Earnings Call: H1 2021

Mar 17, 2021

Welcome to the Litigation Capital Management Interim Results Webinar. There's a PDF of the slides on the right hand side, and this webinar is being recorded. I now hand over to Patrick Maloney, CEO Nick Rolls Davis, Executive Vice Chairman and Marie 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 6 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'll be focusing on coming in to the new financial period. And the first one of those was looking at LCM's balance sheet capital Looking for a way to supplement that capital. And LCM looked at a range of opportunities or a range of options in respect of that from equity through to other products such as capital facilities. We are pleased to announce that LCM just outside the end of the financial period secured a US50 $1,000,000 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, we'll 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 to close 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 4 year period to manage those investments to a profitable conclusion. As at the end of the financial period, we had managed to Commit that, that 3rd 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 3rd party pool of capital. We've also started work In respect of either upsizing that fund from $150,000,000 to $300,000,000 Alternatively, Closing a second fund, probably in the order of about US300 dollars to US350 $1,000,000 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, consequent 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 have 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, I'm 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've touched upon the committing of the 3rd 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, We couldn't give them allocation given the size. In terms of revenue, our gross revenue in respect to the period was $8,100,000 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 period 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 consequent in 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 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 3rd party managed funds, We've managed to increase the amount we invested in the 6 month period to $40,000,000 compared with the previous period $18,400,000 representing an increase of 116%. 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 to the 6 month period to 31 December was $57,000,000 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 9.5 years. Over that 9.5 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. If I can move on to LCM's strategy of building scale. 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 where we're managing capital on behalf of 3rd 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 life 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, the ROIC, the return on invested 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 with 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 balance sheet and secondly, asset management. And we currently got $322,000,000 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 income will flow through at regular intervals and in line with the timing of these resolutions. As touched upon by Patrick, our key performance metrics for the best indication of progress in building scale, and this doesn't immediately filter through in the same period. We said this will materialize 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 stand alone basis was $7,700,000 gross profit was $5,000,000 and statutory loss before tax was 1,200,000 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, We show which are a strong indication of the progress we've made. Our investments on balance sheet have grown by 108% to $71,000,000 and invested capital during the period had also grown by 21% to $22,300,000 On the balance sheet, we've touched upon invested capital. But if we turn our attention to cash generation, this reinforces to reflect that our realizations are far better aligned with the timing of our revenue recognition, with revenue being converted relatively quickly into cash. Cash at the end of February stood at $26,900,000 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 and increasing applications. Additionally, we expect to see organic cash materialize as our portfolio is reaching maturity on the direct balance sheet side, which Patrick will talk to a little later on. The cash waterfall highlights that the 2 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 in February will further facilitate growth as we continue to invest in our growing portfolio of assets. Thank you. So I want to look now at LCM's portfolio. So if we look at our current portfolio of direct investments, we currently have In terms of 100 percent direct investments, meaning that LCM is funding 100% of the capital commitment in respect of of those investments. There's $108,000,000 worth of those capital commitments. If we look at then LCM's Direct but co funded investments, that being the 25% of the co funded arrangements with the 3rd party pool of capital that we manage. That portfolio currently represents capital commitments of us at $63,000,000 $87,000,000 combined of those 2 categories has been invested to date with a balance of $84,000,000 to be invested over the life of those investments. Now as investors know, those investments are Aggressively made by LCM on a monthly basis, right from the inception from when we sign up those new commitments right through until they're actually realized. So those investments are made progressively on a monthly basis over the life of the investments for us. Now if we again look at the structure of the portfolio of direct investments that LCM has built, we're looking for diversity across Industry sector. And the first pie chart there really demonstrates the way that we construct a portfolio such that it's not attended with concentration risk in respect of any one particular area. And then, so it's not only by capital commitment, but also by number. We're seeing the diversity there. And the pie chart on the there. And the pie chart on the immediate right demonstrates really and proves the integration of The London team led by Nick and the way that they are now generating at a similar level to what The traditional teams of LCM have in Australia and up into Asia. So what we're seeing there is pretty much even contribution towards the origination of those investments, which comprise LCM's current portfolio of direct investments. If we turn over to LCM's Asset Management business and have a look at the portfolio that we have built and constructed in respect of that 3rd party pool of capital for sure to which LCM acts as a fund manager. So as we've talked about, that's currently 70% committed. So we've got $151,000,000 worth of commitments already entered into, Leaving us with $56,000,000 available to commit into