Home / Shipping News / Shipping Law News / The Ince Group plc (“Ince” or the “Group” or the “Company”) Interim unaudited results for the six months to 30 September 2020

The Ince Group plc (“Ince” or the “Group” or the “Company”) Interim unaudited results for the six months to 30 September 2020

Financial highlights

· Revenue up 6% to £48.2m, a strong performance given the impact of Covid-19

· Adjusted profit before tax of £2.52m, up from £0.15m

· Organic growth over last year approximately 3%

· Adjusted earnings per share increased to 3.1p (2019 loss of 3.9p)

· Net debt at the period end of £8.3 m (31 March 2020 – £9.0 m) – reduced on schedule and after paying deferred consideration of £4.9 m

· Further cost savings implemented throughout the period with over £1m to recur

Operational highlights

· International offices’ revenues all increased reflecting re-invigoration with new partners and continued expansion of services

· UK legal practice has rebounded well from the initial Covid-19 downturn with recent months’ revenues close to last year’s

· Further geographical expansion:

o New office established in Cyprus staffed by team from an established business

o New regulated consultancy opened in Abu Dhabi

· Lateral and team hires who have joined are increasing their revenues

· Law firm management strengthened with new Global Senior Partner and new Managing Partner – UK and Managing Partner – International

· Remote working ability readily enhanced and extended to all staff, allowing flexibility for future operation

· New practice management system developed and owned by the Group rolled out in the UK and ready to be rolled out in other locations when travel for training allows

Adrian Biles, Group Chief Executive, commented:

“A huge thank you to all partners and colleagues for continuing to deliver the high quality service our clients expect. In the context of the global disruptions of the pandemic, these are exceptional results.

“Lateral recruitment has taken time to expand the service lines offered in the overseas offices, but the results are beginning to be felt and I am particularly pleased with the performance of the international offices in this period.

“Our net debt continues to reduce even as we continue to pay deferred consideration for acquisitions.

“These results demonstrate that we are in a position to deliver future growth and, if that continues over coming months, we should be able to declare a dividend with the final results.”

Presentations

A presentation for analysts and institutional investors will be held today, 1 December 2020, at 11am. All participants must pre-register with Portland Communications to attend the event via: [email protected].

An open presentation and Q&A for all investors will also be held via the Investor Meet Company platform on 1 December 2020 at 5.15pm. Investors can register for the event via: https://www.investormeetcompany.com/ince-group-plc-the/register-investor

Operating review

Clear growth drivers: The Group’s strategy continues to be to grow income profitably by adding fee earning partners to a single efficient administrative operation. Implementation of this strategy should increase the intellectual capital of the business and the quality of its client and matter base. The delivery of this strategy includes recruiting high quality personnel, developing new business streams, acquiring complementary businesses and forging strategic alliances where appropriate.

Robust central infrastructure: To support the delivery of the strategy, the Group has a well-established platform and infrastructure.

We own our practice management system which, on an integrated basis, manages our paperwork, records time and enables billing and collection of fees. We believe that this is unique as it enables us to tailor the system to our needs when we need a refinement and removes the need to rely on external software providers. The back office for the Group is based in South Wales which is a relatively low-cost environment with an abundant pool of suitable talent.

Remuneration model key to growth: The Group has a well-developed basic remuneration structure for partners with which to reward them for delivering the behaviours management wants to see. These focus on our KPIs by growing revenues, achieving a gross margin of over 45%, billing the work done and collecting the fees. While the basic structure is well-defined, it is continually reviewed to improve its focus on achieving the right behaviours.

The efficient practice management system and the remuneration structure, allied to the strength of the Ince brand, are powerful tools in attracting the additional talent the Group seeks.

Review of the half year

The half year has been overshadowed by the global pandemic which has impacted each of our offices to differing degrees. Through the dedication and commitment of our partners and colleagues the overall result is ahead of last year and revenue in the half year has exceeded last year’s. Covid-19 restricted business development and face-to-face client contact. However, all of our colleagues have adapted to the changed circumstances and ways of working and our technology platform has coped well with the entire firm at times working remotely.

We strengthened our international footprint during the first half of the year:

– In June, after lengthy negotiations with the local regulator, the Singapore office’s international law practice was consolidated with the Singapore law practice of former alliance partner Incisive Law LLC, an integral member of the global Ince network.

– In July, we started a Middle East consultancy business as a specialist asset finance provider. The business is offering our clients expert consulting services, working closely with our ship finance teams in the UK, Germany, Dubai and Asia. It will initially focus on the shipping and aviation sectors. It is regulated by the Abu Dhabi Global Market’s Financial Services Regulation Authority (FSRA).

