Litigation Cap. Mgmt - Final Results
19/09/2023 07:00
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RNS Number : 8397M Litigation Capital Management Ltd 19 September 2023
19 September 2023
Litigation Capital Management Limited
("LCM" or the "Company")
Full year audited results for the year ended 30 June 2023
Highlights
· LCM delivered record results during the year with realised income of
A$181m with A$84m directly attributable to LCM
· Transition to Fair Value accounting, providing greater transparency
with respect to the underlying value of our portfolio of investments now
valued at A$428m1
· Material resolutions achieved in Fund I delivered strong performance
metrics and increased the cash balance of LCM to A$83m as at 30 June 2023
· Fund II had a final close of US$291m with capital commitment at A$123m
as at 30 June 2023 and A$148m as at 31 August 2023
· Total Funds under Management stand at A$0.66bn
· Assets under Management (AuM) were A$484m at 30 June 2023 with further
commitments in Fund II bringing our AuM to A$553m at 31 August 2023
· Overall Capital commitments were up significantly on the same prior
year period at A$176m
· The Company ended the period with A$104.5m of gross cash of which A$83m
was attributable to LCM compared with FY22 A$50m of gross cash of which A$29m
was attributable to LCM
· LCM declares a dividend of 2.25p per share for the full year ended 30
June 2023
· PFAS settlement approved by the Court post period end will contribute a
further c. A$10m realised income which translates to cash directly
attributable to LCM into FY24
(Capital commitment means the total estimate of an investment)
(1) A$428m inclusive of A$37m legacy investments held at cost
Other
· The Company also announces that it intends to commence a A$10 million
share buyback programme covering an aggregate contract term of approximately
twelve months. The Company will continue to assess how best to provide value
to shareholders.
· Given the improved financial position of the Company's balance sheet
over the past two years, LCM is exploring a sterling retail eligible bond
listed on the ORB at the London Stock Exchange. The Company expects to
announce a fixed income roadshow in due course. Proceeds raised from the
retail bond will optimise our cost of capital and allow us to take advantage
of opportunities we see in the market.
Commenting on the results, Patrick Moloney, CEO of Litigation Capital
Management, said: "Our fund management strategy is delivering third party
capital for investment. Our referral network in Europe and APAC is delivering
the high-quality investment opportunities that will underpin our generation of
value and cash to Fund investors and LCM shareholders. As we continue to grow,
increased activity levels will not need to be matched with proportionate
increases in overall costs and this in turn means greater profitability and
cash generation. This is a critical differentiator for LCM"
LCM will be hosting a webinar for investors today at 11.00 a.m (BST). The
presentation is open to all existing and potential shareholders. If you would
like to attend this presentation, please register using the following link:
https://www.investormeetcompany.com/litigation-capital-management-limited/register-investor
(https://www.investormeetcompany.com/litigation-capital-management-limited/register-investor)
A webinar presentation for analysts will take place at 9.30am (BST). Analysts
wishing to attend should contact lcm@tavistock.co.uk to register.
The accompanying results presentation is available on LCM's website:
https://www.lcmfinance.com/shareholders/investor-presentations-results/
(https://www.lcmfinance.com/shareholders/investor-presentations-results/)
The Financial Report is available at:
https://www.lcmfinance.com/shareholders/annual-reports-financial-reports/
(https://www.lcmfinance.com/shareholders/annual-reports-financial-reports/)
Enquiries
Litigation Capital Management c/o Tavistock
Patrick Moloney, Chief Executive Officer
Mary Gangemi, Chief Financial Officer
Canaccord (Nomad and Joint Broker) Tel: 020 7523 8000
Bobbie Hilliam
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
David Anderson
Tavistock (PR and IR) Tel: 020 7920 3150
Tim Pearson lcm@tavistock.co.uk
Katie Hopkins
NOTES TO EDITORS
Litigation Capital Management (LCM) is an alternative asset manager
specialising in disputes financing solutions internationally, which operates
two business models. The first is direct investments made from LCM's permanent
balance sheet capital and the second is third party fund management. Under
those two business models, LCM currently pursues three investment strategies:
Single-case funding, Portfolio funding and Acquisitions of claims. LCM
generates its income from both its direct investments and also performance
fees through asset management.
LCM has an unparalleled track record driven by disciplined project selection
and robust risk management. Currently headquartered in Sydney, with offices in
London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018,
trading under the ticker LIT.
www.lcmfinance.com (http://www.lcmfinance.com/)
Chairman's Statement
The year under review was LCM's most successful 12 months since inception.
This is a testament to the hard work of our management team and staff, and the
foundations that have been laid by the team over the past few years.
The Financial review details an income statement prepared under the historical
accounting standard and the newly adopted AASB 9 to provide readers with a
bridge of financial performance through this period of transition. Realised
income for the year compared to revenue as previously disclosed in the prior
year was AUD$181m, A$84m of which was attributable to the shareholders of LCM
(FY22 AUD$47m), an increase of 285% on a consolidated basis and 78%
attributable to LCM. Adjusted operating profit of AUD$54m was in line with the
prior year (FY22 adjusted operating profit AUD$54m), and basic earnings per
share of 29.5 cents (FY22 32.7 cents). These record results meant that the
company ended the period with AUD$104.5m of cash (A$83m attributable to LCM)
compared with FY22 AUD$50.0m of which A$29m was attributable to LCM. More
information on the restatement of the Group's results following the adoption
of Fair Value accounting can be found in the CFO report and the notes to the
financial statements.
As a result of the above performance, the Board was pleased to declare a final
dividend to shareholders for the financial year ending 30 June 2023 of 2.25p
per share. The dividend will be paid on 27 October 2023 to shareholders on the
register on 29 September 2023 being the record date. The ordinary shares will
be marked ex-dividend on 28 September 2023. As we have set out, the Board is
always looking at ways to return value to shareholders and will continue to do
so.
LCM's experience in the sector has enabled it to navigate the uncertain
economic and political environment which has been in place since the emergence
of the Covid pandemic, and which continues today due to high levels of
inflation and the ongoing war in Ukraine.
As the year progressed, we began to see courts and tribunals in jurisdictions
across the globe begin to tackle the case backlogs associated with Covid 19,
which has seen more cases settle, a trend we hope to see continue and
accelerate during the next 12 months. As ever, the timing of resolutions of
disputes is out of our hands, but we will continue to provide market updates
to investors in a timely manner and when it is possible to do so.
During the year LCM has seen the benefits of its move to its third-party asset
management business model, with the first case investments from Fund I
reaching their conclusion, leading to above average returns for the LCM
balance sheet. The Board is confident that this is the right business model
for the Company and will allow LCM to leverage our capital extremely
effectively and build scale.
In March 2023, Fund II was closed following US$291m of committed funds and we
have already begun to deploy capital within this structure. We expect this to
be a strong driver of growth in the business in the years to come, and
continue to receive interest from investors looking to commit further.
As the numbers bear out, the performance this year has been extremely strong,
which as ever has been led by strong case selection and the experience within
the Company of originating high quality deals. We have bolstered our
origination business with key hires in APAC and EMEA, highlighting the
increasingly global nature of our business.
This was CEO Patrick Moloney's first full year based in the UK, a move driven
by our belief in the opportunity for growth in the UK and Europe. Coupled with
the building out of our London team, we continue to believe that the
litigation financing market in EMEA is set for expansion. This is
notwithstanding the recent UK Supreme Court decision which will have very
limited or no impact on LCM's portfolios of dispute investments in terms of
future value. Additionally, our presence in Singapore has continued to grow,
and we are seeing more and more opportunities in the jurisdiction. We see
these locations as natural complements to each other, diversifying and
de-risking our investment portfolio.
As a business LCM has always been conservative in the way it apportions value
to its portfolio of investments. We will maintain this conservative approach.
However, the Group has reassessed its classification of the funding of its
litigation funding agreements. This involved a detailed review which resulted
in a significant change to the way in which we report results this year. The
change provides more relevant information on the value of the litigation
funding agreements and reflects the evolution of the primary business model
and changing geographic split of business. This is a significant change which
follows a third-party review and lengthy and thorough board discussions. We
are confident this is the right move for the business as it continues its
shift towards a third-party asset management business model and will enable
investors more easily to compare us with our peers. More information about the
change to Fair Value Accounting can be found in the CEO and CFO reports.
In conclusion, this has been an excellent period for LCM, and can act as a
platform from which to continue to expand our asset management business and
develop scale. The litigation funding market continues to grow, and we expect
the quality of opportunities presented us to expand in line with this.
Jonathan Moulds
Non-Executive Chairman
CEO Review
Introduction
The year to 30 June 2023 was transformational for LCM as we started to realise
the benefits of the asset management business model and the successful
execution of our strategy to grow a third-party fund management business. The
resolution of a number of Fund I investments has translated into enhanced
organic cash generation, allowing us to scale the business through further
investment into Fund II.
We welcomed an expanded team in London by recruiting additional, highly
experienced litigation finance professionals and have selectively enhanced our
already strong teams in Australia and in Singapore, which is increasingly a
strong hub of opportunities for the Company. In London and the APAC region our
enhanced teams will help us to continue to take full advantage of the current
favourable market conditions.
As noted in the Chairman's Statement and as set out in more detail in the
Financial Review, the Board evaluated and considered the appropriate
accounting framework with respect to our portfolio of investments given the
business' evolution over recent years. The outcome being the transition to
fair value accounting for litigation funding assets, which we believe will
provide relevant information on the value of the underlying portfolio and
better reflects our business model.
Operational Review
During the year LCM delivered its strongest set of results to date, both in
terms of financial performance and commitments, supported by a strong cash
position. As a result, we are pleased to be able to recommend a 2.25p dividend
per ordinary share for shareholders.
We continue to operate against a backdrop of ongoing disruption caused by high
inflation, rising interest rates, geo-political tension and wider economic
uncertainty. Our strong cash position will enable us to meet the ever growing
demand for funding, arising from the increased level of disputes globally as a
consequence of these external factors. In the current environment, this means
increased demand for capital allocation to fund disputes. This market demand,
together with our ability to deliver superior uncorrelated returns, places us
well for future growth.
We continue to grow and scale our fund management business which aligns the
interests of LCM with our third-party investors through our co-investment
model. Each matter selected for investment will see us invest our own capital
alongside that of the managed funds - normally on a 25:75 basis. Supported by
our track record and underwriting capabilities, this model allows Fund
investors to benefit from our ability to deliver high returns while LCM
shareholders benefit from performance fees and capital leverage.
Investment Portfolios and Performance
In terms of investment performance metrics, LCM continues to deliver
outstanding returns. With respect to every investment completed during the
past 12 years, inclusive of losses, LCM has generated a return on invested
capital (ROIC) of 1.78x. On a three year rolling basis, LCM's investment
performance, again including every completed investment inclusive of losses,
has generated an IRR of 76% and a ROIC of 2.09x. These performance metrics
underpin the high calibre of our investment managers and their underwriting
capabilities with respect to investment selection. LCM has consistently
provided amongst the highest returns in our industry over a long period of
time.
As previously announced, LCM achieved a final close on its second fund (Global
Alternative Returns Fund II) ("Fund II") in March 2023. Progress in terms of
commitments entered into for Fund II has been strong and we currently enjoy an
advanced pipeline of significant disputes, which we expect to sign into
investments in the near future. Given current demand and levels of enquiry,
we expect we will reach full commitment within the next 12 months. As with our
historical approach, as evidenced by our investment performance metrics, we
continue to build our portfolios of dispute investments in a manner that
maintains diversity across claim type, industry sector and jurisdiction whilst
avoiding concentration risk. We are at all times focused upon the quality of
the investments that we make, rather than the quantity.
People
Since relocating to the London market in late 2021, I have focused on both
building out the skillset and experience of our London team, as well as
expanding our origination function. LCM now has the benefit of six highly
experienced investment managers in London, the majority of whom have a deep
understanding of the litigation funding industry both in the UK and Europe.
LCM now boasts the most experienced London team of investment managers which
positions us exceptionally well given the level of enquiry for our capital
being received from the London market.
In terms of the Australian market, we will always consider adding to our team
on an opportunistic basis, however we are satisfied that the current team is
capable of meeting the demands to perform in that market. We also take a very
practical approach towards our level of operating expenses in each region,
ensuring that in markets where we are not seeing an expansion in the level of
enquiry, that we meet that demand with an appropriate level of personnel and
operating expenses generally. We constantly monitor market conditions and are
in a position to react swiftly to any changes.
In terms of the Asian markets, we are pleased to report an increase in
activity. Whilst LCM has invested in the Asian market for many years, we first
established a permanent presence with our Singapore office in 2018. In
accordance with LCM's disciplined approach, we commenced that office with a
single experienced investment manager. Since that time, we have expanded those
operations, such that we now have four investment managers operating in
Singapore. Most recently, we have employed an investment manager with a focus
on insolvency disputes with experience in the UK, Cayman Islands and Asia. We
expect to see increased activity in the insolvency and restructuring space as
markets continue in a higher interest rate environment and with continuing
economic uncertainty.
Market Environment
Market conditions across the various jurisdictions in which we operate
continue to develop favourably. The economies in which we operate are seeing
central banks continuing with their policy of increasing official rates in an
effort to bring inflation under control. We continue to see disruption across
many industries, some resulting from Covid hangover, some from geopolitical
instability and some from economic issues. What is clear right across the
markets that we service is that the economic conditions and the general
uncertainty is increasing the number of quality investment opportunities we
see. At one end of the spectrum, we see very significant increases in the
number of liquidations, both voluntary and court appointed, whereby an
insolvency practitioner is appointed to an insolvent corporation. That dynamic
over time will see an increase in opportunities from that sector. That is of
particular interest to LCM given its extensive experience in insolvency
related disputes and our deep relationships with insolvency practitioners. At
the other end of the market we service, we have large sophisticated and well
capitalised corporates. Those within the corporates who manage finance, and in
particular disputes budgets, as well as risk, have a more sympathetic
disposition toward exploring litigation finance as a tool to manage capital
and risk in current markets.
Having now worked directly in the UK market for almost two years, I can make
some informed observation regarding opportunity. I came to the London market
with 18 years' experience in the litigation finance industry, predominantly in
the Australian and Asian markets. The litigation finance market has developed
quite differently in the Australian market than elsewhere in the world. That
experience gives me particular insight into parts of the market which remain
either undeveloped or underserviced in the United Kingdom. Having now had the
opportunity to obtain a direct insight from referral sources, in particular
the dominant dispute lawyers, I can say that there remains significant
opportunity for LCM in this region. LCM is now very well placed to address the
UK market with a highly experienced London team and an exceptional working
culture.
