Thank you for standing by, and welcome to the Shine Justice Ltd FY 2022 half year results teleconference. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. To ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Simon Morrison, Managing Director and CEO. Please go ahead.
Thank you and good morning, everyone, and thanks for joining us for the Shine Justice FY 2022 half year results. We have some new people on the call, so I'll introduce our team with us today. Speaking with me is Ravin Raj, our CFO. Ravin is a chartered accountant by training, came out of Touche Ross, now known as Deloitte. Has more than 20 years’ experience as the public company CFO. Most of that tenure, he was the CFO at Watpac, a large publicly listed construction company. Annette O'Hara, our General Counsel and Company Secretary. Annette came out, of course, from Westpac, one of the more experienced corporate lawyers in Queensland, and has occupied this role for many years. John George, our Head of Investor Relations. John runs a corporate advisory business. He's an accountant by training.
He's had many roles, including tenure at ASIC. John sits on other publicly listed companies and is a former Non-Executive Director of Shine. I'm the Managing Director of Shine Justice. I've been with the company for just on 34 years. I spent a fair chunk of that time litigating across most of the practice areas that we operate today and in the latter half in legal management. If we go to slide number three. Firstly, just a bit of an overview of the business. We operate about 10 brands across the group. What we have in common across all of the brands are they are litigation offerings. Very deliberately, in the last several years, we've been diversifying our litigation offerings. The highlights to call out. We are a purpose-driven company.
We take great pride in the fact that our work delivers meaningful change for both our clients and for the community at large. As we have demonstrated, particularly in the last couple of years, we are a business that is very resilient to economic cycles, and that makes us a powerful defensive stock. Finally, as we've demonstrated in the last few years, particularly, there are significant growth opportunities in our sector, and we've been demonstrating good growth to execute on that strategy. If we move across to slide number six, we'll move into the highlights for the half. Look, all in all, we're pretty happy. It was a good set of numbers for the half for us. Revenue was up 13% at AUD 105 million. NPAT up almost 30% at AUD 13 million.
EBITDA up almost 15% at just under AUD 28 million. Gross operating cash flow at AUD 6.68 million. There are a couple of outliers to call out in respect to the PCP number. Of course, people will recall this time last year we'd received a massive inflow in the order of AUD 23 million being the first tranche of our mesh proceeds. There are a couple of other timing and growth related issues that Ravin will add a bit of color on, but a couple of examples are we had a third pay cycle in December, which is a bit unusual, and we had some class action funds received early January, expected in December. Those two factors alone were about AUD 5 million worth of gross operating cash flow, but Ravin will expand on that when he gets into the financials.
We declared a record interim dividend at AUD 0.025, which is a 25% increase and a 30% increase in our earnings per share. As I said, all in all, we're pretty happy with the performance in the first half. If we move to slide seven, I'll just quickly walk through some of the highlights, non-financial highlights for the year. I've spoken to our earnings growth. The High Court knocked out the final avenue of appeal for Johnson & Johnson in our Mesh Class Action. This action has some 12,000 group members in it, and this now paves the way for us to recover significant compensation over the next several years. The most meaningful thing, of course, is that Johnson & Johnson has no further avenue for appeal and has to face the music and pay these damages.
In keeping with our plan to broaden our footprint, we opened new offices in South Australia, the Northern Territory and the ACT, which means we have every state and territory now covered in Australia, bar for Tasmania. Ravin will talk to segment results, but we had a really pleasing improvement in the PI numbers in this half. We'll come to class actions in a moment, but we've been very busy in the class action front. COVID has had its challenges for many businesses. We've managed that very well and come out on top. We have incorporated flexible work structures, particularly for our lawyers, and they seem to be working well. Our employee engagement remains very strong at 83%, an all-time high for the company. I'll pass now to Ravin to walk us through some financials.
Thanks, Simon. Just recapping the numbers. Revenue was up 12.93%. NPAT was up 29.85%. EBITDA was up 14.9%. As Simon indicated, gross operating cash flow was down 79.8%. When you take out the PCP inflow in relation to Mesh, we're actually down 33.66%. I'll talk about other factors that impacted the first half's GOCF. In terms of the dividend, as Simon said, dividend was up 25%. Going through the numbers in a little bit more detail, I'll go through the segment results. The PI segment from a revenue point of view grew by 7.9%. The NPA segment grew by 17.7%.
The majority of the growth in the NPA segment really came from our growth, our two biggest growth businesses that we've got at the moment. Which is class actions where we employed 10 more fee earners compared to PCP and our Abuse business, where we've got 31 more fee earners compared to PCP. While revenue was up 12.93%, it was pleasing to note that EBITDA margin grew at a faster rate. EBITDA margin grew at 14.9%. Analyzing this a little bit further, you'll note that the PI segment margin improved by 32% in this period, and it went from 13.3% to 17.7%.
