Listed law firm looking to grow again after loss-making year

Ismail: Year of inflexion

Shares in listed legal business RBG Holdings fell by 14% yesterday after announcing a significant fall in revenue and big losses for last year.

But the board stressed that work to reshape its operations to focus solely on legal services had left the business – made up of contentious practice Rosenblatt and non-contentious firm Memery Crystal – “much closer to the one that floated in 2018” and stronger as a result.

The AIM-listed group had a difficult 2023, including selling its litigation funding arm, LionFish, and writing off all of its contingent work.

This year, it raised £2.8m in funding from shareholders and sold Convex Capital, its sell-side only M&A advisory firm, to a management buy-out backed by another listed law firm, Knights, for an initial £2m, with a further £600,000 contingent on the completion of certain transactions.

RBG’s share price hit a high of 148p in June 2021 but has been falling ever since. It started 2023 on 64p and then dived to 10.25p last December after it warned about the upcoming poor results.

The price went as low as 8.65p earlier this month before recovering a little, but closed down at 10.5p yesterday.

Its adjusted revenue fell 12.6% from £45m to £39m – although less than the 16% predicted in December – and RBG recorded a loss for the year, including the discontinued operations, of £24m, with net debt up to £23m.

Fee-earner utilisation (how many hours of the working week were billable) fell from 76% to 70%, and fee-earner realisation (percentage of bills that were collected) dropped three percentage points to 87%.

Investors heard that revenue and profit from continuing operations has reduced, largely due to lower corporate spend on legal services, “in particular relating to transactions such as IPOs and M&A”. RBG also had to make provisions in relation to the legacy of unfunded damages-based agreements – which it no longer takes on – and historic debtors.

Group chair Marianne Ismail said it was “clear that the strategy and approach adopted by the previous management which deviated from the original strategy presented at IPO, was no longer appropriate”.

But the resources needed to adopt the new strategy “drained the business of profit and working capital, at a time when there have been significant macro-economic challenges impacting the group”.

Ms Ismail said: “We recognise that 2023 was a challenging year, but it was also a year of inflexion for the group and the significant progress in realigning the business gives the board confidence that the group is on a much stronger footing than it has been for some time.

“The new executive team, led by CEO Jon Divers, has made difficult decisions to reduce the group’s risk profile, its cost base and to refocus RBG on its core legal activities, similar to the business that floated in 2018, where the board believes profits can be maximised.”

She added that a new funding agreement with HSBC and the fundraise had given management “the operational headroom to deleverage the business more quickly as it brings operational performance back up to acceptable levels”. Reducing debt was also “a core part of our strategy”.

The group’s stated strategy is now “to build a high-margin, cash-generative, legal services group with diversified revenue and profit streams to deliver organic growth and sustained shareholder value”.

Mr Divers added said organic growth, primarily through “accretive hires”, was key to the group’s success. It was looking to bolster existing practice areas and add new ones – insolvency and international arbitration being two so far – “as we look to build a full-service law firm”.

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