Rbg Holdings Regulatory News (RBGP)

1 April 2022

RBG Holdings plc

("RBG", the "Group", or the "Company")

Audited results for the twelve months ended 31 December 2021

Strong performance as Group increasingly benefits from diversified revenue streams

RBG Holdings plc (AIM: RBGP), the professional services group, is pleased to announce its audited results for the twelve months ended 31 December 2021.

Group Financial Highlights[1]:

· Group revenue (including gains from litigation assets) up 86.7% to £47.2 million (2020 restated: £25.3 million)

· Group organic revenue, excluding Memery Crystal, up 19.6% to £26.8 million (2020: £22.4 million)

· Gains on litigation assets up 84.5% to £5.2 million (2020 restated: £2.8 million)

· Adjusted EBITDA[2] up 91.0% to £13.8 million, (2020 restated: £7.2 million)

· Adjusted profit before tax up 111.7% to £10.1 million (2020 restated: £4.8 million)

· EBITDA is up 31.1% to £12.9 million (2020 restated: £9.9 million) and profit before tax is up 24.6% to £9.2 million (2020 restated: £7.4 million)

· Adjusted free cash flow generation was £5.3 million (2020: £5.1 million)

· Net debt of £14.2 million (2020: net cash of £3.5 million) reflecting new £10 million term facility to fund the acquisition of Memery Crystal (of which £1 million has already been repaid)

· Total dividend paid to shareholders in respect of the 2021 financial year was 5 pence per share (2020: 3 pence per share), reflecting the Board's confidence in the Group's continued prospects

Operational Highlights:

RBG Legal Services Limited ("RBGLS") - Combination of the Rosenblatt and Memery Crystal businesses

· Revenue (including gains on litigation assets) up 61.2% to £33.7 million (2020: £20.9 million)

· Legal services revenue up 56.3% to £32.6 million (2020: £20.9 million) with revenue now more evenly split across Dispute Resolution (35.8%), Corporate (35.3%) and Real Estate (28.9%)

· Dispute Resolution continued to perform well, in addition to taking on more contingent work with associated unrecognised time worked of £3.4 million (2020: £2.0 million)

· Successfully realised litigation asset sales with proceeds totalling £1.8 million (2020: £0.4 million)

· The integration of Rosenblatt and Memery Crystal support functions now largely complete and has led to a sustained improvement in EBITDA margin to 27%. The Board expects this to rise towards 35% over the medium-term

· Average revenue per fee earner of £347,000 (2020: £425,800) reflecting new larger workforce. Total staff is 193 (2020:73, Rosenblatt only) of which 137 are fee earners (2020: 43, Rosenblatt only)

· Total Lockup was 109 days (2020: 99) of which Debtor Days were 59 days (2020: 47, Rosenblatt only)

LionFish Litigation Finance Limited ("LionFish")

· Successfully realised litigation asset sales[3] in five cases with proceeds totalling £3.1 million (2020 restated: £2.6 million)

· Cash investment of £1.8 million in 10 cases (2020: £1.8 million in 7 cases), with a full commitment of £10.5 million (if funded through to trial over the next 2-3 years)

· First case successfully completed, delivering a return of two times money invested as per strategy

Convex Capital Limited ("Convex Capital")

· Completed 14 deals, generating revenue of £9.4 million (2020: 2 deals, £1.6 million)

· EBITDA of £4.2 million (2020: loss of £0.9 million)

Post-period highlights:

· Since the year end, Convex Capital has completed two further deals, delivering revenue of £1.7 million

· As at 28 March 2022, Convex Capital had a strong pipeline of 20 deals, with six going through due diligence

· In February 2022, LionFish agreed a £20 million litigation investment arrangement with a large alternative investment firm

· In the first quarter of 2022, trading has been as expected. Historically, in legal services, Corporate is quieter at this time of year, however, the Group is creating opportunities in other areas of the business

Nicola Foulston, CEO, RBG Holdings plc, commented: "RBG continues to evolve into a well-diversified, high-quality professional services group, with a litigation finance business that leverages the Group's legal expertise. We are building a Group with a broad revenue base that reduces any dependence on any one business, sector, or fee generator. With the pandemic still presenting a significant challenge, our financial performance in 2021 demonstrated once again the resilience of our business model. Every year since our IPO, I am pleased to say that we have delivered a solid financial performance, while laying the groundwork for future profitable growth.

"From November 2021, our legal services business RBGLS started trading under its two distinct brands, Rosenblatt for contentious law, such as Dispute Resolution, and Memery Crystal for non-Contentious law, such as Corporate and Real Estate. The business is almost fully integrated and is now based at one office on Fleet Street. The final part of the integration, which is putting both businesses on the same practise management software, is expected to be completed by the end of 2022. The acquisition of Memery Crystal was part of the Group's strategy to acquire high-value assets that amplify and broaden our client offering. The benefits are already being felt with improved organic revenue growth, enhanced operating efficiency, and margins growing, with scope for further improvement over the medium term.

"Our sell-side M&A advisory boutique, Convex Capital, had an exceptional year with 14 completed deals, after a difficult 2020 when the M&A market ground to a halt. Importantly, deal flow momentum remains strong in 2022, and the pipeline of opportunities is growing.

"We continue to invest in litigation assets, with 23 live deals, either in our own matters through RBGLS or in third party matters via LionFish. LionFish's recently signed litigation investment arrangement will provide the business with flexible capital to allow the management team to focus on the quality of profits, not the quantity of monies deployed into litigation risks. 

"The strategy of the Group is clear. In our core professional services businesses, we want to capitalise on the areas that offer the highest returns for shareholders, such as our high margin legal services businesses. Furthermore, we will use the Group's expertise to maximise the potential returns by selectively investing in contingent asset classes such as litigation.

"Overall, the Group has had an excellent twelve months which is reflected in our improved revenue and profit growth. With strong demand for all Group services, we delivered the upgraded market expectations for the 2021 financial year from January's trading update. While acknowledging that macro-economic conditions continue to be volatile, the new financial year has started as expected giving us cause to look forward to the coming year with optimism. We are excited about the long-term prospects for the Group."