I have also observed, particularly in the past 12 months, a contraction in
available capital within the litigation financers operating in this region.
There is certainly less competition with respect to applications than there
was two years ago when I arrived. This leverages this great opportunity for
us.
In July of this year and post year end, the Supreme Court of the United
Kingdom delivered a judgment which resulted in certain litigation funding
arrangements being subject to the Damages-Based Agreement Regulations 2013 in
the UK. The Damages-Based Agreement Regulations 2013 prescribe certain
requirements for fee arrangements between solicitors and their client whereby
their remuneration for the provision of legal services is determined as a
percentage of the financial benefit comprising the outcome of the dispute.
Whilst most commentators accept that the Regulations were passed to regulate
the relationship between a solicitor and client, the Supreme Court decision
has made those Regulations relevant to litigation funding arrangements whereby
the funder's returns are calculated by reference to a percentage of damages.
That decision has affected the market in the UK in different ways. Some
litigation financers have been affected more than others. LCM is fortunate to
be affected only in a very minor way. First, there are a very small number of
litigation funding arrangements in the UK, which will require small
amendments. Overwhelmingly, our fee structure is calculated by reference to a
multiple of invested capital rising over time. With respect to the small
number of funding arrangements which are affected by the decision, a minor
component to the funding arrangement involves a percentage. LCM is in the
process of renegotiating that small number of arrangements and we are very
confident that the decision will not impact LCM's existing portfolio, or its
business moving forward. Secondly, and importantly, LCM does not have any
funding arrangement which has been concluded in the United Kingdom involving a
percentage which might be the subject of an argument that amounts ought to be
repaid. Therefore, overall, LCM's existing and future business will be almost
completely unaffected by the decision.
Accounting Standards
As previously announced, we conducted a review of our accounting approach
following the evolution of our business over recent years. This led to a
transition in the way we value our portfolio of investments to Fair Value
accounting.
We managed this task with discipline and rigour. We believe the benefit of
this transition will facilitate a better understanding of the underlying value
in our portfolio of investments. As funded matters progress over time, value
is attributed to each of the investments based upon that progress and certain
observable milestones, providing a greater degree of transparency.
In developing a valuation methodology, LCM can draw upon not only a large pool
of data but its many years of experience in the litigation finance industry.
LCM's business has been investing in disputes for approximately 25 years. Very
few of our peers can point to experience of that nature or duration. The
model, which has been developed to value Litigation Funding Assets on an
individual investment level, considers, among other things, discounting future
investment cash outflows and realisations to reflect a cost of capital, time
and risk. LCM worked with external advisers at EY in developing the model.
Strategy
LCM's future strategy is to continue building the scale of its business. That
is achieved by three important building blocks. Over the years I have made
reference to the three building blocks necessary to establish a successful
litigation finance business, which also provide the foundation for building
scale. The first is maintaining the strict discipline of our due diligence and
underwriting processes. LCM has an exceptionally strong track record when it
comes to investment performance. It is important that we maintain the
discipline of our due diligence processes as we build scale.
Secondly, there is the need for adequate capital to fund growth, that is
capital to invest. Fundamental to our success, is our ability to construct our
portfolios of disputes with diversity across industry sector, dispute type and
jurisdiction, whilst avoiding concentration risk. To a certain extent, that
requires a degree of scale. LCM continually considers the diversity of its
capital structure. In 2020, we commenced our funds management business, and we
are now actively committing Fund II. During the next financial period, LCM
will take steps towards launching Fund III and will carefully consider the
appropriate size of that fund. Additionally, we will continue to review other
aspects of our capital structure, such as debt, in order to optimise our cost
of capital.
Finally, in order to effectively build the scale of LCM's business, we need to
continually monitor and refine the way we gain access to quality investments
through our origination platform. As noted above, we have already taken steps
to bolster the skillset and capacity of our London team to take advantage of
market opportunity. We have also expanded both our team and the particular
skillsets in our Singapore office so as to accommodate increasing demand for
capital and increasing applications in the area of insolvency and
restructuring.
We have considered new territories and jurisdiction over a number of years. We
think about expansion into new territories very carefully and with discipline.
With signs of a contracting market in the litigation finance industry, we are
seeing an increased volume of applications coming from the US market as well
as Canada. We are also receiving inward enquiries to represent LCM's interest
in those jurisdictions by experienced teams. This is an ongoing process and in
circumstances where we are sufficiently comfortable about having a presence in
jurisdictions and territories in which we currently do not operate, we will
take advantage of those opportunities.
Outlook
As set out above and reported to the market together with our interim results,
the prevailing market conditions in all of the territories and jurisdictions
in which we operate, are conducive to growing our business and are driving
demand for LCM's capital. We expect those market conditions to continue into
the medium term. We also expect that there will be a significant increase in
the number of appointments of external administrators and liquidators in
insolvency, which will translate into increased applications in the future.
That is of particular benefit to LCM given its long history funding disputes
arising from insolvency and restructuring. We are also able to draw upon the
experience gained following the global financial crisis, which generated many
disputes seeking a source of finance.
Secondly, we are seeing a tightening and contraction of the competitive
landscape in the litigation finance industry. We see this in several markets,
including the United Kingdom, the US and Canada. Having built LCM's expertise
and capacity in the London market, as well as having access to capital through
our funds management business, LCM is well placed to capitalise on those
industry conditions.
LCM's Fund I has enjoyed a number of resolutions in the preceding financial
period. The performance of those investments has been very strong. In
addition, we are seeing more opportunities in the market and expect to
materially achieve commitments in LCM Fund II in the financial period ahead.
Both of those factors will position LCM well for launching its third Fund.
Our fund management strategy is delivering third party capital for investment.
Our referral network in Europe and APAC is delivering the high-quality
investment opportunities that will underpin our generation of value and cash
to Fund investors and LCM shareholders. What this means is that, as we
continue to grow, increased activity levels will not need to be matched with
proportionate increases in overall costs and this in turn means greater
profitability and cash generation.
Patrick Moloney
Chief Executive Officer
Financial Review
We have delivered our strongest results to date, demonstrating the capability
our asset management model has in delivering accelerated organic growth.
We have delivered meaningful value through our business model which will
continue to create increased long-term shareholder value.
This year was a defining year for LCM as we delivered our strongest results to
date. The asset management business has demonstrated our ability to deliver
strong returns not only for our third-party investors but for our underlying
equity shareholders. Leveraging third party capital provides us with a
platform to scale and grow organically, through the use of alternative sources
of capital.
LCM's brand continues to strengthen, as we demonstrate, year-on-year, our
ability to deliver strong and meaningful accretive returns, with metrics that
outperform industry peers. Our unparalleled track record and investment
selection capabilities are underpinned by the strength of our Investment
Managers and Executive team. Our ability to scale through our asset management
business, coupled with our proven track record, have delivered a record year
in terms of profits and commitments which places us well for accelerated
growth.
During the year ended 30 June 2023, we generated record income from the
realisation of investments of A$181 million on a consolidated basis and A$84
million on an LCM stand-alone basis. Commitments increased to A$176m.
We successfully completed a third and final close of Fund II at US$291 million
in a difficult fundraising environment with continued interest rate rises and
started to deliver meaningful returns from investments in Fund I which places
us in a strong position for subsequent fund raises. We maintained our strong
financial performance with a 12 year ROIC of 1.78x. We are pleased with the
momentum the portfolio has made during the year and expect further legacy
matters to crystalise in the coming year, providing us with meaningful organic
capital for further investment.
Transition to Fair Value accounting
The evolution of the business over recent years has necessitated the need for
our Board to review the Company's accounting policies to ensure they provide
an appropriate representation of the underlying business model. In careful
consultation with our advisors, a decision was made to transition to Fair
Value accounting to provide investors with a greater level of information that
better reflects both the current business model and the intrinsic value of our
portfolio of investments.
In developing our framework we also looked to industry peers for alignment in
methodology, the benefit being that adopting a similar methodology provides a
level of comparability.
The precise timing and proceeds of the outcomes are difficult to predict
accurately and therefore the actual outcome is inherently uncertain and likely
to differ from the fair value assessment. The Group has developed a
framework that addresses the litigation or arbitral process across the various
jurisdictions, taking into consideration the varying degrees of risk
associated with each stage and jurisdiction. A Discounted Cash Flow approach
is then applied to each underlying investment on an individual basis.
LCM standalone results, comparatives and restatement
Following the evolution of our business model and the launch of the Funds
Management business in March 2020, which led to a shift towards an Asset
Management model, this necessitated a transition to Fair Value accounting.
Consequently, the consolidated financial statements for the Statement of
Financial Position for the period ended 30 June 2021 as well as the
Consolidated Statement of Profit and Loss and Other Comprehensive Income, the
Consolidated Statement of Financial Position, the Consolidated Statement of
Changes in Equity and the Consolidated statement of Cash flows together with
the accompanying notes for the 12 month period ended 30 June 2022 have been
restated to reflect the impact of the adoption of AASB 9 in those periods.
The performance of the business presented below has been presented in
accordance with the Australian Accounting Standards (AASB) and the
International Financial Reporting Standards (IFRS).
AASB requires the consolidation of our managed Funds as LCM has exposure, or
rights, to variable returns from its co-investment with the Funds.
Consequently, third party interests have been consolidated in the financial
statements.
Both Management and the Board believe that the Funds should be excluded from
the presentation of our financial performance to provide a clearer
understanding of the underlying performance attributable to LCM and its
shareholders.
The tables following provide a full reconciliation of the consolidated
statement of comprehensive income and consolidated statement of financial
position both under our historical accounting policies and the newly adopted
fair value accounting, to provide investors with meaningful financials and to
bridge the transition from one accounting standard to the next. Note that
these are non-AASB measures and may not be directly comparable with adjusted
measures of other companies. They are not a substitute for or replacement of
AASB measures.
Historical accounting under IFRS 15
Income statement Note AASB as reported 30 June 2023 Fund interests* LCM-only AASB as reported 30 June 2022 Fund interests* LCM-only
$'000 $'000 30 June 2023 $'000 $'000 30 June 2022
$'000 $'000
Revenue from contracts with customers
Litigation service revenue 156,191 96,591 59,600 47,350 207 47,143
Performance fees 24,598 - 24,598 53 1 52
180,789 96,591 84,198 47,403 208 47,195
Litigation service expense (53,255) (21,965) (31,290) (16,343) (81) (16,262)
Gross profit 127,534 74,626 52,908 31,060 127 30,933
Other income 18 - 18 - - -
Interest income 178 129 49 1 - 1
Expenses
Employee benefits expense (9,474) - (9,474) (8,841) - (8,841)
Depreciation expense (166) - (166) (65) - (65)
Corporate expenses (3,547) (673) (4,220) (3, 229) - (3,499)
Finance costs (8,268) (144) (8,124) (4,703) - (4,703)
Fund administration expense (2,368) (1,178) (1,190) (3,169) (2,099) (800)
Foreign currency (gains)/losses (5,081) (3,904) (1,177) (370) (270) (100)
Total expenses (28,904) (4,553) (24,351) (20,377) (2,369) (18,008)
Profit before income tax 98,827 70,202 28,625 10,684 (2,242) 12,926
Analysed as:
Adjusted operating profit 110,633 71,524 39,109 20,164 127 20,037
Non-operating expenses (3,539) (1,178) (2,360) (4,778) (2,369) (2,409)
Finance costs (8,268) (144) (8,124) (4,703) - (4,703)
Profit before income tax expense 98,827 70,202 28,625 10,684 (2,242) 12,926
Income tax expense (6,864) - (6,864) (4,040) - (4,040)
Profit/(loss) after income tax expense for the period 91,963 70,202 21,761 6,644 (2,242) 8,886
Profit for the period is attributable to:
Third party interests in the Fund 70,202 70,202 - (2,242) (2,242) -
Owners of Litigation Capital Management Limited 21,761 - 21,761 8,886 - 8,886
91,963 70,202 21,761 6,644 (2,242) 8,886
Other comprehensive income for the year, net of tax 1,513 (673) 2,187 (2,535) (432) (2,103)
Total comprehensive income for the period 93,476 69,528 23,948 4,109 (2,674) 6,783
* Third party interests.
** Other adjustments are Non-operating expenses which includes items
which are considered unusual, non-cash or one-off in nature. Management have
opted to separately present these items as it better reflects the Group's core
operations and underlying performance
Fair Value accounting under IFRS 9
Restated
Consolidated Statement of Comprehensive Income AASB as reported 30 June 2023 Fund interests* LCM-only AASB as reported 30 June 2022 Fund interests* LCM-only
30 June 2023 30 June 2022
$'000 $'000 $'000 $'000 $'000 $'000
Gain on financial assets at fair value through profit or loss 5 184,735 117,051 67,684 103,852 39,041 64,811
Movement in financial liabilities related to third-party interests in 5 (111,953) (111,953) - (36,672) (36,672) -
consolidated entities
Total income 72,782 5,098 67,684 67,180 2,369 64,811
Other income 18 - 18 - - -
Interest income 178 129 49 1 - 1
Employee benefits expense 7 (9,474) - (9,474) (8,841) - (8,841)
Depreciation expense 7 (166) - (166) (65) - (65)
Corporate expenses (4,220) - (4,220) (3,499) - (3,499)
Finance costs 7 (8,268) (144) (8,124) (5,037) (334) (4,703)
Fund administration expense 7 (3,028) (1,178) (1,850) (3,618) (1,765) (1,853)
Foreign currency (gains)/losses (5,081) (3,905) (1,176) (370) (270) (100)
Total expenses (30,237) (5,227) (25,010) (21,430) (2,369) (19,061)
Profit before income tax expense 42,741 - 42,741 45,751 - 45,751
Analysed as:
Adjusted operating profit 53,885 - 53,885 53,916 - 53,916
Non-operating expenses (3,020) - (3,020) (3,462) - (3,462)
Finance costs (8,124) - (8,124) (4,703) - (4,703)
Profit before income tax expense 42,741 - 42,741 45,751 - 45,751
Income tax expense 8 (11,256) - (11,256) (11,141) - (11,141)
Profit after income tax expense 31,485 - 31,485 34,610 - 34,610
Other comprehensive income for the year, net of tax 2,187 - 2,187 (2,103) (2,103)
Total comprehensive income for the period 33,672 - 33,672 32,507 - 32,507
A financial liability at fair value through the income statement is recognised
in the parent entity in relation to the transactions entered into with certain
Fund structures to support the financing of LFAs. These arrangements fail the
derecognition principles in IFRS 9 and represents the net share of the overall
LFA at fair value apportioned to the Funds.