the future. If we look again at the diversity of that portfolio, We're getting good diversity across our industry sector. And if you look at the 2nd pie chart, we're looking there that the whole portfolio is not attended by concentration risk in terms of capital commitment in respect of any one particular investment. So the same principles apply to the investments that or the portfolio that we have built in respect of direct investments to our asset management business. We're looking for diversity. We're looking for a portfolio which is not attended with concentration risk. If we can turn over now to what the portfolio looks like in terms of maturity. Now One of the things that investors continually request from LCM Is a form of forecasting or a form of guidance in respect of what its forward earnings are going to look like. And LCM, like other listed litigation financiers is reluctant and not prepared to provide any sort of financial guidance moving forward simply because our investments are obviously monitored And managed very carefully by LCM through to a profitable conclusion. But ultimately, those investments are not under LCM's control. So we're investing in 3rd party disputes, where those disputes will be brought to an end or a conclusion either by the parties to that dispute, reaching a commercial resolution. Alternatively, if that's not possible, they'll be adjudicated by a court or tribunal. Now just making an observation of that dynamic, an interesting aspect of this asset class It's the fact that these investments have their own natural life. So they are brought to an end irrespective of whether the parties to the underlying dispute have the wherewithal to negotiate a commercial outcome. An outcome will be imposed upon them by a court or tribunal. So in that sense, All of LCM's investments will have a natural life, and they will be brought to a conclusion naturally either through the court or through the parties resolving their dispute. What I want to do is in respect of this slide is try and give investors some insight into what our portfolio looks like now And hopefully, give investors the tools that they might be able to get an insight into what our revenue stream might look like in the very near future. So the first I want to start on the right hand side of this slide. And we've talked about LCM's performance metrics over the last 9.5 years. Another metric which is important to bear in mind is what is the average length of LCM's investments that it has brought to conclusion over the last 9.5 years. And that has fluctuated in probably the last 5 years between 2527 months. It's currently running at 27 months. So if we take that 27 months as being a really good indication of what an investment, the life of the typical life of an LCM investment. We then sort of move back across if we look at then the maturity of LCM's portfolio of investments by number. So what we can see there is the largest part of our portfolio has a maturity of between 13 24 months. That comprises 17 separate investments. And then if we move beyond that, 7 investments fit into the category of 25 to 36 months. And then there's 2 outliers, Which sit at the 37 to 48 month mark. So what you can discern from that Is a very large proportion of LCM's portfolio of direct investments is coming to the point of maturity now. If we think about why perhaps some of these investments are taking longer to mature than they would have normally in normal market conditions, We look to COVID. COVID has caused delays in the court system, and there's 2 ways in which those delays have manifest themselves. 1st of all, at different times, different economies have gone into lockdown. So in Australia, the predominance of the restricted lockdown happened at about this time or shortly after this time last year, when in the U. K, it was much later in the year when that occurred. And the immediate effect of those was to shut down court systems such that everything froze, nothing could progress through the court system, no hearings were taking place. The courts obviously adapted as they must to ensure that commerce and economies can still function effectively to a digital format. So they picked up within a matter of months and started operating again quickly. And that has brought with it tremendous efficiencies in most of the core systems in which we operate. So it's the first delay was a physical delay, which puts certain number of months, maybe 6 months onto our investments simply because the court system shut down and hearings couldn't take place. The second and less discernible delay that is occasioned by COVID Is that the courts tend to allow indulgences in terms of timetables simply because there's restricted access and inability to travel and the like. So So when people and parties are required to put on their evidence, they're given an extra couple of weeks or month. And when the expert testimony is required, they get an extra couple of weeks. That Has a tendency to elongate the time period. So that explains why some of our investments are slightly stretched over the average time to completion. And then finally, in respect of this slide, I want to make 2 points. The first one is, investors will say, well, How can we be sure which of your investments by size comprise these investments, which on their face appear to be coming to maturity within the next sort of immediately through to the next 18 months. And if we look at the bar chart on the immediate left hand side of that page, You'll see that our portfolio in terms of the amount in dispute is very evenly spread across. So we're not managing a portfolio of small claims. We're not managing a portfolio of really large claims. It's a nice even spread across all of the sizes of those disputes. And then the final point I want to make is the vast or the most mature portion of LCM's portfolio of investments Are those investments where LCM is funding 100% of the capital commitment? So what we can discern from this slide is that a Very substantial part of LCM's portfolio of investments are coming into their maturity stage, and that translates directly into an increase in LCM's revenue line. Secondly, we can observe that there's an even spread in terms of size across the portfolio, and we should expect that, that will probably translate into and across the portfolio, which is coming into maturity. And finally, what we can say is Those matters which are in their most and those investments which are in their most mature state are those where LCM is funding 100% of the capital commitment As a consequence of which, LCM and through LCM its equity investors get the full 100% benefit of the economic upside in respect of those investments. So I hope that provides some assistance to investors in terms of Understanding where we are in terms of our investment cycle. And the final observation I would make