Rbg Holdings Regulatory News (RBGP)

13 September 2022

RBG Holdings plc

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

Unaudited Interim Results for the six months ended 30 June 2022

Solid performance delivered by resilient business model

RBG Holdings plc (AIM: RBGP), the professional services group, is pleased to announce its unaudited results for the six months ended 30 June 2022.

Group Financial Highlights[1]:

· Revenue (including gains from litigation assets) up 44.8% to £26.6 million (2021: £18.3 million)

o  £1.7 million of gains from litigation assets (2021: £1.5 million)

· EBITDA up 31.8% to £6.8 million (2021: £5.2 million)

o  EBITDA margin is 25.6% (2021: 28.1%)

· Profit before tax up 10.8% to £4.4 million (2021: £3.9 million)

· Profit after tax up 13.3% to £3.5 million (2021: £3.1 million)

· Earnings per share up 4.4% to 3.62 pence (2021: 3.47 pence)

· Adjusted free cash flow generation in the period was £3.1 million (2021: £2.2 million)

· Net debt of £17.3 million (2021: net debt of £9.8 million)

· An interim dividend of 2 pence per share in respect of the six months to 30 June 2022 will be paid on the 30 November 2022

Business Highlights:

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

· Revenue (including gains from litigation assets) up 74.2% to £22.3 million (2021: £12.8 million)

· Legal services revenue up 74.9% to £20.7 million (2021: £11.8 million)

· EBITDA up 62.6% to £6.8 million (2021: £4.2 million)

· EBITDA margin is 30.7% (2021: 32.9%) with the decrease driven by the changing revenue mix, as anticipated, following the acquisition of Memery Crystal

· Successfully realised litigation asset sales with proceeds totalling £2.3 million (2021: £1.6 million)

· Average revenue per fee earner of £363,000 (2021: £375,000) reflects the diversification of the legal services business into more non-contentious areas of law, following the acquisition of Memery Crystal

· Total lockup was 120 days (2021: 102 days) of which debtor days were 51 (2021: 46) with the increase driven by the mix of the business following the acquisition of Memery Crystal

· As at 30 June 2022, RBGLS had invested in 13 litigation cases with an associated contingent WIP of £12.5 million (2021: £5.8 million) and a total cash investment of £9.3 million (£4.9 million)

Convex Capital Limited ("Convex Capital")

· M&A activity has been strong in 2022: As at 30 June 2022, Convex had completed five deals resulting in revenue of £4.2 million (2021: £5.0 million)

· Strong pipeline as at 8 September 2022: 24 active deals, of which three are in late stages of the completion process

Litigation Finance

· Since its launch in May 2020, LionFish Litigation Finance Limited ("LionFish") has invested in 12 cases, with one case having settled successfully in 2021

· Current active cases have a total capital commitment of £11.3 million of which £5.5 million has been deployed (as at 30 June 2022). Disposals since inception total £5.9 million

· In February 2022, LionFish agreed a £20.0 million litigation investment arrangement with a large alternative investment firm which will provide the business with flexible capital. They will invest 75% on any new deals and have retrospectively invested £2.0 million in existing cases in Rosenblatt and LionFish

· This year, LionFish is expected to generate the majority of its gains from potential settlements, the timings of which are not within RBG's control and are thus difficult to predict

Operational and Strategic Highlights:

· New RBGLS COO Jon Divers, appointed in February 2022, has recently been confirmed in position and has full day-to-day operational responsibility for the legal services division

· Memery Crystal business transferred into one legal entity, RBGLS, which completed 1 September 2021

· The integration is almost complete with both businesses migrating onto a single practice management system which is expected to be complete in the fourth quarter of 2022

· With this integration, management has successfully delivered on a key part of the Group's strategy which is to acquire high-value, strategically additive assets and improve their performance

· The combination of Memery Crystal with the Group's pioneering law firm Rosenblatt means the Group now has one of London's premier mid-tier law firms

· The Group continues to pursue acquisition opportunities to build and diversify the business to create long term shareholder value, where financing allows, in line with its M&A strategy

· A number of acquisition opportunities have been identified which adhere to the Group's highly selective criteria and the Group continues to make progress on these

Outlook:

· The Group has had another solid six months which is reflected in improved revenue and profit growth

· The Group's revenues and EBITDA have historically been second half weighted on an organic (and standalone) basis. With consistent demand for all the Group's services we are currently on track to meet our expectations for the full year

Nicola Foulston, CEO, RBG Holdings plc, commented: "Overall, the Group has had a solid first six months which is reflected in our continued revenue and profit growth. Our diversified revenue model has proved to be resilient in these uncertain times. We have built a strong platform from which to deliver growth over the coming years. 