The main reason for this is really the work that we've done over the last couple of years to rationalize and eliminate non-performing areas in the business, including New South Wales and Victoria. I think you'll expect, we expect that there'll be continued margin improvement over the next couple of years in PI. The NPA segment, funnily enough, dropped EBITDA margin. It dropped from 37.8% to 33.6%. While we had strong margin growth in our Abuse business, we did spend a bit of money in class actions, new case investigations. We had a write-off in medical law, and we also paid some commissions on file acquisitions in our DIS business, and that impacted the NPA EBITDA margin.
Some of those items are one-off items, and we expect that to not occur again in the near future. In terms of expenses, generally, expenses have been controlled, but you'll notice that employee benefits expense is up AUD 6.78 million, and this has a direct impact on GOCF in the first half. I talked about the growth in Abuse and also class action fee earners, but we've got 58 in total across the group. We've got 58 more fee earners, and staff grew across other parts of the business as well. Moving to slide 10. EPS is at AUD 0.0754 per share, and that mirrors the after-tax result. It's up 30% on PCP. The dividend is unfranked at AUD 0.025, and it's up 25%.
The payout ratio is at the lower end of the board policy, and it's sitting at 33%. Moving to slide 11. That's the balance sheet. There's no real great highlights. I think you'll see, cash has reduced, compared to PCP. That's mainly due to the payment of the FY 2021 final dividend lease payments and also some debt reduction. The only other thing that we need to point out on this page is that both disbursement debtors and disbursement creditors have reduced and that's due to the partial payment of about AUD 16 million of Mesh disbursements that have been funded by [self funding ]. Moving to page 12. This is our GOCF table. It's the waterfall that we show every year, which shows a low first half and second big half.
We're working hard to try and even these cash flows, but it's a bit of a cycle in the business. As indicated previously, we're reporting an operating cash flow of AUD 6.68 million, down 79.8% on PCP. If you take out the mesh funds that were received in PCP, the prima facie GOCF is down 66%. I'd like to draw everyone's attention to our last year when we finalized FY 2021. We did flag to the market that our GOCF was lower, and the business was entering a period of lower cash conversion because we were entering a period of growth. Now, I've alluded to the fact that we paid.
We've now got 58 more staff members at a cost of about AUD 3.6 million in this pay period, and we had an extra pay period in leading up to 31 December. That in total is about AUD 6.8 million. Our Abuse business, we grew the staff to actually transact the cases, but during this period, we actually increased our file inflow in Abuse significantly. Files went from about 1,700 files to about 2,500 files. And just the value of those files conservatively is about AUD 30 million. That will convert to revenue in the future. Also, in terms of class actions, we are trying to grow our Class Actions business, and we've spent approximately AUD 2 million in the first half in investigating new class actions.
Obviously, we cannot bring that to the expenditure to account until we actually have a case that we can file. Moving to page 13, which is our capital management strategy. In simple terms, our strategy is to collect the remaining cash on Mesh. We have a new CBA-approved facility for growth. We'll use those funds to grow the business in terms of business acquisitions and file acquisitions. Gearing will be around 50%. There will be some old debt that we'll repay. We'll also use the balance of the cash to start working in the Victorian jurisdiction and working on contingency-based class actions. That's the financial overview. Simon, back to you.
Thanks, Ravin. Let's go to slide 15. Just an update on the class actions environment. Again, as I said earlier, we've had a pretty busy half. Investors will be aware that we had some federal government reform that we were managing. That's been cut for the time being, I suspect, pending the forthcoming federal election. Necessitated, though, was the filing of a number of class actions in the last half. In the half we filed class actions against Evans Dixon, QSuper, McDonald's, Nuix, EML Payments, A2 Milk, and Viva Energy. Unusually high filing rate for us, but that's now creating a downstream high level of work for the company. A good number of cases still in our pipeline. Pleasingly, we had a 30% increase in the litigation-funded class actions.
As Ravin alluded to, one state now permits contingency class actions. That's Victoria in the Supreme Court. We have filed a couple of cases in that jurisdiction. The attraction for us is we will enjoy significantly higher margins in that environment. Okay, over to slide 17, the outlook then for the balance of the year. I'll walk you through what we call our strategic pillars and let you know the work that we're undertaking at the moment through to the close of the full year. Firstly, under our pillar that we call Champion the Client, we are working on some technology improvements which will change the way we deliver services for the client and how the client sees those services.