is, if you think about LCM coming to the U. K. Market with a growth story, raising GBP 20,000,000 at that time. That was December 2018. Once we have that capital available to us, we set about committing it. So assuming that that was committed over the next sort of 6 to 8 months And then applying our average time to completion, you can see again that, that $20,000,000 is coming into a period when those investments to which it was applied would be coming into the mature cycle. I want to hand over now to Nick Rose Davis just to talk about the market conditions as they're currently presenting. Thanks, Patrick. So Just to touch on market conditions and then shortly thereafter, the outlook for the next 12 months. The area in which we Right. It is entirely uncorrelated to the markets. Disputes in the form of litigation and arbitration are unaffected by political, economic or other market conditions, as we mentioned before. Courts and tribunals don't change their decision making in different economic conditions. They're consistent. But not only is the asset class uncorrelated, but each individual dispute within our portfolio is also entirely uncorrelated to the next. So a loss in one particular investment is not reflective of the book, the portfolio or the merits of any of the other investments. And added to that, LCM's business benefits from being countercyclical and counterrecessionary. So in times of economic uncertainty, instability, financial pressure. Businesses tend to transact outside their normal business operating conditions, and that leads to an increase in disputes in times of economic instability. So recessions have increased or historically increased the number of disputes that we see. Economic uncertainty, instability, particularly brought about by COVID, is no doubt going to lead to an increased number of insolvencies, bankruptcies and restructurings. So historically, this is an area of expertise for LCM and one of our core competencies at having been a pioneer in the industry starting out in that space. So we anticipate a significant increase in investment opportunities arising from insolvency and restructuring. So in these times of economic uncertainty and instability, businesses tend to reserve balance sheet capital, keep hold of their cash flow for their core business. And that leads to an increase in interest in and the use of external capital for the funding of disputes. So in particular, we're anticipating that this will be from both of the areas which we receive from where we receive corporate applications. And as we've talked before, those funding out of necessity, the imprecunious applicants and those funding out of choice, Those corporates who have the financial ability to pay their legal fees but choose to use our funds instead of their own. Now the evidence of that is already there. We're seeing that And they have done in the last period. And we've witnessed a 68% increase in those applications from corporates compared to the prior period. Now that covers pretty much market conditions for now. I want to move on to the outlook. Before that, I don't know whether, Patrick, you want to talk to the facility that we've recently entered into or are we happy to go straight into outlook? We'll do that. So just to answer straight into the Yes, of course. So just the outlook currently and for the next 12 months, Given what we've seen in the first half of this year, the outlook is actually very positive, very healthy. We've had a marked increase in applications received from our strategic alliance with DLA and Aldersgate, a significant uptick in interest, discussion an application from our other strategic alliances with global law firms. And in those, we've introduced innovation and new thinking into those relationships, Whether that be by way of education in the process to reach a positive investment decision or innovation in our origination collaborations. So there's been an increase in demand for our capital from corporate clients as that instability and uncertainty remains in the global economies. The figure I mentioned previously is the year on year increase of 68% in applications from corporate clients. And That shows the observations that we've made previously about the effect of the COVID-nineteen pandemic continue to be present From March onwards into the sort of the last 12 months. And those are the sort of the three effects that we've mentioned before. Those corporates who were in the midst of the dispute that have, at the very least, considered whether the allocation of the budget that they had previously were going to use on legal spend is now appropriate and whether there's an alternative. Some of those corporates who are considering but have not yet commenced their dispute have also paused the thought and have reconsidered whether the budget allocation is currently and whether the resources can be used better elsewhere. And that's led to an increase in the discussions with lawyers over alternatives and alternative ways to address that legal statement. The result of that is the third effect that we've seen, which is an increase in demand from law firms for knowledge and how things work and a marked acceleration in the education and understanding by them of what we do. And a number of large law firms are taking a keen interest in better understanding disputes financing, how it can assist them with their business development, their client acquisition and of course, Most importantly for them, currently client retention. And that's reflected in the applications. Globally, As we've mentioned and Patrick already said, these are up on last year by 5%, averaging around 46 good quality applications a month. And this is not inquiries. These are paperwork supplied with a good quality review. So substantial applications. And that includes 29 portfolio applications. So to the end of February, whilst globally everything's tracking well and As Patrick alluded in previous comments, despite the difficult conditions for origination and business development, the needs to pivot and change How we've done that, no physical travel and everything being done virtually. All of the teams have managed to cope well and increase the number of applications. But we're definitely seeing a large uptick in the European and EMEA region. To the end of February, the increase has been quite significant. And compared to the same period last year, we're up by 40% In terms of good quality applications. So things are positive in that regard. By the end of 2021 and into 2022, we're of facing an increase in the number of applications from the insolvency and restructuring field as the various government moratorium regimes and stimulus programs come to an end. And I think it's fair to say that our portfolio of investments is maturing, as Patrick's just showing you the range of those investments. And the effect on Slide 