The performance of the business should be assessed together with our key
performance metrics such as growth in commitments and assets under management,
to provide a more holistic representation of the performance of the business
during the year and a more accurate indication of the scale of growth in our
underlying portfolio of investments.
The business of litigation finance involves a series of investments into
disputes which historically take, on average, approximately 29 months to
complete. Those investments may resolve before or after that monthly average
and our expectation is that time to resolution will increase to between 36 and
42 months in the future. While a review of the business model resulted in a
transition to fair value accounting which better reflects the underlying value
of the portfolio of investments as they progress, cash flow fluctuations from
one year to the next will continue as a consequence of the actual timing of
resolutions.
Adjusted profit before tax inclusive of third party interests was A$53.9m
million in line with the prior period under our restated financials.
A reconciliation of adjusted profit is provided below:
AASB as reported AASB as reported
30 June 2023 30 June 2022
$'000 $'000
Statutory profit before tax 42,741 45,751
Add:
Other transaction costs 56 401
Share-based payments 867 256
Other expenses 57 80
Non-recurring consultancy fees 0 183
Litigation fees 190 689
Finance costs 8,124 4,703
Fund administration costs 1,850 1,853
Adjusted operating profit 53,885 53,916
Historical accounting under IFRS 15
Statement of financial position AASB as reported 30 June 2023 Fund interests* $'000 LCM-only AASB as reported 30 June 2022 Fund interests* $'000 LCM-only
$'000 30 June 2023 $'000 30 June 2022
$'000 $'000
Current assets
Cash and cash equivalents 104,457 21,484 82,973 49,964 20,711 29,253
Trade and other receivables 21,934 - 21,934 34,491 - 34,491
Contract costs 47,199 21,141 26,058 21,634 - 21,634
Other assets 617 75 542 614 (624) 1,238
Total current assets 174,207 42,700 131,507 106,703 20,087 86,616
Non-current assets
Contract costs 179,922 102,804 77,118 162,763 83,130 79,633
Property, plant and equipment 211 - 211 182 - 182
Intangible assets 356 - 356 646 - 646
Other assets 492 - 492 249 - 249
Total non-current assets 180,981 102,804 78,177 163,840 83,130 80,710
Total assets 355,188 145,504 209,684 270,543 103,217 167,326
Liabilities
Current liabilities
Trade and other payables 7,535 3,214 4,321 12,840 5,817 7,023
Tax payable 7,769 - 7,769 68 - 68
Borrowings - - - 14,494 14,494 -
Employee benefits 623 - 623 700 - 700
Total current liabilities 15,927 3,214 12,713 28,102 20,311 7,791
Non-current liabilities
Deferred tax liability 9,148 - 9,148 11,513 - 11,513
Borrowings 68,976 - 68,976 54,915 - 54,915
Employee benefits 283 - 283 227 - 227
Third party interests in consolidated entities 70,773 76,447 (5,674) 81,780 86,794 (5,014)
Total non-current liabilities 149,180 76,447 72,733 148,435 87,694 61,641
Total liabilities 165, 107 79,661 85,446 176,537 107,105 69,432
Net assets 190,081 65,843 124,238 94,006 (3,888) 97,894
* Elimination of third party interests in Fund I and Fund II
Fair Value accounting under IFRS 9
Restated
Consolidated statement of financial position AASB as reported 30 June 2023 Fund interests* $'000 LCM-only AASB as reported 30 June 2022 Fund interests* $'000 LCM-only
$'000 30 June 2023 $'000 30 June 2022
$'000 $'000
Assets
Cash and cash equivalents 9 104,457 21,484 82,973 49,964 20,711 29,253
Trade & other receivables 2,209 - 2,209 2,298 - 2,298
Due from resolution of financial assets 10 11,873 - 11,873 24,340 - 24,340
Financial assets at fair value through profit or loss 11 391,410 225,642 165,768 296,980 142,403 154,577
Contract costs 12 37,277 - 37,277 31,782 - 31,782
Property, plant and equipment 211 - 211 182 - 182
Intangible assets 356 - 356 646 - 646
Other assets 1,110 78 1,032 866 (623) 1,489
Total assets 548,903 247,204 301,699 407,058 162,491 244,567
Liabilities
Trade and other payables 13 7,535 3,214 4,321 12,840 5,817 7,023
Tax payable 7,769 - 7,769 68 - 68
Employee Benefits 14 906 - 906 927 - 927
Borrowings 15 68,976 - 68,976 69,409 14,494 54,915
Third-party interests in consolidated entities 29,29 243,990 243,990 - 142,180 142,180 -
Deferred tax liability 8 36,259 - 36,259 32,704 - 32,704
Total liabilities 365,435 247,204 118,231 258,128 162,491 95,637
Net assets 183,468 - 183,468 148,930 - 148,930
* Elimination of third party interests in Fund I and Fund II
Cash
LCM only cash on balance sheet as at 30 June 2023 was $83.0m million and
long-term borrowings was $69.0m, compared with $29.3m and $54.9m respectively
for the same period in 2022.
LCM cash generated from the resolution of matters during the period was $96.8
million, as compared to $26.6 million in FY22, reflecting the benefits of
leveraging third-party capital through our asset management business model to
generate organic cash flows for further investment. Payments related to
capital invested was $36.3 million, compared to the same prior period in FY22
of $29.8 million. The following waterfall is exclusive of third party fund
interests.
The following financial and non-financial KPIs are measures we believe are
relevant to the performance of our business and reflect progress in the growth
of our assets under management, portfolio of investments and shareholder
value. During the year:
· Inclusive of third party funds, Realisations from the resolution
of investments increased to A$180.8m compared to A$47.4m in the prior period,
the resolution of investments directly attributable to LCM increased by 78% to
A$84.2 million from A$47.2 million in the prior year;
· Investment Commitment was A$176 million inclusive of third party
funds, increasing from A$104 million in FY22;
· 12 year cumulative portfolio Return on Invested Capital (ROIC) was
1.78x;
· LCM operating expenses (exclusive of third-party funds of A$13.9m
increasing from A$10.9m in the prior period;
· Applications received were 434 from 442 in FY22 a decrease of 2%;
· Statutory profit before tax and adjusted operating profit on an LCM
only basis in line with the prior period under the restated financials of
$A42.7m and A$53.9m respectively.
Portfolio update
Capital invested during FY23 was A$95m inclusive of A$58m third party fund
investments, compared to $68 million in FY22, inclusive of $38.5 million of
third party fund investment on a cash basis.
LCM's ability to originate deals and deploy capital is a measure of its growth
and future performance as the value of our future profits are derived from the
capital we deploy in our investments at the time a resolution is achieved.
LCM's portfolio of investments comprises 52 investments as at 30 June 2023
with 20 direct balance sheet investments, 20 Fund I co-investments and 12
Fund II investments. Total LCM commitments at the period end were A$183m
comprising A$73.7m 100% direct investments, A$59.5 million Fund I commitments
and A$49.8m Fund II commitments.
We continued to maintain diversity across our portfolio across industry
sector, jurisdiction and capital commitment, in line with LCM's investment
philosophy.
Financial performance
During the year we had a number of significant resolutions from our Fund which
translated into meaningful cash returns for LCM and fund investors.
The Group's overall realisations from investments was $180.8m, A$84.2m of
which is directly attributable to LCM. This compares with A$47.4m and A$47.2
million respectively in the prior period.
Adjusted operating profit directly attributable to LCM was A$53.9 million, in
line with the prior period and statutory profit before tax was A$42.7 million
compared with A$45.8 million in the prior period.
The Group's portfolio of Investments at the period end had a value of
A$428.7m, A$203m exclusive of third party funds but inclusive of A$37m of
legacy investments held as contract assets. Gains during the period was
A$67.7mm of which A$16.2m was related to unrealised gains attributable to
LCM.
Operating expenses directly attributable to LCM of A$13.9 million for the
period ended 30 June 2023 increased by 27% compared to A$10.9 million in FY22.
We continue to expect to see an increase in operating costs as we expand,
however these are expected to remain appropriate relative to the size of the
portfolio under management.
Non-operating expenses of $3 million include; A$1.9 million of costs related
to fund administration, $0.8 million of share-based payment expenses and $0.3m
related to other non-recurring expenses (see note 7). (FY22: A$3.5m)
We have delivered a record set of results.
Finance costs
On 22 February 2021, the Company entered into a credit facility with Northleaf
Capital Partners to provide the Company with additional investment capital.
Northleaf is a global private markets investment firm, with experience in the
litigation finance sector. The Credit Facility, which is secured against LCM's
assets, is available for general corporate purposes, and has an overall term
of four years. The coupon comprises a based rate of 8% per annum together with
a profit participation calculated by reference to the profitability of LCM's
direct investments. In all circumstances, the overall cost of the facility is
capped at 13% per annum. The Credit Facility was available to be drawn down
during the first two years. The facility otherwise contains the usual
financial covenants and reporting conditions of a facility of this nature.
Dividend
As previously announced and following the financial performance of the
business in the period ended 30 June 2023, the Board has decided to pay a
dividend of 2.25p per ordinary share to Shareholders. The Board remains
committed to returning value to shareholders while also maintaining a
disciplined approach to preserving the right levels of cash to meet any
increase in demand for investments in order to accelerate growth in our
portfolio.
Mary Gangemi
Chief Financial Officer
Consolidated statement of profit or loss and other comprehensive income
For the period ended 30 June 2023
Consolidated
Restated
2023 2022
Note $'000 $'000
Income
Gain on financial assets at fair value through profit or loss 5 184,735 103,852
Movement in financial liabilities related to third-party interests in 5 (111,953) (36,672)
consolidated entities
Total income 72,782 67,180
Other income 18 -
Interest income 178 1
Expenses
Employee benefits expense 7 (9,474) (8,841)
Depreciation expense 7 (166) (65)
Corporate expenses (4,220) (3,499)
Finance costs 7 (8,268) (5,037)
Fund administration expense 7 (3,028) (3,618)
Foreign currency (gains)/losses (5,081) (370)
Total expenses (30,237) (21,430)
Profit before income tax expense 42,741 45,751
Analysed as:
Adjusted operating profit 53,885 53,916
Non-operating expenses 7 (3,020) (3,462)
Finance costs 7 (8,124) (4,703)
Profit before income tax expense 42,741 45,751
Income tax expense 8 (11,256) (11,141)
Profit after income tax expense 31,485 34,610
Other comprehensive income
Items that may be subsequently reclassified to profit and loss:
Movement in foreign currency translation reserve 2,187 (2,103)
Total comprehensive income for the period 33,672 32,507
Profit for the period is attributable to:
Owners of Litigation Capital Management Limited 31,485 34,610
31,485 34,610
Total comprehensive income for the period is attributable to:
Owners of Litigation Capital Management Limited 33,672 32,507
33,672 32,507
Cents Cents
Basic earnings per share 27 29.53 32.65
Diluted earnings per share 27 28.33 31.64
Where applicable, comparative information has been restated to reflect a
change in accounting for litigation funding agreements. Refer to Note 3.
The above Consolidated Statement of Profit or Loss and Other Comprehensive
Income should be read in conjunction with accompanying Notes to the Financial
Statements.
Consolidated statement of financial position
As at 30 June 2023
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
Note $'000 $'000 $'000
Assets
Cash and cash equivalents 9 104,457 49,964 49,736
Trade & other receivables 2,209 2,298 2,242
Due from resolution of financial assets 10 11,873 24,340 4,408
Financial assets at fair value through profit or loss 11 391,410 296,980 176,838
Contract costs 12 37,277 31,782 28,633
Property, plant and equipment 211 182 186
Intangible assets 356 646 391
Other assets 1,110 866 881
Total assets 548,903 407,058 263,315
Liabilities
Trade and other payables 13 7,535 12,840 12,308
Tax payable 7,769 68 84
Employee Benefits 14 906 927 601
Borrowings 15 68,976 69,409 50,424
Financial liabilities related to third-party interests in consolidated 26,29 243,990 142,180 62,870
entities
Deferred tax liability 8 36,259 32,704 21,632
Total liabilities 365,435 258,128 147,919
Net assets 183,468 148,930 115,396
Equity
Issued Capital 16 69,674 69,674 68,904
Reserves 17 1,042 (2,012) (165)
Retained Earnings 112,753 81,268 46,657
Parent interest 183,468 148,930 115,396
Total equity 183,468 148,930 115,396
Where applicable, comparative information has been restated to reflect a
change in accounting for litigation funding agreements. Refer to Note 3.
The above Consolidated Statement of Financial Position should be read in
conjunction with accompanying Notes to the Financial Statements.
Consolidated statements of changes in equity
For the period ended 30 June 2023
Share based Foreign
Issued Retained payments currency Total
capital earnings reserve translation equity
Consolidated $'000 $'000 $'000 $'000 $'000
Balance at 1 July 2021 68,904 20,028 1,317 (1,377) 88,872
Adjustment on restatement of litigation funding assets (Note 3) - 26,629 - (105) 26,524
Balance at 1 July 2021 (restated) 68,904 46,657 1,317 (1,482) 115,396
Profit after income tax expense for the year (restated) - 34,610 - - 34,610
Other comprehensive income for the year - - - (2,103) (2,103)
Total comprehensive income for the year - 34,610 - (2,103) 32,507
Equity Transactions:
Share-based payments (note 28) - - 256 - 256
Contributions of equity (note 16) 770 - - - 770
770 - 256 - 1,026
Balance at 30 June 2022 (restated) 69,674 81,268 1,573 (3,585) 148,930
Balance at 1 July 2022 (restated) 69,674 81,268 1,573 (3,585) 148,930
Profit after income tax expense for the year - 31,485 - - 31,485
Other comprehensive income for the year - - - 2,187 2,187
Total comprehensive income for the year - 31,485 - 2,187 33,672
Equity Transactions:
Share-based payments (note 28) - - 867 - 867
- - 867 - 867
Balance at 30 June 2023 69,674 112,753 2,440 (1,398) 183,468
Where applicable, comparative information has been restated to reflect a
change in accounting for litigation funding agreements. Refer to Note 3.
The above Consolidated Statement of Changes in Equity should be read in
conjunction with accompanying Notes to the Financial Statements.