– In late September, the Group opened a new office in Cyprus, another important international shipping hub, and welcomed six new colleagues who have worked together for many years. The office has a specific focus on the maritime sector but is well positioned to advise on private wealth, immigration, financial litigation and energy-related matters. Alongside the law firm, we will operate a consultancy business providing a full range of corporate support services.

We are building complementary businesses around the core strength of Ince in shipping and maritime law:

These changes are built around the core strength of the law firm in shipping and maritime law to which the Group continues its successful commitment. At the beginning of this year, we were joined by 10 partners and fee earners from Bentleys, Stokes and Lowless, a long established specialist shipping partnership in London. They have integrated smoothly with our existing team and are generating revenue as well as deepening the vast experience of the shipping team.

Lateral hires drive growth:

All of the overseas offices have increased turnover and are contributing to the Group result confirming our view that with the addition of suitable partners, close management and an emphasis on collaboration with other offices, the businesses are sound. In the UK, which represented 57% of revenues in the period, the trends noted earlier in the year are represented in the first half. In corporate and real estate there was some encouragement from increases in revenue towards the end of the half year as transactions started again. Shipping and dispute resolution, the largest practice areas in the UK, have performed solidly in the half year. Overall in the UK, the business is recovering to previous levels of revenue after a noted decline after the first lockdown.

Senior management team strengthened:

– Julian Clark has been appointed Global Senior Partner with the primary responsibility for building the market profile of the Group internationally and breaking down silos between offices and service lines. He is establishing a small number of groups focussed on the further deepening of collaboration between offices and service lines to leverage our client and talent bases which should increase revenues.

– Mark Tantam has been appointed to the new position of Managing Partner – UK and his vast experience of managing large teams of professionals at Deloitte is already benefitting the Group. Mark will retain his role as head of global consulting and, in that role, continue to develop integrated legal solutions based on a combination of legal and non-legal capabilities and identify new types of business to explore.

– Alex Janes has been appointed Managing Partner – International.

– Mark and Alex will work with the Heads of Offices and Service lines to drive growth by identifying new propositions and new team hires and increase profitability by improving leverage and cash generation in the international network.

– These three will constitute the single points of contact for their areas and work closely together with the CEO and CFO to shorten reporting lines and reduce inefficiency (and cost) across the organisation.

Improving efficiency of administrative function:

The half year has also seen the business make rapid adjustments as the impact of the pandemic has been felt.

We have, selectively, reduced the number of fee earners and support staff where the medium term prospects of business sectors or support needs would not justify their retention.

The introduction of the Group’s new practice management system has given fee earners and management real-time visibility of individual KPIs (including chargeable hours, WIP, billings, debtors and cash collected) which has improved efficiency. This is to be rolled out to overseas offices as soon as possible when travel for training is practicable.

Disposal of White & Black Ltd

Our aspirations for White & Black to be integrated into the wider group as its FinTech offering were not met due to the fall off of its transactional business during the first half and, subsequent to the first half, we therefore have disposed of the whole of the share capital to part of its management team for £0.5 million.

Financial review

The Group’s consolidated results for the six months ended 30 September 2020 are ahead of last year, reflecting continued development of the business following the settling in of the Ince acquisition. The results show total revenue of £48.2 million (2019: £45.3 million) and Adjusted profit before tax of £2.52 million (2019: £0.15 million).

Alternative Performance Measures

In the past, the Group has presented two Alternative Performance Measures (“APMs”) which included adjustments for specific items to provide a balanced view of the underlying performance of the Group’s operations. We have added back non-recurring items and deducted partners’ remuneration and other non-controlling interests from profits before striking the Adjusted profit before tax.

After further discussions with the auditors, it has been agreed that the partners’ remuneration and other non-controlling interests should be treated as an expense of the business in the statutory presentation of the profits of the Group. This gives the same result in profitability as had previously been reported in the Adjusted profit before tax. In these results, therefore, the only adjustment between the statutory profits and the Adjusted profits is the adding back of non-recurring items.

A consequence of this changed treatment is that the balance sheet liability for non-controlling interests is now shown as a current liability.

The Board believes that this presentation is far clearer to investors.

Key Performance Indicators (KPIs)

To achieve profits for shareholders, we focus the business on a small number of KPIs which we consider essential business drivers of profit growth. In simple terms, if we grow revenues, maintain or increase gross margin, constrain overheads and convert work done into cash, the profits for shareholders (as measured by Adjusted profit before tax) will grow.