10 of the combined portfolio profile is that More than 65% of those investments are entering a duration where, given our experience and the historic average duration of 27 months. They're reaching a period of maturity. And then lastly, in terms of outlook, Our 3rd party fund and our asset management model, we're tracking as expected with regards to commitments to the fund of high quality investments. And so as you've heard earlier, we're considering carefully the next step to increase in size or the size of our assets under management and the fund size. So that's pretty much it for where the market sits and what we're seeing now and what we're expecting in the coming 6 to 12 months. And with that, I'll pass back to Patrick just to talk about one slide that we've overlooked. So I just want to go back to the credit facilities slide and provide a little more information around that facility. As I mentioned in my opening remarks, LCM's Board looked very carefully at what the capital options were available and what options it could avail itself of. In terms of introducing additional capital to LCM's balance sheet to continue to permit LCM to grow and to grow its portfolio investments. We looked at the entire range from raising capital through equity, through commercial bonds and ultimately settled upon the credit facility that we entered into in the last month. And that was principally For two reasons. 1, it was the cost of capital. So if we compare the cost of capital of this facility as against Raising capital through equity. That equity capital was just incredibly expensive given that The company is trading at a particular share price, which in view of the Board is not reflective in any way of the intrinsic value of this company. So raising capital, permanent capital through equity was an incredibly expensive option for us. In respect of flexibility, raising commercial bonds requires you to actually draw that capital down and start to pay the interest rate component of that in respect to the entire facility on day 1. We really needed the flexibility to use that capital only when LCM's balance sheet needed it as a bridge to organic capital. And then when we weren't using it, we weren't paying the coupon. So we settled on This facility is being the best option. Now if we talk about what we're paying in terms of an interest rate or coupon rate in respect of having those funds available to us. We have 2 components to that. We have a fixed interest component of 8%, It's currently 8%, and it's fixed off LIBOR with a base of 1%. So it's currently fixed at 8%. And then there's a proper participation in LCM's direct investments, which is capped at 13%. So the maximum cost to LCM in respect of these funds At any particular point in time when drawn is 13%. Now when one compares Paying for their capital at that rate compared to what LCM has performed at in terms of an internal rate of return on its investments of 78% currently. There's adequate margin in there for us to adequately utilize this capital facility really to drive LCM's growth. And if I want to, just in my closing remarks about where LCM sits in the market, you've heard Nick about the opportunities that we're seeing out there in terms of growth and the quality applications, which are being originated by our investment managers. We've talked about introducing capital so that we can actually fund these opportunities, which we're generating and originating inside LCM. And that capital is either coming from the facility or coming from organically generated capital through our mature book of investments. And we're also continuing to grow our asset management business. So if we look at LCM's profile, we've got A ready source of capital from both asset management and balance sheet capital. We've got economic conditions which are really conducive to driving people and corporations, most particularly, towards wanting to use an external source of capital to fund their disputes. So LCM is in an incredibly good place given our history and our experience to take advantage of these market conditions and the capital available And the demand for our capital. So we look at this outlook as being really, really positive going into the next few years. So happy now to field or answer any questions that investors might have. Device or type your question into the box on the right hand side at the bottom of the control panel or at the top on a mobile or device. And we have a question here, which asks why did the Fund's commitment rate slow down between September 20, to bracket 60% and March 21, 70% compared to the first 60% committed in 6 months between March 2020 September 2020. Is it because of a lack of own capital pre RCF due to project delays? Look, there's a number of reasons why the perception might be present that the commitment rate has slowed down. The first observation to make in respect of that is the receipt of applications and our ability to convert those applications into funded projects is not entirely dependent upon LCM. It's also dependent upon the funded party in reaching commercial terms. So that process is not and The way that that progresses is not always linear. So you have fits and starts in that process. In some months, you originate more applications. In some months, you diligence more applications and they travel through the process and the IC process. 2nd observation I'd make is that the perception is that there was very quick commitment rates in the beginning. But What investors need to remember is that we in the months preceding closure of that fund, We had prepared a portfolio of, I think, 9 separate investments, which we seeded into the fund pretty much immediately upon its closure. So that gives you the perception that the commitment rates early in the cycle was much better than the latter part of the cycle. So I think that's the effect that you're seeing. And then the final observation I'd make is Our investments, as you've seen from Slide 10, range in capital commitment size very markedly. So At one end of the scale, you have a dispute, which might be about between $10,000,000 $20,000,000 in the budget in respect to that or the capital commitment is relatively modest. Compared to at the other end of the spectrum, you have claims. I think we had 2 in number, which were in excess of $500,000,000 in dispute size. As you can appreciate, the capital commitment in respect to those is very much more. So if you're originating, diligencing and passing through the investment committee process, a very large claim, it needs up capacity much quicker than a bundle of smaller claims. Thank you. And regarding to 3rd party managed funds, can you elaborate further on the type of structures these investments are in? Are they multiyear commitments? What's the management fee, etcetera? Are LCM aligned with the underlying investors? For example, do you