Thank you for standing by, and welcome to the Omni Bridgeway Limited Half Year Results 2022. All participants are in listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now hand the conference over to Andrew Saker, Managing Director and CEO. Please go ahead.
Thank you, and good morning. My name is Andrew Saker. I'm the Managing Director and CEO of Omni Bridgeway. Welcome to our results presentation. Joining me today is Stuart Mitchell, our Group CFO, Jeremy Sambrook, our Group General Counsel and Company Secretary, and Mel Buffier, our Head of Investor Relations. I'm pleased to present the half year results for the period ending 31 December 2021. As many of you will appreciate, the two key drivers of our business are completions and new commitments. Our diversification strategy has sought to grow these drivers with a goal of achieving a more stable income stream compared to what was achievable under the balance sheet strategy we employed prior to 2015.
As a consequence of the successful execution of our strategy, we now have a solid platform from which to generate income and grow the business, which is reflected in the highlights for this period. Firstly, we generated a record first half income of $ 127 million from 31 completions. In addition, there have been a number of successful judgments and agreed settlements that may generate an additional $ 162 million in income in subsequent periods. Secondly, we've grown our book with new commitments of $ 190 million, with 29 additional investment opportunities well advanced in the pipeline that represent a further $ 150 million in commitments, collectively representing 2/3 of our target for the year. Third, we've maintained our long-term conversion rate of over 15%, confirming that the perceived risk of margin compression was overstated.
Fourth, we've grown our headcount by a net 5% during this period, investing in the rollout of new product offerings, including enforcement and antitrust offerings in the U.S., expanded our LatAm efforts, as well as established a presence in Washington, D.C. Fifth, we've maintained a strong liquid asset position with over $300 million available to the Group, including over $200 million in balance sheet only cash and receivables. These outcomes have been achieved in the context of a continuing uncertain environment driven by the pandemic and reflects the robustness of the uncorrelated financial model underpinned by the efforts of our global team to deliver diversified investments in legal risk, finance, and management. We have seen a strong rebound in completions in the first half following the resumption of court activity in the U.S.
This trend commenced in March of 2021 and is continuing now. We currently have around $2.4 billion in funds under management and are on track to reach our $5 billion in funds under management target by FY 2025. We anticipate completing most of our balance sheet investments by FY 2023 and thereafter continue to invest only via fund vehicles, both in existing and new structures. In the first half we have recognized $ 127 million in income. This is a record for our business, derived from a variety of case types and geographic sources. In the calendar year 2021, we have generated over $ 365 million in income and a net profit of $ 84 million. To put that in context, our average income in the calendar years 2010- 2015 was $ 90 million.
I believe we've achieved our stated objectives of generating a more stable income stream from our diversification strategy. Of great significance is that approximately 40% of that income was produced in the first half that came from first-generation funds. This is a significant but not unexpected development in the evolution of these funds. As we have been saying for a very long period of time, these fund structures provide our shareholders with a back-end return of our capital and substantial profit share, which we will see materialize in the coming periods. Specifically with respect to Fund 1, $37 million is outstanding to our investor at 31 December 2021. That will be offset by $28 million of income yet to be recognized from identified completions and $9 million of cash at bank. Our second-generation funds demonstrate good progress.
However, returns and fees will be generated when the funds are more mature and performance crystallizes from the outcome of the waterfalls. With respect to our other operational goals, I note one. We continue to focus on high- quality investment opportunities. I've read with interest other funders proclaim the massive volume of capital they deploy each year. I have observations on this. Firstly, investing capital on litigation assets. The difficulty is committing capital to high- quality assets that produce outstanding returns. Our success rate, long-term IRR, and MOIC reflect that we have achieved this over a sustained period. Secondly, we continue to seek an appropriate return for risk and will not commit to an investment just to increase commitment levels. We strive to maintain our margins and will not chase a return. Thirdly, there are often headline- grabbing numbers published regarding portfolio finance arrangements.
The reality is that not everyone's definition of committed capital is the same. Our committed capital only includes amounts we have unconditionally undertaken to provide. Secondly, the pinnacle of our risk management system is our Investment Committee. We have seamlessly transitioned in a new IC member, Michelle Painter SC, onto our Rest of World Investment Committee. Thirdly, we've seen off the immediate threat of the class action legislation reform in Australia. While the legislation would have had some impact on our business model, it was not expected to be material. However, it is without doubt better for our business and the Australian class action system that this ill-informed legislation has been deferred. Turning to our IFRS results for the first half of 2022.
