Litigation Capital Management Limited

Welcome to the Litigation Capital Management full year results webinar. I now hand over to Patrick Maloney, CEO, Nick Rolls-Davies, Executive Vice Chairman and Mary Gangemi, CFO. Patrick, over to you.

Good morning and thanks everyone for attending our presentation in respect of our 2020 full year results. Um, 2019 for LCM was very much a year where we, um, built the platform, um, in reading the company for growth. 2020 was definitely a very significant growth for LCM. So the first highlight was the launching of our asset management business. That was launched in March of this year. It was launched with a $150 million US fund. That fund, when it was constructed, had an inception period for us to commit that fund of two years. Very encouragingly, by 30 June, the end of our financial year, we had committed that fund already to 47% of its capacity. And by September, as we're coming with this presentation, we've committed that fund to 61%. So incredibly good progress that LCM has made in terms of committing that third-party fund and a great start and launch to our asset management business. Secondly, touching upon revenue growth, so we had revenue growth in 2020, despite that being disrupted by COVID. We had three investments which we were expecting and would have finalised during the financial period, which were pushed out into 2021, simply through core capacity in the conversion to digital hearings. Very encouraging during the period, we had an increase in our applications across all regions by 25%. So a significant increase in the applications and the demand for LCM's capital in terms of litigation finance. Really importantly, our assets under management, when I talk about assets under management, I'm talking about the contracts to fund disputes globally have increased dramatically. By 30 June, our financial year end, we had assets under management across both our direct investments and our asset management business of $250 million. And by September, that's grown to $304 million. So very significant growth in terms of our assets under management. In terms of actually putting LCM's capital to work and putting the asset management capital to work, the increase in the financial year 2020 when compared to the prior year, our invested capital and putting our money to work has increased by 87%. So a very significant increase in actually investing in these disputes as part of our portfolio. Moving on to strengthening our referral sources. During the financial period, we entered into two new and revolutionary strategic alliances with global law firms. They provide us with a really important referral source in terms of quality opportunities for us to invest in disputes globally. And we'll touch upon those in a little more detail as we progress through this presentation. And finally, touching upon one of our investment strategies, which is a portfolio strategy, We consummated and signed the largest corporate portfolio transaction that LCM has done in its history. That's a 20 plus global disputes with a capital commitment of up to 34 million US. So that was a really significant transaction for us to enter into. and really give some credence to that investment strategy. Just moving on to some of the other measures of growth that we have achieved during this financial period. In terms of capital commitments year in, year out, We've grown that from $98 million in financial year 2019 up to $147 million in the year just past. Capital invested, I touched before, $27 million in financial year 2019 up to $52 million in financial year 20. Our gross revenue was up despite the interruptions of COVID and I've touched upon the number of applications significantly up 25% on the year prior. Talk about LCM's track record and its performance. So we track the performance of every single investment that LCM has entered into over the last nine years, inclusive of losses. We've generated a return on invested capital of 134%. a cumulative portfolio IRR of 78%. So that includes every single investment that LCM has made over the last nine years, inclusive of losses. So what that's giving us is we're operating in quite a tight band there in terms of our financial metrics over that nine year period. If I could just now talk about LCM's business model. So this has changed in the last financial period. So we're now running two business models. our asset management, which I've spoken about briefly before, and our direct investments off Balance Sheet. And there is a crossover between those two business models in that with the asset management, we actually co-fund from Balance Sheet up to 25% of each of those disputes. So we have absolute alignment between LCM and the asset management business, and that also gives all of our shareholders an opportunity to participate in the full economic upside of those investments as a 25% co-invest. And then below those two business models, We have currently three investment strategies. The first one of those investment strategies is our single case strategy. And that's a strategy that we have been pursuing since LCM's inception. We're now in our 22nd year of providing litigation finance into the market. And overwhelmingly, historically, that has been in the single case investments. investing in one single dispute, LCM would supply the capital, it would provide risk management associated with that dispute, and also we provide a greater or less degree of management assistance of that dispute as it travels through the court system or the arbitral process. Very much LCM's track record has been built around our single case investment strategy. It's probably the hardest strategy that there is in terms of litigation finance and our economic metrics that we've demonstrated in the last nine years. really bear out that we're very good at underwriting the risk associated with these investments and being able to predict which of these investments will go through to become a profitable outcome for both ourselves and our funded party. If I can next move to our second strategy, which is portfolio investments. That relates to us providing a funding source to fund a bundle of single case investments. And that can either be done directly with a corporate client, we might have a bundle of disputes that we provide a finance solution for, Alternatively, a law firm who might be looking for a finance solution in respect of a bundle of disputes that it might be acting in on a contingency basis. So that's our second strategy. The reason that those types of transactions tend to be attractive to us from an investment standpoint is they tend to be larger and allow us to invest larger amounts of capital in one investment. And secondly, you get the diversification and collateralization of risk. So all of our capital commitment is collaterally secured against each one of those investments in that portfolio. So it allows us to participate in the funding of those disputes with reduced risk and a much larger investment pool. And the third strategy that we are pursuing is the acquisition of claims. The acquisition of claims is typically in the insolvency space. They tend to be a much smaller investment for us. We're actually acquiring the cause of action from the party who would have been pursuing that and actually pursuing as principle, actually owning the claim and having complete autonomy as to how we pursue that claim through the system. So that's in its relatively early stages of evolution. But for example, in Australia, we are the only litigation financier providing that service in this jurisdiction. And we expect that that is going to be a very good and profitable strategy for us in the long term. If I can now move on to our asset management business and just give shareholders just a little bit more information about how that works. So as I described earlier, it's a co-investment arrangement. So we would apply in respect to every single investment that we enter into, 75% of that capital commitment will come from the fund and 25% of that investment will come from LCM's balance sheet. So a great alignment of interest between the fund and our balance sheet. In respect of how we get remunerated for the asset management component of that, we participate in a profit share arrangement. And that profit share arrangement is up to an IRR of 20%. We participate and receive 25% of the profits of each of those investments upon maturity. And above 20% IRR, we get outperformance of 35%. So if one looks at our track record over the last nine years, you would expect moving forward if we continue to perform in the same way, that most of our returns with respect to that asset management portion of our business will be in the outperformance section of 35%. And in respect of the participation on a co-funding basis, LCM will enjoy all of the economic upside of those investments up to our 25% direct investment. I just want to move on now and just talk about the investment cycle. I think it's important to understand how these investments work just to give you a sort of better understanding of what their life is. So the starting point here is to say, you know, how long do these investments take? If we look at our historic track record over the last nine years, the average time to completion of every single investment that we made was 27 months. Now, that is from first deployment of capital through to an actual realisation and the banking of the proceeds of that litigation or that settlement. Now, when one looks and compares LCM's actual revenue generated in a particular year, what's important to remember is the operating expense or the significant operating expense with respect to that revenue was probably incurred by LCM 27 months ago. So when you're comparing OPEX with revenue in a particular year, there actually is a mismatch between the majority of our OPEX and when that is actually going to convert into a tangible revenue event. That's important to remember when you're considering these investments. The other thing that's very important to remember about the investments that LCM enters into is that they have their own natural life. So unlike other investments where you have to make a logical decision about when you sell out of an investment, when you're investing in disputes, they have a natural life which is managed either by the disputing parties themselves, alternatively by the court. So they can't perpetually go on. They will have a natural life and the court system or the arbitral tribunal, depending on where they're being pursued, will actually bring that that investment to an end naturally if the parties do not settle it by adjudicating that dispute. So that's a dynamic that is kind of important to understand because it's very different to any other asset class that investors might be familiar with. So it's very much an alternate asset class that we are specialists in investing in and its disputes globally. If I can hand over to our CFO just to talk about the full year financial highlights. Mary, can I hand over to you, please?