also invest capital in these 3rd party funds? Yes. So the structure of our 3rd party funds management business is actively aligned with the interest of both the investors in that third party fund and equity investors. And the way we get that absolute alignment is in 2 forms. The first is that every single investment that LCM originates, which meets the fund mandate, is co funded as to 25% from LCM's balance sheet and 75% from the pool of third party capital that LCM manages as fund manager. So you get this absolute alignment between that. So LCM equity investors enjoy the full economic upside in respect of that 25%. And the Fund enjoys the economic upside in respect of the 75% commitment with the exception that LCM as fund manager gets a proportion of that profit Depending upon the way that each individual investment performs. Now LCM does not receive a management fee. We Made a choice to have an increased performance fee in respect of those investments. So we get 25% of the Funds profits in respect of each investment up to an IRR of 20%. And then above that, it's a 35% profit split in LCM's favor. So there's 2 ways that we're utterly aligned in terms of balance sheet and fund. First of all, is participating through our performance fees and the second is through co funding. Thank you. And can you please clarify what the €21,100,000 net cash movement post period on Slide 7 was derived from. So, Mary, do you Do you want to talk about talk to that? Sorry, I was just on mute. Yes. So the 21 point 1 post period cash movement was the initial drawdown on the facility that we closed at the end of February, Thank you. And have you resolved as to the requirement or otherwise to move to fair value accounting? Yes. LCM's position is not moving to fair value accounting. We are very comfortable with the Very conservative approach that we take with respect to accounting principles. Unlike other of our listed peers who have moved to fair value accounting, we're very comfortable recognizing revenue only when it's earned and LCM has fulfilled all of its obligations such that we would we become entitled to both the return of our capital and our profits. Now that inevitably leads to a more lumpy revenue line, And it means that LCM may not necessarily generate or receive its revenue in one or other of the half of the financial period, But that should not be a concern to investors. It's simply the way that LCM's revenue line works. And we don't recognize any intrinsic value in our revenue line of investments prior to them reaching full maturity and receiving the proceeds. Thank you. I understand the comparison of relative costs of the debt facility to alternatives and the return on invested capital, but the coupon and participation looks very expensive. Why did the bank insist on such a high rate of return to secure debt. Look, we tested the market really vigorously. We got In excess of 4 offers of capital from global sources. And That was the best LCM was able to achieve in terms of available capital at our particular stage of growth and evolution. So we were pretty comfortable. We got advice from a number of investment banks as to what we should be expecting to be able to raise a capital facility at. And We managed to secure capital at a rate, which was below that, which we were advised we should expect to receive. So we have really just met the commercial market in respect to that facility. Thank you. It's fluctuated principally between 2527 months. Now we Have recognized and investors would recall this from reading our annual report that As we move as we have a larger capital base to operate with and as we build our portfolio such that we can invest in larger disputes with larger capital commitments without attending that portfolio with concentration risk. Those disputes, those large disputes where the dispute is about a larger sum of money will probably elongate compared to the smaller disputes. So over a period of time, we probably expect that 27 months to elongate slightly. And The simple dynamic that is at play there is that the larger the amount of money that people are fighting over, the harder they fight And the longer they'll fight and the more obstacles they'll put in the plaintiff or the claimant's way to reaching a conclusion. And We're realistic about that. But in respect of the portfolio, which is coming into maturity, we would not expect it other than the dynamics that I've described in respect of COVID to have display any different characteristics to those that we've completed within the last nine and Half years. Thank you. And should shareholders be concerned that COVID or due diligence changes could result in lower returns when these cases complete in 2022 and 2023? Investors should not be concerned about that at all. LTM has not relaxed any of its really rigorous due diligence or risk underwriting processes. And they're not really affected by COVID. The way we go about origination and Business development in terms of sourcing our opportunities. We've had to change and adapt simply because we haven't been able to travel and we haven't been able to have face to face meetings with our referrers. But in terms of the underlying processes and methodologies that LCM has developed over its 22 year history in terms of underwriting and assessing the risk associated with these investments. That has not changed At all during the period of COVID and will not change moving forward. Thank you. Sorry, could I add to that? The way we price our investments means that to the extent that anything has been pushed out, the vast majority of these investments are priced on a multiple of Invested capital increasing over the duration. So we've built in a safeguard to ensure that our returns actually probably increase the longer they take because we See that as a higher risk in terms of general investments. So investors shouldn't be concerned about that. Thank you. And when you receive a proposal, how do you assess the chances of winning? LCM has a criteria which is applied to that. And a quick gallop through that criteria is, 1st, we're looking for disputes where the legal principles are well settled and predictable. Secondly, we're looking for disputes where the underlying evidence is in documentary form as opposed to relying upon oral testimony. So we obviously recognize there's risk in A case being reliant upon someone's performance in the witness box, and that's the type of investment we would avoid. Thirdly, we're looking for Clear line of sight in respect of recovery. So we look very hard and very closely at whether we will be able to recover against a target or a defendant. And that typically drives us towards defendants who either have deep pockets and adequate financial resources, alternatively, defendants which are backed by some form of insurance, whether it be directors and officers, policy or professional