"Our legal services business integration is almost complete with two trading brands; Rosenblatt for contentious law and Memery Crystal for non-contentious law. We are building one of London's premier mid-tier law firms providing quality advice to entrepreneurs and high-net-worth individuals. The business is receiving a high volume of new client instructions enabled by our expertise and increased scale. All our legal services businesses have seen consistent growth and steady flow of activity with our Corporate, Real Estate, and Dispute Resolution practices having all performed well. 

"LionFish continues to grow and is funding eleven active cases. By selling a percentage of the invested assets, it has generated profit from day one of its inception as well as helping to de-risk the Group's investment. The new litigation investment arrangement will provide the business with flexible capital to support its growth rather than the Group's balance sheet.

"Our M&A advisory business, Convex Capital, has performed well in the first six months with five deals completing and remains well-positioned to benefit in the current macro-economic environment.

"With consistent demand for all Group services, we are on track to meet our expectations for the full year. While acknowledging the economic conditions continue to be volatile, we look forward to the next six months with optimism and are excited about the long-term prospects for the Group."

Concert Party

The Company set out specifics of a concert party in its Admission Document, published 2 May 2018 ("Existing Concert Party"). Following consultation with the Takeover Panel, the Existing Concert Party has now been disbanded and two sub-concert parties formed (the "Sub-Concert Parties"). The individuals within each Sub-Concert Party, together with their interests in the issued share capital of the Company as at 12 September 2022, are set out below:

 *Entities in which Nicola Foulston has a beneficial interest

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

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

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.

Chief Executive's Statement

Overview

The Group continues to evolve into a broad, high-quality professional services group with a litigation finance business leveraging the Group's legal expertise and building a diverse revenue base that removes dependence on any one business or fee generator.

The integration of Memery Crystal is almost complete. With this we have successfully delivered on a key part of the Group's strategy which is to acquire high-value, strategically additive assets and improve their performance. The combination of Memery Crystal with the Group's pioneering law firm Rosenblatt means we now have one of London's premier mid-tier law firms. Building on both the Rosenblatt and Memery Crystal brands, our legal services businesses provide quality advice to entrepreneurs and high-net-worth individuals.

The strategy of the Group is clear. We want to leverage our core professional services businesses, which account for 90% of our revenue and profits and capitalise on those areas that offer the highest returns for shareholders. Furthermore, we use the expertise within the Group to maximise the potential returns by selectively investing in contingent asset classes such as litigation. We generate revenue through the sale of participation rights in these assets, which also reduces the Group's risk.

Overall, the Group has performed well despite the macro-economic challenges led by both of our professional services businesses, which have recorded continuing revenue growth. The acquisition of Memery Crystal has added more revenue diversification across the fee earners, deeper profitability across the business, which will grow as the integration improves our pricing structures, and operating efficiencies through the combination of business support functions.

As a result of the solid performance across the Group, our revenue including gains on litigation assets for the period grew 44.8% to £26.6 million (2021: £18.3 million) with a gross margin of 40.2%.

Our sell-side M&A advisory boutique, Convex Capital, performed well in the first six months, completing five deals and £4.2 million of revenue. Importantly, momentum in deal flow remains strong in the current macro-economic environment, and our pipeline continues to grow.

We continue to invest in litigation assets, with 13 live deals across Rosenblatt and LionFish. LionFish has invested in 12 deals since its inception in May 2020 with one completed. For the six months ended 30 June 2022, the Group has delivered £2.5 million in participation rights sales (2021: £2.4 million). There were gains on litigation assets of £1.7 million (2021: £1.5 million).

Group EBITDA was up 31.8% to £6.8 million (2021: £5.2 million) at a margin of 25.6% (2021: 28.1%). The year-on-year decline is due to a larger percentage of our business now skewed toward legal services as a result of the Memery Crystal acquisition, which in its nature is lower margin. As previously disclosed, we are targeting an EBITDA margin of 35% or more, and remain on-track to achieve a higher net margin by the year-end. The Group's profit before tax was £4.4 million (2021: £3.9 million) and profit after tax was £3.5 million (2021: £3.1 million).

