Burford Capital Limited

Hello, everybody. Thank you for taking a little bit of time to join us today. As usual, I'm joined on the call by John Malo, Burford's Chief Investment Officer, and Jordan Leach, Burford's Chief Financial Officer. We have had a terrific year so far, and we're excited to be able to tell you about all of the components of it. Julian Roberts, one of our analysts at Jefferies, put out a note a couple of days ago where he said that the success that we've been having in the YPF case was likely to overshadow our second quarter and first half earnings. And I'm determined on this slide, and I'm on slide three, I'm determined to prove him wrong about that. And the reason I say that is because if you look at the data points on the left-hand side of this slide, which are all of our core second quarter metrics, those numbers are all cash numbers, and those numbers all have nothing to do with the YPF case. These are showing what the core business is doing right now, what we call effectively pillars one and two of the four pillars that we talk about in terms of Burford's value. And what they show is the business being very strong. And then on the right-hand side, you see our first half financial metrics, which do have some YPF impact from the first successful YPF decision in March, although not any from the more recent successful decision. but they are much more than that, and those numbers collectively are the strongest in our history. Turning to slide four, we just have here a few overall highlights of the business before Jordan and John take you into some of the details. We've obviously had very significant revenue growth as the portfolio has come back to life and has started to perform, and again, I'd highlight that second sub-bullet, where in addition to some gains from the YPF matter, we've had very significant income coming out of the non-YPF part of the business. So the business really, not to overuse an expression I've used before, is today firing on auto cylinders. We've got a significant amount of new business activity going on up materially from the last comparative period. and on track to do a meaningful amount of business during the course of the year. The portfolio has continued to grow in size. We're now sitting at a $7 billion portfolio of legal assets. When we think about YPF, and John, the architect of our YPF victory, is going to talk more about YPF when we come to a specific slide on it. Let me just make an overall comment. We know that people have lots of questions about YPF and where we stand. And we understand that investors live in a world of wanting to know when and how much. But as we've said before, we can't answer those questions for you, both because we don't know the precise answers today, but also because it's not in our collective interest as shareholders for anything that we could tell you about our strategies and approaches to be public. it would be value-destroying for us to do that, and I think you'll all understand that, much as you might want answers to your questions. But you've heard me say for many years that litigation takes longer, costs more, and produces less than people expect, and understanding that is a core part of our investment process. We look at investments hard and apply those factors when we make these choices. So a pretty good approach in every litigation case is to assume those principles, including in this one. Then, when really good things happen, like last week's top-of-the-range judgment in YPF, it's always a pleasant surprise. Beyond YPF, as we have said throughout this process with the U.S. Securities and Exchange Commission, we thought this was a constructive process. We thought it was one that was going to come out in a satisfactory way, and indeed that has happened, and the SEC has confirmed that they have completed their review with no further comments. And Jordan will talk later about our liquidity and capital markets access, but we were pleased to have another successful debt issuance during the quarter. And just before I turn you over to Jordan for some details, it's not on the slides, and I'm sort of wary of trend-driven slides, so you're not going to see from us every presentation a slide about AI. But I also wanted people to understand that AI is exciting for us, that we have been active in this area for years, and it's very much front of mind. And so I thought I would call out today the lead story in Ross Todd's American Lawyer, which is one of the leading industry publications, reporting on an event yesterday that Burford ran for AI in the legal sector. where knowledgeable people came together and likened what was happening with AI and law to the revolution of quantum physics. And the reason, of course, that's being said is that with the advent of large language models in a commercially viable way, pretty much everything that lawyers do is a language task in one form or another. We've been using and investing in data science for years, as we've talked about in the past. We'll continue to do that, and we're optimistic that over time, AI will both improve and increase our business efficiency, as well as opening new opportunities for this business to continue to grow. And with that, Jordan.

Thank you, Chris. I'm turning to slide five. Quick snapshot of the total numbers before we dive deeper into each of the different components. As Chris mentioned, we continue to see momentum in the portfolio. This year is highlighted by earnings of $1.07 in the first half of the year and a book value per share now of $8.87. I'll hit on a couple of key points here. So capital provision income is up considerably in the first half of 2023 versus the first half of 2022. And when looking at the quarter, we also see a significant increase period over period. Both second quarters in 2022 and 2023 were impacted by the underlying change in our discount rates. As you'll recall, our revised valuation policy takes into account duration and time value of money. And in the second quarter, the increase in market interest rates caused the overall discount rate of the portfolio to rise 70 basis points, which depressed asset values. To give you a sense of magnitude, isolating that change alone had a negative impact of around 94 million on a consolidated basis. And even when offset by the passage of time, it remained a headwind. However, we're happy to have completed our work with the SEC in progressing our valuation approach to incorporate similar elements of duration, time value that other large firms like Blackstone or KKR incorporate. This is going to create real volatility in our gap reporting based purely on market forces that aren't going to impact anything with the ultimate cash flows of our investments. And unlike other investments in private equity, the ultimate exit value of our investments is not dependent on interest rates or market factors at the time of exit. Turning quickly to some balance sheet metrics on the bottom of the page, Burford only capital provision assets are over $3 billion, a significant jump and the highest level in our history, and our equity position is just shy of $2 billion. I'm going to move to page six and discuss our new business activity. Again, 2023 has been productive in the first half of the year, and as the global leader in litigation finance, we have the ability to support our clients with significant commitments and deployments of capital, whether that's using our balance sheet capacity or our third-party funds. This is demonstrated in Q2. I want to highlight one significant transaction where we delivered a $325 million commitment to support a portfolio of assets for a Fortune 50 company. Even absent this deal, we had close to $200 million of capital provision direct commitments in the second quarter. Importantly, though, what deals like this show is the continued appetite by large corporates for the kind of financial solutions that we can provide for their litigation portfolios. Moving to the bottom of the page, we outline our deployments, which highlights our continued build out of the balance sheet with 181 million of deployments. And then now let me turn it to John to discuss realizations and the portfolio.