indemnity. The next criteria is we look really closely at the proportionality of that claim to ensure that at all times during the progress of that investment, There's alignment between the funded parties' interests and desires and that of the funder. And these principles do most of their work in the smaller claims, Such as to ensure that the funder and the lawyer are not taking all the proceeds of a particular dispute because otherwise you have an alignment between The funded party who may be getting a disproportionately small amount. So they're the types of investments which we would avoid simply because we want to have absolute alignment between of the funded party and the funder. And the final criteria is that we're looking for a legal team who can prosecute that claim adequately and appropriately and diligently through the court system. And that may sound pretty simple and straightforward, but it's really a criteria which is Grounded in discipline because often you will not infrequently, you'll get an application which will meet our other criteria and we can see that, that is of an investment that LCM could generate significant profits for shareholders. But we know that the legal team will not prosecute that with due diligence and dispatch. And we need to have the discipline to say that's not an investment because that legal team represents too much risk for us even though we can see inherent value in that underlying dispute. And then an investment manager will apply those principles. And ultimately, there's a process which Leads to a decision being made by our investment committee. And that's a very quick run through the process, and it obviously Has a lot more detail to it. But in the context of this forum, that's probably as quick as I can go through it. Thank you. And a question about upsizing of the first fund or launch of the second fund. Is the 25% co investment rate sustainable over time? And is the launch of a second fund of €300,000,000 to €350,000,000 as you mentioned 6 months ago still the base case? Yes. I mean we as a company are very conscious Not to simply go into the market and raise capital just to bolster our asset management business. We're conscious that we need to be able to put that capital to work, in other words, commit it and then invest it within a sensible period of time. So we think we could comfortably cope with a fund of $300,000,000 to $350,000,000 and we could commit And deploy that within a reasonable period of time. So we're still very confident that that's the correct number. We are still Contemplating with stakeholders whether it's best to upsize the existing fund. And part of the drivers in respect of making that Decision was really our ability to actually get out there and conduct a proper roadshow, given the restrictions on travel Across the globe currently. But we are in the final stages of that process. And we are very confident that we will be in a position where we will make a decision and then bring to a closure either an upsize or a new second fund within a short period of time. Thank you. Operating in multiple territories supports further growth, but does it also provide other benefits in relation to choice of territory for litigation or specific potential investments? Look, I think When LCM thinks about its longer term strategies, one of those is certainly looking at new territories in which for us to operate. I think equity investors should expect that LCM will approach that in the same way that we've approached expansion in the past when we expanded up into Asia and when we expanded ultimately establishing our U. K. Office headed up by Nick. We did that in an incredibly disciplined fashion, and we would not move into a new territory Unless we had an experienced team that we could put on the ground from day 1, not only that we're sort of really familiar with the legal principles associated with that particular jurisdiction. But more than that, we'd understand the actual culture of the dispute seen and the legal profession within that particular territory. Those issues for us are paramount, and we would just we would not move into a new area unless we were satisfied That we had the right team in the same way we did when we brought Nick and his team on to form our UK office. Thank you. Can you give us an update on the corporate portfolio? Have you acquired new portfolios? And how the current portfolio is doing? I'm grateful to hand over to Nick to answer this one and give myself a quick break. So, just touching on the existing corporate portfolios, we've had the benefit of some resolutions within both The aviation portfolio and in one of our first construction portfolios that have produced revenues that have been reported already, They continue to make progress in relation to the aviation. I think we started at 38 cases in that book, and it's now up to nearly 50. That's despite the resolution. So the client has continued to believe in the process and put new cases in. We had 29 applications of portfolios within the last period, and that includes both Corporate and law firm and insolvency portfolios. And that means that we're tracking quite well in relation to those matters. So I think it's fair to say that we continue to operate on the basis that excuse me. We continue to operate on the basis that that's an area for us which we see significant growth. It's an area where We're just distinguishing ourselves from the market. But clearly, in the last 9 months, we've had to Look at the way in which we originate those, and we very much work with our law firm and strategic partners to generate those leads. That said, what we've been pleased with is the reaction from other areas of the market where, Again, probably because of the effects of COVID, other people have come to us with an interest in how they might operate in the same way. So I think it's fair to say that the ones that we have ongoing are producing returns and kind of proving the model that we expected, which is that The revenues come a little bit more quickly than the 27 month period. They're slightly what we've referred to as evergreen and that they continue to produce new investments from the same portfolio. But also, we have some still in due diligence, one of the largest Probably the largest construction portfolio or the largest corporate portfolio that's being done, certainly by LCM, remains in due diligence and is An indication of onward strength and how we've been originating good transactions and continue to make significant progress. So very much positive, but not just in corporate portfolios, which obviously was our very much our thrust. We've been pleased with The way that the law firm portfolio transactions are beginning to get some traction. So all in all, really positive. Thank you. And how do you see competition in the corporate portfolios? And are you seeing more competition