We therefore monitor the progress of the business through four essential KPIs:

· Revenue (measured net of disbursements and VAT)

· Gross margin percentage

· Overheads as a percentage of revenue

· Lockup

Revenue

Revenue for the six months has grown by 6% despite the impact of Covid-19 on the business and can be analysed by geography as follows:

The Group has benefitted, during the half year, from its spread of service lines as well as its geographies.

Strong performance from overseas offices

All the overseas offices have performed well through the period, increasing revenue and now contributing to Group profitability. This reflects the arrival of lateral hires in the last year and considerable local and central management attention, with an emphasis on collaboration between offices.

UK performance recovering

In the UK, which represents 57% of Group revenues, revenues declined by 4% in the period with most of the decline happening in the earlier part of the period when restrictions were more severe. Covid-19 has hit the UK harder than our international offices for a number of reasons including particularly in London, the ability and willingness of colleagues to travel into central London by public transport and restrictions on access to our main office imposed by the landlord. This has restricted the ability of partners and colleagues to meet clients.

The UK business is also more transactional than the international business and sectors such as real estate and corporate (and in particular White & Black as noted above) have been quieter. Other sectors which have been quieter include aviation, employment and private clients which are mostly undertaken in the UK practice. The comparative period also included the results of GDFM, the financial compliance consultancy business, which we withdrew from in the second half of last year.

Gross margin

Gross margin for the half year was 44.5% (2019: 41.6%) which was a very good result in the conditions against a comparative period which was early in the integration of the Ince acquisition. The Group has focussed many of the actions in response to Covid-19 on achieving a good gross margin. Typically, we have also found that gross margin improves in the second half of the year with the higher turnover against fixed salary costs.

One of the costs charged against gross margin is the provision we make against debtors in the period. This is made on a formulaic basis with all debts over six months old provided for in full, unless the debt has been collected after the period end before reporting or we have effective certainty that the debt will be collected (for example, where the debtor is a solvent estate or the Group has formal legal security). The charge is 3.0% of revenue for the period (H1 2019: 2.3%) which reflects a general slow-down in settlement of debtors which we have observed. We continue to collect these debts to a substantial extent despite having provided against them.

Lock-up

Lock-up, which represents debtors (excluding VAT and disbursements) compared with revenue, was 116 days at the half year end which is greater than last year and our target of 100 days. This has been extended particularly by Greater China’s lock-up which is higher than for the rest of the Group. This is a focus for management in the short and medium term to educate both partners and clients to understand that the Group should not be a significant source of credit for the client. There are, however, cultural differences which suggest that it will take time to achieve a more satisfactory level.

Overheads

Overheads as a proportion of revenue were 39% of revenue. This is a result of overheads having been set at a time when greater growth in revenue was anticipated. Much focus has been paid to reducing overheads since Covid-19 impacted the business, but this reduction will inevitably lag the decisions to make the reductions. Management has reduced overheads in a sensible way so as to enable the business still to grow as more normal business conditions return. This measure should reduce in the full year, but progress towards the Group’s target of 30% has been slowed.

Cash and borrowings

As reported earlier this year, the Group expects that net borrowings will continue to reduce, with the low point of cash occurring this month. From now to the end of the financial year, we expect that net borrowings will reduce although the extent of the reduction will depend on the extent of future business disruption as a result of the pandemic. Cash at 27 November 2020 was £4.5 million, approximately the same as at 30 September 2020.

Our principal borrowings are the term facility and revolving credit drawn down on 31 December 2018 when the first stage of the Ince acquisition completed. The Group has made the repayments under these facilities on schedule and has met all the covenants to which the facilities are subject. The Group continues to review opportunities to obtain new facilities which take account of the development of the Group with completion of the overseas acquisitions of Ince and the other developments of the Group over the last two years.

Deferred consideration

Deferred consideration arises from previous acquisitions where further consideration is payable to the vendors. Many commentators regard the deferred consideration on the balance sheet as a fixed amount which the Group will pay. It is important, however, to note that the amount stated in the balance sheet is management’s estimate at the date of the acquisition of the liability over a number of years. It is a contingent liability. The actual amount which will be paid depends, in nearly all cases, on the level of revenue achieved by the businesses acquired. So if revenue drops, so will the deferred consideration (and in any event payments will only be made when the revenue has been collected not just been billed). Thus there is some protection against underperformance of the acquired businesses and cash is only paid out to the extent that cash has been received.

Full Report

Source: The Ince Group plc

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