Unaudited notes to the financial statements for the period ended 30 June 2024

RBG Holdings plc is a public limited company, incorporated in the United Kingdom. The principal activity of the Group is the provision of legal and professional services, including management and financing of litigation projects.

Status of Interim Report

The Interim Report covers the six months ended 30 June 2024, with comparative figures for the six months ended 30 June 2023 and the year ended 31 December 2023 and was approved by the Board of Directors on 30 September 2024. The Interim Report is unaudited.

The interim condensed set of consolidated financial statements in the Interim Report are not statutory accounts as defined by Section 434 of the Companies Act 2006.

The statutory accounts for the year ended 31 December 2023 have been reported on by the Group's auditors and delivered to the Registrar of Companies. The audit report thereon was unqualified, did not include references to matters to which the auditors drew attention by way of emphasis without qualifying the report, and did not contain a statement under Section 498 of the Companies Act 2006.

The principal accounting policies adopted in the preparation of the unaudited consolidated financial statements are set out in Note 2. The policies have been consistently applied to the periods presented, unless otherwise stated.

The unaudited consolidated financial statements of the Group have been prepared in accordance with IFRS as adopted by the UK and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The preparation of financial statements in compliance with IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in Note 3.

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.

Notes (continued)

Revenue

Revenue comprises the fair value of consideration receivable in respect of services provided during the year, inclusive of recoverable expenses incurred but excluding value added tax.

Legal 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.

The Group has two cases under Damages Based Agreements.

For the first case, the disbursements are recoverable either in the case of a win, or where the client or the Group terminates the engagement. The recovery of the disbursements are recognised as revenue under IFRS 15 to the extent it is highly probable that a significant reversal in the amount will not occur in the future. Under IFRS 15, this case is treated as a contract asset, and an impairment assessment is performed in line with the standard.

For the second case, disbursements are recoverable in a win or lose situation. As such, the revenue recognition point is the point at which the expense is incurred by the Group, when a disbursement is incurred, the Group recognises the expense incurred in the profit or loss and the associated revenue in relation to the recovery of the disbursement. IFRS 15 requires the presentation of any unconditional rights to consideration as a receivable separately from contract assets. At each reporting date, the Group performs an expected credit loss (ECL) assessment on the receivable line with IFRS 9, and where applicable, an impairment is recognised.

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.

Corporate finance revenue

Corporate finance revenue is contingent on the completion of a deal and is recognised when the deal has completed. Bills raised are payable on deal completion and are generally paid at that time.

Interest received on client monies

Interest is recognised on client monies held, this is recognised in the profit or loss based on the effective interest rate during the period. This forms part of other income as this is driven by the ongoing operations of the business.

Notes (continued)

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.

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.

Financial assets

The Group classifies its financial assets under the amortised cost category, the Group's accounting policy is as follows:

Amortised cost

These assets arise principally from the provision of goods and services to customers (e.g., 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.

Notes (continued)

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 in profit or loss. 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:

Bank borrowings are initially recognised at fair value net of any transactions costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

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)

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.

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:

Notes (continued)

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.

Restatements

The 2023 comparative numbers have been restated for the following corrections which is described fully in Note 13:

A prior period adjustment has been made for incorrect accounting policies that were previously adopted in relation to disbursements incurred on two damages based agreements. The disbursements were previously held on the balance sheet as Litigation Assets and measured the assets under IFRS 9 at fair value through profit and loss.

Based on the substances of the underlying agreements for the two damages based agreements, the recovery from the client of disbursements represents a revenue stream arising from a costs to fulfil a contract with a customer and therefore falls within the scope of IFRS 15, not IFRS 9. This is because IFRS 9 states that it does not apply to "rights and obligations within the scope of IFRS 15 that are financial instruments, except for those that IFRS 15 specifies are accounted for in accordance with IFRS 9".

For the first case, the disbursements are payable to the Group, only if the case wins or where the client or the Group terminates the engagement. Under IFRS 15, this case is treated as a contract asset and an impairment assessment is performed under IFRS 15. Management has reassessed the probability of success during the year ended 31 December 2022 and has reduced this from 90% to 50%, at this point, the contract asset was written off the case became an onerous contract and costs to fulfil the contract were provided for.