The statutory comprehensive income for the period was $ 1.4 million, arising primarily from a net income of $54 million from investment completions, including growth of 130% in management fees. The impairment expense in the half is primarily represented by the unsettled component of our Wivenhoe investment. These expenses are non-cash items and may be reversed in subsequent periods if the relevant negative development associated with the investment also reverses. It is important to note that Wivenhoe has approximately $85 million of potential upside, albeit subject to appeals and other court processes with no adverse cost, risk or ongoing costs. Our operational cash expenses were relatively flat on a half-on-half basis, notwithstanding a 15% growth in EPV and a 5% growth in headcount, demonstrating the leverage delivered from our global investment platform.
From a balance sheet perspective, we've maintained a strong financial position with cash and receivables of around $ 209 million on the OBL balance sheet, sufficient to support corporate initiatives. Income of around $ 115 million was recognized in the first half of 2022 across the portfolio, with approximately $85 million recognized from 31 fully completed investments, with an EPV of $ 932 million and $30 million from partial and prior period completions. This resulted in a portfolio income conversion rate, including losses of 10%, which is lower than our long-term conversion rate due to some early investment completions in Fund 4 and an adverse financial result in two settlements in Fund 5. As we have previously explained, conversion rates should not be viewed in six months or even 12-month intervals.
As you will recall, our conversion rate for the previous financial year was 22% and we made a similar observation then. Our long- term conversion rate remains over 15% and over the last three years is a rolling average of 16%. As such, we continue to have confidence in our conversion rates and our margins. A further $ 160 million in income is yet to be recognized, arising from matters where we have achieved a successful judgment or award, or a settlement either prior to or shortly after the cutoff date of 31 December 2021.
We generated a net surplus in cash flow from operations of over $ 150 million in the first half of this financial year, of which over $ 106 million was used to retire the NCI exposure, accelerating our position towards capital returns and profit distributions. Of note, our management fees continue to grow as a percentage of our net operating expenditure. As deployments in Funds 4 and 5 continue, we anticipate this percentage will increase over time. Our net operating expenditure, both as a percentage of net assets and investments, decreased compared to the same period last year, notwithstanding the significant growth in headcount and offices. A couple of observations in relation to our cash position. As stated in the AGM, our liquid asset position remains very strong, and we will not be looking for an equity capital raise in the foreseeable future.
Two, our efficiencies continue to improve as we achieve a level of economies of scale. Three, we remain acutely aware of our cost structures and actively seek to manage them all, including our non-cash expenses. Our debt financing remains on track to occur in early 2022, with key commercial terms finalized with the proposed lender, subject to completing final legal due diligence, documentation, a nd syndication. We are seeking a five-year term facility of $ 250 million to be used for refinancing our bonds and notes, and to establish a $ 100 million delayed draw facility to be used for working capital purposes, pay our fund commitments or for possible acquisitions funding. The closing of this facility should put to rest any and all debate about our need to raise further equity capital.
As you will note, EPV and annual commitments continue to grow on an annual compounded rate of more than 40% over the last 3.5 years. This is an extraordinary rate of growth over a short period of time, and given our continued success rate and the maintenance of our long-term conversion rate over that period, reflects a commitment to ensuring the quality of the investment and the maintenance of our margins. Our EPV grew 15% in the last six months to $ 23.2 billion. We invested $ 190 million into investments as we pursue our diversification strategy, funded from private capital funds and our co-invested contribution from our balance sheets resources. As we've previously noted, investments are not made on a straight-line basis or fit neatly into discrete periods like quarters, halves, or years.
The investment process is a continuum that proceeds through application, exclusive term sheet to due diligence, and then to approval. We set ourselves a target for the year, and in our usual highly disciplined way, we will commit to those investments when we are satisfied they meet our criteria and not just to meet some expectation on commitment or deployment. As such, we are comfortable with the level of our commitments at 31 December with the knowledge of what is in our pipeline and based on our experience on how these matters have historically converted into investments. In response to requests from the market for greater clarity on our earnings capacity and our commitment to do so at our 2021 AGM, we've included this slide, which in our view.
which is our view on how IEV would be allocated on a preliminary basis between the group and the external investors in our funds. Included in this analysis are several sensitivities relating to a range in conversion rates, the exclusion of specific impaired assets, and a delay in completion dates. Subject to the assumptions referenced in our disclosures regarding IEV attribution, we expect to receive approximately $1.2 billion over the applicable period, including management fees, but before performance fees. This estimate is based on our book of investments at 31 December 2021, and does not take into account any value for the future investments that will inevitably be made from our global platform.