Enquiries:

About RBG Holdings plc

RBG Holdings plc is a professional services group, which comprises the following divisions:

RBG Legal Services Limited ("RBGLS")

RBGLS is the Group's legal services division which combines the businesses previously operated by Rosenblatt Limited and Memery Crystal LLP.

Rosenblatt ("RB")

Rosenblatt is one of the UK's pioneering legal practices and a leader in dispute resolution. Rosenblatt provides a range of legal services to its diversified client base, which includes companies, banks, entrepreneurs and individuals. Complementing this is Rosenblatt's increasingly international footprint, advising on complex cross-jurisdictional disputes.

Memery Crystal ("MC")

Memery Crystal offers legal services in a range of areas such as corporate (including a market-leading corporate finance offering), real estate, commercial, IP & technology (CIPT), banking & finance, tax & wealth structuring and employment. Memery Crystal is one of the leading legal practices in the UK to advise the emerging cannabis sector on a wide range of business issues. Memery Crystal offers a partner-led service to a broad range of clients, from multinational companies, financial institutions and owner-managed businesses to individual entrepreneurs.

LionFish Litigation Finance Limited ("LionFish")

The Group also provides litigation finance in selected cases through a separate arm, LionFish Litigation Finance Limited. LionFish finances litigation matters being run by other solicitors in return for a significant return on the outcome of those cases. As such, the Group has two types of litigation assets - Rosenblatt's own client matters, and litigation matters run by third-party solicitors. LionFish is positioned to be a unique, alternative provider to the traditional litigation funders.

Convex Capital Limited ("Convex Capital")

Convex Capital is a specialist sell-side corporate finance boutique based in Manchester. Convex Capital is entirely focused on helping companies, particularly owner-managed and entrepreneurial businesses, realise their value through sales to large corporates. Convex Capital identifies and proactively targets firms that it believes represent attractive acquisition opportunities.

Chairman's Statement

Overview

On behalf of the Board, I am pleased to announce our 2021 results. Our performance shows that the Group is benefitting from our strategy to diversify the revenue of the business. A larger more diversified Group has generated improved revenue, EBITDA, and margins.

Our legal services business, RBGLS has had a successful year and is now trading under two brands - Rosenblatt and Memery Crystal. These brands provide clients with a diversified offering, balanced across three main legal areas - Dispute Resolution (via Rosenblatt), and Corporate and Real Estate (through Memery Crystal). The business is beginning to realise the benefits of the integration and resultant scale.

Across RBGLS, we have continued to win new client instructions which reflects our expertise and the high demand for our complementary services. In difficult times like these, people need help to handle complex situations such as business restructurings as well as entrepreneurs who want to participate in M&A. As a result, RBGLS has delivered growing revenue, high margins, and a core KPI for the Group, revenue per fee earner, has remained significantly ahead of industry standards. This is despite a big increase in the number of fee earners following the acquisition of Memery Crystal.

At Convex Capital, after a tough 2020 when deal completions were impacted by COVID-19, the management team re-built a strong pipeline of deals across a variety of sectors. This meant that in 2021, Convex Capital completed 14 deals generating revenue of £9.4 million (2020: 2 deals, £1.6 million). Since the year end, Convex Capital has completed two further deals, delivering revenue of £1.7 million. As at 28 March 2022, Convex Capital had a strong pipeline of 20 deals, with six deals going through due diligence.

The Group has continued to invest and grow its two types of litigation assets - RBGLS' own client matters, and litigation matters run by third-party solicitors through our separately branded business, LionFish. The arrangements, recently announced with an alternative investment manager, has provided LionFish with increased funding to leverage investments and increase returns.

Looking ahead, the Board believes the Group remains in a strong operational and financial position with a solid balance sheet and a strategy to deliver continued profitable growth.

Strategy

The Group's strategy is to build a high margin professional services business with diversified revenue and profit streams. The aim is for no single part of the Group to dominate, and to leverage the expertise across the Group to deliver incremental returns. Using the legal expertise within the Group, we will maximise potential returns by selectively investing in contingent asset classes, such as litigation. This can be achieved through Rosenblatt working on clients' cases on a contingent basis, or by LionFish providing litigation funding to cases being run by third parties.

A key focus of the Group is to grow profit. RBGLS delivers this by maintaining consistently high margins. In 2021, the largely integrated business has done well in delivering revenue of £347,000 per fee earner and a gross margin of 46.1% (2020: £425,800 per fee earner and a 52.1% gross margin).

Our service-led, profit driven business model has enabled us to selectively increase the amount of work we do for clients on a partly contingent basis. This is in exchange for receiving a pre-agreed proportion of any damages awarded within the limits set by the Board for contingent work. This approach means we can increase our margin with one-off settlements, but our pricing strategy will deliver a benefit to the client who would otherwise pay higher amounts to a third-party funder. Rosenblatt has a long-standing track record in picking the right cases, with an 86% success rate over the last 10 years.

In line with our stated strategy, we created a new cash-generation opportunity, with litigation finance sales. By selectively selling a percentage of our participation rights in the contingent cases that RBGLS invests in through Damages Based Agreements, the Group raises working capital. The investment and divestment decisions are driven through a stringent set of criteria, marrying both our commercial expertise with our legal expertise to assess the risk profile of each case. We have adopted a conservative approach to estimates as part of our fair valuing of litigation assets: while accounting standards require the recognition of these investments at fair value, we have currently assessed the fair value to be close to cash disbursed less cash received on disposals in the early stage of the investment cycles.

At LionFish, our strategy has evolved having, in February 2022, agreed a £20 million litigation investment arrangement with a large alternative investment firm. We will now generate income from settlements and our new investments rather than sell participation rights.

M&A

In line with our strategy, we continue to assess M&A opportunities to diversify the business and grow our service offering to clients. Our ambition is to create a broad, high-quality, high margin professional services group. As such, we focus on high-margin, specialist companies which can also create opportunities for cross-referrals. However, we will only do deals at the right price and with the right deal structure.