Our net debt position as at 30 June 2022 was £17.3 million (2021: £9.8 million), in line with management expectations. This reflects the investment in Memery Crystal and the £10.0 million term loan to fund the acquisition, which will be paid down over five years. We have already paid back £2.0 million. In addition, the Group has an additional £15.0 million revolving credit facility. We have drawn £14.0 million of the revolving credit facility as the Group's working capital requirements have doubled since the acquisition of Memery Crystal. There is further capacity to support the Group's growth. The Group has continued to trade comfortably within its debt covenants.

RBG Legal Services Limited ("RBGLS")

Following the completion of the acquisition of Memery Crystal in May 2021, the Group has almost concluded the integration of its two law firms, Rosenblatt and Memery Crystal. The new legal services corporate entity, RBG Legal Services Limited, will enable the Group to realise the synergies of the transaction fully.

The two brands - Rosenblatt and Memery Crystal - are aligned to contentious and non-contentious services to reflect their brand position within the market. We are building one of London's premier mid-tier law firms providing quality advice to entrepreneurs and high net worth individuals. As at 30 June 2022, the combined businesses had 182 people, including 126 fee earners, with particular strength in Dispute Resolution, Corporate and Real Estate.

The combined businesses are winning a broad range of new instructions, including corporate transactions, employment advisory work and financial restructuring mandates. The significantly enhanced scale has enabled us to win these mandates as well as improve the opportunity pipeline.

Due to the strong demand for legal services, revenue (and gains on the sale of litigation assets) were up 74.2% to £22.3 million (2021: £12.8 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. The Dispute Resolution division is responsible for 31.6% (2021: 63.3%) of RBGLS's revenue, Real Estate represents 24.4% (2021: 17.2%) and Corporate is 44.0% (2021: 19.5%) of the combined business. 

As well as the financial metrics, the other KPIs on which the Company is focused have performed well. The average revenue per fee earner was £363,000 (2021: £375,000). Our revenue per fee earner is in the top 20 of all UK law firms[2]. The small reduction reflects the diversification of the legal services business into more non-contentious areas of law, following the acquisition of Memery Crystal. This is less profitable work but more consistent, which provides a natural hedge to the Group's dispute resolution activities which, while more profitable, are more contingent. 

In line with its strategy, the Group has increased the amount of contingent work it has taken on, enabled by the Group's bigger balance sheet. This is managed within the risk profile of the Group, where fee-paying work has to be prioritised. Contingent litigation cases need to pass the Group's stringent legal and commercial review process. Importantly, RBGLS 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.

For the six months ended 30 June 2022, RBGLS invested £1.7 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 £1.2 million (2021: £1.9 million). As at 30 June 2022, RBGLS had invested a total of £9.3 million in external disbursements and counsel fees in 13 litigation investments, with a total contingent WIP of £12.5 million.

We have confirmed the appointment of a Chief Operating Officer for RBGLS, Jon Divers. He was initially appointed in February 2022, and has recently been confirmed in position, Jon has full day-to-day operational responsibility for the legal services division. He brings over 20 years of senior management experience at major companies including Mercedes Benz and Jungheinrich UK.

Convex Capital Limited ("Convex Capital")

Convex Capital, the specialist sell-side corporate finance advisory boutique 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. Convex Capital identifies and proactively targets businesses that it believes represent attractive acquisition opportunities. Convex has a motivated, dynamic team of 14 people, of which 13 are fee-earners.

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

As at 30 June 2022, Convex Capital had completed five deals and delivered £4.2 million of revenue. The strength of its pipeline and the agile nature of the business has enabled Convex Capital to maintain deals through the first half. As at 8 September 2022, Convex Capital had 24 active deals, of which three are in late stages of the completion process.

The business is actively building the 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. In addition, Convex Capital's success is proving to be an active producer of new leads. Completed deals lead to recommendations (which still go through the active data driven qualification). It is the Board's expectation that the current macro-economic environment will support the on-going fundamentals that drive M&A.