It is not possible to accurately calculate performance fees at this early stage of the life of Funds 4 and 5, and thus any performance fees arising will result in a transfer of value attribution from external funders to Omni Bridgeway. Shareholders will be aware that our performance fees for Funds 4 and 5 are after a hurdle rate of 8%, 20% up to a 20% IRR, and 30% after a 20% IRR. Our current IRRs on completed investments only for Funds 4 and 5 are 145% and 18% respectively. Our first generation funds have considerable potential to return capital and distribute preferred returns to NCI investors, distribute capital and fees to OBL, and provide material profit splits to both OBL and NCI investors.
Subject to the underlying assumptions, we anticipate that OBL may receive a distribution of capital and profit from Funds 1 to 3 in FY 2023. Our second- generation funds have significant capacity available to make new investments to generate substantial returns to both OBL and fund investors. Further to this, we have sought to enhance our protection against duration risk via the time-based pricing escalator by adding a coupon to the commission structure, meaning that any delays in completions in second- generation investments will result in better outcomes than what would have been the case under our first- generation funds. Our portfolio EPV is balanced by region and diversified by investment type and funding source. A balanced geographic footprint enables us to respond to developments in external risks such as competition or adverse regulatory intervention. 67% of our investments are now in the Northern Hemisphere.
Given the size of the respective legal markets in our U.S. growth strategy, we anticipate this weighting will increase. Global class actions now represent 29% portion of our book, including investments into Australian class actions, as well as multi-party matters in Canada and Europe, which is down from 40% at 30 June 2020. Over 40% of our investments are in single- party matters such as commercial arbitration and litigation. This has been the hallmark of our historical success. We intend to diversify into other areas of legal risk, and we anticipate that enforcement investment will be a growth area over the next several years, particularly as we have expanded our enforcement teams in the U.S., Asia, and EMEA.
No new balance sheet investments have been made since the commencement of our funds management business in 2017. As such, currently only 4% of EPV is from investments made on our own balance sheet outside of the fund structure. Our performance in the first half reflects solid progress across the global portfolio. In Fund 1, continued progress in completions enabled us to accelerate payment of the priority obligations to our investor, with only $37 million outstanding at 31 December 2021, and in line of sight to additional completions that should retire those priority obligations. Fund 2, 3, and 4 have achieved high IRRs due to some early wins, but we do not expect these to be sustainable in the long run. As the portfolio matures, we anticipate the returns will normalize and revert to the mean.
Duration is one of the risks over which we have no control, given the timing of conclusions will be determined by court processes and the desire of defendants to settle. We have sought to mitigate this by structuring and pricing mechanisms under our funding arrangements. We also continue to explore possible secondary market opportunities to monetize our investments prior to completion. In Fund 5, our lower IRR reflects the matter that completed within a few months of the investment and an adverse financial result in two settlements. In Fund 6, we've seen a reasonably consistent number of completions compared to prior financial periods with a stable IRR outcome. In the last 12 months, on-balance-sheet investments have decreased to 11, with an EPV of approximately $ 787 million at 31 December 2021, which demonstrates the balance sheet runoff as we continue our transition to a fund management model, thereby reducing our exposure to concentration risk. You have heard today about the ongoing progress we have made in executing our strategy to leverage our diversified model to improve our portfolio and grow our returns. Importantly, our transition to a funds management model will support our progression to achieve a more balanced portfolio allocation over the next five years, and to reach our aspirational goals to increase funds under management to $5 billion, with $1 billion of annual new commitments by FY 2025.
We have largely delivered on our expectations and in some instances exceeded them with a record amount of income generated in our first half, with several material potential completions occurring after the cutoff date, which will drive income for the second half. We believe we are on track to achieve our target for new commitments in the financial year and deliver on our continued growth in EPV and investments. We set ourselves a number of strategic goals, including the refinance of our debt, which is also on track for completion within the next few months. Overall, we have set our goals for this year and are aimed at delivering on those goals. We continue to work towards launching Fund 8 before 30 June 2022.
As such, investment opportunities identified before 31 December 2021 will continue to flow into Fund 6 during an agreed run-off period to 30 June 2022. From January 2022, any new merits investment opportunities will flow into Fund 5, and any new enforcement opportunities will be warehoused by OBL until Fund 8 is established. Last year, we embarked upon a revised U.S. strategic plan focused on growth with a target to double commitments. In H1 2022, we achieved approximately 26% of our FY 2022 U.S. commitment target and have an additional $79 million of exclusive term sheets, which, if converted into funded investments, represent a further 35% of our target. Key appointments were made to launch our global enforcement business and antitrust teams in the U.S., including the role of a Senior Investment Manager, D irector of Enforcement.