from your peers? Look, I think the answer to that is, we're not seeing any competition in the marketplace at the moment. To be perfectly frank, I think Nick and I would like to see more competition in that space simply because it'll help getting the message out to corporates. We seem to be the only funder globally who is actively focused on that part of the market. And I think We would certainly touch a large and vast market out there. There is room for perhaps a dozen funders to be focusing on market globally. To date, we're really not seeing a great deal of competition, if at all. And do you expect insolvency cases to be the biggest driver of growth in committed capital over the coming 12 to 18 months? And how does LCM compare with EMEA peers that focus specifically on insolvency such as Manulae? I think the answer to that is, we would not expect there to be any significant increase in the number of applications in respect of insolvency or restructuring related disputes within the near term. So even though Governments globally may stop stimulus packages and then relax The moratorium against winding up corporations or placing them into bankruptcy. The reality is that Once an external administrator or controller is appointed to a corporate insolvent corporate shell, There's a time lag between that insolvency practitioner really investigating the affairs of that company and identifying the courses of action which require funding And then submitting an application through to a funder to bring that into one of the portfolios of investments that LCN manages. Now the reality is that I think it's inescapable that we are going to see an increase in the number of externally administered insolvent companies. We're going to see an increase in bankruptcies. We're going to see an increase in restructuring Across all of the markets in which LCM operates, undoubtedly. But that there will be a lag in respect of that. Once those applications start flowing through, we would expect and it's been our experience in the past having funded through the global financial crisis and the back end of the Asian Burnet crisis that those applications will continue for very many years thereafter until the limitation period sort of expires. So you've got a good 6 year flow once that starts of Insolvency and restructuring related disputes, which will require funding. So we certainly see it as an area of growth, But not as soon as perhaps some other of the funders have been talking about. Whether we regard ourselves as being In competition to other funders who focus solely on insolvency market, look, We don't operate in direct competition on a day to day basis with Manalay. And we operate a far more diverse business and focus on a far more diverse sectors in the marketplace than simply smaller scale insolvency. Thank you. And in LCM's fund, is there a catch up on the 35% profit share after a 20% IRR or is it just a 35% share on all profits above a 20% IRR? Yes. So there's no catch up. So we get a 25% profit share up to the 20% IRR And then we get our performance calculated at 35% thereafter. Now if one considers that The IRR that LCM has achieved over the last 9.5 years has been 78%, inclusive of losses. We would have a fairly high conviction and expectation that we will be operating largely in the area of outperformance. Thank you. And how much of the €50,000,000 facility has been drawn down? And if a significant proportion, Is there any further need for more debt capital? Well, currently, LCM has drawn Down £25,000,000 of that £50,000,000 That puts us in a strong financial position For the foreseeable future, whether there's any need in the immediate time for any additional capital facility, the answer is no. Thank you. And is there a trend in average claim size? Are you now handling more larger and presumably slower lanes than say 5 years ago. Yes. It comes down to the discipline associated with building a portfolio of dispute investments. As we talked about before, we ensure that any portfolio that we build or create Is not affected with concentration risk in respect of any particular investment dominating the capital commitment. So as LCM's capital resources increase And as the size of the portfolio we're managing increases, it enables us without attending that portfolio with undue risk to enter into capital commitments of a larger size. So and as I said previously in answer to one of the other questions, When you're funding a dispute which is larger, they normally take longer because people fight longer and harder about larger sums of money And they fight longer and harder by adding complexities to those disputes and putting impediments in the way of the claimant or the plaintiff to a judgment or an award. And that will have a tendency to elongate the time, but that needs to be measured against the benefit to LCM of being able to increase the size of the profit split or The fee that we earn in respect of these investments. Thank you. And are you seeing increasing competition and thereby pricing pressure? No, we're not seeing pricing pressure anywhere. I might get Nick to talk to what he's seeing more directly in the Northern Hemisphere. In the Southern Hemisphere, I think with the onset of Regulation in respect of class actions, which was brought in to the Australian market in August of last year. I think the observation we have made in the marketplace is that has dampened competition from offshore litigation financiers coming into our market. So it has increased the regulatory burden that is required in respect to funding class actions moving forward, and that's Prove to be a disincentive in terms of litigation financies operating from offshore and putting their capital to work inside The Australian market. So I think that has had a tendency to drive mitigation financiers out of the market Who don't have a permanent presence in Australia, which is less than the competition. I think that There's not a great deal of competition in the Asian markets currently. It's dominated principally by 2 funders, one of which is ourselves. So we're not seeing a great deal of competition in that market, which is still emerging and providing a really steady flow of quality applications in arbitration and trade. And Nick, I might just get you to comment upon what you're seeing In the markets in which you operate. Sure. So I mean, clearly, there are more funders in the market than there were, but that The quality of their ability to execute and the amount of funds under management or access to capital that they have varies Significantly, what you're seeing in the EMEA market is a slightly more sophisticated approach from lawyers that grown in education over the last 10 or 15 years and they understand that price is not everything. Now what that means is that some lawyers will run a process but appreciate that maybe Access to large capital