified as leases under IAS 17 and IFRIC 4
were not reassessed. The definition of a lease under IFRS 16 was
applied only to contracts entered into or changed on or after 1
January 2019.
IFRS 16 provides for certain optional practical expedients,
including those related to the initial adoption of the standard.
The Group applied the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17:
(a) Apply a single discount rate to a portfolio of leases with
reasonably similar characteristics; and
(b) Reliance on previous assessments on whether leases are
onerous as opposed to preparing an impairment review under IAS 36
as at the date of initial application; and
As a lessee, the Group previously classified leases as operating
or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of
ownership. Under IFRS 16, the Group recognizes right-of-use assets
and lease liabilities for most leases. However, the Group has
elected not to recognise right-of-use assets and lease liabilities
for some leases of low value assets based on the value of the
underlying asset when new or for short-term leases with a lease
term of 12 months or less.
On adoption of IFRS 16, the Group recognised right-of-use assets
and lease liabilities as follows:
Classification under Right-of-use assets Lease liabilities
IAS 17
Operating leases Right-of-use assets are Measured at the present
measured at an amount value of the remaining
equal to the lease liability, lease payments, discounted
adjusted by the amount using the Group's incremental
of any prepaid or accrued borrowing rate as at
lease payments. 1 January 2019. The
weighted-average rate
applied was 3.25%.
------------------------------- -------------------------------
On 1 January 2019, the Group had no leases classified as Finance
leases under IAS 17.
Notes (continued)
26 Effects of changes of accounting policies (continued)
The following table presents the impact of adopting IFRS 16 on
the statement of financial position as at 1 January 2019.
Note 31 December IFRS 16 1 January
2018 2019
GBP GBP GBP
Assets
Current assets
Trade and other receivables a 6,175,450 (220,314) 5,955,136
_______ _______ _______
Total current assets
19,525,917 (220,314) 19,305,603
Non-current assets
Right of use assets b - 7,310,712 7,310,712
_______ _______ _______
Total non-current assets 18,289,777 7,310,712 25,600,489
_______ _______ _______
Total assets 37,815,694 7,090,398 44,906,092
_______ _______ _______
Liabilities
Current liabilities
Leases a - 674,631 674,631
_______ _______ _______
Total current liabilities 2,686,954 674,631 3,361,585
Non-current liabilities
Leases a - 6,415,767 6,415,767
_______ _______ _______
Total non-current liabilities 144,062 6,415,767 6,559,829
_______ _______ _______
Total liabilities 2,831,016 7,090,398 9,921,414
_______ _______ _______
NET ASSETS 34,984,678 - 34,984,678
_______ _______ _______
The nature of adjustments resulting from the adoption of IFRS 16
Leases are described below:
a) Trade and other receivables were adjusted to reclassify the
prepaid lease payments recognised in the Statement of Financial
Position as at 31 December 2018.
b) Right-of-use assets, relating entirely to operating type
leases, was measured at the amount of the lease liability adjusted
for prepaid lease payments recognised in the Statement of Financial
Position as at 31 December 2018.
Notes (continued)
26 Effects of changes of accounting policies (continued)
c) The following table reconciles the minimum lease commitments
disclosed in the Group's 31 December 2018 annual financial
statements to the amount of lease liabilities recognised on 1
January 2019:
Land and Other Total
buildings
GBP GBP GBP
Operating lease commitment at
31 December 2018 8,155,692 27,045 8,182,737
Effect of electing to account
for short-term and low value leases
off balance sheet - (9,203) (9,203)
Effect of discounting lease commitments
at an annual rate of 3.25% (1,081,812) (1,324) (1,083,136)
_______ _______ _______
Lease liability at 1 January 2019 7,073,880 16,518 7,090,398
_______ _______ _______
d) For the year ended 31 December 2019, Profit from operations
and EBITDA do not reflect lease payments of GBP925,521, which would
have been reflected within Other expenses under IAS 17. Under IFRS
16 amortisation of the right-of-use assets for the period of
GBP891,794 and an interest expense of GBP225,646 are reflected in
Profit before tax, and this results in an earnings per share (basic
and diluted) of 7.56p for the period, compared to 7.75p under IAS
17.
27 Notes supporting statement of cash flows
Significant non-cash transactions from investing activities are
as follows:
2019 2018
GBP GBP
Equity consideration for business 7,700,000 -
combination
Non-cash transactions from financing activities are shown in the
reconciliation of liabilities from financing transactions
below:
Non-current Current lease Current loans Total
lease liabilities liabilities and borrowings
GBP GBP GBP GBP
At 1 January 2019 6,415,767 674,631 - 7,090,398
Cashflows (201,018) (724,503) (27,565) (953,086)
Non-cash flows
- Lease adjustments 62,568 4,332 - 66,900
- Amounts recognised on
business combinations 252,518 21,862 - 274,380
- Liabilities classified
as non-current at 1 January
becoming current during
2019 (811,106) 811,106 - -
- Interest accruing in period 201,968 23,678 27,565 253,211
_______ _______ _______ _______
At 31 December 2019 5,920,697 811,106 - 6,731,803
_______ _______ _______ _______
Notes (continued)
28 Events after the reporting date
COVID-19
It is important to acknowledge the impact of COVID-19 on
business life. COVID-19 has been and will be a significant
challenge, and our business and all our employees will have to
adapt to the evolving situation.
All of the Group's 96 staff and directors are remote working
from home. This move has been supported by the Group's in-house IT
capability, which has benefitted from the significant investment
made in IT since its IPO. The Group's law firm, Rosenblatt Limited
("Rosenblatt" or the "Firm"), has always encouraged flexible
working as part of its business model. This culture has smoothed
the switch to remote working and enabled the Firm to operate at
normal capacity.
At Rosenblatt Limited, workflows for legal services since the UK
General Election in December 2019 have been strong: chargeable time
in the first quarter of 2020 has been strong and there has been no
deterioration in invoicing or debt collection. For the corporate
finance business within Convex Capital Limited there remains a
strong pipeline of transactions, including those that were ongoing
at the time of the Government lockdown. However, the lockdown has
the potential to delay the completion of certain transactions.
In addition to its regular budgeting, the group has prepared
sensitised projections for 2020 and 2021, to assess the impact on
business of possible adverse consequences of COVID-19, in
particular, failure to complete corporate finance transactions and
a fall in legal services work, resulting in reduction in operating
cash flow. These projections support the expectation that the Group
will be able to continue to trade within its cash resources, which
include a GBP10m revolving credit facility with HSBC, for the
foreseeable future. They also demonstrate that the Group's assets
are not impaired.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR FFFLISSIIFII
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April 21, 2020 02:00 ET (06:00 GMT)
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