With seven appointments made during H1 2022 to enhance our capability, we now have a head count in the U.S. of 30, which will increase to 37 in March 2022 once new hires commence their roles. We've identified the following key goals for FY 2022 to include the launch of our Fund 8 in the amount of EUR 300 million focused on global enforcement strategies. A commitment target of approximately $520 million, with around $330 million in deployments, of which OBL's contribution is approximately $65 million. Refinancing our debt facilities to provide us with greater flexibility on our fund management business and executing on our U.S. growth strategy.
We will continue to pursue a strategy to mitigate our risks through diversification and underpin future growth both in the U.S. and across the global portfolio. I would like to acknowledge the contribution of our team at Omni Bridgeway, who demonstrate their commitment to achieving business goals and maximizing investment outcomes for all stakeholders. Fundamentally, what differentiates us is our experience, our track record of success, and an unmatched reach and origination framework. We continue to see great opportunities ahead for the business, and I would like to now open the call for questions. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Michael Peet with Goldman Sachs. Please go ahead.
Morning, Andrew and team. Thanks for taking my questions. First one, just on a bit more on the debt refi and just capital management in general, if I could. Just thinking sort of, if you could enlighten us a little bit about, sort of at the Board level, what you're thinking about with this sort of excess capital that you're potentially gonna have coming in 2023. Could you give us a little bit more color on sort of, what sort of things you might look to do in terms of is there a dividend policy you're looking to sort of put in place?
Are we likely to see specials or are we thinking sort of buyback, potentially putting a buyback in place to give you flexibility, for to use this excess capital that's coming?
Sure, Michael, thanks. Thanks for that. It hasn't yet been discussed and resolved at a Board level yet, so all of those options are on the table. I do note that a majority of our income is now being derived from overseas and as a consequence, the franking credits that would normally be available for Australian- derived income aren't there. We will be looking to distribute whatever surplus cash we have available in the most efficient manner, and I suspect it will be in the form of franked dividends to the extent possible, special dividends and capital share buybacks where it makes sense.
Okay. Thank you. Maybe just a bit more color on, with completions in mind, just thinking about, various jurisdictions, U.S., Europe, and Asia, Australia. Just if you could run through sort of what's happening from a mediation and court, hearing dates that are being locked in now with sort of, I guess, you know, Omicron might have done a bit more disruption. I don't know. Can you give us a bit more color on what's happening with mediation and actual processes for to get to completion?
Sure. Thanks, Michael. From our experience, things in the court system as well as in the arbitration processes, have pretty much returned to normal. The only material disruption we saw from a completions perspective was in the U.S. In March of 2021, the Court system started to reopen, and court dates were starting to be scheduled. They were scheduled in the period basically after summer, so from the period in August onwards, so before Omicron started to really take effect here in the States. Notwithstanding, the extent to which Omicron affected people here in the States, the courts pretty much continued business as usual.
We haven't actually seen any material slowdowns here, nor have we seen a slowdown in arbitration, in the various jurisdictions in which we operate. From our perspective, Michael, it's been very much business as usual.
Great. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Jason Palmer with Taylor Collison. Please go ahead.
Thank you very much. Good morning, Andrew and Stuart. I have a few questions, so please bear with me. Just in respect of the funding that I know Michael sort of touched on already, just be clear that the funding facility that you're proposing is an incremental $100 million on what you've currently got available.
Yes, that's correct, Jason. We're looking to raise $ 250 million, of which $150 million will be used to refinance the bonds and notes, which all mature in the next one to three years. An additional $100 million delayed draw facility, which is available for a variety of purposes.
Fantastic. That's helpful. Does it I mean, correct me if I'm wrong, but it sort of sends a bit of a mixed message, I think, in terms of, I mean, your comments around capital management, special dividends, distributions which may come through in 2023. I'm just trying to sort of reconcile the increased need for expanding that facility against the backdrop of the capital management you're talking about.
It's a delayed draw facility, so it's a standby facility, Jason. It's not one that we necessarily will draw on. I think it's important that we keep in mind efficient capital management. If debt is cheaper than equity, then it makes sense to replace some of the cash at bank that we've got with a debt facility and release that for distribution to shareholders. It is about prudent capital management and having a variety of options for how we will finance the business going forward.
