Litigation Capital Management Limited

Welcome to the Litigation Capital Management Interim Results Webinar. I now hand over to Patrick Maloney, CEO, Nick Rolls-Davis, Executive Vice Chairman, and Mary Gangemi, CFO. Patrick, over to you.

Good morning. I feel privileged to be presenting on St Patrick's Day, given my heritage. So kicking off, LCM came to the UK markets with a growth story and the past six months performance really gives some considerable validation to the growth that LCM has achieved and continues to achieve. And I start by talking about some of the short or near term priorities that we said in our annual report that we will be focusing on coming in to the new financial period. And the first one of those was looking at LCM's balance sheet capital and looking for a way to supplement that capital. And LCM looked at a range of options in respect of that from equity through to other products such as capital facilities. We were pleased to announce that LCM, just outside the end of the financial period, secured a 50 million US credit facility, which supplements and gives far greater flexibility to our capital structure. It's incredibly important for LCM at this juncture of its growth for three principal reasons. First, it provides a short bridge for LCM to significant organically generated capital. The second thing that it permits LCM to do is to grow our portfolio of direct investments. So to continue with that growth of that portfolio. And that, of course, in years to come will generate considerable organic income of its own. And the third thing that it permits LCM to do is to grow its asset management business. Of course, investors are familiar with the business models that LCM runs, which is an asset management and a direct investments from balance sheet and All of the opportunities that LCM funds through its asset management business get co-funded with balance sheet capital so as to give equity investors direct access to the economic upside of those investments. Turning second to our asset management business, as investors know, we closed a third party pool of capital to commence our asset management business in March 2020. We've had tremendous success in terms of committing that capital and putting it to work. So when that fund was concluded and closed in March 2020, it was structured so as to permit LCM a period of 24 months in which to commit that capital and then a four-year period to manage those investments to a profitable conclusion. As at the end of the financial period, we had managed to commit that third-party pool of capital to 64%, and as we do this presentation, we've committed to 70%. So in under 12 months, we have significantly committed that third-party pool of capital. We've also started work in respect of either upsizing that fund from 150 million to 300 million, alternatively closing a second fund probably in the order of about 300 to 350 million US dollars. So those plans are well advanced and we're in strategic discussions with stakeholders with respect to that. The next short-term strategic priority that we've been focusing on is increasing the number of applications that LCM receives. And of course, The applications are the start of the process in terms of us vetting and diligencing opportunities for investment. So it's really important that LCM has a steady stream of applications such that it can put its capital and the capital that it manages to work. And we've managed, notwithstanding pretty challenging times across the world, consequently on COVID, to increase our applications compared to the corresponding previous period by 5%. And the final strategic priority that we've been focusing on is improving the quality of those applications themselves. And we've implemented a number of strategies to achieve that, including an education process with our global strategic alliances with those firms that we've entered into a global strategic alliance with. to educate them such that when applications come from those firms, they come in a far more advanced stage, reducing the burden on LCM to undertake such a rigorous due diligence process. So we feel that we've made great steps to achieving some of those priorities, and obviously we continue to strive for improving those priorities. Moving next to the highlights of the half year period, I touched upon the committing of the third party fund. We're currently at 70%. And when that fund reaches a commitment point of 75%, LCM is free to close its next fund. And as I mentioned, we're well advanced in respect of talking to stakeholders in that regard. And what I mean by stakeholders is existing investors in our current third party pool of capital, and those investors who had a desire to invest in our first fund, but we couldn't give them allocation given the size. In terms of revenue, our gross revenue in respect to the period was $8.1 million. We'll touch upon the financial performance in more detail with Mary, our Chief Financial Officer, as we progress through this presentation. Applications I've touched upon before, up 5% from the same corresponding previous period in a pretty challenging market. And when I talk about a challenging market, We have had to innovate in terms of the way that we undertake due diligence and the way that we originate our opportunities for investment, consequently not being able to travel and not being able to have face-to-face meetings. So it's a tremendous achievement for us to increase the number of applications, notwithstanding that we've had to change the way that we think about business development and origination. We've made tremendous steps forward in terms of the amount of capital that we are investing. So either balance sheet capital or third party managed funds, we've managed to increase the amount we invested in the six month period to $40 million compared with the previous period of $18.4 million, representing an increase of 116%. So that represents a very, very significant increase in the amount of capital that we have managed to actually invest over the period. Secondly, in respect of commitments, we've increased very significantly on the previous period. So the commitments in respect of the six month period to 31 December was $67 million. And that represented an increase of 134% on the corresponding previous period. So notwithstanding challenging conditions economically globally, we've entered into a really significant number of additional commitments in respect of funding disputes than we did in the corresponding year. And finally, in respect of highlights, we've reached the point in measuring LCM's performance on concluded investments to nine and a half years. Over that nine and a half year period, if we take every single investment that LCM has made, including investments which were not profitable, we've generated an internal rate of return of 78% and a return on invested capital of 135%. So whilst we have been able to increase the scale of this business, increase the origination capacity of this business. We've managed to expand this business into new territories in the last couple of years. Whilst doing all of those things, we've still managed to maintain that standard of underwriting such that our investments perform within a very tight band and have done so for the last nine and a half years. Now, when we think about building scale, what we're really talking about is increasing the pool of assets under management. and whether that's the pool of assets comprising direct investments from balance sheet or the asset management business who are managing capital on behalf of third party investors. What we're trying to do here is increase that portfolio and through the increasing of the portfolio and the natural maturity of those investments as they travel through the court system or the arbitral process to ultimately increase the revenue. And the important thing for investors to focus on when measuring LCM's performance during any particular period is to look at whether LCM is achieving growth and achieving what we set out to achieve, which is increasing the size of the portfolio. And of course, the first step in relation to increasing the portfolio is to increase the number of applications. The second thing is to increase the amount of committed capital during the period. And that really comes down to new commitments and new investments we're making. And those commitments were increased by 134%. And then following on from that, it's increased the amount of capital that we're actually putting in the ground or putting into investments physically. Because if one measures LCM's performance and the way that LCM has performed in respect of its investment over the last nine and a half years, That invested capital over the average life of investments, which is currently 27 months, should be multiplied by 135%. So if we look at those measures of growth, LCM has made tremendous achievements, notwithstanding some pretty challenging economic circumstances and the effects of COVID. The second thing investors should look at is that we're maintaining a certain standard in terms of the performance of our investments. We've gone through this. ROIC the return on investor capital of 135% and the cumulative internal rate of return now we don't expect as we gain scale in respect of this business to be always performing at that level but at this particular point in time it should be really encouraging for investors to look at the performance and see that we are tracking in line the same way we've tracked because it gives you the reinsurance that We're not relaxing any of the standards of due diligence and risk that we apply towards entering into these investments. And then finally, in terms of measuring LCM's performance and its growth, is what are our assets under management across those two business lines, namely direct investments from balance sheet and secondly, asset management. And we've currently got $322 million worth of assets under management currently being financial commitments in respect of funding disputes globally. I'm going to hand over to Mary to talk through the interim highlights from a financial perspective.

