Burford Capital Limited

Hi, everybody. Thank you for joining us once again for some discussion about Burford and its performance. As usual, with me is John Malo, Burford's Chief Investment Officer, and Jordan Leach, Burford's Chief Financial Officer. And you're going to hear from both of them during the course of the call as well. We're very pleased to be doing this today, which meets our prediction about when we would have full-year results for you. And while you already had a sense from our call in March that those results were going to be strong, today really confirms that and our performance. We're going to do a few different things on this call, and they are summarized on slide three. First, we're going to talk about our audited 2022 financial results, which show our EPS more than doubling with strong growth in both capital provision and asset management income, which adds to the strong cash performance that we reported to you in March. Then John is going to say a few words about early 2023 activity and just how much is going on in the portfolio right now, as well as touching on events in the YPF matter. We've talked before about our data science work, and we'll update that a little bit in the context of rapid developments in AI. And then Jordan will spend some time walking you through our revised fair value methodology, how it works and what its impact is, as well as touching on liquidity. And we'll leave a substantial amount of time for your questions. Turning to slide four to talk about results. You know, in the context of an environment where courts were still suffering meaningfully from the effects of the pandemic, we had a really strong 2022 and look forward to 2023. Just looking at the numbers on this page, our net income more than doubled, our asset management income doubled, and our capital provision income, effectively our core business, rose 64% on a consolidated basis. and 30% on a Burford-only basis. That was happening because of the increased velocity in the portfolio as courts came back to life and cases started to move forward again. And that velocity shows itself in two ways. Sometimes it's with cases that actually conclude, either by settlement or adjudication. but it's often by cases simply moving through adjudicative milestones that takes them closer to that conclusion. So we had both species of those things going on and we continue to in 2023. John will talk in a minute about the velocity we're seeing in 2023, but the short version is that it has increased considerably even over 2022's levels. However, beyond the numbers that are on this page, Our story is actually even stronger than those numbers indicate, because as Jordan will go through in a few minutes, our new valuation methodology caused 2021's numbers to improve a fair bit while also imposing a penalty on 2022 for the increases seen in market interest rates. So while our net income more than doubled under our new approach, it would have at least quadrupled under our prior approach. So we're pretty pleased with where things stand. And with that, John will talk about 2023 and YPF.

Thanks, Chris, and thanks to you all for joining. Turning to slide five, it really picks up on a theme I mentioned a few weeks back when we updated you on 2022 performance, that the portfolio's activities at a level we just haven't experienced historically. Our business expanded dramatically in the years just before COVID. And what would have expected this larger, more robust portfolio to lead to much more activity, but for COVID slowdowns. And then 2022, we saw a resumption of activity, but on a much larger portfolio than we had had before the pandemic. And 2023 had seen that pace continue unabated so that If you look at Q1 2023, we had 23 case milestones. We've had five already in Q2 with 17 more that would be expected based on court schedules. And the pace is expected to continue into the second half with more than 40 expected case milestones based on court schedules. So what is a milestone? It's trials, it's appeals, it's rulings on dispositive motions. It's the important motions and rulings that affect a case's value and trajectory. Sometimes those dates do get pushed back. It's calendar shift. A court may schedule a trial and then push it back a couple of months. But sometimes they pop up when not expected. A motion could be pending for a long time and a court just decides it out of the blue, as we'll talk about on the next slide. But the message is that the large, valuable, robust portfolio we put on, I've been talking to you guys for a while about how pleased I am with the deals we are doing, that portfolio is now actually moving through the litigation process at a very good clip. And that's what we like to see because that's what leads to results. We'll have more to say about all this when we release our Q1 2023 earnings, which we expect to do in early June. Turning to slide six, I'll just say a few words about the YPF matters, which we've obviously put out a release about when it happened. To go over it again, the ruling resulted in summary judgment on liability against Argentina and summary judgment in YPF's favor. In addition, importantly, the court rejected Argentina's efforts to evade damages or reduce them through a variety of legal arguments, and it reserved just two issues for a short trial on damages. Those issues are the precise date of the breach, which would be somewhere between April 16th and May 7th, 2012, and the prejudgment interest rate to be applied from 2012 to the present day. The court did rule that the rate would be the higher commercial rate rather than the lower administrative rate that Argentina had argued for, but it reserved the question of precisely what rate to apply. We don't have much more to say than what was in our release right after the opinion was handed down. But after the court rules on the damages hearing and issues of final judgment, there'll be appeals, though the judgment would be immediately enforceable absent a stay or Argentina posting a bond. And I suppose that there'll be more about this as time goes on. We're not in the same long-term waiting pattern that we were for a while before March 31st. And with that, I will turn it over to the slide seven.