LionFish Litigation Finance Limited ("LionFish")

Since our IPO in 2018, our strategy has been to develop our own litigation finance business. The Group initially invested only 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. 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.

Rosenblatt has a proven record of accomplishment in 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 third-party litigation cases and make investments with strong risk-adjusted returns.

This approach creates further revenue potential from sales in participation rights from litigation finance business beyond Rosenblatt's own client matters. For the 6 months ended 30 June 2022, LionFish has delivered £0.2 million in participation rights sales (2021: £0.8 million). There were gains on litigation assets of £0.1 million (2021: £0.5 million).

The Company believes it is important to reiterate the conservative approach we adopt towards the handling of, and accounting for, our litigation investments. We judge the fair value of investments to be equal to, or as close to, cost plus disposal proceeds, which means fair values do not materially exceed net cash disbursed, as well as having rules limiting the Group's cash and revenue exposure.

Based on the Group's strategy to target a return of two times the money invested, Lionfish is actively invested in 11 cases with a total capital commitment of £11.3 million of which £5.5 million has been deployed as at 30 June 2022 with £5.8 million committed over the life of the cases, which is circa three years.  This year, LionFish is expected to generate the majority of its gains from potential settlements, the timings of which are not within RBG's control and are thus difficult to predict.

In February 2022, LionFish agreed a £20.0 million litigation investment arrangement with a large alternative investment firm which will provide the business with flexible capital. They will invest 75% on any new deals and have retrospectively invested £2.0 million in existing cases in Rosenblatt and LionFish. 

M&A

We continue to assess M&A opportunities to build and diversify the business to create long term shareholder value, where financing allows. Our acquisition focus remains on high-margin, specialist businesses, which can also create opportunities for cross-referrals but only at the right value and with the right deal structure. The Group remains disciplined in its approach to M&A but continues to actively 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. 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.

An interim dividend of 2 pence per share in respect of the six months to 30 June 2022 will be paid on 30 November 2022. The dividend record date is 23 September 2022, and the shares will be marked ex-dividend on 22 September 2022. The total dividend relating to the year ending 31 December 2021 was 5 pence per share.

Change of Auditor

Following a competitive tender process, the Group has appointed Moore Kingston Smith LLP ("MKS") as its new external auditor. MKS will conduct the audit of the Group's financial statements for the financial year ended 31 December 2022. Any proposal to re-appoint MKS in respect of the financial year beginning 1 January 2023 will be subject to shareholder approval at the next AGM.

BDO LLP has resigned by notice to the Group under section 516 of the Companies Act 2006 and has confirmed that there are no matters connected with their resignation that they consider need to be brought to the attention of the members or creditors of the Group for the purposes of section 519 of the Companies Act 2006.

Outlook

The Group has delivered another solid performance over the first half of the year which is reflected in improved revenue and profit growth. With consistent demand for all the Group's services, we remain on track to meet our expectations for the full year the Group's revenues and EBITDA have historically been second half weighted. While acknowledging that economic conditions continue to be volatile, we look forward to the coming months with optimism about the long-term prospects for the Group.

Nicola Foulston

Group Chief Executive Officer

12 September 2022

Chief Financial Officer's Review

Financial Review

During the first half of 2022 we have continued to build on our strong track record of delivering a profitable business. We are growing our revenues and EBITDA from diverse sources, de-risking each individual fee earner. The Group is well positioned to manage the uncertain economic environment through a strategy of business and services diversification, carefully selected acquisitions that are well managed and delivering increasing profits.

Key Performance Indicators (KPIs)

· Group revenue (including gains from litigation assets): £26.6 million (2021: £18.3 million)

· EBITDA: £6.8 million, representing 25.6% of revenue (2021: £5.2 million, 28.1%)

· Profit before tax: £4.4 million, representing 16.4% of revenue (2021: £3.9 million, 21.5% of revenue)

· Net debt of £17.3 million (2021: net debt of £9.8 million) reflecting the £10.0 million acquisition term facility, of which £2.0 million has been repaid. The Group also has a £15 million revolving credit facility, £1 million of which is available to be drawn down.

· Total lock up: 120 days (of which, debtor days were 52) (2021: 102 days, debtor days 46).

