ACN 120 394 194

Level 22
1 Market Street
Sydney NSW 2000
Phone (02) 8263 6600
www.ilh.com.au

Friday 27th February 2009

The Manager
Company Announcements Office
Australian Stock Exchange Limited

2008/09 First Half Result Announcement

Integrated Legal Holdings Limited (the Company and Integrated) has today released its results for
the six months ended 31 December 2008.
1.

Background

We are currently experiencing an unprecedented time in Australian and world financial markets. The events
of the past 18 months have been, and continue to be, extraordinary.
The global financial crisis has impacted all aspects of society, with job losses continuing across Australia
and the world, reduced demand for most products and services, and with a number of previously high
profile publicly listed companies either no longer in existence or facing the prospect of significant loss of
profitability and shareholder value.
It has also been a difficult environment for new small capital companies such as Integrated, with potential
investors distracted by events in the market and generally having little interest in new stories.
Against this background, the Directors report that the Company has continued to make excellent progress in
the first half, achieving revenue growth and profitability in line with expectations, and completing the
acquisition of its first east coast law firm. The financial performance of the Company has continued strongly
during challenging and difficult market conditions.
The Directors are of the view that the company is well placed to continue growth both organically and by
acquisition by capitalising on the significant opportunity afforded by prevailing industry issues.
The Directors are confident in the longer term outlook of the company given the strength and underlying
quality of the existing member firms, the significant potential to grow organically, and by the opportunities
for selective acquisition growth as part of the strategy of developing a national network of legal services
businesses.
2.

2008/09 First Half Highlights

The key financial highlights for the six months are summarised below:

Operating revenue for the period was $7.59m (31 December 2007: $4.51m - 68% increase). Revenue
from ordinary activities increased due to a combination of organic growth and the acquisition of new
member firms.

Net Profit after Tax for the period was $896,703 (12% of operating revenues) compared to the half-year
ended 31 December 2007 of $895,412 (20% of operating revenues).

This result was in line with expectations, the Directors having previously advised that the Company
would require an element of investment in the 2008/09 year to ensure that member firms are best placed
to take advantage of future growth opportunities available.
In particular, the Companys corporate expenses have necessarily grown significantly into 2008/09.
The Company has made an important investment in senior management of the Company, whom the
Directors believe will be able to manage the Company to achieve strong growth into the future.
The Company now has a full time Managing Director based in Sydney (effective May 2008) as well as
a Chief Financial Officer/Company Secretary based in Perth (effective September 2007). Whilst we
anticipate a very small corporate office for the Company going forward, the effect of these
appointments materially increases year-on-year costs.
Further, specific costs of public listing including audit fees are now fully reflected in Net Profit after
Tax of the Company.
In respect of comparatives, the previous corresponding period relates to the initial 4.5 months trading of
the Company under public listing. The Company acquired the foundation businesses at the time of
public listing.
The Directors consider this initial trading period to be an abnormal period of trading reflecting the
integration of acquired businesses and establishment as a listed company, and that the current period
more appropriately reflects a normalised operating profitability and margin for the Company.

The Company achieved earnings per share (weighted average) for the period of 1.38 cents per share,
compared to year ended 2007/08 of 2.66 cents (31 December 2007 half year: 1.57 cents).

The Company has maintained a strong Balance Sheet position, with cash holdings at 31 December 2008
of $2.25m ($5.63m at 30 June 2008), and a net tangible asset backing of 7.36 cents per share,
(compared with 11.71 cents per share at 30 June 2008).
During the period the Company paid a 2.2 cent per share dividend.
Further, the Company has grown strongly and selectively expanded during the period, with the
announcement of the acquisition of The Argyle Partnership - Lawyers (now trading as Argyle Lawyers)
effective 1 November 2008, with annual revenue of approximately $6.5m. The business was acquired
through a combination of cash and shares.
Argyle Lawyers is a highly regarded commercial law firm with offices in Sydney and Melbourne. This
strategically important acquisition for the Company is the first of its east coast expansion having listed
in August 2007 with Perth based foundation businesses.
The Directors believe that the effect of the transaction will be materially positive in terms of earnings
per share, and will enhance the Companys growth prospects. The full revenue and profit impact of the
acquisition will be achieved from the 2009/10 financial year.

In light of the Companys stated strategy of selectively acquiring legal firms, and as a result of currently
available opportunities to grow the Company by acquisition, the Directors have decided against the
payment of an interim dividend.
Further, in the current challenging market conditions, maintaining our balance sheet strength is a key
priority. The retention of available cash at this time supports this priority. The Directors consider this
decision to be in the best long-term interests of shareholders.