Each of the acquisitions we have made so far has met these criteria. First, Convex Capital in September 2019, and, in May 2021, Memery Crystal. Memery Crystal has been immediately earnings enhancing and has the potential to generate significant value for shareholders over the long-term.

Dividend

The Group's balance sheet is satisfactory. The Board is committed to its long-term progressive dividend policy. In line with that policy, the Board normally expects to pay up to 60 per cent of distributable retained earnings from the core business in any financial year by way of dividend, subject to cash requirements.

The Board made a total payment of 5 pence per share for the year 2021(2 pence paid at the half year and 3 pence at the full year). Based on current outlook, we expect to pay up to 60 per cent of retained earnings in the 2022 financial year by way of dividend, in line with the Group's published dividend policy. Over time, we expect to have opportunities to pay special dividends because of returns generated from the Group's litigation assets.

Executive Incentive Plan ("EIP") & Growth Share Scheme

We have agreed a new EIP as well as Growth Share Schemes for two of the Group's subsidiaries, RBGLS and Convex Capital. The EIP will replace the Group's existing senior executive bonus scheme, and the Growth Share Schemes will replace the Convex Capital flexible commission scheme introduced in 2021, and for the first time, introduce a growth share scheme for RBGLS. These growth share schemes are designed to replicate what would happen in a privately held equity partnership.

Since the Group's admission to AIM in 2018, RBG has delivered significant growth through a combination of organic and acquisition-led performance. Given the growth and evolution of the Group, the Board believes a new remuneration structure is needed to retain and motivate the senior management team and key performing employees, focusing them on long term value creation and aligning their interests directly with shareholders.

Further details of the EIP and Growth Share Schemes can be found in the separate stock exchange announcement issued on 1 April 2022.

Board Appointments

In June 2021, we appointed Patsy Baker and David Wilkinson to the Board as independent non-executives while another Non-Executive Director Victoria Hull retired. Both Patsy and David have brought considerable experience to the Board. Patsy is the Chair of Citigate Dewe Rogerson, a leading global strategic financial communications consultancy, part of Huntsworth Communications which specialises in healthcare and public relations. Patsy was a Non-Executive Director of The Westminster Group plc, a security company listed on AIM, where she chaired the Nominations and Disclosure committees. From 1994 to 2017, Patsy was responsible for Group Client Relationships and Business Development at Bell Pottinger. There, Patsy used her extensive networks to advise boards on leadership and corporate reputation within the UK financial and business communities.

David Wilkinson is an experienced Non-Executive Chairman and Director, with a history of advising fast-growth, entrepreneurial businesses and professional practices. He is Senior Independent Director and Audit Committee Chair at Saietta Group plc, an electric motor business which floated on AIM in July last year and is Audit Committee Chair at Marks Electrical Group plc, an online domestic appliance retailer, which also floated on AIM last year. He chairs two private companies, CH Bailey, a formally AIM-listed business in overseas commercial and hospitality property, and Goal Group, a UK market leader in technology-based reclamation of withholding tax and legal class action proceeds. He is also a Non- Executive Director of Verso Biosense, a medical technology spinout from Southampton University.

Following the appointment of David and Patsy, the Board now consists of two executive directors and four non-executive directors, providing a blend of different experiences and backgrounds. All non-executives are considered independent. David and Patsy have joined the Remuneration Committee, Nomination Committee and Audit Committee of the Board of the Group with David the Chair of the Remuneration Committee.

Ukraine

In response to the Russian invasion of Ukraine, the Group immediately reviewed any relationships across the business with Russian companies and individuals to ascertain if we were acting for any individual or corporate client that did not comply with the UK's sanctions regime. Overall, we have limited exposure through our law firms - Rosenblatt and Memery Crystal - while neither Convex Capital or LionFish have any Russian clients.

People

The strength of the Group is in our ability to retain and attract high-quality people. This is evidenced by our performance, and I want to thank everyone for their hard work. I would also like to thank shareholders for their continued support.

Keith Hamill

Chairman

31 March 2022

Chief Executive's Statement

Overview

The Group continues to evolve into a diversified, high-quality professional services group with a litigation finance business leveraging the Group's legal expertise. We are building a broad revenue base that removes dependence on any one income generator. The combination of Memery Crystal with the Group's pioneering law firm Rosenblatt means we have built one of London's premier mid-tier law firms providing quality advice to entrepreneurs and high net worth individuals.

Overall, the Group has performed well despite the challenges of the pandemic. Our legal services business, RBGLS, has contributed to the strong professional services revenue generated by the Group. This includes our sell-side M&A advisory boutique, Convex Capital, which has had an exceptional year, and this has been augmented by the acquisition of Memery Crystal. We are already seeing the delivery of greater profits as the integration of Memery Crystal has improved operating efficiency as we combine business support functions.

As a result of the strong performance across the Group, with each subsidiary exhibiting growth, our revenue (and gains on litigation assets) was up 86.7% to £47.2 million (2020 restated: £25.3 million) at a gross margin of 42.0% (2020 restated: 41.5%). Organic growth was up 19.6% with revenue to £26.8 million (2020 restated: £22.4 million) and organic adjusted EBITDA has grown 29.6% to £9.4 million (2020 restated: £7.2 million).

Convex Capital completed 14 deals and £9.4 million of revenue in 2021 (2020: 2 deals and £1.6 million). Importantly, deal flow momentum remains strong, and the pipeline of opportunities continues to grow.

We continue to invest in litigation assets, with 23 active deals across RBGLS and LionFish. LionFish has invested in 11 deals since its inception in May 2020 with one already completed. There were gains on litigation assets during the year of £5.2 million (2020 restated: £2.8 million).

Group EBITDA increased to £12.9 million (2020 restated: £9.9 million) at a margin of 27.4% (2020 restated: 39.0%) due to the acquisition of Memery Crystal. As previously disclosed, we target an EBITDA margin of 35% or more. Adjusted EBITDA was £13.8 million (2020 restated: £7.2 million) at a margin of 29.2% (2020 restated: 28.6%).