· RBG Legal Services revenue per fee earner: £363,000 (2021: £375,000)

· RBGLS Utilisation/Realisation for the 6 months to June 2022 was 75%/88% (2021: Rosenblatt 86%/93% and Memery Crystal 102%/84%)

Revenue and Gains on Litigation Assets

Reported Group revenue and gains on litigation assets for the period is £26.6 million compared to £18.3 million in 2021, representing a 44.8% increase.

Staff costsTotal staff costs for the first half of 2022 were £15.9 million (2021: £10.6 million), which includes £2.1m for Convex (£0.7m in relation to the bonus scheme on completed deals), £0.3 million for LionFish and £12.3m for RBGLS. The average number of employees was 216 (2021: 121).

Overhead costs

During the half year to 30 June 2022, the Group incurred overheads of £19.8 million (before depreciation and amortisation) (2021: £13.2 million). Staff costs were £15.9 million (2021: £10.6 million), of which contractors' costs were £1.7 million (2021: £1.4 million).

Other operating costs were £3.9 million (2021: £2.6 million, of which the cost of the acquisition represented £0.5 million, and incremental Memery Crystal operating costs were £0.5 million).

EBITDA

EBITDA for the half year to 30 June 2022 was £6.8 million representing 25.6% of revenue including gains from litigation assets (2021: £5.2 million, 28.1%).

Profit Before Tax

The profit before tax for the period was £4.4 million representing 16.4% of revenue including gains from litigation assets (2021: £3.9 million, 21.5%).

Earnings Per Share (EPS)

The weighted average number of shares in 2021 was 95.3 million which gives a basic earnings per share (Basic EPS) for the period of 3.62p (2021: 3.47p).

Balance Sheet

The Group's net assets as at 30 June 2022 increased by £3.4 million on the prior year.

Goodwill, Tangible and Intangible Assets

Included within tangible assets is £15.4 million which relates to IFRS 16 right of use assets for the Group's leases. Within total intangible assets of £55.4 million, £51.9 million relates to goodwill, £3.0 million relates to brand and £0.2 million relates to customer contracts. The Company has considered the amounts at which goodwill and intangible assets are stated on the basis of forecast future cash flows and have concluded 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. Convex and LionFish are invoiced on a cash basis, but our 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 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 30 June 2022 were 120 compared to 102 for the previous year, with debtor days being 51 (2021: 46) with the increase driven by the mix of the business following the acquisition of Memery Crystal.

Net Debt

We have a revolving credit facility of £15 million and an acquisition term loan of £10 million repayable over 5 years. Our net debt position is £17.3 million at the end of the period (2021: £9.8 million), includes £8 million of the term loan used to acquire Memery Crystal.

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 period. Net cash generated from operations includes £4.9 million (2021: £1.4 million) of net litigation investments. Cash conversion of 90% (2021: 71%) for the half year shows an increase from previous periods as a result of the stronger six-month trading period. It is a further focus of the business to drive to our target of 75 %, which has been exceeded by our strong focus on cash conversion.

Net Debt / Net Cash and cash equivalents

Net debt at the end of the period was £17.3 million (2021: £9.8 million net debt). The net decrease in cash and cash equivalents of £5.4 million for the period included £3.2 million of inflows generated from operating activities (net of £4.9 million of further investments in litigation assets). Investing activities gave rise to an outflow of £2.4 million, of which £2.2 million related to the deferred consideration payment made in relation to the acquisition of Memery Crystal. Outflows from financing activities of £0.7 million is predominantly made up of £3.0 million net proceeds of revolving credit facility less £2.8 million in dividends.

Summary

We are pleased with the profitability and performance of the Group during the first half of the year. The business has responded well to the challenges of the uncertain economy. However, it is important to acknowledge the continued impact and it will be a significant challenge moving forward.

Robert Parker

Chief Financial Officer

12 September 2022

Unaudited consolidated statement of comprehensive income

For the period ended 30 June 2022

Unaudited consolidated statement of financial position

As at 30 June 2022

The interim statements were approved by the Board of Directors and authorised for issue on 12 September 2022.

Unaudited consolidated statement of cash flows

For the period ended 30 June 2022

Consolidated statement of changes in equity

For the period ended 30 June 2022

Consolidated statement of changes in equity

For the period ended 30 June 2022 (continued)

Consolidated statement of changes in equity

For the period ended 30 June 2022 (continued)