Litigation Capital Management Limited

Welcome everyone to Litigation Capital Management's full year results for 2021. 2021 for LCM provided a really strong financial performance as well as sustained growth throughout the year. And that was all achieved by the company and by us in pretty disrupted conditions across all of the territories and jurisdictions in which we operate. So just starting with some of the highlights of the year for LCM as a company. First, we had a boost in investment performance, which resulted in an increased adjusted profit before tax compared to the previous year, up 47%. Applications throughout the year, being the starting point with respect to investments, were up 10%, again, during a year with considerable disruption. We achieved a significant increase in our assets under management compared to the previous year. We closed 2020 with assets under management of $250 million and we closed 2021 at $336 million. Capital invested during the period was up very significantly, up by 69% compared to the previous period. In terms of funds under management, LCM closed its first fund, creating its asset management business in late March 2020. And notwithstanding that we've been operating that fund entirely with the disruptions of COVID, we have now committed that fund to 77%. And we have started in earnest the marketing of our second fund. We are targeting $300 million and we are expecting an imminent first close in respect of that fund, which will involve all of the investors in respect of fund one. in terms of performance our performance during the year was really strong as well and when i mean performance i mean the financial metrics that we generated from the investments which we concluded on a 10-year portfolio basis including losses we've maintained an irr of 78 in respect of our return on invested capital across all of those investments we've actually increased that now to 153 percent So really, really strong financial metrics were generated from the investments which matured during the financial period 21. Finally, in respect of capital structure, we've introduced greater flexibility. We've introduced a capital facility, which we closed in February of this year. That capital facility is US$50 million and really gives us additional flexibility with which to not only grow our direct investments but also to grow our asset management business through the co-funding. And that facility is really... thought about by us as a bridge to the organic generation of capital, which has been put back slightly due to the disruption to the court systems of COVID. The next topic that I want to talk about is really building scale. And this is a concept that we introduced during the last financial period. And we've encouraged equity investors to really focus on some of these metrics to measure LCM's growth. So the first one is the front end of any of these investments is really a receipt of an application. That application travels through our due diligence or risk management process. And if it meets our criteria, ultimately ends up as an investment, which feeds the asset management business and creates really positive returns for LCM's balance sheet. So those applications were up 10% in financial year 21, which is a tremendous achievement when we really think about how much disruption there was to the market. Now, we have said quite a bit about LCM's resilience and the resilience of its business, together with the counter-cyclical nature of its business in uncertain times. But the reality is, is that In terms of day-to-day operations, LCM's business was as disrupted as any, but we've managed still to perform at a level where we increased our applications by 10%. And we also increased our investments. So in terms of commitments, they were slightly down on the previous year. And that's a consequence, really, of... the period in which we receive information to support our applications being elongated. And the reason that's been elongated is that no matter where we receive our applications from, whether it be an insolvency practitioner, whether it be a law firm or whether it be a corporate client, the information feed or flow typically comes through that client or that potentially funded party's lawyers. And there's been tremendous disruption to the way that law firms have operated over the past 12 months as a consequence of COVID, many of them operating remotely, and that has slowed down the flow of information to LCM. So notwithstanding that we had an increase in the number of applications, Those applications haven't travelled through our due diligence, risk management and underwriting process at the same speed they would have if that information flow was not disrupted. Nonetheless, those applications are within the system. Capital invested, on the other hand, increased very significantly. So from $52 million in 2020, we increased that to $88 million in financial year 2021. And finally, we look at assets under management. So assets under management have been steadily growing now for years. At LCM, we had a really encouraging and significant increase from $250 million at the close of 2020 up to $336 million at the end of financial year 21. So those metrics we were really happy with across the board. I wanna move now to maintaining our performance. So we've seen in the previous slide and the explanation for that, that we're continuing to grow scale into this business. And one thing that people and investors have inquired of us is, will you be able to maintain the same performance that you have achieved in previous years as you build out the scale of this business, in particular asset management? And we've been pretty candid about that and said that over a period of time, you should expect to see somewhat downward pressure on our financial performance. But as you can see, in terms of our 10-year track record, there is movement there and we can still provide outstanding investment performance, even if that was to decrease. Now, we're at a 10-year mark in terms of measuring LCM's performance. We measure this on a portfolio basis, meaning that we take every single investment that LCM has completed during a 10-year period, treat that as a portfolio and then measure its financial metrics or its financial performance. And that's including losses. So we don't carve out our losses. Now, we have actually increased our return on invested capital with the resolutions during 2021. We closed off the nine-year mark at 134%. Return on invested capital have increased that to 153%. We've stayed and maintained steady at 78%, where we closed off the nine-year mark at. and the conversion rate in respect of applications to investments reduced slightly to 3%. So just talking about the financial performance of those investments, incredibly strong during this financial period. And if we look at the conversion rate, the reason why that conversion rate has dropped a little is because LCM has applied more vigor to its application process in particular recoveries during the instability of global markets. And that's really to ensure that if we participate in investment and we back a particular dispute through the litigation or arbitration process, that we will be able to recover against an award that we might achieve. And we've been pretty rigorous about that given the instability in certain sectors of the market. And the consequence of that is it's dropped our conversion rate. And that has also feeded in during this financial year to a slight decrease with respect to our commitments during the period. And I'm going to hand over to Mary now really to go through some of the financial aspects of our performance.