Consolidated statements of cash flows
For the period ended 30 June 2023
Consolidated
Restated
2023 2022
Note $'000 $'000
Cash flows from operating activities
Profit after income tax expense for the period 31,485 34,610
Adjustments for:
Gain on financial assets at fair value through profit or loss (72,782) (67,180)
Depreciation and amortisation of intangibles 166 284
Share-based payments 867 256
Finance costs reclassified to financing activities 8,268 5,038
Income tax expense 11,256 11,141
Exceptional items 1,200 800
Foreign exchange rate movements 11,601 517
Change in operating assets and liabilities:
(Funding) of financial assets 11 (89.049) (65,139)
Proceeds from resolution of financial assets 10 192,623 26,792
Decrease/(increase) in trade and other receivables (89) 56
(Increase) in contract costs - litigation contracts (5,494) (3,150)
(Decrease)/Increase in trade and other payables (5,305) 516
(Decrease)/Increase in employee benefits (21) 327
Income Tax paid (139) (85)
Net cash from/(used in) operating activities 84,587 (55,217)
Cash flows from investing activities
Payments for property, plant and equipment (90) (38)
Payments for intangibles (57) (278)
Refunds of security deposits (51) (19)
Net cash used in investing activities (198) (335)
Cash flows from financing activities
Proceeds from issue of shares - 770
Proceeds from borrowings 15 9,636 13,298
Repayments of borrowings 15 (14,848) -
Payments of finance costs (6,171) (4,637)
Payments of transaction costs related to third-party interests (1,832) (1,853)
Contributions from third-party interests in consolidated entities 29 74,980 45,465
Distributions to third-party interests in consolidated entities 29 (94,373) (406)
Payments for fund establishment & administration costs - (778)
Net cash (used in)/from financing activities (32,608) 51,859
Net increase/(decrease) in cash and cash equivalents 51,781 (3,693)
Cash and cash equivalents at the beginning of the financial year 49,964 49,736
Effects of exchange rate changes on cash and cash equivalents 2,712 3,921
Cash and cash equivalents at the end of the financial year 9 104,457 49,964
Where applicable, comparative information has been restated to reflect a
change in accounting for litigation funding agreements. Refer to Note 3.
The above Consolidated Statement of Cash Flows should be read in conjunction
with accompanying Notes to the Financial Statements.
Notes to the financial statements
1. General information
The financial statements cover Litigation Capital Management Limited (the
'Company') as a Group consisting of Litigation Capital Management Limited and
the entities it controlled at the end of, or during, the year (referred to as
the 'Group'). The financial statements are presented in Australian dollars,
which is Litigation Capital Management Limited's functional and presentation
currency.
Litigation Capital Management Limited was admitted onto the Alternative
Investment Market ('AIM') on 19 December 2018.
Litigation Capital Management Limited is a listed public company limited by
shares, incorporated and domiciled in Australia. Its registered office and
principal place of business is:
Level 12, The Chifley Tower
2 Chifley Square
Sydney NSW 2000
A description of the nature of the Group's operations and its principal
activities are included in the Directors' report, which is not part of the
financial statements.
The financial statements were authorised for issue, in accordance with a
resolution of Directors, on 19 September 2023. The Directors have the power to
amend and reissue the financial statements.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of the financial
statements are set out below. These policies have been consistently applied to
all the years presented, unless otherwise stated.
Where necessary, comparative amounts have been reclassified and repositioned
for consistency with current year accounting policy and disclosures. Further
details on the nature and reason for amounts that have been reclassified and
repositioned for consistency with current year accounting policy and
disclosures, where considered material, are referred to separately in the
financial statements or notes thereto.
New or amended Accounting Standards and Interpretations adopted
The Group has adopted all of the new or amended Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board ('AASB')
that are mandatory for the current reporting period.
Any new or amended Accounting Standards or Interpretations that are not yet
mandatory have not been early adopted.
The adoption of these Accounting Standards and Interpretations did not have
any significant impact on the financial performance or position of the Group.
Basis of preparation
These general purpose financial statements have been prepared in accordance
with Australian Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board ('AASB') and the Corporations Act 2001,
as appropriate for for-profit oriented entities. These financial statements
also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board ('IASB'). The financial report has
been prepared on a historical cost basis, except for the financial assets and
liabilities that have been measured at fair value.
Critical accounting estimates
The preparation of the financial statements requires the use of certain
critical accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group's accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial statements, are
disclosed in note 4.
Parent entity information
In accordance with the Corporations Act 2001, these financial statements
present the results of the Group only. Supplementary information about the
parent entity is disclosed in note 24.
Principles of consolidation
The consolidated financial statements incorporate the assets and liabilities
of all subsidiaries of Litigation Capital Management Limited ('Company' or
'parent entity') as at 30 June 2023 and the results of all subsidiaries for
the year then ended. Litigation Capital Management Limited and its
subsidiaries together are referred to in these financial statements as the
'Group'.
The Group includes fund investment vehicles over which the Group has the right
to direct the relevant activities of the fund under contractual arrangements
and has exposure to variable returns from the fund investment vehicles. See
Note 26.
Subsidiaries are all those entities over which the Group has control. The
Group controls an entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to
affect those returns through its power to direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are de-consolidated from the date that control
ceases.
Intercompany transactions, balances and unrealised gains on transactions
between entities in the Group are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of the impairment of the
asset transferred. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
The acquisition of subsidiaries is accounted for using the acquisition method
of accounting. A change in ownership interest, without the loss of control, is
accounted for as an equity transaction, where the difference between the
consideration transferred and the book value of the share of the
non-controlling interest acquired is recognised directly in equity
attributable to the parent.
Non-controlling interest in the results and equity of subsidiaries are shown
separately in the statement of profit or loss and other comprehensive income,
statement of financial position and statement of changes in equity of the
Group. Losses incurred by the Group are attributed to the non-controlling
interest in full, even if that results in a deficit balance.
Where the Group loses control over a subsidiary, it derecognises the assets
including goodwill, liabilities and non-controlling interest in the subsidiary
together with any cumulative translation differences recognised in equity. The
Group recognises the fair value of the consideration received and the fair
value of any investment retained together with any gain or loss in profit or
loss.
Operating segments
Operating segments are presented using the 'management approach', where the
information presented is on the same basis as the internal reports provided to
the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the
allocation of resources to operating segments and assessing their performance.
Foreign currency translation
The financial statements are presented in Australian dollars, which is
Litigation Capital Management Limited's functional and presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the entity's functional
currency using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at financial year-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated into
Australian dollars using the exchange rates at the reporting date. The
revenues and expenses of foreign operations are translated into Australian
dollars using the average exchange rates, which approximate the rates at the
dates of the transactions, for the period. All resulting foreign exchange
differences are recognised in other comprehensive income through the foreign
currency reserve in equity.
The foreign currency reserve is recognised in profit or loss when the foreign
operation or net investment is disposed of.
Fair value measurement
The Group measures its financial instruments such as litigation funding
agreements and financial liabilities related to third-party interests at fair
value at each balance sheet date.
When an asset or liability, financial or non-financial, is measured at fair
value for recognition or disclosure purposes, the fair value is based on the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date;
and assumes that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most advantageous
market.
Fair value is measured using the assumptions that market participants would
use when pricing the asset or liability, assuming they act in their economic
best interests. For non-financial assets, the fair value measurement is based
on its highest and best use. Valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to measure fair
value, are used, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for
identical assets or liabilities
• Level 2 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements at
fair value on a recurring basis, the Group determines whether transfers have
occurred between levels in the hierarchy by re-assessing categorisation (based
on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each reporting period.
The Group's Executive Leadership Committee determines the policies and
procedures for fair value measurement, including the litigation funding
agreements. The Committee is comprised of the Chief Executive Officer, Chief
Financial Officer and Head of Investments or equivalent.
The level of involvement of external valuers or specialist valuation experts
is determined annually by the Committee after discussion with and approval by
the Company's Audit Committee. Selection criteria include market knowledge,
reputation, independence and whether professional standards are maintained.
At each reporting date, the Committee analyses the movements in the values of
assets and liabilities which are required to be remeasured or re-assessed as
per the Group's accounting policies. For this analysis, the Committee
verifies the major inputs applied in the latest valuation by agreeing the
information in the valuation computation to contracts and other relevant
documents.
The Committee also compares the change in the fair value of each asset and
liability with any relevant external sources to determine whether the change
is reasonable.
Fair-value related disclosures for financial instruments and non-financial
assets that are measured at fair value or where fair values are disclosed, are
summarised in the following notes:
• Disclosures for valuation methods, significant estimates and assumptions
Note 20
• Quantitative disclosures of fair value measurement hierarchy Note 20
• Financial instruments Note 19
Revenue recognition
The Group recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the consideration to which
the Group is expected to be entitled in exchange for transferring services to
a customer. For each contract with a customer, the Group: identifies the
contract with a customer; identifies the performance obligations in the
contract; determines the transaction price which takes into account estimates
of variable consideration and the time value of money; allocates the
transaction price to the separate performance obligations on the basis of the
relative stand-alone selling price of each distinct service to be delivered;
and recognises revenue when or as each performance obligation is satisfied in
a manner that depicts the transfer to the customer of the services promised.
Variable consideration within the transaction price, if any, reflects the
variability of potential outcomes in awards or settlements of the litigation
and any other contingent events. Such estimates are determined using either
the 'expected value' or 'most likely amount' method. The measurement of
variable consideration is subject to a constraining principle whereby revenue
will only be recognised to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised will not
occur. The measurement constraint continues until the uncertainty associated
with the variable consideration is subsequently resolved. Amounts received
that are subject to the constraining principle are recognised as a refund
liability.
Litigation service revenue
The performance of a litigation service contract by the Group entails the
management and progression of the litigation project during which costs are
incurred by the Group over the life of the litigation project.
As consideration for providing litigation management services and financing of
litigation projects, the Group receives either a percentage of the gross
proceeds of any award or settlement of the litigation, or a multiple of
capital deployed, and is reimbursed for all invested capital.
Revenue, which includes amounts in excess of costs incurred and the
reimbursement for all invested capital, is not recognised as revenue until the
successful completion of the litigation project ie, complete satisfaction of
the performance obligation, which is generally at the point in time when a
judgment has been awarded or on an agreed settlement between the parties to
the litigation, and therefore when the outcome is considered highly probable.
On this basis, revenue is not recognised over time and instead recognised at
the point in time when the Group satisfies the performance obligation. Costs
include only external costs of funding the litigation, such as solicitors'
fees, counsels' fees and experts' fees.
The terms and duration of each settlement or judgment varies by litigation
project. Payment terms are not defined by the Group's litigation contracts
however upon successful completion of a litigation project, being the
satisfaction of the single performance obligation, funds are generally paid
into trust within 28 days. The funds will remain in trust until the
distribution amounts have been determined and agreed by the relevant parties,
after which payment will be received by the Group.
Interest
Interest income is recognised as interest accrues using the effective interest
method. This is a method of calculating the amortised cost of a financial
asset and allocating the interest income over the relevant period using the
effective interest rate, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to the
net carrying amount of the financial asset.
Income tax
The income tax expense or benefit for the period is the tax payable on that
period's taxable income based on the applicable income tax rate for each
jurisdiction, adjusted by the changes in deferred tax assets and liabilities
attributable to temporary differences, unused tax losses and the adjustment
recognised for prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary differences
at the tax rates expected to be applied when the assets are recovered or
liabilities are settled, based on those tax rates that are enacted or
substantively enacted, except for:
● When the deferred income tax asset or liability arises from the initial
recognition of goodwill or an asset or liability in a transaction that is not
a business combination and that, at the time of the transaction, affects
neither the accounting nor taxable profits; or
● When the taxable temporary difference is associated with interests in
subsidiaries, associates or joint ventures, and the timing of the reversal can
be controlled and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax assets are recognised for deductible temporary differences and
unused tax losses only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
The carrying amount of recognised and unrecognised deferred tax assets are
reviewed at each reporting date. Deferred tax assets recognised are reduced to
the extent that it is no longer probable that future taxable profits will be
available for the carrying amount to be recovered. Previously unrecognised
deferred tax assets are recognised to the extent that it is probable that
there are future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there is a legally
enforceable right to offset current tax assets against current tax liabilities
and deferred tax assets against deferred tax liabilities; and they relate to
the same taxable authority on either the same taxable entity or different
taxable entities which intend to settle simultaneously.
Litigation Capital Management Limited (the 'head entity') and its wholly-owned
Australian subsidiaries have formed an income tax consolidated group under the
tax consolidation regime. The head entity and each subsidiary in the tax
consolidated group continue to account for their own current and deferred tax
amounts. The tax consolidated group has applied the 'separate taxpayer within
group' approach in determining the appropriate amount of taxes to allocate to
members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the head entity also
recognises the current tax liabilities (or assets) and the deferred tax assets
arising from unused tax losses and unused tax credits assumed from each
subsidiary in the tax consolidated group.
Assets or liabilities arising under tax funding agreements with the tax
consolidated entities are recognised as amounts receivable from or payable to
other entities in the tax consolidated group. The tax funding arrangement
ensures that the intercompany charge equals the current tax liability or
benefit of each tax consolidated group member, resulting in neither a
contribution by the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held at call with
financial institutions, other short-term, highly liquid investments with
original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value.
Trade and other receivables
Trade receivables are initially recognised at fair value and subsequently
measured at amortised cost using the effective interest method, less any
allowance for expected credit losses. Trade receivables generally do not have
a specifically defined time frame for settlement, additionally, when the
receivable is due from part of the portfolio of litigation projects, the
settlement of the receivable is generally made upon an additional resolution
of another litigation project within the portfolio which also may not be
within a specifically defined time frame.
The Group has applied the simplified approach to measuring expected credit
losses, which uses a lifetime expected loss allowance. To measure the expected
credit losses, trade receivables have been grouped based on days overdue.
Due from resolution of financial assets
Amounts due from the settlement of financial assets relate to the realisation
of litigation funding assets that have been successfully concluded and where
there is no longer any litigation risk remaining and represent the expected
cash flow to be received by the Group. The settlement terms and timing of
realisations vary by litigation funding asset. The majority of settlement
balances are received shortly after the period end in which the litigation
funding asset has concluded, and all settlement balances are generally
expected to be received within 12 months after completion.
Contract costs
Contract costs are recognised as an asset when the Group incurs costs in
fulfilling a contract and when all the following are met: (i) the costs relate
directly to the contract; (ii) the costs generate or enhance resources of the
Group that will be used to satisfy future performance obligations; and (iii)
the costs are expected to be recovered. Refer to the Group's revenue
recognition policy for further information.
Financial assets at fair value through profit or loss
Financial assets are recognised at fair value through profit or loss and are
fair valued using an income approach. Financial assets at fair value through
profit or loss are carried in the statement of financial position at fair
value with net changes in fair value recognised in the statement of profit or
loss. This category includes the Group's litigation funding assets. The
litigation funding assets are primarily derecognised when the underlying
litigation resolves and transfers to Due from resolution of financial assets.