On prioritizing people, we have rolled out another layer of training in the organization for all of our managers across the entire group, and that will be delivered as a combination of online and in-person training. In terms of our growth, there are two strategies we're working on, the organic growth I touched on earlier with the new offices footprint around the country, seeing some good signs already from those. Ravin and I are also currently working on some acquisition opportunities for us. In terms of strengthening Shine, as I touched on at the opening, we've very deliberately been diversifying our litigation offerings to create good immunity for us against any tort reform changes or geographical impacts on any of our businesses.
Finally, on the innovation front, we're working on a piece of technology, where our clients can track their cases in real time, and we'll talk some more to the market about that in due course. In closing, we reaffirm our guidance that we issued back in August, which is EBITDA growth in the order of a low double-digit percentage increase subject to unforeseen COVID-19 impacts. That concludes the formal part of the presentation. Ravin and I are very happy to take questions.
Thank you. If you wish to ask a question please press star one on your phone and wait for your name to be announced. If you wish to withdraw your question please press star two. If you're using a speakerphone please pick up the handset to ask your question. The first question comes from Drew from Carter Bar Securities . Please go ahead.
Morning, Simon. Morning. I think thanks for taking the questions. I guess the first question, just on PI. Could you kind of unpack that revenue growth a bit with respect to how, you know, Queensland and Victoria performed? Maybe just talk specifically about the competitive environment in Queensland, which, you know, sort of over the last, I guess, 24 months has sort of competition's intensified. Just an update on that firstly, please.
We'll take that in two parts. Ravin will take the first part, Peter, and then I'll come back with the competitive landscape.
Yeah, Peter, good morning. Yeah, look, Pete, I think you've been on the journey with Shine now for a number of years. We did make a number of changes to the businesses in New South Wales, Victoria. We closed a couple of businesses that weren't performing. What we're seeing now, Pete, is an improvement in margin delivery out of those businesses. Overall, all businesses are doing well. The issue with Victoria is that obviously it's been in a lockdown more severely than New South Wales and Queensland. The issue for that business will be future file inflow for future work.
in terms of the work that they brought into this financial year that they've been working on, the business has gone quite well.
In terms of competitive landscape, Peter, across the group, we've enjoyed double-digit increase in new work, which is a very good place for Shine to be. You know, we'd always been working on an assumption of sort of low- to- mid single digits would be a comfortable position. Across the group, that's really encouraging. As Ravin said, Vic has slowed a bit. I saw one of our peers announce yesterday it experienced double-digit reductions in growth. We're certainly not experiencing that in Victoria. But as Ravin can see, their performance. An indicator, of course, is ad spend with our competitors. We've not seen any great change from Maurice Blackburn. Slaters have come off a bit in their expenditure. Noel has visible in the market, certainly in the last six months.
Yeah, we're in a purple patch with PI, and yeah, hope it continues.
Yeah, right. That's good color. Thanks. Maybe just one other one. There was quite a big increase in bad debts just in the period. Just wondering what that related to?
Pete, in terms of sort of cleaning out the balance sheet, we've got two cohorts. We've got our normal debtors, and our normal debtors really come from class action litigation funding and also some of our other cases, medical et cetera, which form part of our debtor portfolio. The other cohort that we've got is cases that have left the business and we've been reviewing those over a number of years and we've been trying to clean out that portfolio. We're really talking about the second portfolio where for any number of reasons, a client leaves the firm, goes to another law firm.
We still carry that debt with the hope of recovery of that debt from the other law firm. As I said, there's quite a bit of historical. It's a portfolio that's been in the business for a while, and it's not material in my view, but it is impacting to that number on its own.
If I think 12 months forward, should I be thinking that figure in the P&L looks similar to this, to first half 2022 or first half 2021?
No, it probably. It'll come down.
Yeah. Yeah. Okay. No, that's helpful. Thanks. Thanks, Ravin. Thanks, Simon.
Thanks, Peter.
Thank you. The next question comes from Daniel Seeney from Q Value Research. Please go ahead.
Hey, good day, guys. I was just hoping you could give us an update on the timing on the receipts of the remaining Mesh proceeds and also how quickly you get an update on the acquisition pipeline once that drops into.
Yep, no worries. Thanks, Daniel. Firstly, on Mesh, we appeared in the Federal Court yesterday in respect to the framework assessment process. That's still working its way through the court. The timing of the receipt of that balance really depends on whether there is a settlement of the entire piece of litigation or there's a formal processing. If there is a settlement, then we will get that remaining balance in one hit, and typically that will be within 90-120 days of when a settlement might occur because any settlement in the Federal Court [audio distortion]. If it's the formal processing of the group members' claims, we'll get it in tranches over several years. Rest assured, whichever avenue is picked for the conclusion of this case, the market will be informed pretty quickly.
In respect to the acquisition front, look, our usual process is once we're in a position to announce to the market, which would typically be when there's an unconditional agreement, you'll hear some more from us about that.