Thank you, Patrick. We have in the past explained that our revenue recognition results in income flowing through at regular intervals. The recent resolution of a matter which formed part of our portfolio of direct investments demonstrates how the timing of one resolution can have a significant impact on the results for the year. Patrick will cover the maturity profile of our portfolio of investments further on, but the recent resolution of direct balance sheet investment demonstrates the quality and high yielding returns of our maturing portfolio, which is now beginning to crystallise. In a year which experienced further disruption as different countries navigated their way through a resurgence of COVID, LCM still managed to deliver a strong set of results, which is testament to our disciplined investment selection process. We were able to deliver year-on-year growth across the majority of our KPIs, these being the metrics that we believe provide the best indication of progress in building scale and laying that foundation for future growth. As mentioned previously, this doesn't immediately filter through in the same period. Instead, it will materialise over time as our portfolio matures. That being said, gross revenue for the period grew marginally to 36.3 million. Gross profit increased by 20%, which was underpinned by solid returns on the resolution of the balance sheet matter. Adjusted profit before tax was up 42%, 15.8 million, and statutory profit up 41%, 13.1 million. Cash was 35.5 million, up 42% on the prior year. And we maintained momentum with investments now at 88.6 million, up 71%, and capital invested up 17% to 48.5 million during the period. A significantly improved set of results on the prior period, which demonstrates our ability to grow the business and deliver value. This slide touches upon some of the themes covered in the previous slide, but if we turn our attention to cash generation, this reinforces the alignment of our revenue realizations with collections. with revenues being converted relatively quickly into cash. Cash at the end of June stood at 35.5 million, providing us with both liquidity and flexibility to continue deploying in opportunities and bridging the gap between the expected organic cash generation, which is expected to filter through over the coming financial period from the maturing investments, as well as our ability to continue to invest in our growing portfolio of investments. The cash flow waterfall, as with previous years, emphasises the movement in our working capital is predominantly centred around the deployment of capital and cash receipts related to the resolution of matters. Two of the most fundamental activities in our business being capital deployment and returns. Expenses remain broadly in line with the prior period, which demonstrates disciplined cost management during the period. And our cash position will further facilitate growth as we continue to invest in our growing portfolio of assets. I'll hand over to Patrick to talk through the profile of our current portfolio of investments.