Financial liabilities related to third-party interests in consolidated
entities
Non-controlling interests where the Group does not own 100% of a consolidated
entity are recorded as financial liabilities related to third-party interests
in consolidated entities. Financial liabilities related to third-party
interests in consolidated entities are initially recognised at the fair value.
Gains or losses on liabilities held at fair value through profit or loss are
recognised in the statement of profit or loss as 'Net gains/(losses) relating
to third-party interests in financial liabilities at fair value through profit
or loss'. They are subsequently measured at fair value using an income
approach. Amounts included in the consolidated statement of financial position
represent the net asset value of the third-parties' interests. These amounts
have been elected to be measured at fair value to reduce the accounting
mismatch between the related financial asset measured at fair value through
profit or loss.
Financial liabilities are derecognised when the obligation to settle through
cash flows has expired or been transferred.
Leases
Lease payments on short-term leases and leases of low-value assets are
recognised as an expense on a straight-line basis over the lease term. The
short-term lease recognition exemption applies to those leases that have a
lease term of 12 months or less from the commencement date. It also applies to
leases over assets that are considered of low value.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment at each reporting date and
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. An impairment loss is recognised for the amount by
which the asset's carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less costs of
disposal and value-in-use. The value-in-use is the present value of the
estimated future cash flows relating to the asset using a pre-tax discount
rate specific to the asset or cash-generating unit to which the asset belongs.
Assets that do not have independent cash flows are grouped together to form a
cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services provided to the
Group prior to the end of the financial year and which are unpaid. Due to
their short-term nature they are measured at amortised cost and are not
discounted. The amounts are unsecured and are usually paid within 30 days of
recognition.
Borrowings
Borrowings are initially recognised at fair value net of transaction costs
incurred. Subsequent to initial recognition, borrowings are stated at
amortised cost.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary benefits, annual
leave and long service leave expected to be settled wholly within 12 months of
the reporting date are measured at the amounts expected to be paid when the
liabilities are settled.
Other long-term employee benefits
The liability for annual leave and long service leave not expected to be
settled within 12 months of the reporting date are measured at the present
value of expected future payments to be made in respect of services provided
by employees up to the reporting date. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods
of service. Expected future payments are discounted using market yields at the
reporting date on high quality corporate bonds with terms to maturity and
currency that match, as closely as possible, the estimated future cash
outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are expensed in the
period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to employees.
Equity-settled transactions are awards of shares, or options over shares, that
are provided to employees in exchange for the rendering of services.
The cost of equity-settled transactions are measured at fair value on grant
date. Fair value is determined using either the Monte Carlo or Black-Scholes
option pricing model that takes into account the exercise price, the term of
the option, the impact of dilution, the share price at grant date and expected
price volatility of the underlying share, the expected dividend yield and the
risk free interest rate for the term of the option, together with non-vesting
conditions that do not determine whether the Group receives the services that
entitle the employees to receive payment. No account is taken of any other
vesting conditions.
The cost of equity-settled transactions are recognised as an expense with a
corresponding increase in equity over the vesting period. The cumulative
charge to profit or loss is calculated based on the grant date fair value of
the award, the best estimate of the number of awards that are likely to vest
and the expired portion of the vesting period. The amount recognised in profit
or loss for the period is the cumulative amount calculated at each reporting
date less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining fair value.
Therefore any awards subject to market conditions are considered to vest
irrespective of whether or not that market condition has been met, provided
all other conditions are satisfied.
If equity-settled awards are modified, as a minimum an expense is recognised
as if the modification has not been made. An additional expense is recognised,
over the remaining vesting period, for any modification that increases the
total fair value of the share-based compensation benefit as at the date of
modification.
If the non-vesting condition is within the control of the Group or employee,
the failure to satisfy the condition is treated as a cancellation. If the
condition is not within the control of the Group or employee and is not
satisfied during the vesting period, any remaining expense for the award is
recognised over the remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it has vested on
the date of cancellation, and any remaining expense is recognised immediately.
If a new replacement award is substituted for the cancelled award, the
cancelled and new award is treated as if they were a modification.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options
are shown in equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised when declared during the financial year and no longer
at the discretion of the Company.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
the owners of Litigation Capital Management Limited, excluding any costs of
servicing equity other than ordinary shares, by the weighted average number of
ordinary shares outstanding during the financial year, adjusted for bonus
elements in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the determination of
basic earnings per share to take into account the after income tax effect of
interest and other financing costs associated with dilutive potential ordinary
shares and the weighted average number of shares assumed to have been issued
for no consideration in relation to dilutive potential ordinary shares.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount of associated
GST, unless the GST incurred is not recoverable from the tax authority. In
this case it is recognised as part of the cost of the acquisition of the asset
or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable
or payable. The net amount of GST recoverable from, or payable to, the tax
authority is included in other receivables or other payables in the statement
of financial position.
Cash flows are presented on a gross basis. The GST components of cash flows
arising from investing or financing activities which are recoverable from, or
payable to the tax authority, are presented as operating cash flows.
Commitments and contingencies are disclosed net of the amount of GST
recoverable from, or payable to, the tax authority.
Rounding of amounts
The Company is of a kind referred to in Corporations Instrument 2016/191,
issued by the Australian Securities and Investments Commission, relating to
'rounding-off'. Amounts in this report have been rounded off in accordance
with that Corporations Instrument to the nearest thousand dollars, or in
certain cases, the nearest dollar.
3. Restatement of comparative
The Group has reassessed its classification of the funding of its litigation
funding agreements. This involved a detailed review of the terms and
conditions of these contracts and a qualitative assessment of the evolution of
the Group's business model. The Group carefully considered and formed their
opinion for the appropriate accounting based on the composition of the
portfolio of funded claims, the activities performed by the business, the
transition to an asset management model, management's business judgement as to
this analysis and the relevant accounting standards. The change provides more
relevant information on the value of the litigation funding agreements and
reflects the evolution of the primary business model and changing geographic
split of business.
Historically the revenue receipted from the successful resolution of funded
litigation funding agreements has been considered under AASB 15 as revenue
with customers. AASB 15 was adopted for these arrangements and reflected our
legacy business model, which was to provide a bundle of financial and risk
management services related to the resolution of disputes. This resulted in a
litigation asset, or contract asset classification for all bundle of services
under AASB 15. As the Group has evolved, the supporting rationale for AASB 15
has diminished with a significant reduction in the concept of a bundle of
services. There remain a small number of legacy contracts where this bundle of
services remains implicit in the contract and therefore AASB 15 has been
retained.
As a result of this reassessment, the majority of the Group's litigation
funding assets will now be recognised under AASB 9. Under this change,
litigation funding agreements and third-party interest in consolidated
entities are accounted for as financial instruments under AASB 9. The
following principles have been adopted where the underlying litigation funding
arrangements satisfy the conditions of a financial instrument:
- due to the nature of the expected returns the financial instruments fail the
solely payments of principal and interest test (the 'SPPI test') in AASB 9 and
are classified at fair value through the income statement
- management have established a fair value framework to appropriately account
for the underlying instruments at fair value
- further details on the fair value methodology as shown in Note 20
- any transaction costs (i.e., directly attributable due diligence and closing
costs) would be expensed in the profit and loss as they are incurred
- third-party interests in consolidated entities have been fair valued using
the same fair value framework for the litigation funding assets
As a result of implementing this accounting for litigation funding agreements
for relevant contracts, the Group has restated the Statement of financial
position as at 30 June 2021 and 30 June 2022, and the Statement of profit or
loss, Statement of other comprehensive income for the year ended 30 June 2022
for comparative purposes.
The restatement of each of the affected financial statement line items for the
prior periods, as follows:
Impact on equity (increase/(decrease) in equity)
Consolidated
30 June 2022 1 July 2021
$'000 $'000
Trade & other receivables (32,193) (11,601)
Due from resolution of financial assets 24,340 4,408
Contract costs (152,615) (105,925)
Financial assets at fair value through profit or loss 296,980 176,838
Other assets 2 -
Total Assets 136,514 63,720
Third-party interests in consolidated entities 60,400 23,106
Deferred tax liability 21,191 14,090
Total Liabilities 81,591 37,196
Net Impact on equity 54,924 26,524
Impact on statement of profit and loss (increase/(decrease) in profit)
Consolidated
30 June 2022
Income
Litigation service revenue (47,350)
Litigation service expense 16,343
Net gains/(losses) on financial assets at fair value through profit or loss 103,853
Net gains/(losses) on financial liabilities related to third-party interests (36,672)
in
consolidated entities
Total expenses (1,054)
Income tax expense (7,101)
Net impact on profit for the year 28,019
Attributable to:
Equity holders of the parent 28,019
Non-controlling interests -
Other comprehensive income 432
Net impact on total comprehensive income for the period 28,451
Impact on basic and diluted earnings per share (EPS) (increase/(decrease) in
EPS)
Consolidated
30 June 2022
Earnings per share
Basic, profit for the year attributable to ordinary equity holders of the 26.37
parent
Diluted, profit for the year attributable to ordinary equity holders of the 25.55
parent
Statement of cashflows
The change did not have a net impact on the Group's operating, investing and
financing cash flows but did require some change to components within each
cash flow class.
The Group has also adopted the liquidity based presentation of its balance
sheet after the restatement under AASB 9 as it provides information that is
reliable and more relevant. On adoption, the Group present all assets and
liabilities in order of liquidity. A presentation of assets and liabilities in
increasing or decreasing order of liquidity provides information that is
reliable and more relevant than a current/non-current presentation because the
Group does not supply goods or services within a clearly identifiable
operating cycle.
4. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management to make
judgements, estimates and assumptions that affect the reported amounts in the
financial statements. Management continually evaluates its judgements and
estimates in relation to assets, liabilities, contingent liabilities, revenue
and expenses. Management bases its judgements, estimates and assumptions on
historical experience and on other various factors, including expectations of
future events, management believes to be reasonable under the circumstances.
The resulting accounting judgements and estimates will seldom equal the
related actual results. The judgements, estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities (refer to the respective notes) within the next
financial year are discussed below.
Revenue from contracts with customers
The entity has a small number of legacy litigation service contracts where the
service provided and accordingly the litigation funding contracts are within
the scope of AASB 15 'Revenue from Contracts with Customers', and so are
excluded from the scope of AASB 9 'Financial Instruments'. AASB 15 was
adopted for these arrangements and reflected our legacy business model, which
was to provide a bundle of financial and risk management services related to
the resolution of disputes. This resulted in a litigation asset, or contract
asset classification for all bundle of services under AASB 15. As the Group
has evolved, the supporting rationale for AASB 15 has diminished with a
significant reduction in the concept of a bundle of services. There remain a
small number of legacy contracts where this bundle of services remains
implicit in the contract and therefore AASB 15 been retained.
Performance obligations and recognition of revenue
In the provision of litigation management services and financing of litigation
projects, management has determined that there is a single performance
obligation and that complete satisfaction of that performance obligation
occurs at the point in time when the Group achieves a successful resolution
for the client as it is the predominant purpose of the service provided. On
this basis, revenue is not recognised over time and only recognised at the
point in time when the Group satisfies that performance obligation.
Consolidation of entities in which the Group holds less than 100% of interests
The Group has assessed the entities in which it has an interest to determine
whether or not control exists and the entity is, therefore, consolidated into
the Group (refer note 25). Where the Group does not own 100% of interests, the
Group makes judgements to determine whether to consolidate the entity in
question by applying the factors set forth in AASB 10, including but not
limited to the Group's equity and economic ownership interest, the economic
structures in use in the entity, the level of control the Group has over the
entity through the entity's structure or any relevant contractual agreements,
and the rights of other investors.
Recovery of deferred tax assets
Deferred tax assets includes an amount relating to carried-forward tax losses
in Australia. The Group only recognises the deferred tax asset if it is
probable that future taxable amounts of the Group's business in Australia will
be available to utilise those losses and therefore they are assessed as
recoverable (refer to note 8). The extent to which these amounts are
recognised is based on an estimate of future taxable amounts which is key
estimate in relation to this balance. The tax losses can be carried forward
indefinitely and have no expiry date.
Net gains/(losses) on financial assets & liabilities at fair value through
profit or loss
The Group carries its financial assets and liabilities at fair value, with
changes in fair value being recognised in the statement of profit or loss. A
valuation methodology based on an income approach.
The fair values of these financial assets and liabilities cannot be measured
based on quoted prices in active markets, and as a result a fair value
methodology is utilised. The measurement valuation technique includes a
discounted cash flow (DCF) model based on the Group's estimated, risk adjusted
future cash flows. The adopted discount rate reflects the funding cost of
deploying capital, and is intended to capture the time value of money and
market factors such as interest rates and foreign exchange rates.
The fair value framework incorporates assumptions, including the discount
rate, the timing and amount of expected cash inflows and additional funding,
and a risk-adjustment factor reflecting the inherent uncertainty in the cash
flows due to litigation risk, which is dependent on observable case
progression and milestones.
The inputs to these models are taken from observable markets where possible,
but where this is not feasible, a degree of judgement is required in
establishing fair values. Judgements include considerations of inputs such as
case progress, credit risk and volatility. Changes in assumptions relating to
these factors could affect the reported fair value of financial instruments.
The key assumptions used to determine the fair value of the litigation funding
agreements, financial liabilities related to third-party interests in
consolidated entities and sensitivity analyses are provided in note 20.
5. Income
Consolidated
Restated
2023 2022
$'000 $'000
Realised gains on Litigation Funding assets 26,879 30,117
Realised performance fees 24,598 53
Fair value adjustment during the period 11,134 29,782
Foreign exchange gains 5,073 4,859
Total income as reported on the consolidated statements of profit or loss 67,684 64,811
attributable to LCM
Gain on financial assets related to third-party interests in consolidated 117,051 39,041
entities
184,735 103,852
Movement in financial liabilities related to third-party interests in (111,953) (36,672)
consolidated entities
Total income as reported on the consolidated statements of profit or loss 72,782 67,180
Total income as reported on the consolidated statements of profit or loss
attributable to LCM represents realised and unrealised gains that relate to
LCM's funded proportion of litigation contracts. The gain and loss related to
third party interests in consolidated entities represents realised and
unrealised gains and losses that relate to third party funded proportions
from LCM controlled entities. Realised gains relate to amounts where
litigation risk has concluded and amounts are expected to be received by LCM.
Unrealised gains or losses relate to the fair value movement of assets and
liabilities associated with litigation contracts.