Okay, so Patrick has run us through and given us an overview of the KPIs, which are, of course, our underlying measures of growth. But turning to the performance for the year just gone, gross revenue is up 11% at $38.4 million, and gross profit is up to $21.7, up 7%. Remembering that we're still recording revenue under IFRS 15, which means that we record revenue as and when that is earned, as opposed to fair value. adjusted profit before tax is marginally down nine percent at 11.1 million and statutory profit before tax is 9.2 again marginally down nine percent this is primarily because we had three matters which were pushed out into the next financial year um as a result of the delays caused by covert cash is down and um to 24.9 down 49 investments are up 89 percent which shows that we continue to deploy capital and we continue to put that capital to work and invest in more projects. Total capital invested during the year, again, a sign of us putting that capital to work. Exclusive third party interest is up to 41.3, up 49%, but inclusive of third party interest, that's up 87% in the year. If we turn to the balance sheet overview, so capital invested, just as mentioned, is up 41.3 from 27.8 in the prior year. Our total equity has increased to 82.2, up from 76.2. Cash generation is up 30.7. And we also had some post-year end receipts, which brings it up to 35.3. And net cash at the period end, is 29.5, including that final receipt. We move on to the next slide. It is pretty self-explanatory, but it just shows the movement in cash over the course of the year. We had cash generated from litigation investments of 30.7. And again, you can see that we continue to deploy our capital and put that capital to work. And as you can see, there's an outflow of cash of 39.7 with our post-year end position of 29.5. We move on to the current portfolio of direct investments. I will hand back over to Patrick.