being regulated mainly on the stock exchange and by the Jersey FSC in a largely unregulated market And having transparency by being listed is a big plus for an awful lot of law firms when they're dealing with funders. So that automatically cuts out a lot of the competition, which tend not to operate. And of course, there are only a small number of listed funders globally that are public markets. There are still the broker led introductions, and some firms will use them and some clients will use them. I think the U. K. Is unique in that respect because of the historic insurance markets. And the brokers tend to try and compare everybody Apples with apples. And we have a strategy to deal with that. I mean, firstly, we don't do an awful lot of broker led introductions. We refuse to get involved in a race to the bottom over price because the price that we charge reflects the risk, and the risk doesn't change regardless of the other circumstances around the case, such as the fact that there's competition. Most funders in the London market now that we operate against, if we do come up against the most sophisticated and have been there for a long time, and they understand the same thing. So they price appropriately. We're very much distinguishing ourselves from the rest of the market or trying to by gaining specialisms in certain niches, whether it be construction or insolvency or aviation or oil and gas or whatever it is. And that because of the nature of the highly qualified and top professionals we have within LCM, we're able to do that. And when you look at other funders, if you take off the branding, a lot of them are exactly the same. You wouldn't know one from the other if you read their verbiage or their websites. And hopefully, with LCM, that's a difference because we're adding some value over and above just being a source of capital. So the short answer is there is more competition in single cases. There's none in portfolios. And as Patrick's alluded to, it would be helpful to have Slightly more innovative opposition in that respect because that would educate the market mean that every time that we pitch, we don't have to educate as to what we can do and what solutions we can provide. There is something changing on that front, but going slowly. And then, of course, a lot of our work in terms of origination is the innovation with the likes of The DLA Aldersgate arrangement, which because of its structure allows very competitive pricing at the same time as being a very warm professional introduction from a top global law firm. Clyde and Co, the same effect because they know how our process is. It's not simply that we get to look at a large number of their cases, but One of the huge benefits of working with these firms and the same with Norton Rose Fulbright is that they understand how they can quickly get to a positive outcome. They can triage their own cases. And that means they'd rather work with us than go to the market. So there's a range of competition in that respect. So in short, yes, the market is a fuller market than it was. In some areas, there's an increase in competition, namely Funding out of necessity in the broker led region. But where we do our best work and where, of course, the vast majority of untapped cases are, which is funding out of choice, the corporate world. We don't face an awful lot of competition. And when we do, We're careful not to get involved in the race to the bottom. So hopefully, that encapsulates the market really. Thank you. And in the €21,000,000 net to cash movement post period. Are there any proceeds or receivable movements? Mary, I might get you to talk to that. Yes. Sorry. There are some smaller receivables that have come through. There's also deployment included in figure. So it's a combination of cash drawn down, receivables coming through as well as deployments being made. Thank you. And as you scale up on own and manage funds, do your costs increase proportionately? Can you give an idea of the opportunities and for efficiencies of scale? Look, I think we haven't included of the slide, which we typically include in our full year results, which tracks our operational expenses as a percentage of our overall portfolio of assets under management. But what I can say is that that's been tracking down from the time that we did our first IPO on The Australian Securities Exchange, it was tracking from memory at about 13% of our portfolio. And when we did our full year results, it was tracking down at around 4% or below. So there's certainly efficiencies which can be drawn from operating a larger portfolio. We will inevitably have to increase in some respects our team as we have larger pools of capital under our management, but we're very conscious when we are increasing our operating expenses that we do so in line with an increase in the size of the portfolio of assets under management. So we're very conscious of that. And we are very disciplined about the way that we grow the business in line with the growth that we're achieving in terms of the size of the portfolio under management. Thank you. And how do you think your business model will perform if inflation picks up over the next 3 to 5 years? But so is it a good hedge against inflation for investors? Look, I think that I wouldn't necessarily always lean towards inflation as being something that one would hedge against in respect of the litigation and finance industry. But I think I would rather sort of lean towards The fact that it's a good hedge against the countercyclical nature. So it's a very good hedge against the downturn in an economy Because we tend to get more applications coming and more demand for our capital, both from corporates And from insolvency practitioners. So I think it's probably a better hedge against the downturn in economy that it is necessarily in relation to inflation. And I think we all need to accept that there is going to be turbulence in economies as global governments or governments across the globe withdraw stimulus, which they have to do at some point. Many thanks. We do have more questions, but we've run out of time. Patrick, do you have any closing remarks? Look, I'd just reiterate that with the additional capital that LCM has got available to us, with the market conditions which are generally prevailing. And with LCM's experience in the marketplace, we are very much moving into a period which will be incredibly conducive to on both LCM's growth and an increase in its revenue line. Thank you, Patrick and Nick and Mary, and to you all for joining. You will now be taken to a web page to give some anonymous feedback on litigation capital management in today's presentation. If you're unable to complete this now, you'll receive a follow-up email about an hour later. We'd be really grateful if you could take a few minutes to complete. This is the end of the webinar. Thank you.