The Group's profit before tax was £9.2 million (2020 restated: £7.4 million) and profit after tax was £7.3 million (2020 restated: £6.4 million).

Our balance sheet remains satisfactory. Our net debt position was £14.2 million versus net cash of £3.5 million in 2020. This change reflects the investment in Memery Crystal and the £10.0 million term loan to fund the acquisition, which will be paid down over three years. The Group has a £15.0 million revolving credit facility of which £10.0 million has been drawn. Our balance sheet will support our long-term growth plans, including acquisitions, continued investment in litigation investment opportunities, and future dividends.

RBG Legal Services Limited ("RBGLS")

Following the completion of the acquisition of Memery Crystal in May 2021, the Group has combined its two law firms, Rosenblatt, and Memery Crystal, into a new legal services corporate entity called RBG Legal Services Limited ("RBGLS"). This approach will enable the Group to fully realise the transaction's synergies. The business is almost fully integrated and is now based at one office on Fleet Street in London. The final part of the integration, which is putting both businesses on a single practice management system, is expected to be completed in the last quarter of 2022.

Rosenblatt and Memery Crystal retain their own brand identities and continue to operate as two separately branded law firms (under the umbrella of RBGLS as the regulated entity). From November 2021, the two brands became aligned to contentious (Rosenblatt) and non-contentious (Memery Crystal) legal services to reflect their position within the legal services market.

As at 31 December 2021, RBGLS employed 193 people, including 137 fee earners, with a strong offering to clients across Dispute Resolution, Corporate and Real Estate practise areas. The acquisition of Memery Crystal has significantly enhanced the Group's scale and ability to win non-contentious mandates as well as improving the new business pipeline, diversifying the revenue contribution by department, and delivering a more balanced legal business.

Due to the strong demand for its services, revenue (and gains on the sale of assets) was up 61.4% to £33.7 million (2020: £20.9 million). The consolidated business has helped diversify the legal services business. We have a balanced business across the key areas of Dispute Resolution, Corporate and Real Estate. As a result of the acquisition of Memery Crystal, Dispute Resolution is now a more balanced part of our business giving a natural hedge to the changing environment.

As well as the financial metrics, the Company has performed well in terms of the other KPIs of focus. The average revenue per fee earner was £347,000 (2020: £425,800), reflecting the diversification of the legal services business into more non-contentious areas of law, following the acquisition of Memery Crystal. These areas are less profitable due to fixed fees and are yet to fully benefit from the integration. However, these areas provide a natural hedge to Rosenblatt's focus on Dispute Resolution. Our revenue per fee earner is still within the top 20 of the Legal 100[4].

In line with its strategy, RBGLS has delivered a managed increased in the amount of contingent work it has taken on, enabled by the Group's solid balance sheet, with net assets of £60.8 million (2020 restated: £47.0 million) and a banking facility to support our growth strategy. These investments are always taken in consideration of delivering a balanced investment strategy within the limits set by the Board to ensure the business is not overly exposed to contingent cases. Such litigation cases need to pass the Group's stringent legal and commercial review process. Importantly, as RBGLS' revenue and profit grow we can enter into more Alternative Billing Arrangements (ABAs), which generate incremental margins on a successful case outcome. No revenue is recognised by the Company until the result of the case has occurred. Such revenue is considered contingent.

During the year, RBGLS invested a further £2.8 million in external disbursements and counsel fees in relation to its litigation investments. The amount of contingent work carried out by the legal services business during the period was £3.4 million (2020: £2.1 million). As at 31 December 2021, RBGLS had invested a total of £7.6 million in external disbursements and counsel fees in 13 litigation investments, with a total contingent WIP of £11.3 million.

LionFish Litigation Finance Limited ("LionFish")

Since our IPO in 2018, our strategy has been to develop our own litigation finance business as an important pillar of the Group. The Group initially just invested in Rosenblatt's own client matters, but on 1 May 2020 the Group launched LionFish. LionFish finances litigation matters being run by other solicitors in return for a significant return on the outcome of those cases. Lionfish exclusively funds third party solicitors and does not fund any RBGLS contingent cases. As such, the Group now has two types of litigation investments - RBGLS's own client matters, and litigation matters run by third-party solicitors. Both types of litigation investments not only have significant return potential, but they represent an opportunity to extract further value from the Group's legal and commercial expertise and diversify its sources of income.

Before investing, LionFish utilises the expertise of Rosenblatt which has a proven record of evaluating the legal merits of a litigation matter to optimise its profit. By leveraging this ability, alongside the origination capabilities of LionFish, and the Group's commercial acumen, the Group can identify potentially profitable third-party litigation cases and make investments with strong risk-adjusted returns. We have a strict investment process where the cases go through an initial review, before a more stringent legal and commercial review, and finally a full review by the Group's investment committee. The process is efficient and customer-focused, aiming for a quick decision and turnaround.

As at 31 December 2021, LionFish had received 517 enquiries for finance: 45 remain under consideration and 448 were rejected; an 87% rejection rate on concluded enquiries. Based on the Group's strategy to target a return of two times the money invested, since its launch, Lionfish has invested in 11 cases with £10.5 million committed (with £3.7 million drawn down) over the life of the cases, which is circa three years. One case has completed delivering a return of two times the money invested.

I believe it is important to reiterate the conservative approach we adopt towards the handling of, and accounting for, our litigation investments. While accounting standards require the recognition of these investments at fair value, we have currently assessed the fair value to be close to cash disbursed less cash received on disposals in the early stage of the investment cycles, which means fair values do not materially exceed net cash disbursed, as well as having rules limiting the Group's cash and revenue exposure.

Since launch, LionFish has delivered further revenue from sales in participation rights from litigation finance business beyond Rosenblatt's own client matters. In 2021, LionFish delivered £3.1 million of participation rights sales (2020 restated: £2.6 million). There were gains on litigation assets of £4.1 million (2020 restated: £2.8 million). While litigation finance sales help manage the Group's litigation investment exposure, it is also part of a strategy to create a secondary market for litigation investments.