So we'll start with direct investments. As investors are familiar with in terms of past presentations and past descriptions of our portfolio, our direct investments really fall into two categories. And the first one is direct investments where LCM is funding 100% of the capital commitment with respect to that particular investment. Now, the majority of these investments predate the establishment of our asset management business. And the majority of investments moving forward past the end of March 2020 will comprise co-investments where we are co-investing with the asset management arm. So if we look at first direct investments where LCM is responsible for 100% of the capital commitment, they currently sit at $105 million. If we look at our portfolio of co-investments, that sits at $76 million. In respect of the combined value of those two parts of our direct investments, we have deployed or invested into those $104 million to date with $77 million to be invested progressively over the life of those investments. Now, if we look at the profile of this combined portfolio of direct investments, what we're really looking for and what you see displayed here is the diversity across industry sector, across jurisdiction, across territory, and the fact that any individual capital commitment does not dominate or create concentration risk across that portfolio. The other observation I'd make is that what we're seeing now is the EMEA region starting to dominate in terms of the origination of these investment opportunities. And that's precisely the trend that we expected when we opened our London office. The simple reality is that where you have a larger economy, you have more economic activity, you have more disputes, and disputes are what we really fund into or invest in. So you should expect that we would see an increased number of investment opportunities really coming out of the larger economies in the Northern Hemisphere. So the trend with respect to more investments coming out of the EMEA region as opposed to APAC is precisely what we had anticipated would happen over a period of years. If I then move across to our... asset management business, the fund one as we call it, we've now reached a point where that is now 77% committed. That is, we have $165 million of that fund committed. We have $76 million of that fund actually deployed with $49 million to be invested. And if we again look at the profile of this portfolio, we're seeing again diversity through industry sector, we're seeing diversity through geography and jurisdiction, and we are seeing a lack of concentration risk in respect of any one individual investment. We expect that that fund will be fully committed by the end of this calendar year, and we're expecting to move seamlessly across into Fund 2, which we're in the process of closing now. I'll talk a little bit more about where we're up to a bit later in this presentation. Next, I want to move to the maturity of our portfolio, give a bit of an insight to investors as to how our overall portfolio is maturing. So if we start on the immediate right-hand side of this slide, We observed that on our 10-year mark in respect of measuring our financial performance, if we look at every single investment that we concluded during that period, the average time to completion is 27 months. Now, we said to the market now for a number of years that as we move into new regions and we are funding with a larger capital base, we can fund larger and more complex commercial disputes. we should expect that the time for completion of these disputes will be elongated. We are estimating that they're likely to be in the order of 36 months as opposed to 27, which it's historically been. The other effect that we're seeing in the court system is delays occasioned by COVID. So whilst those delays are being rectified by the court system through a number of means, particularly technology, There's no doubt that delay will be occasioned to the maturity of our portfolio as a whole. I just want to pause there and talk about what that means for LCM because we often get asked the question by investors, are we concerned that the time for an investment will be longer than our average 27 months? And the really important thing to remember is the way we structure these investments, and what I mean by that is the litigation funding agreement that we enter into with funded parties is typically is structured as a rising multiple over time. So it's a reflection of the time cost of money in respect of LCM's investment. And what I mean by that on a really practical level is if an investment elongates out or the life of investment protrudes past what we expect it to be, being the 27 months, LCM's return ratchets up over a period of time. So when we think about our investments going and being delayed by COVID or taking longer than they might traditionally take, that's not a matter of concern for us. That does not erode the performance of our investments. In fact, in many occasions, it actually enhances the returns that we receive. Now, moving to the middle of this slide and talking about the maturity profile across the portfolio. So if we take 27 to 36 months as being the expected life of these investments, we can see that there is a substantial number of investments which we would expect based upon our historic experience to come to maturity during the next financial period. Now, we're not in a position where we can give guidance to the market, both in respect of what the financial performance of those are going to be or their timing. But just through observing the maturity of these investments and the average time to completion historically, we can see that we are moving into a period where we should expect to see some significant realisations or maturity of investments. The other observation to make about those investments is the more mature of our investments are the ones where LCM is funding 100% of the capital commitment from their balance sheet. So they are the ones that provide the largest returns for a single investment to LCM's balance sheet and then through the balance sheet to equity investors. And then finally, with respect to this slide, we look at the portfolio by claim size. And what we're really trying to achieve when we build a portfolio is diversity in the way that I previously described it, but also ensuring that what we're doing is we're not building a portfolio of giant, risky, binary outcome claims. So what we've got depicted there is we have a nice, even bread of claims right across the spectrum from being sort of 10 million and below right up to 500 million and above. And it's a nice steady and even split between those. I next want to move to some of the profiles of LCM's business that might be particularly attractive to equity investors and something to observe. And this is really the tremendous ability for LCM's business to generate significant returns in terms of organic capital over a relatively short period of time. So if we take the life of our investments conservatively at 36 months as opposed to the 27 months which they've historically performed at, And we take a nine-year cycle. So we do three plus three plus three. So every dollar we invest, we flip or compound that or reinvest that dollar over a nine-year cycle. You can see with LCM's existing capital invested into projects, just how large the compounding effect has the potential to grow LCM's capital-based buy. So this business really has the tremendous ability to generate meaningful amounts of capital through the compounding effect. I next want to move to another somewhat interesting characteristic of LCM's investments, which is their asymmetric nature. And what I mean by that is, is the disconnect really between the potential for loss with respect to these investments as compared to the potential for returns. Now, what these two bar graphs depict here is every single investment that LCM has concluded, again, over that 10-year period. And you can see there that there's a small amount of losses to the left-hand side of that slide. And then you can see very buoyant returns that are asymmetric to the potential losses in respect of that. So a really interesting profile of these investments that is very often absent from any other asset class that is available in the marketplace. And I'm going to hand over to Nick just to talk about some of the favourable market dynamics that we are seeing and expect to see into the future.

