Shares in a listed legal business plummeted today as it warned that profits are likely to slump this year. RBG Holdings, which owns the firms Rosenblatt and Memery Crystal, said in a trading update that full-year pre-tax profits for the year ending 31 December are likely to be down from £15.8m in 2022 to £4m this year. Revenue has also fallen from almost £50m to £41.9m.

The company said the second half of the financial year had historically been the stronger period, but activity in the past six months has been similar to the first half. The board admitted it had not seen the expected increase in revenue and profitability of previous years. Revenue in the second half was £19.4m, down from £23.8m for the same period last year. Adjusted EBITDA tumbled from £8.8m to £1.6m.

Memery Crystal in particular has been affected by the lack of activity in commercial real estate and equity capital markets. Transactions that had been forecast in this quarter were either delayed into 2024 or cancelled altogether, the update said. 

The company has also incurred various one-off costs in the second half. The disposal of litigation finance business Lionfish resulted in a £700,000 loss, while an adverse cost ruling resulted in another £400,000 being written off.

A refinancing exercise during the second half of this year, which concluded this month, included a review of historic debts and work in progress. Managers decided to write off £1.8m of potential future income, which will require a restatement of the 2022 accounts.

The update also stated that the company has incurred £1.9m in legal costs for employment cases heard in the second half. Former head of employment Noel Deans has brought claims for racial discrimination, unfair dismissal and breach of contract against RBL Law Limited and senior figures at the firm. All the claims are denied and judgment has been reserved following hearings in October.

RBG Holdings also settled litigation between the company and its former chief executive Nicola Foulston in October, committing to paying her management company £500,000 in damages and costs.

The trading update caused RBG shares to fall to a record low today, sliding by almost 35% to just 10.75p. A year ago shares were trading at 63p.

Marianne Ismail, non-executive chair of RBG Holdings, said 2023 had been a ‘year of transition and a disappointing one for shareholders’, but that the business was on a ‘significantly stronger footing’ now.

She added: ‘There are early signs of recovery in some of the key areas of legal services that were badly impacted in 2023 but we will be presenting a more conservative budget for 2024, with revenue and profit expected to be slightly higher than 2023, that is designed to demonstrate both clarity and profitability to investors and other key stakeholders.'

The company announced earlier this month that it had extended its credit facility with HSBC for £24.5m, agreeing to pay an effective 8.3% interest rate until December 2025.

 

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