The LionFish strategy and scale has evolved since the year-end. On 15 February 2022, the Group announced that LionFish had agreed a £20 million litigation investment arrangement (the "Arrangement") with a large alternative investment firm (the "Firm"). Under the terms of the Arrangement, the Firm will participate in all of LionFish's litigation investments, investing up to 75% in each of LionFish's investments across the portfolio over a two-year period. LionFish will be entitled to receive a significant share of the returns of the Arrangement after a high single-digit return hurdle has been met, therefore providing significant additional potential returns to LionFish beyond its own investment. It means that the Group will now look to generate income from LionFish's settlements and new investments, and we will not look to sell participation rights.

LionFish will have sole discretion in terms of which investments to pursue within a broad set of agreed parameters (similar to LionFish's current investment parameters). The focus of the Arrangement will be on maintaining LionFish's highly selective, quality-focused investment standards, without any undue deployment pressure. LionFish will also be responsible for the administration of each underlying litigation investment.

The Arrangement provides LionFish with significant additional capital flexibility in the investments it makes, allowing it to manage a more diversified and granular portfolio of risks off balance sheet, as well as to move away from the investor sales model currently being used to reduce risk. By partnering with a large alternative investment manager, LionFish has the opportunity to extend or repeat the Arrangement on a rolling basis, potentially providing a long-term flexible capital source that can grow in line with the business. The Arrangement has been approved by RBG's banking partners and is not a debt or credit facility. The Group's balance sheet will remain unchanged as a result of the Arrangement.

Convex Capital

Convex Capital, the specialist sell-side corporate finance advisory business based in Manchester, was acquired by the Group in September 2019. Convex Capital is entirely focused on helping companies, particularly owner-managed and entrepreneurial businesses, realise their value through sales to large corporates or private equity companies. Convex Capital identifies and proactively targets businesses that it believes represent attractive acquisition opportunities. Convex has a motivated, dynamic team of 12 people, of which 11 are fee-earners.

The acquisition of Convex Capital was part of the Board's strategy to diversify the Group beyond legal services, focusing on other high-margin professional service areas. Convex Capital is an entrepreneurial, cash-generative business operating across the UK and Europe and provides the Group with further funds for reinvestment into other high-margin areas.

During 2021, Convex Capital completed fourteen deals and delivered £9.4 million of revenue. The strength of its pipeline and the agile nature of the business has enabled Convex Capital to accelerate deals that COVID-19 has not affected. Since the year end, Convex Capital has completed two further deals, delivering revenue of £1.7 million. As at 28 March 2022, Convex Capital had a strong pipeline of 20 deals, with six deals going through due diligence.

The business is actively building its target pipeline with a data-driven approach to generate deals rather than the traditional passive model where the target company waits to be approached and then appoints a corporate finance partner.

Last year the management of Convex Capital failed to achieve the earn-out agreed at the time of acquisition because of the economic environment. For 2021, the earn-out was replaced with a one-off commission agreement for the key directors. Under the arrangement, the directors exchanged salary for commission based on deal completion. A commission of 20% was earned on all completed deals, and 50% of that success fee was used to purchase shares in RBG. During 2021, a total of 556,153 shares were acquired through the commission arrangement. The new Growth Share Scheme will replace the flexible commission scheme used in 2021. Further details of the Growth Share Scheme can be found in the separate stock exchange announcement issued on 1 April 2022.

Outlook

The Group is performing well despite the continuing impact of COVID-19, the situation in Ukraine, and current inflationary pressures. RBG remains well-positioned to deliver profitable growth as we progress through the second half of the year. Over the last year, we have worked hard to grow our services, adapt the Group to changing client needs and build our litigation finance business. Our strategy of diversification has provided protection through the pandemic and has enabled the Group to further progress towards its ambitious goals. The Group remains disciplined in its approach to M&A and will continue to review potential opportunities according to its selective criteria.

Overall, the Group had an excellent 2021 which is reflected in our improved revenue and profit growth. With strong demand for all the Group's services, we delivered the upgraded market expectations for the 2021 full year. While acknowledging that economic conditions continue to be volatile, we look forward to the coming year with optimism and are excited about the long-term prospects for the Group.

Nicola Foulston

Group Chief Executive Officer

31 March 2022

Chief Financial Officer's review

Financial review

The financial results contain a restatement of the prior year figures. The restatement is described fully in Note 30 and summarised below:

· Reclassification of contracts for insured litigation assets, which were previously treated as sales, which do not meet the derecognition requirements of IFRS 9 para 3.2.2.

· Restatement of the fair value of the uninsured contracts to correct an error in the previous valuation

The Consolidated statement of financial position adjustments increased litigation assets by £274,356, increased trade and other payables by £575,000, reduced current tax liabilities by £57,122 and reduced equity by £243,522. The Consolidated statement of comprehensive income adjustments decreased gains on litigation assets by £300,644 and reduced tax expenses by £57,122.

During 2021 we have continued to build on our strong track record of profitability. Revenue and EBITDA is increasingly coming from diverse sources while we continue investing in the growth of the business. The Group is well positioned to deliver its growth strategy through product diversification, carefully selected acquisitions and high-quality litigation investments.

Key Performance Indicators (KPIs)

· Group revenue (including gains from litigation assets): £47.2 million (2020 restated: £25.3 million)

· Revenue, including gains from litigation assets, and adjusted EBITDA[5] have increased 86.7% and 91.0% respectively

· Organic business revenue has increased 19.6%

· Adjusted EBITDA: £13.8million, representing 29.2% of revenue and gains on litigation assets (2020 restated: £7.2 million, 28.6%)

· EBITDA: £12.9 million, representing 27.4% of revenue and gains on litigation assets (2020 restated: £9.9 million, 39.0%, includes £2.6 million of the released deferred earn out not earned)

· Adjusted Profit before tax: £10.1 million, representing 21.4% of revenue and gains from litigation assets (2020 restated: £4.8 million, 18.9%)

· Profit before tax: £9.2 million, representing 19.6% of revenue and gains on litigation assets (2020 restated: £7.4 million, 29.3%)

· Net debt of £14.2 million (2020: net cash of £3.5 million) reflecting new £10.0 million term facility. The Group has a new £15.0 million revolving credit facility which is available to support the growth of the business

· Total Lockup was 109 days (2020: 99) of which Debtor Days were 59 (2020: 47)

· RBG Legal Services revenue per fee earner: £347,000 (2020: £425,800)

· RBG Legal Services Utilisation/ Realisation was 84%/86% (2020: 89%/106%)

Revenue and Gains on Litigation Assets

Reported Group revenue and gains on litigation assets for the period is £47.2 million compared to £25.3 million in 2020 (restated), representing an 86.7% increase.