Thanks, John. And just on the subject of YPF, I know, you know, we all know that people would love to ask a lot of questions about it and would love for us to go into great detail about our strategy and our thoughts and our methodology. And I understand the human desire for that, but as everybody steps back and just thinks about it, it's pretty obvious why that's a bad idea. And ranging from hurting the case to angering the judge... And so we're just not going to be in a position to do that. So, you know, while we love your questions on every topic, we're just not going to be able to say anything more about YPF than we have already said. The procedural procedure is clear, and we're now just waiting for the next step. Please avoid torturing us by trying to get more out of us because it's just actually not good for the company and for shareholders to try to make that happen. On slide seven, I'm just going to talk for a minute about AI. Given that we have a lot to show you about our revised approach to fair value, I'm not going to spend a lot of time here. And instead, I'm going to talk more about it in the future. But given the speed of change that we are seeing in the world of data science and machine learning, I wanted to give a little bit of an update from the discussion we had on this topic at our investor day about 18 months ago. What we said then is that we have a few significant things going on in Burford's business that set us apart from our competitors and create a significant advantage, a significant competitive moat for us. In the succeeding 18 months since the investor day, we have invested more, we've expanded and built more, and we've deepened that advantage. The real root of our advantage comes from the substantial amount of proprietary data we have about litigation outcomes, combined with years of investing in data science and quantitative analysis. Today, the outputs from that work are an integral part of our investment decision-making process, both at inception and throughout a matter's life thereafter. Given the increased cycle times of AI development, we can make increased use of machine learning as part of our process at ever more attractive cost. And we can also use AI to increase our use of the truly massive amount of data available publicly about litigation that is difficult to integrate and to assess on a human level. Fear not, however, ChatGPT is just as afraid as everyone else who looks at our space to make predictions. And you can see the ChatGPT output sitting there on the slide. It's worth reading and just smiling at it. We're a very long way away from lawyers and judges being replaced by sentient AI adjudicators, but AI is a big net positive for our business, and we're going to continue to talk more about it in the months to come. Now, let's turn to fair value and start with slide eight. I said in March on our call that while I regretted the timing of and the resulting delay in the release of our financials, I was actually pretty pleased about this happening and about our engagement with the SEC. And the reason that I was pleased is that I hope never again to need to have six slides in a presentation deck on fair value. Indeed, I hope after today that I never have to talk about it again. Just as when you listen to Blackstone or KKR's earnings call, they don't talk about their approach to fair value. It just is. You know, financial firms fair value their assets. They're required to do so. And we will now be doing so under an approach that looks and smells just like other finance firms and has been the subject of extensive engagement with the SEC so that we now have something we think is an industry standard. certainly for U.S. GAAP firms and likely for IFRS firms, as there is very little difference between GAAP and IFRS on this point. Jordan's going to take you through the details of this, but I'm just going to make a couple of broad points at the beginning. First of all, the fundamentals of our approach remain the same as they always have. The largest driver of value in this business is court decisions, and they will remain the key driver of our valuations, just as they have been since our founding 14 years ago, with, by the way, 14 years of unqualified audit opinions on this very topic from Ernst & Young. Second, the quality of our modeling and our investment work is such that we're ready to join the mainstream and also take into account other typical valuation factors, like the passage of time, changes in interest rates, foreign exchange, and other non-litigation risk. Some of this is really just common sense. You know, while court decisions are a critical element of our asset valuation policy, I think we can all agree that if I offer you two choices, you know, behind door number one are ten brand-new litigation cases just filed, and behind door number two are ten identical cases that while they have not had any court decisions, they've all been running for two years. You'd pay more for what's behind door number two, and you'd do that just because the cases are closer to the end. So that's an appropriate thing to take into account when we think about fair value. Importantly, though, and I really want to underline this, as I have said for years, we run this business on a cash basis. I can't spend fair value. It is just an accounting concept. We don't pay people on the basis of fair value. And so while we obviously have to comply with the accounting rules and put out audited statements for all of you, all of what we're talking about here really has very little to do with our day-to-day lives in running the actual business. And now here's Jordan to take you through this.