Thanks, Patrick. So we've said many times that the area in which we operate is uncorrelated to the markets and that disputes in the form of litigation and arbitration are unaffected by political, economic or other market conditions. The courts and the tribunals don't change their decision making in different economic conditions. They're totally consistent. But not only is the asset class uncorrelated, but each individual dispute within the portfolio, within our portfolio, is also entirely uncorrelated to the next. So a loss in one particular investment is not reflective of the book, of the portfolio, or the merits of any of the other investments. Added to that, LCM's business benefits from being counter-cyclical, and we also suggest possibly counter-recessionary. In times of economic uncertainty, instability, and financial pressure, businesses tend to transact outside of their normal business operating conditions. And that leads to an increase in disputes in those times of economic difficulties. Recessions have historically increased the number of disputes. The economic challenges that we've seen and have been brought about by COVID will no doubt lead to an increased number of insolvencies and bankruptcies and restructuring processes. Historically, that's an area of expertise for LCM. It's one of our core competencies, having been a pioneer in that part of the industry. And we anticipate a significant increase in investment opportunities arising from insolvency and restructuring. So in times of economic instability, those businesses also tend to reserve balance sheet capital and keep cash flow for their core business. And that leads to an increase in interest and in the use of external funding, external capital for the funding of disputes. In particular, we're seeing and we anticipate that we will also continue to see that that will be from both areas of the corporate world in which we operate. So corporate applications from those funding out of necessity, the pecuniary clients and those funding out of choice, those corporates who have the financial ability to pay their legal fees, but they choose to use our funds. In terms of low market penetration, we've spoken a number of times about the opportunity in the disputes financing sector and given various references to surveys of penetration in the UK and the US and Australia being very low. There are still significantly more cases brought without the benefit of external capital than there are brought with the use of disputes financing. And the various surveys we've seen in the last two to three years show that global legal spend is on the rise. It's anticipated to rise to over a trillion US dollars by the end of this calendar year. And all those surveys still show a market penetration in single digits in terms of litigation finance and its use. So the opportunity remains huge and the demand for external capital and litigation funding continues to expand rapidly. and that demand as i said is expanding and continue to be expanding rapidly given what we've seen this year the outlook for this industry is very healthy and very positive in that we've seen an increase in applications received from our strategic alliances there's been an increase in demand for our capital from corporate clients as that instability and uncertainty remains in global markets and covert 19 has had an effect quite obviously although the full impact of that may take six to 12 months to develop Again, in recent surveys, 31% of corporates have seen an increase in disputes which are directly linked to COVID-19. 46% of corporates are expecting an increase in litigation in the next six to 12 months. And two thirds of companies that are valued over a billion dollars are anticipating a rise in litigation generally in the next year. Now, we've witnessed robust origination despite the disruptions we've faced and the restrictions that have been present. That's reflected in the applications we've received this year. Globally, these are up on last year by 10%, averaging 48 new applications a month. And by the end of this year and into 2022, we're expecting and anticipating an increase in the number of applications in the insolvency and restructuring field as the various government moratorium regimes come to an end. Now, this is a growing market globally. It's a growing industry globally. The global trend in litigation finance is tracking only in one direction, and that's upwards. Any international disputes hub that wants to attract business has opened up to the use of litigation finance and is continuing to embrace it. The market's moved significantly from the early days of funding single-case insolvency matters, which of course continues, towards a sophisticated finance tool for corporate clients and for example the important asian disputes hub of singapore has encouraged the use and expanded the use of disputes financing by extending its permitted areas of use to include domestic arbitrations and the singapore international commercial court additionally siac the the singapore international arbitration center has seen a hundred and a 125 increase in applications in the last 12 months compared to the previous year Turning to London, there was a significant disruptive impact on the court system, not just in London, but on the systems globally. But in London particularly, it's rebounded with the number of contractual claims filed in the High Court doubling in comparison to the previous year. And the overall number of High Court cases or claims filed has increased by 24%. Our strategic alliance partners featured heavily in those matters with both Cloud & Co and DLA Piper in the top 10 for volume of claiming cases for a second year running. The market dynamics are shifting. There's a definite continued shift in the attitudes and demands of in-house legal teams in the way in which they're reviewing their relationships with external counsel, towards a much more flexible and innovative approach to billing and fees. The use of the hourly rate bill monthly continues, but the flexibility is definitely being demanded by external counsel, but by internal teams of their external counsel. The use of disputes financing as we have said many times, can change the way that corporate clients deal with their legal spend and allows law firms to offer something different. So in short, the market dynamics are fertile for LCM. Corporates continue to demand alternative and innovative fee solutions. And in an increasingly competitive market for law firms, that's driven an accelerated and an increased use by law firms of disputes financing to win and to retain clients. So a positive outlook. And back to you, Patrick.