The nature of our business is reliant on parties agreeing to settle a dispute or for an investment to reach a resolution through the courts. Consequently, and in line with our conservative revenue recognition, income will flow through at irregular intervals and in line with the timing of these resolutions. As touched upon by Patrick, our key performance metrics are the best indication of progress in building scale, and this doesn't immediately filter through in the same period. Instead, this will materialise over time as our portfolio matures. Additionally, as we continue to build on our portfolio, this will likely smooth earnings over time. That said, revenue for the period on a standalone basis was $7.7 million, gross profit was $5 million and statutory loss before tax was $1.2 million. We have demonstrated that during this period, we continue to put our capital to work. More importantly, in reinforcing the momentum in our growth metrics, which are a strong indication of the progress we've made, our investments on balance sheet have grown by 108% to 71 million and invested capital during the period has also grown by 21% to 22.3 million. On the balance sheet, we've touched upon invested capital, but if we turn our attention to cash generation, this reinforces the fact that our realisations are far better aligned with the timing of our revenue recognition, with revenues being converted relatively quickly into cash. Cash at the end of February stood at 26.9 million, placing us in a strong position to continue to deploy both in our existing portfolio, as well as investing in new opportunities, which we've been observing an increase in applications. Additionally, we expect to see organic cash materialise as our portfolio is reaching maturity on the direct balance sheet side, which Patrick will talk to a little later on. The cash waterfall simply highlights that the two most significant movements during the period are those which are fundamental to our business, being capital deployment and cash receipts related to the resolution of matters. Expenses remain broadly in line with the prior period, and our cash position at February will further facilitate growth as we continue to invest in our growing portfolio of assets. pass on to Patrick to talk through the portfolio.