Rbg Holdings Regulatory News (RBGP)

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:

*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:

Litigation Finance Sales:

Convex Capital: (Other Professional Services)

Post-period highlights:

COVID-19 update:

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:

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 £393,000 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 £21.8 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 £1.9 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 £23.7 million (2018 pro-forma: £18.75 million*; as reported: £12.5 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 £9.4 million (2018 pro-forma: £6.5 million*; as reported: £4.3 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 £0.9 million as at 20 April 2020. Cash collections remain as forecast. The Company also has a £10 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 £21.8 million (2018 pro-forma: £18.75 million*; as reported: £12.5million) delivering £14.0 million of contribution (2018 pro-forma: £12 million***; as reported £8 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 £1.9 million (2018: £1.4 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 the 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 £1.9 million in external third-party costs across eight litigation cases. The Group has also generated £3.8 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:

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 £1 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 £700,000 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 £15.75 million. The consideration was structured as follows:

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: £23.7 million (2018 proforma: £18.75 million, as reported: £12.5 million)

· EBITDA: £9.4 million, 40% of revenue (2018 proforma: £6.5 million***, 34%; as reported £4.3 million, 34%)

· Profit Before Tax: £7.6 million ,32% of revenue (2018: proforma £6.0 million, 32%; as reported £3 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: £393,000 (2018: £400,000)

· 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 £23.7 million compared to £18.75 million on a pro-forma basis* in 2018 (as reported: £12.5 million) representing a 26% increase.

Of this increase, 10% (or £1.9 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 £393,000.

*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:

Litigation Finance Sales:

Convex Capital: (Other Professional Services)

Staff costsTotal staff costs in 2019 were £11.5 million, includes £0.9m 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 £14.3 million (before depreciation and amortisation) (Proforma 2018: £13.8 million, including £1m of IPO costs). Staff costs being £9.4 million (2018: Proforma £8.1m), contractors costs being £2.0m (Proforma 2018 £0.9m).

Other operating costs were £2.8 million, which Convex represented £0.2 million, other costs include Insurances £0.5 million, Rates £0.3 million Training and recruitment £0.2 million and Books & Subscriptions of £0.2 million. The impact of the adoption of IFRS 16 is that Other operating costs have been reduced by £0.9 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 £9.4m (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 £6.5 million (34% of revenue), and 2019 EBITDA represents a 46% increase on this figure. 2018 adjusted EBITDA as reported was £4.3m (unadjusted £3.3m).

\* 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 £7.6 million on 2018: proforma of £6 million and as reported £3 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 £7.6 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 £1.47 million with an effective tax rate of 19% (2018: £0.73 million, 24%) which is made up of a current corporation tax charge of £1.55 million offset by a £0.08 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

 The Group's net assets as at 31st December 2019 increased by £7.5 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 £6.7 million relates to IFRS 16 right of use for the group's leases. Within intangible assets and goodwill is £35m 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 31st 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 31st 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 £350.

Net Bank Debt

We do not have any bank debt, but during the year put in place a Rolling Credit facility of £10 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

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 £1.9m (2018; £13.2m) the movement during the year included an additional £2m generated from operating activities, less £6m paid out on the acquisition of Convex, £2.2m on litigation investments, £3.8m in Dividends, £0.5m in capex and £1m 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 £0.5 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 £6.3 million in addition there is a further £1.8m deferred consideration which is earned on the successful completion of deals. During 2019 £0.4 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

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

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

The attached notes form part of these financial statements. 

Consolidated statement of changes in equity

For the year ended 31 December 2019

The attached notes form part of these financial statements.

Consolidated statement of changes in equity

For the year ended 31 December 2019 (continued)

The attached notes form part of these financial statements.

Company statement of financial position

As at 31 December 2019

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 £5,718,891 for the year ended 31 December 2019 (2018: £1,296,113 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

The attached notes form part of these financial statements. 

Company statement of changes in equity

For the year ended 31 December 2019

The attached notes form part of these financial statements.

Company statement of changes in equity

For the year ended 31 December 2019 (continued)

The attached notes form part of these financial statements.

Notes

(forming part of the consolidated financial statements)

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)

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 £10m 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)

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)

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)

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 liabilities

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

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

Notes (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)

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:

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)

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:

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)

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)

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)

- 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)

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

Financial liabilities

Trade and other payables are due within twelve months.

Notes (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)

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 £Nil. Management does not consider this to be a significant risk to the Group.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The 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 25th October 2019, the Group signed a £10,000,000 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 £1.9m 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 £10 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)

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.

Notes (continued)

Following the change in the composition of reportable segments, the corresponding items of segment information for 2018 has been restated as below.