So I'm just going to touch upon some of the aspects of the outlook that LCM sees in the coming financial period. First, I've touched upon this before. We're expecting to see an increase in the maturing of our portfolio, and that's really resolutions and high yielding resolutions. So that part of our portfolio where LCM from balance sheet is funding 100% of the capital commitment, we're expecting to see some maturity, some resolutions coming into this financial period 2022. We're expecting to see growth in our asset management business. Marketing in respect of our second fund is well underway. We're expecting an imminent first close in respect of that fund. We're expecting to have a final close probably by the end of the calendar year. We're targeting $300 million of that fund. We have a significant amount already committed. Once we've closed that fund, LCM will have generated or created an asset management business with somewhere in the order of $450 million under management in under two years, which is a really significant achievement. But more than that, the access to that capital and the leverage that LCM and through LCM equity investors can make of that money in terms of investments is really, really significant for the purposes of our balance sheet. Balance sheet, more generally, balance sheet capital is growing through the resolution of our investments. We've seen a significant resolution in the past financial period, which has placed a lot of capital back onto LCM's balance sheet so that it can fulfill its commitments in terms of co-funding and that we can continue to grow our portfolio of direct investments. We've increased both our capital on our balance sheet through the introduction of a capital facility, but also the flexibility of our capital structure more generally. so we now really have three elements to our capital structure we have our balance sheet permanent capital and we have our capital facility in the amount of 50 million us and then we have the capital that we have generated and have access to through our asset management business all providing us with a really good platform for growth into the new period. Management. So as most equity investors know, I was due to relocate to London so that we could have centralised management out of our London office. That was delayed as a consequence of COVID and most particularly Australia closing its borders to its citizens and not permitting us to travel. Those restrictions are starting to ease now and I'm expecting to be in a position where I can relocate and become a member of our London team. That will centralise LCM's management in London. That will not only bring really significant efficiencies where we've got all of our most senior executives in the one place, but it'll also allow us to really work on strategy and driving the growth of this business through not only the United Kingdom, but into continental Europe as well. And then finally, the market conditions which we're seeing at the moment. And this is really sort of touching upon the counter-cyclical nature of a litigation finance business and the opportunities which arise in circumstances where we have a downturn in business. And we have an increase in the number of insolvency events, increase in the number of liquidations and the increase in the number of restructures. Now, it's really important to remember that this is a particularly good opportunity for LCM because as a pioneer in the litigation finance industry, we started off by probably the first five to seven years of our existence. Funding purely in the insolvency and restructuring market. And what that means is not only do we have particular expertise in terms of underwriting the risk associated with those investments, but really long and deep relationships with our referral sources. So and that's across our network. You know, the market conditions more generally and the demand for LCM's capital is increasing, not just in the insolvency and restructuring space, but also in times of uncertainty, as Nick observed. Corporations tend to reserve their own capital for core business, and that provides, again, an opportunity, a market-driven opportunity for LCM. We think we're in a really good position moving into 2022. We're increasing our capital. We're increasing our opportunities. We're going to have centralised management in our London office. So we see the next financial period and beyond as incredibly bright. And I'd like to open the floor for questions.

Thank you. And we have a question here. Please could you comment on how much LCM will contribute fund to?

The structure that we have in terms of contribution from LCM's balance sheet is not contributing to the fund. It's contributing by way of co-funding. So with respect to each and every investment that is offered to the asset management business, LCM contributes directly through co-funding 25% of that capital commitment. So what we have there is an absolute alignment between our asset management investors, so the investors into that third-party pool of capital that we manage, with our equity investors participating 25% directly from balance sheet. Thank you.

And gross margins increased sharply in the last financial year from 56.5% to 71%. What caused this? Will it continue? And where might gross margins cap out?

I'll get Mary to talk to this, but I just want to make one observation in respect of the investments we've made. So we had a significant resolution of investment which performed at a really high level and it generated a significant amount of organic capital for LCM. Now, that investment was an example of an investment which was delayed and LCM's returns in respect of that investment were enhanced as a consequence of that delay. And that has contributed to our performance during the period. And I'll hand over to Mary.

Thank you. Just to add to that, as Patrick mentioned, you know, we had direct balance sheet investments which were quite high yielding for the year. And we are starting to see the crystallisation of those returns filter through they will contribute obviously to the margins. As we progress, you know, we do have a business that's scalable. You know, there is an expectation as we grow, there may be some increased costs as we move on. But if you have a look at the slide provided further down, our costs have reduced over time with respect to the size of our assets under management. And we expect to be able to sort of keep within that, you know, the current sort of, three to four percent with respect to the assets under management. So we expect to see strong margins going forward.