Of this increase, 26.8% (or £6.8 million) was a result of the organic business as Convex Capital and LionFish delivered ahead of last year, and the remainder was delivered from the newly acquired business. Gains on Litigation Assets were £5.2 million against £2.8 million in the previous year (restated), LionFish delivered £4.1 million of the gains against £2.8 million last year (restated).

Combined professional services revenue is up 87.0% to £42.0 million from £22.4 million in 2020, this growth is driven, in part, by the acquisition of Memery Crystal. Legal services revenue for RBGLS within professional services is up 56.1% to £32.6 million from £20.9 million in 2020. There was a strong performance in Convex Capital of £9.4 million, completing 14 deals against one last year and £1.6 million of revenue in 2020, completing two deals.

Divisional highlights

RBGLS

· Total revenue and gains on litigation assets of £33.7 million, (2020: £20.9 million, RB only)

· Legal services revenues: £32.6 million, up 56.3% on last year (2020: £20.9 million, RB only)

· Legal services business is now integrated and trading under the two brands

· Staff numbers are 193 (2020:73, RB only) of which 137 are fee earners (2020: 43, RB only)

· Revenue mix across the business is now more evenly split across Dispute Resolution, Corporate and Real Estate

· Dispute Resolution continued to perform well, in addition to taking on more contingent work with associated unrecognised time worked of £3.4 million

· EBITDA is 27.0% of revenue and gains on litigation assets (2020: 35.1% of revenue and gains on litigation assets, RB only)

· Average revenue per fee earner £347,000 (2020: £425,800, RB only)

· Total Lockup was 109 days (2020: 99, RB only) of which Debtor Days were 59 days (2020: 47, RB only)

LionFish

· Successfully realised litigation asset sales in eight cases with proceeds totalling £3.1 million (2020 restated: £2.6million)

· These gains are from where LionFish 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 £1.8 million in ten cases (2020: £1.8 million in 7 cases), with a full commitment of £10.5 million if funded through to trial over the next 2-3 years

· During the year successfully completed the first case and delivered a return of two times money invested as per the strategy

Rosenblatt

· Successfully realised litigation asset sales with proceeds totalling £1.8 million (2020: £0.4million)

Convex Capital

· Completed fourteen transactions in the year, generating revenue of £9.4 million (2020 from acquisition: £1.6 million) and EBITDA of £4.2 million (2020: EBITDA loss £0.9 million)

· During the year the senior team had a one off 20% commission scheme based on completed deals

Staff costs

Total staff costs in 2021 were £27.4 million (2020: £14.8 million), which includes £4.8 million for Convex (£3.3 million in relation to the Directors bonus scheme of 20% of completed deals, of which 50% was re-invested in RBG shares), £0.6 million for LionFish and £19.6 million from RBGLS. The average number of employees for the Group was 175 (2020: 90). The acquisition of Memery Crystal has added 128 staff to the Group's headcount. RBGLS at the end of the period totalled 193 (2020: 73), of which 137 are fee earners.

Overhead costs

During 2021, the Group incurred overheads of £34.3 million (before depreciation and amortisation) (2020: £15.4 million). Staff costs were £27.4 million (2020: £14.8 million), of which contractors' costs were £3.0 million (2020: £3.2 million).

Other operating costs were £6.9 million (2020: £0.6 million, includes a deduction of £2.6 million for the deferred consideration release), of which the cost of the acquisition represented £0.9 million. Other costs including insurances of £1.5 million (2020: £0.7 million), rates £0.7 million (2020: £0.3 million), training and recruitment £0.6 million (2020: £0.3 million).

Operationally, there remains a significant focus on IT and in 2021 we invested in Adnitor Limited to deliver cost effective IT solutions (details of which are included in Note 17). We have invested sensibly over recent years and further enhanced both our internal and client facing experiences of IT usage.

EBITDA and Adjusted EBITDA

In assessing performance, the Group uses EBITDA as a KPI. The acquisition of Memery Crystal will initially suppress our Group EBITDA but will eventually increase it as the integration benefits fully flow through in 2022. EBITDA for 2021 was £12.9 million (27.4% of revenue and gains on litigation assets) (2020 restated: £9.9 million, 39.0%, which includes non-trading adjustment of £2.6 million release of deferred earn out). This includes £0.9 million for costs of acquiring a subsidiary and excluding this non-underlying item gives an Adjusted EBITDA of £13.8 million (29.2% of revenue and gains on litigation assets) (2020 restated: £7.2 million, 28.6%).

Profit Before Tax

Profit before tax for 2021 was £9.2 million representing 19.6% of revenue and gains on litigation assets (2020 restated: £7.4 million, 29.3% of revenue. This includes the £2.6 million Convex deferred consideration write back and excluding this gives profit before tax for 2020 (restated) of £4.8 million, representing 18.9% of revenue and gains on litigation assets.

Adjusted profit before tax was £10.1 million representing 21.4% of revenue and gains on litigation assets (2020 restated: £4.8 million, 18.9%).

Earnings Per Share (EPS)

The weighted average number of shares in 2021 was 91.4 million which gives a basic earnings per share (Basic EPS) for the period of 7.63 (2020 restated: 7.29p).

2020 earnings included £2.6 million write back of the deferred Convex Capital earn out.