The Directors are pleased with the Groups performance and the significant progress that has been made
during the period.
The Directors are of the view that the Company is well placed to continue growth both organically and by
acquisition by capitalising on the significant opportunity afforded by prevailing industry issues, including
succession planning and availability of capital to fund growth. Long-term competitive advantage can be

Page | 2

achieved by the Company in supporting member firms in developing scale to underpin future growth and
profitability.
3.

Half Year Profit Summary

Net profit after tax for the period was $0.90m. The result was achieved on total operating revenue of
$7.59m.
Earnings per share (weighted average) for the period were 1.38 cents.
These results were in line with expectations, the Directors having previously advised that the Company
would require an element of investment in the 2008/09 year to ensure that member firms are best placed to
take advantage of future growth opportunities available.
In particular, the Companys corporate expenses will necessarily grow into 2008/2009. The Company has
made important an investment in senior management of the Company, whom the Directors believe will be
able to manage the Company to achieve strong growth into the future.
The Company now has a full time Managing Director based in Sydney (effective May 2008) as well as a
Chief Financial Officer/Company Secretary based in Perth (effective September 2007). Whilst we
anticipate a very small corporate office for the Company going forward, the effect of these appointments
materially increase year-on-year costs.
Further, the Company acquired the business of Argyle Lawyers effective 1 November 2008, and whilst that
business is expected to contribute to Company profitability for the full year, there was no material
contribution during the period.

2008/09
First Half
$m
Revenue
Fee Income
Other Income
Operating Revenue

7.20
0.39
7.59

EBITDAI*
As a % of operating revenue

1.40
18%

Impairment Losses
Amortisation Expenses
Depreciation
Lease, HP and Interest
Tax

0.00
0.02
0.07
0.01
0.40

Net Profit After Tax

As a % of operating revenue

0.90
12%

Earnings per Share (weighted average)

1.38

*EBITDAI = Earnings before Interest, Tax, Depreciation, Amortisation and Impairment.

In respect of comparatives, the Directors consider the initial 2007/08 trading period to be an abnormal
period of trading reflecting the integration of acquired businesses and establishment as a listed company.
This period relates to the initial 4.5 months trading of the Company under public listing. The Company
acquired the foundation businesses at the time of public listing.
The Directors advise that the 2008/09 first half result is a more normalised reflection of underlying
operating profitability and margins.

Page | 3

4.

Business Performance

The Companys two divisions performed well during the period.

First Half
2008/09
$m
Fee Income
- Legal Services
As a % of fee income
- IT Services
As a % of fee income
Total Fee Income

6.82
94.7%
0.38
5.3%
7.20

Total Net Contribution from firms*

As a % of fee income

1.85
25.7%

*Net Contribution = Net profit from member firms before tax, interest, depreciation, amortisation and impairment

The total net contribution from member firms was $1.85m for the period, with a margin of 25.7% of fee
income.
Legal Services Division
The Legal Services Division incorporates the businesses of Talbot Olivier, Brett Davies Lawyers, as well as
Argyle Lawyers effective 1 November 2008.
Talbot Olivier operates in commercial law, litigation, and insurance, predominantly in the Perth area, and
targets commercial clients in the mid-market segment and high net worth private clients.
Brett Davies Lawyers is a specialist superannuation, taxation and estate planning firm, with predominantly
accountant and financial planning clients across Australia.
Argyle Lawyers combines, corporate, business, family, litigation and property law, with particular
specialisation in key long term growth industries of financial services and wealth management,
superannuation and taxation and high net wealth estate planning. Argyle has been working with the
financial planning profession for more than 20 years and is an innovation leader in training and supporting
dealer groups and financial planners, including major banks and insurance companies.
The Companys strategy is to develop a national network of leading law firms in the capital cities and other
key centres across Australia, with a view to the growth and improvement of these businesses, as well as the
development of cross referral processes and scale advantage opportunities.
The Company will look to the acquisition of a series of medium sized commercial law firms, as well as a
number of specialist law firms in areas such as superannuation, tax and estate planning, and employment
law, which will look to leverage member firm relationships in these growth segments.
The Directors are of the view that the legal services industry is currently influenced by a number of issues
which provide an opportunity to develop and grow a network of leading medium sized firms in the midmarket, SME and high net worth client segments, and that the Companys business model and strategy
provides the basis for assisting member firms in addressing these industry issues.
Issues affecting small and medium sized firms in the legal industry include the following:
-

It is difficult for firms to attract and retain good senior lawyers.