Thank you. And as assets under management grow to $450 million, how much of this will be third party?

Well, in terms of that is a measurement directly of what our assets, sorry, our funds under management will be. So We expect to have funds under management of US$450 million when we close our second fund. So that will all be contributed by third-party funders and will give us access to that. LCM acts as a fund manager in respect to that and manages that capital. And again, we get access as equity investors to the direct financial performance of that through a 25% co-investment together with the performance fees which were generated as a consequence of management.

Thank you. And is there any prospect of a dividend in the near future?

Look, we are always monitoring our position with respect to dividends. We've taken the view over the COVID period that we would conserve as much of our balance sheet capital as possible. That's not only as a consequence of the uncertainty of the market more generally, but it's a direct reflection of the growth that LCM is experiencing in its business. So we are monitoring the issue in respect of dividends, but at present, given our growth rate, We think it's far more efficient for our business to be conserving its own capital and reinvesting its capital rather than increasing our debt facilities simply so that we can pay out dividends to investors. Now, that's not to say that the future might not be different. It's just at this particular point in LCM's evolution, management have taken the view that that's the most prudent use of our capital. Thank you.

And revenue has been approximately static for three years now, while key metrics grow. So capital invested, total committed portfolio and applications. Why has revenue not grown and when or how is this expected to resolve?

I think what investors should focus upon is the growth in LCM's portfolio of assets under management. And in circumstances where LCM maintains its performance, which it clearly has in fact increased its performance this year, it's not losing any of its investments not losing money on any of its investments therefore those investments still remain within the portfolio they just haven't yet matured and as we've talked about um lcm's financial um the financial returns in respect to those those investments often actually increases and ratchets up over a period of time so um disputes um by their very nature nature have a natural life In other words, a dispute between two parties which we invest in will either be resolved through commercial negotiation or will be brought to an end through an adjudication by a court or through an arbitral tribunal. So I don't think that investors should concern themselves that we are not getting as many of these resolutions through to show a linear increase in our revenue line. As long as our portfolio is growing, our performance metrics are staying static the way they are, and we're not losing money on any investments, the portfolio is just continuing to grow with intrinsic value.

Thank you. Given the experience with the first US dollar 150 million fund, how long post-closing is it expected to take to commit the second proposed US dollar 300 million fund?

So each of the two funds have been structured in such a way that we've got 24 months to commit the fund. So in respect of fund one, we had 24 months, a 24 month period in which to commit that 150 million. And in respect of fund two, we will have a period of 24 months in which to commit that 300 million US. Now, it should be borne in mind that we committed or we will commit fund one in under the 24 month period. And that is in circumstances where we did a close of that fund with the onset of COVID and in a period of significant disruption where many of the jurisdictions and territories we operated were locked down for very significant periods of time. So in circumstances where we can actually get out and originate these opportunity investment opportunities in a more normal market as markets start to open up, we're very confident that we will commit the $300 million fund in less than the 24-month period that is mandated in respect of the fund and its structure. Thank you.

And can you explain why cash is stated on slide four as being up 42% when net cash is now negative, having declined by Australian dollars, $27 million in the period?

We have disclosed on that particular slide that cash is shown gross. I think it's important to show that we've got cash that's available there to deploy over the long term. We have disclosed at the bottom that it is exclusive of borrowings and there is further information that's provided in the appendices to show what cash is net of borrowings. Just bearing in mind those borrowings aren't due for, you know, they're long-term borrowings and aren't outstanding for, you know, some years yet. So it was to provide a better outlook of what we have to meet our obligations as they come with respect to the deployment of capital.

Many thanks. There appear to be more competitors entering the litigation market. How do you see this impacting LCM?

Look, I think we get asked this question quite a bit. The way we answer this question in a statistical sense is to observe what the market penetration of litigation finance is as an industry in the markets we operate. So in the London market or the UK market and the Australian market, depending on which survey one takes, there's market penetration of somewhere between three and seven percent. So that is, of the claims or the disputes that could be funded, only three to seven percent are funded. So 93 to 97 percent of that market remains unaddressed. Now, so the first observation I'd make is an increase in competition is probably not such a bad thing, given how little of the market that our industry has actually addressed. And the second observation I'd make is in certain pockets of the jurisdictions or the territories in which we operate, um there has been pockets of of competition such as the class action space in australia and the broker-led applications out of the out of the london office but overall we're not seeing an increase in competition at the coalface and that is where we're pitching for work so and we're also seeing um regulation being brought into markets such as australia which creates a barrier to entry So we're actually seeing a lot of the smaller competitors that we have had in the Australian market move out of the market just simply because of the cost of compliance in respect of that regulation. So I think a combination of all of those factors, we are really not seeing a great deal of competition. And in circumstances where there was competition, particularly in the area of the corporate portfolio part of the market, we would welcome that.

