City firm Rosenblatt is ramping up its use of contingent funding agreements, while its litigation finance arm has now invested in nine cases, the listed business’s half-year results have shown.
RBG Holdings plc said it continued to trade profitably during the first six months of this year, despite Covid-19, with revenues of £12m up 17% on the same period last year. However, profit before tax more than halved from £3.2m to £1.4m.
The law firm was responsible for almost all of the income, as there were no cash realisations from selling investment assets during the period (it made £2m from sales in the first half of 2019), and Convex Capital, the M&A business the group bought last year, saw deals delayed and some cancelled, “albeit the outlook is now improving”.
“The reduction of these two high-margin revenue streams has impacted the group’s profitability in the first six months,” it told investors.
“However, much of this revenue has been deferred and the Group is well positioned for litigation investment sales and targeting M&A deals to be completed in the second half of the current financial year.”
Rosenblatt’s dispute resolution division, which is responsible for 61% of the firm’s revenue, saw turnover increase by 13%
Chief executive Nicola Foulston said: “The strategy I have set in place and the strength of the balance sheet as a result of the IPO has allowed the group to increase the amount of contingent work that it can take on… Importantly, [Rosenblatt] can enter into more alternative billing arrangements.”
As at 15 September 2020, the firm has made a cash investment of £4m in eight cases, with total contingent work in progress of £3.8m.
Rosenblatt’s corporate division saw revenue soar 335% to £3.3m, more than the whole of 2019.
Average revenue per fee-earner across the firm was £497,000 (2019: £350,000), reflecting its “high productivity”, Ms Foulston said.
In the spring, the group launched a separately branded third-party litigation funder , LionFish Litigation Finance. Up to 30 June it had approved six cases and executed three of them, with a total commitment of £2.4m. It has so far advanced £700,000 of that.
A further three cases have been approved since and in all LionFish has received 112 enquiries.
Ms Foulston said: “Overall, there has been positive strategic and operational progress across the group which has helped offset the negative impact of the coronavirus and has resulted in a stronger platform from which to drive future growth.
“The business, especially our law firm, has proved incredibly resilient despite the recent upheaval… Furthermore, we received a high volume of new instructions as a result of client need for financial restructuring and employment-related issues as a result of the pandemic.”
She said the fall in profitability “should mainly be a timing issue if our plan to achieve higher margin profit from LionFish’s litigation investment realisations and Convex Capital’s fees in the second half is realised”.
RBG paid a reduced dividend for the last six months of 2019 and is postponing the decision on the exact amount of the full year’s dividend until the end of the financial year, “at which point the board will have better visibility on the Group’s full year 2020 performance and wider economic indicators.”