6. Segment information
The Group's operating segments are based on the internal reports that are
reviewed and used by the Board of Directors (who are identified as the Chief
Operating Decision Makers ('CODM')) in assessing performance and in
determining the allocation of resources.
The Directors have determined that there is one operating segment. The
information reported to the CODM is the consolidated results of the Group. The
segment result is as shown in the statement of profit or loss and other
comprehensive income. Refer to statement of financial position for assets and
liabilities.
7. Profit before tax
Consolidated
Restated
2023 2022
$'000 $'000
Profit before income tax expense includes the following specific expenses:
Employee benefits expense
Salaries & wages 7,337 7,337
Directors' fees 393 390
Superannuation and pension 287 254
Share based payments expense 867 256
Other employee benefits & costs 590 604
9,474 8,841
Depreciation
Plant and equipment 63 41
Intangible assets 103 24
166 65
Interest on borrowings (note 15) 7,689 4,376
Finance costs of third-party interests 144 334
Other finance costs 435 327
8,268 5,037
Fund administration expense
Finance costs -
General administration expenses 988 276
Set-up expenses 209 1,489
Placement fees 1,831 1,853
3,028 3,618
Fund administration expenses relates to costs associated with the setup and
administration of the LCM Global Alternative Returns Funds which are wholly
attributable to the third party interest in consolidated entities.
Leases
Short-term lease payments 777 639
Adjusted operating profit
Adjusted operating profit excludes non-operating expenses which includes items
which are considered unusual, non-cash or one-off in nature.
Non-operating expenses
Management have opted to separately present these items as it better reflects
the Groups underlying performance. Non-operating expenses includes the
following items:
Share based payments expense 867 256
Consultancy - 183
Other transaction costs 56 401
Litigation fees 190 689
Other expenses 57 80
Fund administration expenses 1,850 1,853
Total non-operating expenses 3,020 3,462
8. Income tax expense
Consolidated
2023 2022
$'000 $'000
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense 42,741 45,751
At the Group's statutory income tax rate of 25% (2022: 25%) 10,685 11,438
Tax effect amounts which are not deductible/(taxable) in calculating
taxable income:
Foreign tax rate adjustments (1,718) (26)
Share-based payments 217 64
Other assessable income 143 98
Other non-deductible expenses - -
Unrealised foreign exchange - -
Change in tax rate 1,929 (433)
Adjustment for tax effect of loss attributable to third party interests - -
Adjustment in respect of deferred tax of previous years - -
Income tax expense / (benefit) 11,256 11,141
Statutory tax rate of 25% is applicable to Australian entities with aggregated
turnover below $50 million for the period ended 30 June 2023. The Group's
turnover is expected to be above the threshold of $50 million in the future
reporting periods which will attract a statutory tax rate of 30%. As a result,
recognition of deferred tax asset is made by applying a 30% statutory rate
instead of the lower 25% tax rate.
Consolidated
2023 2022
$'000 $'000
Current tax 7,769 59
Deferred tax 3,555 11,072
Adjustment recognised for prior periods (68) 10
Income tax expense / (benefit) 11,256 11,141
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
$'000 $'000 $'000
Deferred tax asset/(liability)
Deferred tax asset/(liability) comprises temporary differences attributable
to:
Tax losses 14,197 13,425
Employee benefits 273 279
Accrued expenses 929 255
Deductible funding on contract costs and financial assets (23,374) (25,195)
Fair value adjustments to financial assets (28,284) (21,736)
Transaction costs on share issue - 268
Deferred tax asset/(liability) (36,259) (32,704)
Movements:
Opening balance (32,704) (21,632) (7,543)
Charged to profit or loss (3,555) (11,072) (14,089)
Closing balance (36,259) (32,704) (21,632)
9 Cash and cash equivalents
Consolidated
2023 2022
$'000 $'000
Cash at Bank 82,973 29,253
Cash of third-party interests in consolidated entities 21,484 20,711
104,457 49,964
Cash of third-party interests in consolidated entities is restricted as it is
held within the fund investment vehicles on behalf of the third-party
investors in these vehicles. The cash is restricted to use cashflows in the
litigation funding assets made on their behalf and costs of administering the
fund.
10. Due from resolution of financial assets
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
$'000 $'000 $'000
At start of period (as restated) 24,340 4,408
Transfer from realisation of litigation funding assets 150,447 50,571
Proceeds from litigation funding assets (192,623) (26,792)
Foreign Exchange gain/(losses) 29,708 (3,848)
At end of period 11,873 24,340 4,408
11. Litigation Funding assets at fair value through profit or loss
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
$'000 $'000 $'000
At start of period (as restated) 296,980 176,838
Deployments 30,756 26,675
Deployments - third-party interests 58,293 38,464
Realisations of litigation funding assets (150,447) (50,571)
Unrealised gains for the period 136,638 101,225
Foreign exchange gains/(losses) 19,190 4,349
At end of period 391,410 296,980 176,838
Litigation funding assets at fair value through income statement 165,768 154,577
Litigation funding assets at fair value through income statement - third-party 225,642 142,403
interests
Total litigation funding assets 391,410 296,980 176,838
Litigation Funding assets are financial instruments that relate to the
provision of capital in connection with legal finance. The Group fund through
both direct investments as well as using third party funders via a Fund model.
The table above sets forth the changes in LFA assets at the beginning and end
of the relevant reporting periods.
12 Contract costs - litigation contracts
Consolidated
2023 2022
$'000 $'000
Contract costs - litigation contracts 37,277 31,782
There are a small number of legacy investments which are still being recorded
under IFRS 15 due to the timing the contracts were entered into. These are
expected to resolve in the short to medium term.
Reconciliation of litigation contract costs
Reconciliation of the contract costs at the beginning and end of the current
period and previous financial year are set out below:
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
$'000 $'000 $'000
Opening balance 31,783 28,633 28,633
Additions during the period 5,494 3,150 -
Closing balance 37,277 31,783 28,633
The Group has recognised impairment losses of $nil (2022: $nil) in profit or
loss on contract costs for the year ended 30 June 2023.
13. Trade and other payables
Consolidated
2023 2022
$'000 $'000
Trade payables 7,001 12,562
Other payables 534 278
7,535 12,840
Refer to note 19 for further information on financial instruments.
14. Employee benefits
Consolidated
2023 2022
$'000 $'000
Annual Leave 623 700
Long Service Leave 283 227
906 927
15. Borrowings
Consolidated
2023 2022
$'000 $'000
Borrowings of third-party interests in consolidated entities - 14,494
Borrowings 68,976 54,915
68,976 69,409
Reconciliation of borrowings of third-party interests in consolidated
entities:
Consolidated
2023 2022
$'000 $'000
Balance 1 July 14,494 13,253
Proceeds from borrowings - -
Repayment of borrowings (14,848) -
Net accrued interest (16) 17
Payments for borrowing costs - (185)
Amortisation of borrowing costs 34 230
Other non-cash items 336 1,179
Balance as at 30 June - 14,494
Reconciliation of borrowings of LCM:
Consolidated
2023 2022
$'000 $'000
Balance 1 July 54,915 37,171
Proceeds from borrowings 9,636 13,298
Payments for borrowing costs (256) (259)
Amortisation 2,441 919
Other non-cash items 2,240 3,786
Balance as at 30 June 68,976 54,915
On 22 February 2021, LCM entered into a credit facility with Northleaf Capital
Partners for an aggregate amount of US$50,000,000, AUD equivalent of
$75,017,5171(1) (the "Facility"). The Facility carries interest with reference
to SOFR as a benchmark based rate of 8 per cent together with a profit
participation calculated by reference to the profitability of a defined
category of LCM's investments, and a non-utilisation margin of 1 per cent
which expired after the first two years. The overall cost of the Facility is
capped at 13% per annum. The Facility was available to be drawn down during
the first two years, has an overall term of four years and is secured against
LCM's assets. As at 30 June 2023, LCM has nil outstanding utilisation.
LCM agreed to various debt covenants including a minimum effective net
tangible worth, borrowings as a percentage of effective net tangible worth,
minimum liquidity, a minimum consolidated EBIT and a minimum multiple of
invested capital on concluded contract assets over a specified period. There
have been no defaults or breaches related to the Facility during the year
ended 30 June 2023. Should LCM not satisfy any of these covenants, the
outstanding balance of the Facility may become due and payable.
LCM incurred costs in relation to arranging the Facility of $1,649,000 which
were reflected transactions costs and will be amortised over the 4 year term
of the borrowings. As at 30 June 2023, $825,000 of the loan arrangement fees
remained outstanding.
(1) Converted at the functional currency spot rates of exchange at the
reporting date
16. Equity - issued capital
Consolidated
2023 2022 2023 2022
Shares Shares $'000 $'000
Ordinary shares - fully paid 106,613,927 106,613,927 69,674 69,674
Ordinary shares - under loan share plan 12,586,405 12,586,405 - -
119,200,332 119,200,332 69,674 69,674
Movements in ordinary share capital
Date Shares $'000
Balance 30 June 2021 105,014,157 68,904
Conversion of partly paid shares paid up at $0.17 per share 22 October 2021 498,583 85
Conversion of options paid up at $1.00 per share 5 November 2021 600,000 600
Conversion of partly paid shares paid up at $0.17 per share 16 December 2021 501,187 85
Balance 30 June 2022 106,613,927 69,674
30 June 2023 106,613,927 69,674
Movements in ordinary shares issued under loan share plan ('LSP'):
Date Shares $'000
Balance 30 June 2021 11,073,767 -
Conversion of partly paid shares paid up at $0.17 per share 27 October 2021 612,638 -
Conversion of partly paid shares paid up at $0.17 per share 5 November 2021 900,000 -
Balance 30 June 2022 12,586,405 -
30 June 2023 12,586,405 -
Reconciliation of ordinary shares issued under LSP:
2023 2022
Total shares allocated under existing LSP arrangements with underlying LSP 7,890,408 8,134,929
shares (note 28)
Less shares allocated under existing LSP arrangements without underlying LSP (221,467) (465,988)
shares (note 28)
Shares held by LCM Employee Benefit Trust for future allocation under employee 4,917,464 4,917,464
share and option plans
Balance as at 30 June 12,586,405 12,586,405
Ordinary shares
Ordinary shares entitle the holder to participate in dividends and the
proceeds on the winding up of the Company in proportion to the number of and
amounts paid on the shares held. The fully paid ordinary shares have no par
value and the Company does not have a limited amount of authorised capital.
On a show of hands every member present at a meeting in person or by proxy
shall have one vote and upon a poll each share shall have one vote.
Ordinary shares - under loan share plan ('LSP')
The Company has an equity scheme pursuant to which certain employees may
access a LSP. The acquisition of shares under this LSP is fully funded by the
Company through the granting of a limited recourse loan. The shares under LSP
are restricted until the loan is repaid. The underlying options within the LSP
have been accounted for as a share-based payment. Refer to note 28 for further
details. When the loans are settled the shares are reclassified as fully paid
ordinary shares and the equity will increase by the amount of the loan repaid.
Ordinary shares - partly paid
As at 30 June 2023, there are currently 1,433,022 partly paid shares issued at
an issue price of $0.17 per share. No amount has been paid up and the shares
will become fully paid upon payment to the Company of $0.17 per share. As per
the terms of issue, the partly paid shares have no maturity date and the
amount is payable at the option of the holder.
Partly paid shares entitle the holder to participate in dividends and the
proceeds of the Company in proportion to the number of and amounts paid on the
shares held. The partly paid shares do not carry the right to participate in
new issues of securities. Partly paid shareholders are entitled to receive
notice of any meetings of shareholders. The partly paid shareholders are
entitled to vote in the same proportion as the amounts paid on the partly paid
shares bears to the total amount paid and payable.
Capital risk management
The Group's objectives when managing capital is to safeguard its ability to
continue as a going concern, so that it can provide returns for shareholders
and benefits for other stakeholders and to maintain an optimum capital
structure to reduce the cost of capital.
Capital is regarded as total equity as recognised in the statement of
financial position.
In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce debt.
The capital risk management policy remains unchanged from the 30 June 2022
Annual Report.
17. Equity reserves
Movements in reserves
Movements in each class of reserve during the current and previous financial
year are set out below:
Consolidated Share based Foreign Total
payments currency reserves
reserve translation
$'000 $'000 $'000
Balance at 30 June 2021 1,317 (1,482) (165)
Movements in reserves during the period 256 (2,103) (1,847)
Balance at 30 June 2022 1,573 (3,585) (2,012)
Movements in reserves during the period 867 2,187 3,054
Balance at 30 June 2023 2,440 (1,398) 1,042
Share-based payments reserve
The reserve is used to recognise the value of equity benefits provided to
employees and Directors as part of their remuneration, and other parties as
part of their compensation for services.
Foreign currency translation reserve
This reserve is used to record differences on the translation of the assets
and liabilities of foreign operations.
18. Equity - dividends
There were no dividends declared or paid for the year ended 30 June 2023
(2022: nil cents per share).
On 18 July 2023, the Directors declared a partially franked final dividend for
the year ended 30 June 2023 of 2.25 pence per ordinary share, to be paid on 27
October 2023 to eligible shareholders on the register as at 29 September 2023
being the record date. The ordinary shares will be marked ex-dividend on 28
September 2023. This equates to a total estimated distribution of £2,571,364,
AUD equivalent as at reporting date of $4,901,964(1). The financial effect of
dividends declared after the reporting date are not reflected in the 30 June
2023 financial statements and will be recognised in subsequent financial
reports.
(1) Converted at the functional currency spot rates of exchange at the
reporting date
Franking credits
Consolidated
2023 2022
$'000 $'000
Franking credits available for subsequent financial years based on a tax rate 338 338
of 25% (2022: 25%)
19. Financial instruments
Financial risk management objectives
The Group's activities expose it to a variety of financial risks: market risk
(including foreign currency risk, price risk and interest rate risk), credit
risk and liquidity risk. The Group's overall risk management program focuses
on the unpredictability of financial markets and seeks to minimise potential
adverse effects on the financial performance of the Group. The Group uses
different methods to measure different types of risk to which it is exposed.
These methods include sensitivity analysis in the case of interest rate,
foreign exchange and other price risks and ageing analysis for credit risk.
Risk management is carried out by senior finance executives ('finance') under
policies approved by the Board of Directors ('the Board'). These policies
include identification and analysis of the risk exposure of the Group and
appropriate procedures, controls and risk limits. Finance identifies,
evaluates and hedges financial risks within the Group's operating units.
Finance reports to the Board on a monthly basis.