I think it just adds to that, Patrick, that the There are a number of new competitors or new entrants into the funding market. But there are three aspects, as we've always discussed, that are required to be a good or a quality funder. And it's one thing having money. It's another thing having the underwriting skills. But equally, you have to be able to originate and deploy the capital. One of the things that we've done well, even in the pandemic, and have built on and changed and considered and reinvented over a number of months and years, is how we originate. And that involves a number of different strategies, not all of which we need to go into now, but one of those that we've talked about before is our strategic alliances. And law firms are very quick to assess the quality of their counterparty in a funder, who they are, where they obtain their money. Being a publicly listed funder with a pedigree like ours has always set us apart and allowed us to originate good quality cases across the range of the jurisdictions we operate in. To Patrick's point on competition, part of our challenge is educating the market as to what funding is, what it can be and where it can be of benefit to corporate clients as well as law firms. Having competition, spreading that message, I think actually is a really good thing. And Patrick was alluding to that wholeheartedly, right?

Many thanks. Are return on invested capital and IRR calculated based on litigation business revenues or gross profits, i.e. are litigation business expenses included in the calculation?

No, they're a really measure of the financial performance of those investments. So it's not a measure of the underlying performance of LCM's business. So it doesn't take into account its operating costs. It's purely what is the return on invested capital with respect to that particular investment. So for every dollar invested, how much gets returned to LCM? So for every dollar invested, we get back $2.53 and the IRR is calculated in the same way. Thank you.

There seems to be a growing reliance on one external customer, which has contributed an increasing percentage of total revenue over the last four years. Is there any risk here of high customer concentration?

sure how to answer that. So if we're talking about customers, we're talking about users of litigation finance. If I interpret the question that way, that's not the case. If you think about it from a perspective of being our strategic alliance partners, again, that's not the case. So we have strategic alliance partners who prefer to send their applications through LCM as opposed to another particular funder. But still the majority of the applications that we receive are outside that partnering network. So there really isn't any concentration risk associated with the users of our litigation finance. In fact, I don't think that we've got a single user of our litigation finance products, which has used it more than once in the last 10 years. In terms of law firms, we would certainly have got multiple referrals from particular law firms, but there's no law firm who would have any more than maybe two invest, would be providing legal services into more than maybe two investments across our entire portfolio over the last, you know, probably five to 10 years.

And I might just add to that because I'm not sure if that perhaps was coming across with respect to the revenues for the year itself where one particular matter contributed quite significantly to the bottom line of revenues. That was simply to show that, you know, our investments do have a significant impact on the outcome or the results for the year. And that's one of the resolutions from the direct balance sheet of our portfolio, which is maturing. And so we do expect to see more and more of those starting to filter through to our numbers and crystallise. But it's demonstrating the high yielding returns with respect to those investments that we made, you know, two, three years, two, three years ago.

But just to be clear in respect of that, if that is the question, that particular funded party is not a funded party in respect of any other investment that LCM has ever had and is not likely to be a party that we fund into the future.

Thank you. Slide 11 looks confusing. These projections would be true if there were no operating expenses, but operating expenses have been in the range of 65% to 80% of gross profit. So eventually, you would only get a small fraction of these two, three billion in nine years. Can you comment on this?

Yeah, I mean, slide 11 really is just to demonstrate the compounding effect and the potential for the generation of revenue that LCM has as a business running its business model. It's not designed to say that LCM will have a balance sheet of $2.3 billion in nine years' time from now. It's really just demonstrating the tremendous ability for LCM to generate compounding returns and given that the high performing investments that we invest in. So it's quite right to say that there would be operating costs associated with this and that LCM will not have a balance sheet which has $2.3 billion in cash. But this slide is really not designed to do that. It's really just designed to be illustrative of the fact that unlike many other businesses, LCM really can compound every dollar it invests in a most significant fashion.

Thank you. And your borrowings are at 8%, which is LIBOR related, plus a profit participation capped at 13%. This seems expensive. Could you please comment?

Yeah, look, we have been asked this question before. Obviously LCM went to market and drove the hardest bargain it possibly could in relation to bringing on leverage onto its balance sheet. As LCM grows as a company, it'll get access to less expensive capital over a period of time. We took the view that having a facility such as the one that we've got where there's flexibility associated with drawing down that facility is a more efficient way of us introducing debt capital to our balance sheet. than having a commercial bond issue which is drawn down on day one and you're paying interest to the fully drawn amount of that bond for the entire period or the entire term of that corporate bond so we carefully looked at the options we tested the market we were advised by our corporate brokers And we did what we thought was in the best interest of LCM. And over a period of time, we expect that we will be in a position to bring down the cost of debt and do that at a far more efficient rate. Thank you.