Thanks very much, Jordan. Thanks to you all. for joining. I'm very excited to be here with you. It's such a great moment for Burford. If you look at slide seven, you see, really, I've been talking for a while about how we have built up this great portfolio that I have great confidence in, and it's taken time to work its way through with COVID and you just see that we've got a record level of trailing 12-month Burford-only realizations, $475 million. And that's, you know, whether you measure this by looking at the, you know, period to period, so you look at, you know, the first half of 23 versus the first half of 22, whether you look at it as the trailing 12 months as of now versus a year ago, either way, the numbers are up. We have a larger portfolio that is producing more cash realizations for Burford. And if you look at the right side of the slide, you see we've done that without any sacrifice in the quality of these matters or in our return levels. We've kept it the same return on invested capital, the same IRR from concluded cases, even though we have a larger pool of things that has resolved. And that's all very positive and very much just in keeping with the business plan. If you turn to slide eight, which is a slide you've seen before, but of course is updated with current information. I love this slide because it packs a lot of information in there. The bottom shows you our performance historically. It shows the IRRs by vintage year. The bars on the upper level show you a couple of things. The red bars show you by vintage what we've harvested, what the realizations are, and you can see over time how those numbers, the larger vintages, once we undertook a real growth campaign, have produced more in cash revenues, and that really reflects what we saw in slide seven. But of course, what shareholders care about is what's still in the portfolio. And Jordan talked about additional commitments and deployments and what's going out now. Like, is the business generating opportunities? And does it have assets that have the ability to generate revenues in the future? And that's what those gray shaded lines are, the gray shaded bars. And you see, those are some very large numbers. That is what's out there. in our assets that we hope will produce the kind of results that the red bars reflect from the things that have already resolved. So I really do think we've got a great portfolio that just continues to generate revenue, and it's doing it at a more rapid clip. Probably some of those gray shaded bars would have turned red earlier had it not been for COVID slowdowns. But now that the COVID slowdowns are behind us and the courts are working through their backlogs and processing cases on a steady rate, I think we stand poised to generate more revenues in the future. Okay, turning to slide nine, YPF. I would just pause and say, how gratifying it is to see the business model work so effectively to vindicate the rights of shareholders who had a contractual entitlement to a tender offer in 2012. And I think back to speaking for the first time in 2015 to the insolvency receiver from Spain who was charged with managing a company that was the 25% holder of YPF and that clearly had an entitlement to a tender offer at a formulaic price in 2012 and a price that was much, much higher than the depressed trading price as a result in large part of Argentina's action. And he faced a real dilemma that there was real value for these shareholders And how was he going to actually tap that value? How was he going to do it when he knew it was going to involve years and years of very expensive, complex litigation? He didn't have the expertise or the financial resources to fight that fight. So how was he going to vindicate the shareholders' rights? And he had the foresight and the judge who approved his plan to go ahead and conduct an auction and look for the best partner to finance and manage this really large piece of litigation against a sovereign nation that has great experience hiring top-notch lawyers and using the litigation process to delay payment. And I'm just so gratified that he chose Burford, which was I think the only entity out there that combines the expertise in litigation and law with the expertise in finance to bring those two together, to assemble a top-notch legal team, the best legal team in the world for this case, to manage the case, to work with the lawyers in the trenches on every issue year in, year out, You know, down to the final trial result. And for us to deliver this kind of result just really validates the business model. And in fact, I was gratified that the judicial opinion did note that, of course, when shareholders, particularly the Peterson, but also Eden Park, are faced with this kind of litigation adversary and this much expense and risk, they shouldn't be penalized for having looked to outside sources to finance and manage the litigation. And so I'm just very pleased with the outcome here. Now, of course, everybody wants to know what comes next. There are some things that we do know what comes next. There will be a judgment entered in short order. there is the potential for appeal. And Argentina has already said it will appeal to the U.S. Court of Appeals for the Second Circuit. That's an appeal as of right. But in the United States, federal court judgments, once they are final, they are enforceable absent if the defendant posting a bond or obtaining a stay. And after the appeal to the Second Circuit, The Supreme Court has discretionary reviews, a small fraction of cases where there's a petition for review. And in this case, you'll recall years ago, Argentina did seek Supreme Court review on the issue of sovereign immunity, and the Supreme Court declined review and decided to let the Second Circuit and Judge Preska's decision stand that this case could go forward in the United States. And there was an opinion from the Attorney General of the United States saying this is something the United States has an interest in being resolved in the United States because it involved New York Stock Exchange shareholders vindicating their contractual rights against the entity that did an IPO, an SEC-registered company in the United States. So that we do know is going to happen. As Chris said, we can't really talk to you much more, just as over the years, investors wanted to know a lot more about our litigation strategy. What did we expect in terms of damages? How long did we think it would take? Behind the scenes, what was going on in the litigation? And we just didn't think it was in anyone's interest. for us to go into that kind of detail. And the same is true about how we take the next steps toward translating this judgment into cash for Peterson and Eaton Park, as well as for our shareholders. So with that, I will turn it back over. Thanks very much.