Market risk
Foreign currency risk
The carrying amount of the Group's foreign currency denominated financial
assets and financial liabilities at the reporting date were as follows:
Restated
Assets Liabilities Assets Liabilities
2023 2023 2022 2022
Consolidated $'000 $'000 $'000 $'000
US dollars 203,912 (314,923) 73,582 (214,821)
Pound Sterling 173,064 (2,542) 153,762 (4,857)
New Zealand dollars 1 - 1,819 -
United Arab Emirates Dirham 5,614 (744) 5,478 (718)
Hong Kong dollars 28,087 - 8,521 -
Other 489 (1) 631 (567)
411,167 (318,210) 243,793 (220,963)
The Group had net assets denominated in foreign currencies of $92,956,000
(assets of $411,167,000 less liabilities of $318,210,000) as at 30 June 2023
(2022 restated: net assets $22,830,000). Based on this exposure, had the
Australian dollar weakened or strengthened by 10% against these foreign
currencies with all other variables held constant, the Group's profit before
tax for the year would have increased and decreased respectively by $9,296,000
(2022 restated: $2,283,000). The percentage change is the expected overall
volatility of the significant currencies, which is based on management's
assessment of reasonable possible fluctuations taking into consideration
movements over the last 12 months. The actual realised foreign exchange loss
for the year ended 30 June 2023 was $2,892,000 (2022: loss of $100,000). The
movement in the foreign currency translation reserve for the year ended 30
June 2023 was a gain of $2,187,000 (2022 restated: loss $2,103,000). The
restatement of litigation funding agreements and third-party interest in
consolidated entities as financial instruments under AASB 9 has resulted in a
material increase in foreign currency risk than in previous years however the
value is predominately unrealised.
Foreign exchange risk arises mainly from litigation funding assets and
borrowings which are denominated in a currency that is not the functional
currency in which they are measured. The risk is monitored using sensitivity
analysis and cash flow forecasting. The Group's contract cost assets are not
hedged as those currency positions are considered to be long term in nature.
Interest rate risk
Aside from the litigation funding agreements at fair value, the Group's main
interest rate risk arises from interest on cash at bank.
An official increase/decrease in interest rates of 50 (2022: 50) basis points
would have a favourable/adverse effect on profit before tax of $522,000 (2022:
$250,000) per annum. The percentage change is based on the expected volatility
of interest rates using market data and analysts forecasts.
Credit risk
Credit risk refers to the risk that on becoming contractually entitled to a
settlement or award a defendant will default on its contractual obligation to
pay resulting in financial loss to the Group. The Group assesses the
defendants in the matters funded by the Group prior to entering into any
agreement to provide funding and continues this assessment during the course
of funding. Whenever possible the Group ensures that security for settlements
sums is provided, or the settlements funds are placed into solicitors' trust
accounts. However, the Group's continual monitoring of the defendants'
financial capacity mitigates this risk.
The maximum credit risk exposure represented by cash, cash equivalents, trade
and other receivables, due from resolution of financial assets and financial
assets at fair value through profit or loss is specified in the consolidated
statements of financial position. The exposure for financial assets held at
amortised cost is the carrying amount, net of any provisions for impairment of
those assets, which includes cash, cash equivalents and trade and other
receivables. The Group does not hold any collateral.
To mitigate credit risk on cash and cash equivalents, the Group holds cash
with Australian and American financial institutions with at least an AA-
credit rating.
The Group applies the simplified approach to recognise impairment on
settlement and receivable balances based on the lifetime expected credit loss
at each reporting date. The Group reviews the lifetime expected credit loss
rate based on historical collection performance, the specific provisions of
any settlement agreement, assessments of recoverability during the due
diligence process and a forward-looking assessment of macro-economic factors
however note that the Group's operations are generally uncorrelated to market
conditions and therefore has little to no impact on the recoverability of the
Group's financial assets.
Financial assets are generally considered to be in default when amounts are
more than 90 days past due or if sufficient indicators exist that the debtor
is unlikely to pay. Generally, trade receivables are written off when there is
no reasonable expectation of recovery. Indicators of this include the failure
of a debtor to engage in a repayment plan, no active enforcement activity and
a failure to make contractual payments for a period greater than 1 year.
Liquidity risk
Vigilant liquidity risk management requires the Group to maintain sufficient
liquid assets (mainly cash and cash equivalents) to be able to pay debts as
and when they become due and payable.
The Group manages liquidity risk by maintaining adequate cash reserves and by
continuously monitoring actual and forecast cash flows and matching the
maturity profiles of financial assets and liabilities.
Remaining contractual maturities
The maturity profile of the Group's financial liabilities based on contractual
maturity on an undiscounted basis are:
Less than 1 year Between 1 and 5 years Over 5 years No contractual maturity date Remaining contractual maturities
Consolidated - 2023 $'000 $'000 $'000 $'000 $'000
Non-derivatives
Non-interest bearing
Trade payables 7,001 - - - 7,001
Other payables 241 - - - 241
Borrowings - current - - - 0
Borrowings 9,320 75,988 - 85,308
Third-party interest in consolidated entities - - - 243,990 243,990
Total non-derivatives 16,562 75,988 - 243,990 336,540
Restated
Less than 1 year Between 1 and 5 years Over 5 years No contractual maturity date Remaining contractual maturities
Consolidated - 2023 $'000 $'000 $'000 $'000 $'000
Non-derivatives
Non-interest bearing
Trade payables 12,562 - - - 12,562
Other payables 190 - - - 190
Borrowings 21,047 74,414 - - 95,461
Third-party interest in consolidated entities - - - 142,180 142,180
Total non-derivatives 33,799 74,414 - 142,180 250,393
20. Fair value measurement
The fair value measurements used for all assets and liabilities held by the
Group listed below are level 3:
Consolidated
Assets 2023 2022
Litigation funding assets $'000 $'000
APAC 158,836 82,203
EMEA 232,574 214,777
Total Level 3 assets 391,410 296,980
Liabilities
Financial liabilities related to third-party interests in consolidated 243,990 142,180
entities
Total Level 3 liabilities 243,990 142,180
Refer note 11 for movements in level 3 assets. There were no transfers into or
out of level 3 during the periods ended 30 June 2023 or 30 June 2022.
Sensitivity of Level 3 Valuations
The key risk and sensitivity across all of the litigation funding agreement
assets ('LFA assets') relates to the underlying litigation associated with
each case that is underwritten and financed. The sensitivity to this Level 3
input is therefore considered to be similar across the different types of LFA
assets and is expressed as a portfolio-wide stress.
he Group implemented a new valuation methodology for LFA assets during the
year ended 30 June 2023. LFA assets are fair valued using an income approach
which is the technique adopted for LFA Assets. Under the income approach,
future cash flows associated with; cash out flows, including investments and
deployments, and cash inflows such as settlements or resolutions, are
converted to a single current (discounted) amount, reflecting current market
expectations about those future amounts. That is, the amount that could
reasonably be expected to be paid to acquire the asset at that point in time.
In developing our framework we also looked to Industry peers for alignment in
methodology, the benefit being that adopting a similar methodology provides a
level of comparability. Similar to industry peers, the framework developed
applied probabilities based on observable milestones for each investment
within the portfolio as well as making informed assumptions around inputs such
as discount rates, timing and risk factors, all of which are considered Level
3 inputs. In cases where cash flows are denominated in a foreign currency,
forecasts are developed in the applicable foreign currency and translated to
AUD dollars.
A Discounted Cash Flow approach is then applied to each underlying investment
on an individual basis to arrive at a net present value of the future expected
cash flows.
The cash flow forecast is updated each reporting period, based on the best
available information on progress of the underlying matter at the time. These
objective events could include, among others:
- stage of the investment
- ongoing developments
- progress
- recovery or sovereign risk
- legal team expertise
- other factors impacting the expected outcome
Each reporting period, the updated risk-adjusted cash flow forecast is then
discounted at the then current discount rate to measure fair value. The
discount rate includes an applicable risk-free rate and credit spread to
incorporate both market and idiosyncratic asset-class risk.
The Group's fair value policy provides for ranges of percentages to be applied
against the risk adjustment factor to more than 159 discrete objective
litigation events. The tables below set forth each of the key unobservable
inputs used to value the Group's LFA assets and the applicable ranges and
weighted average by relative fair value for such inputs.
2023
Item Valuation technique Unobservable Input Min Max Weighted Ave
Litigation funding asset Discounted cash flow Discount rate 12.80% 12.80% 12.80%
Duration (years) 0.42 4.00 2.94
Adjusted risk premium 0% 80% 37%
Significant ruling or other objective event prior to trial court judgment 5% 50% 50%
Trial court judgment or tribunal award 25% 80% 2%
Appeal judgment 65% 85% 23%
Settlement 70% 85% 11%
Enforcement 75% 85% 80%
Other 0% 45% 16%
2022
Item Valuation technique Unobservable Input Min Max Weighted Ave
Litigation funding asset Discounted cash flow Discount rate 9.80% 9.80% 9.80%
Duration (years) 0.42 4.00 2.63
Adjusted risk premium 0% 80% 31%
Significant ruling or other objective event prior to trial court judgment 5% 50% 58%
Trial court judgment or tribunal award 25% 80% 12%
Appeal judgment 65% 85% 0%
Settlement 70% 85% 0%
Enforcement 75% 85% 80%
Other 0% 45% 17%
At each reporting period, the Group reviews the fair value of each litigation
funding asset in connection with the preparation of the consolidated financial
statements. A fair value of 10% higher or lower, while all other variables
remain constant, in financial assets at fair value through profit or loss
would have increased or decreased the Group's income and net assets by
$39,141,000 as at 30 June 2023 (2022 restated: $29,698,000, 1 July 2021
restated: $17,684,000). Similarly, a fair value of 10% higher or lower, while
all other variables remain constant, in financial liabilities at fair value
through profit or loss would have increased or decreased the Group's income
and net assets by $24,399,000 as at 30 June 2023 (2022 restated: $14,218,000,
1 July 2021 restated: $6,287,000).
At 30 June 2023, should interest rates have been 50 bps or 100 bps higher or
lower than the actual interest rates used in the fair value estimation, while
all other variables remained constant, consolidated income and net assets
would have increased and decreased by the following amounts:
30-Jun-23
Hypothetical Change $'000
100bps lower interest rates 2,182
50bps lower interest rates 1,084
100bps higher interest rates (2,126)
50bps higher interest rates (1,070)
Reasonably possible alternative assumptions
The determination of fair value for litigation funding assets involves
significant judgements and estimates. While the potential range of outcomes
for the assets is wide, the Group's fair value estimation is its best
assessment of the current fair value of each asset, as applicable. Such
estimate is inherently subjective, being based largely on an assessment of how
individual events have changed the possible outcomes of the asset, as
applicable, and their relative probabilities and hence the extent to which the
fair value has altered. The aggregate of the fair values selected falls within
a wide range of reasonably possible estimates. In the Group's opinion, there
is no useful alternative valuation that would better quantify the market risk
inherent in the portfolio and there are no inputs or variables to which the
values of the assets are correlated other than interest rates which impact the
discount rates applied.
21. Key management personnel disclosures
Compensation
The aggregate compensation made to Directors and other members of key
management personnel of the Group is set out below:
Consolidated
2023 2022
$ $
Short-term employee benefits 2,188,144 2,279,794
Post-employment benefits 59,611 57,615
Long-term benefits 13,145 63,210
Share-based payments 375,014 257,129
2,635,914 2,657,748
Details of the remuneration of key management personnel of the Group are set
out in the following tables.
Cash salaries and fees Bonus Benefits Accrued leave Superannuation/Pension Long service leave Share-based payments Total
2023 $ $ $ $ $ $ $ $
Non-executive Directors
Dr David King 100,000 - - - 10,500 - - 110,500
Jonathan Moulds 178,586 - - - - - - 178,586
Gerhard Seebacher 111,357 - - - - - - 111,357
389,943 - - - 10,500 - - 400,443
Executive Directors
Patrick Moloney 1,071,517 118,249 5,709 (29,023) - 13,146 252,293 1,431,891
Mary Gangemi 491,112 140,637 - - 49,111 - 122,721 803,581
1,562,629 258,886 5,709 (29,023) 49,111 13,146 375,014 2,235,472
1,952,572 258,886 5,709 (29,023) 59,611 13,146 375,014 2,635,915
Cash salaries and fees Bonus Benefits Accrued leave Superannuation/Pension Long service leave Share-based payments Total
2022 $ $ $ $ $ $ $ $
Non-executive Directors
Dr David King 100,000 - - - 10,000 - - 110,000
Jonathan Moulds 183,319 - - - - - - 183,319
Gerhard Seebacher 103,488 - - - - - - 103,488
386,807 - - - 10,000 - - 396,807
Executive Directors
Nick Rowles-Davies 513,294 - 3,701 - 1,211 - - 518,206
Patrick Moloney 998,817 - - 187,678 27,500 63,210 241,583 1,518,788
Mary Gangemi 189,048 - 449 - 18,904 - 15,546 223,947
1,701,159 - 4,150 187,678 47,615 63,210 257,129 2,260,941
2,087,966 - 4,150 187,678 57,615 63,210 257,129 2,657,748
Directors' share options
The details of options over ordinary shares in the Company held during the
financial year by each Director is set out below:
Balance at Expired/ Balance at
Exercise the start of forfeited/ the end of
Director Grant date Expiry date price the year Granted Exercised other the year
Patrick Moloney(2) 19/11/2018 25/11/2028 $0.47 1,595,058 - - - 1,595,058
Patrick Moloney(2) 04/12/2017 04/12/2027 $0.60 1,000,000 - - - 1,000,000
Patrick Moloney(2) 04/12/2017 04/12/2027 $0.60 1,000,000 - - - 1,000,000
Patrick Moloney(2) 01/11/2019 01/11/2029 £0.7394 1,166,400 - - - 1,166,400
Patrick Moloney(2) 13/10/2020 13/10/2030 £0.6655 291,597 - - - 291,597
Patrick Moloney(2) 27/10/2021 27/10/2031 £1.06 279,232 - - - 279,232
Patrick Moloney(1,2) 27/10/2021 27/10/2031 £1.06 900,000 - - - 900,000
Mary Gangemi(2) 27/10/2021 27/10/2031 £1.06 93,585 - - - 93,585
Mary Gangemi(2) 27/10/2021 27/10/2031 £1.14 26,315 - - - 26,315
Patrick Moloney(2) 07/10/2022 07/10/2032 £0.00 - 169,276 - - 169,276
Patrick Moloney(2) 07/10/2022 07/10/2032 £0.00 - 3,303,796 - - 3,303,796
Mary Gangemi(2) 07/10/2022 07/10/2032 £0.00 - 201,325 - - 201,325
Mary Gangemi(2) 07/10/2022 07/10/2032 £0.00 - 1,266,455 - - 1,266,455
6,352,187 4,940,852 - - 11,293,039
(1) On 27 October 2021, Patrick Moloney exercised 900,000 unlisted options at
an exercise price of A$1.00 which were granted under the Employee share option
scheme. Upon exercise, the Group issued 900,000 new ordinary shares in the
capital of the Group to Patrick Moloney which have been granted under the Loan
Share Plan with the sole purpose to fund the exercise price of the 900,000
unlisted options
(2) Outstanding share options as disclosed in Note 28
Directors' interests
The number of shares in the Company held at the end of the financial year by
each Director is set out below:
30 June 2023 30 June 2022
Name of the Director Description of shares Number Number
Jonathan Moulds Fully paid ordinary shares 5,250,000 2,080,000
Dr David King Fully paid ordinary shares 1,951,484 1,951,484
Patrick Moloney Fully paid ordinary shares 4,204,813 3,970,971
Patrick Moloney Unlisted partly paid shares 1,433,022 1,433,022(1)
Gerhard Seebacher N/A - -
Mary Gangemi Fully paid ordinary shares 27,500 27,500(2)
(1) Unlisted partly paid shares in the Company were issued at a price of $0.17
per share, wholly unpaid and will convert to a share upon payment to the
Company of $0.17 per share. Further details provided in Note 16 to the
financial statements.