It is hard for firms to provide broad services to clients.
It is problematic for firms to achieve growth, due to limitations on available capital for working
capital and general business investment.
Some owners are seeking a value for their business.

Page | 4

Information Technology Services Division

The IT Services Division incorporates the Law Central business, which is an internet based customised legal
document publishing and information service. The service is targeted towards accountants and financial
planners and earns revenue based on the selling of documents and subscriptions to the service.
The Company strategy for IT Services is to grow and develop the business through the expansion of on-line
services, and the building of deeper relationships with the existing Law Central client base.
The IT services business provides an element (15%) of recurring revenue through subscriptions to the
service.
5.

New Business Acquisitions

The Company has grown strongly and selectively expanded by acquisition during the period, with the
announcement of the acquisition of Argyle Lawyers effective 1 November 2008, with annualised revenue of
approximately $6.5m.
Argyle is a highly regarded commercial law firm with offices in Sydney and Melbourne. This strategically
important acquisition for Integrated is the first of its east coast expansion, having listed in August 2007 with
Perth based foundation businesses.
The Directors believe that Argyle brings a strong brand, reputation and growth prospects, and with existing
Integrated businesses will assist in providing the Company an Australia-wide robust platform for further
growth, particularly on the east coast of Australia.
The Directors believe that the effect of this transaction will be materially positive in terms of earnings per
share, and will enhance the Companys growth prospects. The full revenue and profit impact of the
acquisitions will be achieved from the 2009/10 financial year.
The Directors are of the view that the Company is well placed to continue growth both organically and by
acquisition by capitalising on the significant opportunity afforded by prevailing industry issues, including
succession planning and availability of capital to fund growth. Long-term competitive advantage can be
achieved by the Company in supporting member firms in developing scale to underpin future growth and
profitability.
Broadly, the Companys acquisition strategy is based on the following principles:

Owning a limited number of member firms in capital cities and key regional areas across Australia.
Target firms are both medium sized commercial law firms and specialist law firms in key growth
segments.
Acquiring selectively and incrementally only quality firms compatible with existing firms and Company
aspirations and values.
Supporting the strong growth and development of member firms both organically and by acquisition, to
achieve scale businesses with competitive advantage in their markets.
Developing internal cross referral processes and external strategic relationships to leverage client
opportunities as part of a network of member firms.
Developing cost advantages for member firms through national procurement arrangements.

More generally, the opportunity for continued growth by acquisition is considered to be significant having
regard to the prevailing industry issues, and the appropriateness of the Companys strategy and business
model in supporting growth and development of member firms.
6.

Balance Sheet and Operating Cash Flow

The Company has maintained a strong Balance Sheet position, with cash holdings at 31 December 2008 of
$2.25m ($5.63m 30 June 2008), and a net tangible asset backing of 7.36 cents per share (compared with
11.71 cents per share at 30 June 2008). During the period, the Company paid a fully franked dividend of
2.2 cents per share, as well as acquiring Sydney based law firm, Argyle Lawyers, involving the payment of
cash and shares.

Page | 5

Operating cash flows for the period were $0.36m, compared with $1.12m for the full year 2007/08 (first half
2007/08 $0.47m).
Operating cash flows are adversely affected by new firm acquisitions, as funds from operations are invested
in the build up of working capital (debtors and work in progress) post acquisition to normal levels. The
Company does not acquire debtors and work in progress as part of the acquisition. During the period,
operating cash flows were adversely affected by the acquisition of Argyle Lawyers.
The Directors believe the Company is well placed for future growth.
7.

Outlook

Overall, the Directors are pleased with the progress and performance of the Company during the period, and
consider the Company to have very strong future prospects.
The Directors report that the Companys financial performance to 31 January 2009 is tracking to plan, and
the Directors believe the company will perform strongly in 2008/09.
Specifically in the short term, the financial services divisions and information technology services divisions
of the Company are expected to underperform, as demand for these legal services decreases in line with the
broader market as a direct result of the financial crisis. This is expected to be offset to some extent by
increased demand for legal advice in other divisions, particularly in commercial litigation.
The Directors are confident in the longer term outlook of the Company given the strength and underlying
quality of the existing member firms, the significant potential to grow organically, and by the opportunities
for selective acquisition growth as part of the strategy of developing a national network of legal services
businesses.

Graeme Fowler
Managing Director
Friday, 27th February 2009

Page | 6