Litigation Capital Management Limited

Good morning, ladies and gentlemen, and welcome to the Litigation Capital Management Limited four-year results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. Just simply type in your question and press send. Given the significance of attendance on today's call, not every question will be able to be answered during today's meeting. However, the company can review your question submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to CEO Patrick Maloney. Good morning.

Good morning or good afternoon, good evening, depending upon where you are in the world. Welcome to LCM's full year results presentation for the financial year ending 30 June 2023. I'm accompanied by Mary Ganjemi, our Chief Financial Officer, who will talk to our financial performance throughout this presentation. So if I could start with highlights, this for LCM some really focused efforts to build the scale of this business. And what we're seeing in this financial period was some of the realizations which are coming through or the results of that building scale. So first of all, realized revenue or income for the period on a consolidated basis of 181 million, which is a record for LCM. $84.2 million of that revenue or that income was directly attributable to LCM and its balance sheet. Moving to adjusted profit before tax for the relevant period. related to fair value movements. So statutory profit before tax of 42.7 million. Again, that's our best result historically for LCM. This is a year where we have transitioned into fair value. That really brings us in line with our peers and makes us comparable on that basis. It also increases the transparency and the information set that investors will have. through its evolution. So we've got a total portfolio value at the end of the period of $428 million applying fair value to it. In terms of assets under management, we've had a significant increase, $484 million at the end of the financial period, 30 June 2023, as at the end of August that had risen to $552 million. Commitments were up significantly on the prior period, so $104 million for the financial year ending 22, up to $176 million in the period just past. Capital invested similarly up significantly, 68 in the prior period. to 30 June 23, $95 million. As a consequence of the financial performance during the relevant financial period, the board has declared a dividend of 2.25p, which is encouraging because it's a reflection of us really transitioning out of the period which was interrupted as a consequence of of our efforts to build scale in this business. The board's also announcing a buyback of 10 million Australian dollars over the next 12 months. It's really in recognition of what the board sees as, you know, value in us buying back our own shares from the market. We think and we recognise, I think, that shares are trading below what the inherent value of this business is. Moving forward now, looking at the KPIs, which we have set for ourselves in terms of measuring the performance of this business, and really that's across three broad sectors. So the first one, at the front end of that is through applications. So we've had applications commensurate with a prior period, 434 as against 442. We have a significant increase in the amount of capital committed. Now that tends to indicate that the quality of those applications is improving because we're getting more commitments out of a similar number of applications. And then in terms of capital actually invested across our portfolio, that's gone from 68 million up to 95 million. So we're seeing encouraging increases in all of those numbers. The next thing that we measure ourselves is in terms of investment performance. On a 12-year basis, our return on invested capital has actually gone up from our previous reported number from a return on invested capital of 1.63 times to 1.78 times. If we look at the cumulative or portfolio IRR, it's reduced by 1%, but still holding at a encouraging level. So that is every single investment which we have completed over the past 12 years inclusive of losses. If we then look at the return on invested capital on a three year running period, we're still seeing very healthy numbers of 2.09 times compared to our 12 year track record. Then if we can move to assets under management at the end of the financial period, we've just under half a billion of assets under management as at the end of August that has increased to just above that at 0.55 billion. And then move across to our financial review, I'll hand over to Mary to talk to that.

So this year has been a transformational year for LCM and we really are starting to see the benefits of the asset management model and we're very pleased with the realisations of some of the investments we've made in our first fund. They have translated into realisations from investments of $84.2 million. That's up 78% on the prior year. This slide is trying to actually create a bridge to show investors that what it would have looked like under our old reporting standards and then overlaying fair value. So the realised gross profit like for like to with what investors are familiar with seeing in the prior year was 51.5 million compared with 30.9 million. So again, an increase of 67% there. Adjusted profit before fair value and tax at 37.7 million is an increase of 95% on the prior year. Overlay on that, the realised gains from the fair value transition That's an extra 16.2 million. And that brings our adjusted profit to 53.9 in line with the prior year based on a fair value basis. Statutory profit before tax is 42.7 million, broadly in line with the prior year. And the resolutions from the investments in the fund have increased cash to 83 million from 29.3 million, placing us in a strong position. Total capital invested, Again, broadly in line with last year at 36.3 million and the value of the assets in our portfolio of investments is sitting at 203 million versus 186 million in the prior year. This slide is just providing a financial snapshot broadly on an LCM only basis with the exception of the assets under management which is sitting at 484 as at the year end and it's increased to 550 million as at the end of August. The value of the portfolio of investments, what we've tried to show here is we've demonstrated how that's moved under the restated numbers year on year, moving from $137 million at the end of 2021 up to $203 million at this last financial year period. Cash generation was strong. As I said, a lot of resolutions in the first fund flowing through now and increasing our cash position to $83 million at the period end. A lot of investors will be familiar with this slide. This is just a waterfall which shows the movement in our cash. The starting position, $29.3 million. Again, a lot of the movement in our cash position is attributable to cash generated from the realisation of investments as well as capital deployed into those investments we have. We've maintained discipline with our operating expenses and they're broadly in line with the prior year. We have seen an increase in the interest expense and we did draw down on the facility early on in the fiscal year post balance sheet. We have actually started to pay down some of that balance, but our closing position is 83 million. This year we looked carefully and we worked carefully with our advisors at transitioning to fair value. There was a lot of work that went into this with our external advisors as well as applying a lot of our experience historically and testing that on the book retrospectively. The valuation methodology which we've come up with we believe is, and we'll demonstrate this in the next slide, is providing us with a lot more transparency in the underlying value of the portfolio of investments on a line by line basis. We take a look at the individual investment What we see is observable milestones, whilst not to the external market, but observable milestones in that particular investment as it progresses through the judicial system or the arbitral system. And we apply discounted cash flow to each and every one of those investments based on certain risk profiles, the cost of capital, and we just measure that at each period end. We've drawn upon 25 years of experience and our unparalleled track record with respect to the resolution of investments, and we subjected that valuation framework to extensive backtesting. And our investment process has not changed, nor has our underwriting process. So we believe that we've come up with a good framework that provides more clarity and more visibility to investors on how our portfolio is progressing. This slide is just showing the impact of the last four resolutions. The light blue bar chart basically shows the last four resolutions and how they were held at cost at each period end. And then the dark blue on the right-hand side of the light blue chart is showing how that when those investments were run through our framework and our valuation framework under the current model, how they would have been valued, and through the restatement, what they would have been held at at each period end. And then the grey bar chart on the right-hand side then shows what the final resolution with respect to those investments were. And you can see the valuation framework is providing a fairly reliable measure there.