Okay. In the past you've sort of spoken about, you know, wanting to keep that surplus cash level around the $100 million mark and that sort of held the business in good stead when it was mainly a balance sheet funding model. Sort of where do you see sort of comfort cash being held now as you're now moving towards, you know, 100%.
We're never gonna be 100%. You know, we're always going to have a significant material investment in each of our fund structures. We will have ongoing requirements in that sense. As the business matures and there's a more regular income generation capacity, there will be the opportunity to reduce the minimum amount of cash that we retain. You know, clearly, we don't want to get to a point where we're gonna jeopardize the efficacy of the business, but certainly, that minimum threshold of $ 100 million was one that was set when we were 100% balance sheet funded.
Now, having said that figure was set basically when we were committing somewhere around $ 50 million-$ 100 million a year. We're now starting to look at committing annually at $ 500 million up to eventually an aspirational target of $ 1 billion. While ongoing cash flows should be sufficient to meet that, you certainly don't want to put your ability to continue growth of the business at risk. Look, it's probably a long-winded answer to say that, you know, $ 100 million served us well. I suspect we'll be able to get more efficient, but what the magic number is going to depend on cash flows and opportunities.
Yeah. Just two more if I could, please, and then I'll pass on to someone else. You've been in the U.S. for a while yourself, physically now, Andrew, and I know on one of the slides, you pointed towards improving the assessment efficiency of the U.S., and I know that, you know, it I think it's important that the business doesn't just chase commitments for commitment's sake, but that seems to be a market which is heavily weighted towards speed of or speed of assessment to winning business. Is there anything you can sort of identify that you can do in terms of speeding up your process in that market that could make OBL more appealing to potential clients?
Jason, it's a good question. I don't think we're losing business because of anything to do with our speed of assessment. As I mentioned, you know, we've got commitments and term sheets in there that put us at about 60% of our target for this year at 31 December. You know, we're reasonably comfortable with where we're sitting at the moment in terms of those commitment levels. The important issue about speed of conversion from application to funded matter is that it is a competitive advantage, and I do see that what we perceive to be a reasonable period of time is something that our clients actually also share.
We're not seeing any pushback because of the time it takes us to process applications.
Just the last one, if I could. The overhead structure of the business, and it's not a criticism or anything like that, but the headcount seems to be sort of tracking ahead of the five-year business plan. I know that was set a few years ago. Sort of where should we be expecting this business to kind of mature at in terms of an overhead base? I appreciate you're probably running around $80 million or $90 million a year now. I'm just trying to work out where that sort of settles, Andrew, and sort of how much extra leverage there is to come through, because I guess when I look at peers, they've been able to achieve, let's say, new commitments into operating overheads of, say, 10%.
I think you're probably close to double that. It appears like you've got plenty of leverage still available in the business.
I think in terms of headcount, we're very much on track with what we'd expected. Our net gain since 30 June is actually five people. While there might be a perception of a massive growth in headcount, there actually isn't. You know, we had a number of folks that left in this half, including Hugh McLernon. The net gain is only five people. I'm not quite sure that that's correct. In addition, we did have a target of around $220 million by FY 2025. I think we're very much on track to achieve that. We're not looking to necessarily grow headcount beyond that. It's a matter of reallocating resources to the relevant markets where we think there are better growth opportunities.
That's why we're seeing significant growth in the States, but not material growth otherwise. In terms of our overhead, you know, I'm not sure it is, you know, at $19 million, and I'm not sure it's at 20%. I think what we're seeing is that as our EPV is growing, and our revenues are growing, we're seeing a commensurate improvement in our efficiency levels. And that's consistent with achieving, as I mentioned in my presentation, a level of economies of scale, which I expect will continue as we improve on those leverages.
Okay. I guess I was making the point, Andrew, is that $90 million into $500 million or $20 million or if it's $80 million into $520 million, whatever the number is sort of high-teen percentages. I was just trying to understand, you know, is that sort of extra headcount just gonna be a percentage increase in the overheads over time, or is there other sort of decentralization costs that need to be added that might incrementally increase the overhead base at a faster rate?
Yeah. I don't think so. I think those percentages in terms of new commitments and headcount or overhead costs are reasonably consistent with peers.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. We are showing no further questions at this time. I will now hand back for closing remarks.
Thank you. Hopefully, we've answered all of the relevant questions. If you do have any follow-up questions, please don't hesitate to reach out to myself, Mel or Stuart. Otherwise, thank you and have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.