The drop, according to the company, is largely due to FY23 significantly being impacted by an adjustment to the value of Ethicon disbursement funding interest (-$32.4 million). In addition, the gross operating cash flow (GOCF) for Shine was down by 110.7 per cent, from $36.6 million to -$3.9 million.

Adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) were down by 2.35 per cent, while Shine revenue rose by 7.7 per cent, from $215.1 million in FY22 to $231.6 million in FY23.

The drop in cash flow, according to Shine, largely reflected delays in the resolution of cases and longer than anticipated periods for court approvals of class action settlements achieved during the year, “including some significant class actions in which we expect our fees will be considered for approval in the first half of FY24”.

In a statement to the ASX, Shine Justice managing director and chief executive Simon Morrison said that “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.”

“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,” he said.

“Like many businesses, we were impacted by staff turnover. We are implementing improvements in case resolution and cash collection. We are focused on ensuring that staff utilisation is maximised and operating costs are controlled. The underlying business remains strong.”

In addition, the GOCF includes the receipt of $15.6 million of professional fees in the Ethicon Mesh Class Actions that was paid to the disbursement funder.

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The Ethicon Mesh Class Actions’ $300 million settlement was approved by the Federal Court of Australia in March 2023, subject to the separate and later determination of orders with respect to the distribution of the settlement fund.

However, the class actions were conducted on a “no win no fee” basis, meaning that Shine Lawyers would not recover its professional fees or its disbursements unless the actions were successfully resolved.

“From the commencement of the class actions and for several years, Shine Lawyers bore all of the costs, including the disbursements. As the class actions proceeded through a long trial and subsequent appeals and the disbursements increased, it became necessary to obtain external disbursement funding,” Shine said in the ASX statement.

“On 3 August 2023, the Court dismissed our application to recover the full amount of the interest on the disbursement funding facility from the settlement fund, without dismissing the opportunity to make another application in relation to the same subject matter. Given the unfavourable judgment, consideration has been given to the carrying value of the Unbilled Disbursement Asset at 30 June 2023 and as a consequence, the fair value of the asset has been reduced by the judgment amount ($32.4 million). Shine will prepare further submissions over the course of FY24 in relation to the recovery of an alternate amount of interest.”

In this judgment, as reported by Lawyers Weekly, Justice Michael Lee refused to grant Shine Lawyers a further $32 million cut of the settlement and said that he was “not satisfied that the net sum left over for group members will be sufficient if the deduction [that is] sought is made. This is fatal to characterising the deduction now sought as ‘just’.”

Additionally, Shine secured a $105 million in a further class action against pelvic mesh manufacturer Boston Scientific; $50.45 million in a historic action against the Commonwealth of Australia for the Northern Territory Stolen Generations; $22 million in a class action against the Department of Defence for losses to property value in Wreck Bay; and another $123 million in an action against the Department of Defence for business and property losses due to exposure to firefighting chemicals across the country.

In what Shine said was the “interests of prudent cash management”, the company has not yet declared a final dividend for FY23 and is expected to be able to do this in FY24 “subject to the expected improved cash position.”

Looking forward to FY24, Mr Morrison said: “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.

“We are expecting EBITDA growth in FY24 over FY23 Adjusted EBITDA. 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.”