And how much yearly investment do you expect to make in the coming years given the current commitments? And how do you manage the risk of a mismatch between cash receipts and investments?

So I might get Mary to talk to the financial controls and the management associated with cash flow.

So in terms of cash flow, it is one of the primary things that we look at. We are constantly measuring the expectations of deployments. We stress test returns in terms of timing. So we constantly have a watchful eye over the overall portfolio, its upcoming obligations. the potential of materialising resolutions. And we are comfortable that with our portfolio, with the opportunity of organic cash generation, with the flexibility provided by our credit facility, that, you know, we're in a good position to meet the obligations and the growth potential that's coming up.

Thank you. And do you have any comments on the fee structure of GAR Fund 2? Will it include a management fee or just a success fee like GAR Fund 1?

The fee structure in respect of Fund 2 will be the same as Fund 1. What we did was when we looked at the management fee component and the competitive nature and size of that management fee and when we modelled those out based upon our historic performance, it was far more profitable for LCM and much better returns for equity participants for us to take a profit participation rather than a management fee. It also made it far... better for us to align the interests of equity participants and those investing in our third party pool of capital, which was under management in circumstances where we weren't charging a management fee. In other words, our returns were purely based upon our performance.

Thank you. And do the funders of funds under management have any say in what you invest? And can they decide against an investment?

No. The structure of our asset management business means that those funds are totally discretionary. And when I mean totally discretionary, totally discretionary to invest in the strategies that LCM is involved in. We couldn't go off and buy a portfolio of vintage motor cars. But in terms of funding into the disputes market, we have absolute discretion.

Thank you. Anne, what's the expected timeline of cash proceeds from the 41.3 million investments made in 2020? How do you manage these coming proceeds with the 83 million to be deployed and the OPEX of the business?

Again, you know, we are constantly looking at our cash flow projections and our portfolio as a whole. You know, these deployments as they come up and we make a commitment, that commitment isn't all on day one. It's committed over a So the commitment is made on day one, but the deployment of capital with respect to that commitment isn't on day one, it's deployed over a period of time. You've got a portfolio that's had investments that were committed, you know, some two or three years ago, some that, you know, it's a gradual commitment process. And so we do have a look at the timing of those resolutions, the timing of the deployments, and it is something we constantly monitor and we're very comfortable with the position that we're in. So we do ensure that everything is flowing in line with our expectations and managing cash projections going forward.

I should just add to that that we have a lot of experience in managing the deployment profile of these investments. We have been making these investments now for 23 years. So although we've only been on the public markets, you know, in the United Kingdom or the London Stock Exchange for, you know, a relatively short period of three years, and previous to that we were on the Australian Securities Exchange, we have been – We are highly skilled at managing these types of investments and have been doing them and managing them for 23 years. So something we're acutely aware of and highly skilled at.

Thank you. And regarding the $336 million assets under management figure. Please could you confirm that this includes the $150 million third-party fund and therefore the net amount, $186 million, is Lit Zone Capital committed?

We're talking about two different propositions here. We're talking about assets under management. When we talk about assets under management, we're talking about the entry into an investment so it's it's the entry into a litigation funding agreement with a funded party in respect of their dispute and the capital commitment in respect of that is an asset and that and when i talk about the combined assets under management as at the end of the financial period 336 million that is the combined value of all of those capital commitments If we're talking about funds under management, then we have our own balance sheet capital and then we have access to the funds in our asset management business. So we're talking about two different concepts when we're talking about assets under management as opposed to funds under management.

Thank you. And finally, I can see, Patrick, that you have poor Charlie's almanac in your library. What do you think Charlie Munger would think about investing in LCM?

Well, being a value investor, Charlie would be looking at the long horizon and he'd be looking at the management. He would be looking at whether he has sufficient trust in the management to grow this business in the way that it has grown in the past and into the future. So I think if Charlie wasn't at Charlie's age, he'd be a keen investor in LCM.

Tremendous. Thanks very much. And that's the end of questions. Patrick, do you have any closing remarks?

Look, other than to repeat the remarks that I made previously in respect of what we see as the opportunity moving forward, we believe we've made tremendous achievements during this financial period, not only in respect of our financial performance, but in the growing of the scale of this business. And we see market conditions being incredibly conducive to the demand for LCM's capital moving forward. So we are very much looking forward to the new financial period.