Corporation tax

The Group's tax charge for the year is £2.0 million with an effective tax rate of 21.3% (2020 restated: £1.0 million, 10.5% which was impacted by Convex deferred consideration write back which is non-taxable income). Following the announcement made in the Chancellor's Spring Budget regarding an increase to the UK corporate tax rate from 19% to 25% from 1 April 2023, the Finance Bill 2021 was subsequently enacted on 24 May 2021. As IFRS requires deferred tax to be measured at tax rates that have been subsequently enacted at the reporting date, the Group's deferred tax balances have been re-measured accordingly and the impact has been reflected within the consolidated financial statements (full details can be found in Note 9).

Balance Sheet

The Group's net assets as at 31 December 2021 increased by £13.8 million on the prior year due to the increase in goodwill and intangible assets resulting from the acquisition of Memery Crystal and an increase in the profitable trading for the period.

Goodwill, Tangible and Intangible Assets

Included within tangible assets is £15.9 million (2020: £5.8 million) which relates to IFRS 16 right of use assets for the Group's leases. Within total intangible assets of £55.9 million (2020: £35.4 million), £21.1 million relates to current year acquisitions and have been attributed between goodwill, customer contracts and brand. The Company has considered the amounts at which goodwill and intangible assets are stated on the basis of forecast future cash flows and although these are subjected to unusually high levels of general uncertainty due to COVID-19, concluded that that these assets have not been materially impaired.

Working Capital

Management of lock up has continued to be a key focus of the Group over the period. For the Legal Services business, lock up days is a measure of the length of time it takes to convert work done into cash. It is calculated as the combined debtor and WIP days. In Convex and LionFish, invoices are raised and cash is received at the point of deal completion. Lock up is a key focus for management and the Board as cash generation is a Group focus. Lock up days at 31 December 2021 were 109 (2020: 99), with debtor days being 59 (2020: 47). This has increased as the business has become more balanced and driven by non-contentious transactions, which have longer payment terms. Trade debtors less provision for impairment at the end of the year were £9.6 million (2020: £3.4 million) reflecting the scale up of the business after the acquisition. Equally, contract assets at the year end was £6.0 million (2020: £3.0 million) again reflecting the newly consolidated business and the doubling in the size of RBGLS.

Net Debt

We have a new revolving credit facility (RCF) of £15.0 million and a new acquisition term loan of £10.0 million repayable over three years. Our net debt position at the year end was £14.2 million (net cash 2020: £3.5 million) leaving a substantial part of the RCF facility available. This positions the Group well to deliver its strategy into 2022 and support the business through any uncertainty.

Cash Conversion

The cash conversion percentage measures the Group's conversion of its underlying profit after tax into free cash flows. Movements in working capital have been adjusted for deferred consideration payments made to Memery Crystal in the current year and Convex in the prior year. Net cash generated from operations includes £0.3 million (2020: net cash outflow £3.7 million) of net litigation investments. Cash conversion of 88% (2020 restated: 125%) was impacted by the acquisition during the year as shown in the movement in working capital in 2021.

Net Debt / Net Cash and cash equivalents

Net debt at the end of the period was £14.2 million (2020: £3.5 million net cash). The net decrease in cash and cash equivalents of £8.8 million for the period included £6.1 million of inflows generated from operating activities (including £4.7 million of further investments in litigation assets). Investing activities gave rise to an outflow of £16.9 million, of which £15.4 million related to the cash element of the acquisition of Memery Crystal. Inflows from financing activities of £2.0 million is predominantly made up of net £9.0 million of term loan to fund the acquisition less £4.4 million in dividends and £2.5 million payments of the term loan and lease.

Summary

We are pleased with the profitability and performance of the Group during the year; we have integrated a significant business in Memery Crystal and still delivered results. Convex Capital has come back to a normalised state and LionFish is progressing. The business is performing well despite the continuing impact of COVID-19, the fast-evolving situation in Ukraine and current inflationary pressures. However, it is important to acknowledge the impact of these events on business life, as they will be a significant challenge moving forward.

Robert Parker

Chief Financial Officer

31 March 2022

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

For the year ended 31 December 2021

The financial statements were approved and authorised for issue by the Board of Directors on 31 March 2022 and were signed on its behalf by:

Nicola Foulston

Director

Consolidated statement of cash flows

For the year ended 31 December 2021

The attached notes form part of these financial statements.

Consolidated statement of changes in equity

For the year ended 31 December 2021

The attached notes form part of these financial statements.

The attached notes form part of these financial statements.

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 after tax of £7,105,524 for the year ended 31 December 2021 (2020: £2,971,876).

The financial statements were approved and authorised for issue by the Board of Directors on 31 March 2022 and were signed on its behalf by:

Nicola Foulston

Director

The attached notes form part of these financial statements.

The attached notes form part of these financial statements.

The attached notes form part of these financial statements.

The attached notes form part of these financial statements.

Notes (forming part of the consolidated financial statements)

1. Basis of preparation

RBG Holdings plc is a public limited company, incorporated in the United Kingdom. The principal activity of the Group is the provision of legal and professional services, including management and financing of litigation projects.

The financial information set out in this release does not constitute the Company's full statutory accounts for the year ended 31 December 2021 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 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered after the forthcoming AGM. The auditors have reported on the accounts for the period ended 31 December 2020 and the year end 31 December 2021: their reports were unqualified, and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

While the information included in this preliminary announcement has been prepared in accordance with the recognition and measurement principles of UK adopted international accounting standards, this announcement does not itself contain sufficient information to comply with UK adopted international accounting standards. The Company expects to publish full financial statements for the year ended 31 December 2021 that comply with UK adopted international accounting standards on 1 April 2022.

The accounting policies set out below are in accordance with UK adopted international accounting standards, and International Financial Reporting Interpretations Committee ('IFRIC') interpretations that were applicable for the year ended 31 December 2021.

The financial statements have been prepared for year ended 31 December 2021, with a comparative year to 31 December 2020 (restated), and are presented in Sterling, which is also the Group's functional currency.