The reassessment made for probability of success was based on management's assessment of the information available at the time and hindsight has not been applied in assessing the impact of the prior period adjustment. The write off of the contract asset at the point of probability of success reducing was £6,670,481. At that point, a provision for the onerous contract of £956,999 was recognised. £562,979 of this provision was released during the remaining months of the year ended 31 December 2022.

For the second case, the disbursements are recoverable in a win or lose situation. As such, the revenue recognition point is the point at which the expense is incurred by the Group. IFRS 15 requires the presentation of any unconditional rights to consideration as a receivable separately from contract assets and an expected credit loss (ECL) assessment is performed at year end. The Group performed an ECL assessment at each year end for this case and determined that the disbursements are not recoverable if the case were to lose and therefore have been provided for.

The assessment on the ECL has been made based on management's knowledge of the case and the parties involved, hindsight has not been applied for the of assessing the impact of the prior period adjustment. The impact of this ECL assessment was that opening reserves were reduced by £273,094 for the provision recognised against the receivable. The provision for receivables was increased at 31 December 2022 for £1,296,470, and an additional £920,127 recognised against the receivable at 31 December 2023.

The 2023 comparative numbers have been restated to reflect Convex being disclosed as a discontinued operation in the current year.

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.

Judgements, 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.

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 alternative billing 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: -

a)   The amount of consideration receivable is highly susceptible to factors outside the Group's influence

b)   The uncertainty is not expected to be resolved for a long time

c)   The Group has limited previous experience (or limited other evidence) with similar contracts

d)   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)

Disbursements incurred in association with DBAs are recognised initially under IFRS 15 as they constitute payments for costs incurred as part of the provision of legal services to the Group's client that could be reimbursed in the future depending on the outcome of the case.

The Group has two DBA cases which are recognised as follows:

For the first case, the disbursements are payable to the Group, only if the case wins or where the client or Group terminates the engagement. Under IFRS 15, this case is treated as a contract asset and an impairment assessment is performed under IFRS 15 regarding the probability of success of the case, when it becomes probable that the case will not be successful, an impairment is required, and the contract becomes onerous. Different views on the probability of success could impact whether an impairment is recognised. This change in accounting estimate has resulted in an impairment of nil in the current year.

For the second case, the disbursements are recoverable in a win or lose situation. As such, the revenue recognition point is the point at which the expense is incurred by the Group. IFRS 15 requires the presentation of any unconditional rights to consideration as a receivable separately from contract assets and an expected credit loss (ECL) assessment is performed by management at year end. Different views on the ability to recover the receivable could impact the amount of provision required.

The change in accounting estimate as a result of the above prior period adjustment has resulted in a material change from the amounts published in the 2023 interim results. The interim results recorded a write off of £11.0m associated with these DBA cases within 2023. The prior period adjustment identified above, has resulted in the first disbursement asset case being recorded as a contract asset and impaired within the year ending 31 December 2022, the second case is recorded as a trade receivable and has been assessed for expected credit loss impairment at each year end. Refer to notes 13 for further information.

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.

Impairment of trade receivables

Receivables are held at cost less provisions for impairment. During the year ended 31 December 2023, the Group changes it's accounting for impairment provisions, they are now recognised based on the ageing of invoices with invoices over 270 days being fully provided for, management also make an assessment for invoices under 270 days old to determine their collectability.

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.

In the year ending 31 December 2021, the Company was informed that HMRC had started an inquiry into the valuation of employee related securities issued by the Company in April 2018 prior to the IPO, this inquiry is on-going.

Notes (continued)

The Group's reportable segments are strategic business groups that offer different products and services. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, which has been identified as the Board of Directors of RBG Holdings plc.

The following summary describes the operations of each reportable segment:

·    Legal services - Provision of legal advice, by RBGLS (trading under two brands, Rosenblatt and Memery Crystal)