Okay, thank you very much. Just one more. So you obviously employed a few people in the half [audio distortion] didn't contribute much in terms of fees. I was just wondering or trying to understand going forwards, how much fees does a fee earner required to generate relative to their salary typically? Would it be, you know, two times their salary per annum? Is that the sort of thing we should be thinking about in terms of generating fees relative to those fee earners employed in the half?
Yep. I'll take that in two parts. Let's deal with the first bit. In terms of them with bringing revenue to account, it depends what part of the business they're in. A number of those new people were in class actions, and as Ravin mentioned earlier, when we're investigating a class action in accordance with the accounting standards, we can't record any revenue until a decision is made to file the case. Then we bring all of that revenue to account. That portion of revenue is lumpy. The fee earner will record zero while they're investigating a case and then it'll be brought to account when they file. For the balance of new people, we tend to work it up, and it really depends on their level of seniority, Daniel.
A very senior litigator will hit the ground running. A more junior person will work their way up. Now, what's the second question?
In terms of the costs.
Oh, yes. The multiple of wages. We don't really measure it that way, and the reason we don't is we have quite extremes of wage levels depending on seniority. We do it through a capacity model, which is available hours in a given day, and then we allow for breaks and other cushioning. On average, we aim for about 6.5 chargeable hours a day, and the charge rates attributable to the fee owner depend on their level of seniority.
I can add a little bit.
If you wanna give some color to an average-
An average.
Across the-
I can give you some more averages, Daniel. Normally the ratio is about 30% salary, 30% overheads, and 40% sort of profit. So if a person's earning a salary of AUD 100,000, we're looking to recover broadly. It varies across work type and all that sort of thing, but I'm giving you a real average. We're expecting to do productivity of at least AUD 400,000-AUD 500,000.
That's great. Thanks very much, guys.
Thank you once again. To ask a question, please press star one on your phone. Next question comes from Peter Meichelboeck from Select Equities. Please go ahead.
Hi, guys. Yeah, look, just a couple of things that have already been touched on but just wanted to clarify. Just, like, on the COVID side of things, I guess from what you're saying is you've seen the sort of impact in Victoria, a little bit of an impact, but it's more around file openings as opposed to completions. Is that right?
Victoria issue is open, Peter. Yeah, that's right.
Yeah.
Completions, the one part of our business where completions has been affected is Abuse, and the cohort inside Abuse are particularly inmates that are clients of the firm. Actually getting access to them because of COVID restrictions has been a bit of a challenge. Across the group generally, we haven't been really impacted, so we've been pretty good.
Okay. Yeah, I was, 'cause I was gonna ask you, so in terms of the sort of issue, I guess it's more sort of the ability to access clients or the clients accessing you as opposed to sort of any staff related issue that is at your end, I guess. Would that be right?
Yeah. We, you know, like most companies, you know, we've had a reasonable percentage of staff affected by COVID, particularly in the current strain. We've been very lucky in that a very small number have had what I would call more serious health impacts that are affecting their ability to work. Yeah, touch wood, we've been pretty lucky there.
Right. Just one other one from me. Just on the class action side, you've highlighted it being very active this half and you referred to the proposed legislation, you know, around the minimum returns, et cetera, the sort of 70%, et cetera. Given what's sort of happening in the sector at the moment in terms of also what you've done in terms of the cases that you've submitted, would that legislation, if that was to come in at that sort of 70%, meaning only 30% for contingency fees, actually impact you guys or others in the market, do you think?
I guess what I'm saying is I'm just trying to get a feel for where the market's at in terms of-
Yeah. Yeah.
Contigencies.
Look, you know, we've been working on that potential reform for some time now in the practice. Our general answer to that is we're not overly troubled by it. The cases that are impacted are what we call the smaller damages cases, Peter. If you've got a class action that only has damages of AUD 30 million and the thing's capped at 30% and you've got a litigation funder, that's very tough to run a case like that. The submissions put to the federal government were very simply what you will do if you put in that reform is you'll get rid of all those small cases which has an injustice element to it. Shine’s position is we weren't that uncomfortable. We were not in favor of it. As I said, it's been parked for now. We'll see what happens post-election. I think Ravin wants to add something.
I can add something to that, Peter. We've done a fair bit of modeling in our business in terms of operating in contingency market in Victoria. We've set some criteria in terms of you know, what case will we take in terms of quantum and what likely fees we might generate. At the end of the day, the key thing for us is that we don't wanna drop our margin out of that business. In terms of undertaking cases, you know, we're not gonna take on any cases below a particular benchmark that we've already decided.
Okay. That's great. Thanks very much.
Thank you. At this time, we're showing no further questions. That does conclude our conference for today. Thanks for participating. You may now disconnect.