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out in Note 2. The policies have been consistently applied to the period presented, unless otherwise stated.

The preparation of financial statements in compliance with UK adopted international accounting standards requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in Note 3.

Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis, except for the following items (refer to individual accounting policies for details):

· Litigation assets - fair value through profit or loss

· Put and call options - fair value through profit or loss

Going concern

As described in the Strategic Report the Group expects to be able to operate within the Group's financing facilities and in accordance with the covenants set out in all available facility agreements. Accordingly, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and they have adopted the going concern basis of accounting in preparing the annual Group financial statements.

Changes in accounting policies

a. New standards, interpretations and amendments effective from 1 January 2021

New standards that have been adopted in the annual financial statements for the year ended 31 December 2021 but have not had a significant effect on the Group are:

· Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

· COVID-19 Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS16)

· Amendments to References to the Conceptual Framework in IFRS Standards (Conceptual Framework)

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 2022:

· Onerous Contract - Cost of fulfilling a Contract (Amendments to IAS 37)

· Property, plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16)

· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS1, IFRS 9, IFRS 16 and IAS 41)

· References to Conceptual Framework (Amendments to IFRS 3)

The Group is currently assessing the impact of these new accounting standards and amendments and does not expect that they will have a material impact on the Group.

The following amendments are effective for the period beginning 1 January 2023:

· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);

· Definition of Accounting Estimates (Amendments to IAS 8); and

· Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).

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.

Other professional services revenues

Other professional services revenue is contingent on the completion of a deal and is recognised when the deal has completed. Bills raised are payable on deal completion and are generally paid at that time.

Basis of consolidation

Where the company has control over an investee, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

Non-Controlling interests

The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.

Where the Company has agreed a put option over the shares of a subsidiary held by a non-controlling interest, the liability for the estimated exercise value of the put option is recognised at fair value in the financial statements of the Company and is recognised at present value in the financial statements of the Group. Movements in the estimated liability after initial recognition are recognised in the statement of changes in equity.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired.

Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. Direct costs of acquisition are recognised immediately as an expense.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated statement of comprehensive income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the consolidated statement of comprehensive income on the acquisition date.

Impairment of non-financial assets (excluding inventories, investment properties and deferred tax assets)

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial period end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Foreign currency

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group's accounting policy for each category is as follows:

Fair value through profit or loss

Litigation assets relate to the provision of funding to litigation matters in return for a participation share in the settlement of that case. Investments are initially measured at the sum invested and are subsequently held at fair value through the profit or loss.

When the Group disposes of a proportion of its participation share in the settlement of the case to a third party under an uninsured ("naked") contract, where the percentage of the litigation asset being disposed of and the percentage return remain proportionate irrespective of the final outcome of the litigation, the difference between the disposal proceeds and the cost of investment disposed gives rise to a profit on disposal which is recognised through the profit and loss when the sale is agreed. These sales are non-recourse and, if the case is successful, the relevant % of the settlement received is paid to the third party. For uninsured cases, the Group uses the value of third party disposals to calculate the gross value of the proportion of the investment retained by the Group and deducts the expected cost of investment to be borne by the Group to give the fair value of the Group's investment. The proportion of each investment retained is calculated using the expected total return on the investment, the expected return payable to the onward investor and the expected total return retained by the Group.

For insured cases, when the Group disposes of a proportion of its participation share in the settlement of the case to a third party, where the third party return is calculated as a fixed percentage daily rate irrespective of the settlement value of a successful litigation outcome, the derecognition requirements under IFRS 9 para 3.2.2 are not met and no sale or profit on disposal arise. The Group retains the full litigation asset and the proceeds of disposal under the third party contract are included as litigation liabilities. The fair value of the litigation asset is calculated using the expected total return retained by the Group in the different possible outcomes factored by Management's expectation of the likelihood of each outcome.

Amortised cost

These assets arise principally from the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised in profit or loss. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to the carrying value is recognised in the consolidated statement of comprehensive income (operating profit).

Impairment provisions for receivables from related parties and loans to related parties, including those from subsidiary companies, are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. This annual assessment considers forward-looking information on the general economic and specific market conditions together with a review of the operating performance and cash flow generation of the entity relative to that at initial recognition. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

The Group's financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position. Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short term highly liquid investments with original maturities of three months or less.

Financial liabilities

The Group classifies its financial liabilities depending on the purpose for which the liability was acquired.

Other financial liabilities

All the Group's financial liabilities are classified as other financial liabilities, which include the following items:

Bank borrowings are initially recognised at fair value net of any transactions costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Leased assets

Identifying leases

The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria:

(a) There is an identified asset;

(b) The Group obtains substantially all the economic benefits from use of the asset; and

(c) The Group has the right to direct use of the asset

The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease.

In determining whether the Group obtains substantially all the economic benefits from use of the asset, the Group considers only the economic benefits that arise from use of the asset, not those incidental to legal ownership or other potential benefits.

In determining whether the Group has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are pre-determined due to the nature of the asset, the Group considers whether it was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of the contract does not satisfy these criteria, the Group applies other applicable IFRSs rather than IFRS 16.

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

· Leases of low value assets; and

· Leases with a term of 12 months or less

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the Group's incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate.

On initial recognition, the carrying value of the lease liability also includes:

· amounts expected to be payable under any residual value guarantee

· the exercise price of any purchase option granted in favour of the Group if it is 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

Leased assets (continued)

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

· lease payments made at or before the commencement of the lease

· initial direct costs incurred and

· the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if this is judged to be shorter than the lease term.

When the Group revises its estimate of the term of any lease, it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining lease term.

For contracts that both convey a right to the Group to use an identified asset and require services to be provided to the Group by the lessor for a variable amount, the Group has elected to account for the right-of-use payments as a lease and expense the service charge payments in the period to which they relate.

Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.

The significant intangibles recognised by the Group, their useful economic lives and the methods used for amortisation and to determine the cost of intangibles acquired in a business combination are as follows:

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.

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income are recognised in the consolidated statement of comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).

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