Shine Justice’s historic $300m class action win no profit bonanza for legal group

A $300 million class action win by Shine Justice (ASX: SHJ) last year has failed to translate into a profit bonanza for the listed legal firm which today posted an 89 per cent slump in net profit to $3.31 million.

Shine Justice, which scored the payout from Johnson & Johnson and subsidiary Ethicon for women who suffered severe complications from the company’s defective pelvic mesh implants, has blamed delays in court decisions and settlements to class actions for the latest result.

The result was also materially impacted by Shine’s decision to write off a large portion of the interest expense it cost the group to wage the Ethicon case.

The $32.4 million impairment to the company’s unbilled impairment asset followed the Federal Court’s refusal to allow Shine to recover all of its interest expenses for the expensive decade-long class action, which was undertaken on a no-win no-fee basis.

The litigation on behalf of up to 12,000 Australian women who were left with life-altering complications from faulty prolapse mesh and tape implants was one of Australia’s largest product liability class actions.

Because of the complex nature of the case, which required Shine to fork out to third parties including medical experts and barristers, the company had to secure external disbursement funding to proceed.

On 3 August 2023, the Federal Court dismissed Shine’s application to recover from the settlement fund the full amount of the interest it had paid on the disbursement funding facility. As a result, Shine decided to write off the asset from its books from the FY23 accounts.

Shine’s CEO Simon Morrison has described the company’s gross operating cash flow (GOCF) of minus $3.9 million as a ‘disappointing result’ for the group, largely reflecting delays in the resolution of cases and court approvals of class action settlements achieved during the year.

Shine’s GOCF for FY23 includes $15.6 million in professional fees for the two Ethicon class actions which was paid to the disbursement funder.

Apart from the Ethicon class actions, the company also secured a $105 million settlement against US manufacturer Boston Scientific relating to defective pelvic mesh implants, adding to a successful year of litigation for Shine.

“Although the operating performance of the group was disappointing, revenue increased due to growth in personal injuries, particularly in Queensland, and in medical law and dust diseases,” Morrison says.

“While the revenue growth was pleasing, it was offset by increased direct and indirect costs.

“GOCF in the year was affected by expenditure in growth activities, including class action investigations, slower than anticipated case resolution, as well as expenditure in marketing and recruitment. Like many businesses, we were impacted by staff turnover.”

Shine tackled the staff issues by attracting new staff following a recruitment program launched in the UK.

On an adjusted basis, Shine recorded earnings before interest, tax, depreciation and amortisation (EBITDA) of $61.6 million, down from $63.1 million in FY22. Revenue was $231.6 million, up 7.7 per cent for the year.

However, Morrison says the year ahead is promising with the company targeting EBITDA to be higher the then adjusted EBITDA of FY23.

“Shine Justice’s business remains strong, with a committed and talented team and the right strategy to deliver improving results and grow earnings in new and existing markets,” he says.

“Our pipeline of cases is strong. We are targeting a significant improvement in cash generation as major cases are concluded and as we implement improvements in our systems and processes for case execution and cash collection.

“In addition, we have commenced a reduction in our cost base which should assist EBITDA and GOCF in the future.”

Shine Justice is not paying a final dividend.