(2) Directorship commenced effective 14 February 2022.
No changes took place in the interest of the directors between 30 June 2023
and 19 September 2023.
22. Remuneration of auditors
During the financial year the following fees were paid or payable for services
provided by BDO Audit Pty Ltd, the auditor of the Company, and its network
firms:
Consolidated
2023 2022
$ $
Audit Services - BDO Audit Pty Ltd
Audit or review of financial report 149,700 112,500
149,700 112,500
Audit Services - Firms related to BDO Audit Pty Ltd
Audit of statutory report of controlled entities 124,113 93,554
124,113 93,554
Audit Services - Unrelated Firms
Audit of statutory report of controlled entities 27,904 2,750
27,904 2,750
23 Contingent liabilities
The majority of the Group's funding agreements contain a contractual indemnity
from the Group to the funded party that the Group will pay adverse costs
awarded to the successful party in respect of costs incurred during the period
of funding, should the client's litigation be unsuccessful. The Group's
position is that for the majority of litigation projects which are subject to
funding, the Group enters insurance arrangements which lessen or eliminate the
impact of such awards and therefore any adverse costs order exposure.
24. Parent entity information
Set out below is the supplementary information about the parent entity.
Consolidated
2023 2022
Statement of profit or loss and other comprehensive income $'000 $'000
Profit/(loss) after income tax 943 (256)
Total comprehensive income 943 (256)
Statement of financial position
Total current assets - -
Total assets 70,274 68,404
Total current liabilities - -
Total liabilities - -
Equity
Issued capital 69,674 69,674
Share based payments reserve 2,440 1,573
Retained profits (1,840) (2,843)
Total equity 70,274 68,404
Guarantees entered into by the parent entity in relation to the debts of its
subsidiaries
Litigation Capital Management Limited (as holding entity), LCM Operations Pty
Ltd, LCM Litigation Fund Pty Ltd, LCM Corporate Services Pty Ltd, LCM
Recoveries Pty Ltd, LCM Funding Pty Ltd, LCM Singapore Pty Ltd, LCM Funding SG
Pty Ltd and LCM Group Holdings Pty Ltd are parties to a deed of cross
guarantee under which each company guarantees the debts of the others. The
specified subsidiaries represent a 'closed group' for the purposes of the
guarantee, and as there are no other parties to the Deed that are controlled
by the Group, they also represent the 'extended closed group'.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June 2023 and 30 June
2022.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment
as at 30 June 2023 and 30 June 2022.
Significant accounting policies
The accounting policies of the parent entity are consistent with those of the
Group, as disclosed in note 2, except for the following:
· Investments in subsidiaries are accounted for at cost, less any
impairment, in the parent entity.
· Dividends received from subsidiaries are recognised as other
income by the parent entity and its receipt may be an indicator of an
impairment of the investment.
25. Interests in subsidiaries
The consolidated financial statements incorporate the assets, liabilities and
results of the following subsidiaries in accordance with the accounting policy
described in note 2:
Principal place of business / Ownership Interest
Country of incorporation
2023 2022
Name % %
LCM Litigation Fund Pty Ltd Australia 100% 100%
LCM Operations Pty Ltd Australia 100% 100%
LCM Corporate Services Pty Ltd Australia 100% 100%
LCM Singapore Pty Ltd Australia 100% 100%
LCM Recoveries Pty Ltd Australia 100% 100%
LCM Advisory Limited Australia 100% 100%
LCM Funding Pty Ltd Australia 100% 100%
LCM Funding SG Pty Ltd Australia 100% 100%
LCM Corporate Services Pte. Ltd. Singapore 100% 100%
LCM Operations UK Limited United Kingdom 100% 100%
LCM Corporate Services UK Limited United Kingdom 100% 100%
LCM Recoveries UK Limited United Kingdom 100% 100%
LCM Funding UK Limited United Kingdom 100% 100%
LCM Group Holdings Pty Ltd Australia 100% 100%
LCM Global Alternative Returns Fund
LCM Global Alternative Returns Fund GP Limited Jersey 100% 100%
LCM Global Alternative Returns Fund (Special Partner) LP Jersey 100% 100%
LCM Global Alternative Returns Fund II(1)
LCM Global Alternative Returns Fund II GP Limited Jersey 100% 100%
LCM Global Alternative Returns Fund II (Special Partner) LP Jersey 100% 100%
( )
(1) The Group launched the LCM Global Alternative Returns Fund II ("Fund II")
on 14 October 2021. The Fund comprises two partnerships, the LCM Global
Alternative Returns Fund II LP and the LCM Global Alternative Returns Feeder
Fund II LP. The partnerships are between the LCM Global Alternative Returns
Fund II GP Limited, LCM Global Alternative Returns Fund II (Special Partner)
LP (which are both 100% owned by the Group as reflected within this note), and
fund investors ie, third party interests. The Group is deemed to control the
Fund from an accounting perspective on the basis that the Group has exposure,
or rights, to variable returns from its involvement with the Fund. As a
result, the LCM Global Alternative Returns Fund II entities have been
consolidated into the Group. Further information disclosed in note 26.
26. Third-party interests in consolidated entities
AASB requires the Group to consolidate fund investment vehicles over which it
has exposure to variable returns from the fund investment vehicles. As a
result, third party interests in relation to the Funds have been consolidated
in the financial statements.
As at 30 June 2023, the financial liability due to third-party interests is
$243,990,000 (2022 restated: $142,180,000), recorded at fair value as
represented per Note 3. Amounts included in the consolidated statement of
financial position represent the fair value of the third-party interests in
the related financial assets and the amounts included in the consolidated
statement of profit or loss and other comprehensive income represent the
third-party share of any gain or loss during the period. Third-party interests
exclude the 25% co-investment made by Litigation Capital Management Limited
and its wholly owned subsidiaries ("LCM"). The third-party interests in the
Funds carry an entitlement to receive an 8% soft return hurdle. Upon
satisfaction of the third-party interests soft return hurdle, LCM is entitled
to performance fees as fund manager on the basis of a deal by deal waterfall.
The residual net cash flows are to be distributed 25% to LCM and 75% to the
third-party interests until a IRR of 20% is achieved by the third-party
interests, thereafter the net residual cash flows are distributed 35% to LCM
and 65% to the third-party interests.
The following tables reflect the impact of consolidating the results of the
Funds with the results for LCM to arrive at the totals reported in the
consolidated statement of comprehensive income and consolidated statement of
financial position. The Fund column in the table below presents the interests
of third-party investors comprising both the investment in the litigation
funding assets made on their behalf and costs of administering the funds.
The LCM column includes the 25% co-investment in these litigation contracts.
Restated
2023 2022
Consolidated Statement of Comprehensive Income LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Income
Gain on financial assets at fair value through profit or loss 67,684 117,051 184,735 64,811 39,041 103,852
Movement in financial liabilities related to third-party interests in - (111,953) (111,953) - (36,672) (36,672)
consolidated entities
Total income 67,684 5,098 72,782 64,811 2,369 67,180
Other income 18 - 18 - - -
Interest income 49 129 178 1 - 1
Expenses
Employee benefits expense (9,474) - (9,474) (8,841) - (8,841)
Depreciation expense (166) - (166) (65) - (65)
Corporate expenses (4,220) - (4,220) (3,499) - (3,499)
Finance costs (8,124) (144) (8,268) (4,703) (334) (5,037)
Fund administration expense (1,850) (1,178) (3,028) (1,853) (1,765) (3,618)
Foreign currency (gains)/losses (1,176) (3,905) (5,081) (100) (270) (370)
Total expenses (25,010) (5,227) (30,237) (19,061) (2,369) (21,430)
Profit before income tax expense 42,741 - 42,741 45,751 - 45,751
Analysed as:
Adjusted operating profit 53,885 - 53,885 53,916 - 53,916
Non-operating expenses (3,020) - (3,020) (3,462) - (3,462)
Finance costs (8,124) - (8,124) (4,703) - (4,703)
Profit before income tax expense 42,741 - 42,741 45,751 - 45,751
Income tax expense (11,256) - (11,256) (11,141) - (11,141)
Profit after income tax expense 31,485 - 31,485 34,610 - 34,610
Other comprehensive income for the year, net of tax 2,187 - 2,187 (2,103) (2,103)
Total comprehensive income for the period 33,672 - 33,672 32,507 - 32,507
Restated
2023 2022
Consolidated statement of financial position LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Assets
Cash and cash equivalents 82,973 21,484 104,457 29,253 20,711 49,964
Trade & other receivables 2,209 - 2,209 2,298 - 2,298
Due from resolution of financial assets 11,873 - 11,873 24,340 - 24,340
Financial assets at fair value through profit or loss 165,768 225,642 391,410 154,577 142,403 296,980
Contract costs 37,277 - 37,277 31,782 - 31,782
Property, plant and equipment 211 - 211 182 - 182
Intangible assets 356 - 356 646 - 646
Other assets 1,032 78 1,110 1,489 (623) 866
Total assets 301,699 247,204 548,903 244,567 162,491 407,058
Liabilities
Trade and other payables 4,321 3,214 7,535 7,023 5,817 12,840
Tax payable 7,769 - 7,769 68 68
Employee Benefits 906 - 906 927 - 927
Borrowings 68,976 - 68,976 54,915 14,494 69,409
Third-party interests in consolidated entities - 243,990 243,990 142,180 142,180
Deferred tax liability 36,259 - 36,259 32,704 - 32,704
Total liabilities 118,231 247,204 365,435 95,637 162,491 258,128
Net assets 183,468 - 183,468 148,930 - 148,930
A financial liability at fair value through the income statement is recognised
in the parent entity in relation to the transactions entered into with certain
Fund structures to support the financing of LFAs. These arrangements fail the
derecognition principles in IFRS 9 and represents the net share of the overall
LFA at fair value apportioned to the Funds.
Restated
2023 2022
Consolidated Statement of Cash Flows LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Cash flows from operating activities
Profit/(loss) after income tax expense for the year 31,485 - 31,485 34,610 - 34,610
Adjustments for:
Fair value adjustments to financial assets (67,684) (5,098) (72,782) (64,811) (2,369) (67,180)
Depreciation and amortisation of intangibles 166 - 166 65 219 284
Share-based payments 867 - 867 256 - 256
Finance costs reclassified to financing activities 8,124 144 8,268 4,704 334 5,038
Income tax expense 11,256 - 11,256 11,141 - 11,141
Exceptional items 1,200 - 1,200 800 - 800
Foreign exchange rate movements 7,094 4,507 11,601 586 (68) 518
Change in operating assets and liabilities:
(Funding) of financial assets (30,756) (58,293) (89,049) (26,675) (38,464) (65,139)
Proceeds from resolution of financial assets 96,815 95,808 192,623 26,585 207 26,792
Decrease/(increase) in trade and other receivables (89) - (89) 56 - 56
(Increase) in contract costs - litigation contracts (5,494) - (5,494) (3,150) - (3,150)
(Decrease)/Increase in trade and other payables (2,702) (2,603) (5,305) (923) 1,439 516
(Decrease)/Increase in employee benefits (21) - (21) 327 - 327
Increase/(decrease) in tax payable (139) - (139) (85) - (85)
Net cash from/(used in) operating activities 50,121 34,465 84,587 (16,514) (38,702) (55,217)
Cash flows from investing activities
Payments for property, plant and equipment (90) - (90) (38) - (38)
Payments for intangibles (57) - (57) (278) - (278)
Payments of security deposits (51) - (51) (19) - (19)
Net cash used in investing activities (198) - (198) (335) - (335)
Cash flows from financing activities
Proceeds from issue of shares - - - 770 - 770
Dividends paid - - - -
Proceeds from borrowings 9,636 - 9,636 13,298 - 13,298
Repayments of borrowings - (14,848) (14,848) - - -
Payments of finance costs (6,039) (132) (6,171) (4,127) (511) (4,638)
Payments of transaction costs related to third-party interests (1,832) - (1,832) (1,853) - (1,853)
Contributions from third-party interests in consolidated entities - 74,980 74,980 - 45,465 45,465
Distributions to third-party interests in consolidated entities (94,373) (94,373) (406) (406)
Payments for fund establishment & administration costs - - - - (779) (779)
Net cash (used in)/from financing activities 1,766 (34,372) (32,608) 8,088 43,770 51,857
Net increase/(decrease) in cash and cash equivalents 51,689 92 51,781 (8,761) 5,068 (3,693)
Cash and cash equivalents at the beginning of the financial year 29,253 20,711 49,964 35,526 14,210 49,736
Effects of exchange rate changes on cash and cash equivalents 2,031 681 2,712 2,488 1,433 3,921
Cash and cash equivalents at the end of the financial year 82,973 21,484 104,457 29,253 20,711 49,964
27. Earnings per share
Consolidated
Restated
2023 2022
$'000 $'000
Profit after income tax 31,485 34,610
Profit after income tax attributable to the owners of Litigation Capital 31,485 34,610
Management Limited
Number Number
Weighted average number of ordinary shares used in calculating basic earnings 106,613,927 106,015,738
per share
Adjustments for calculation of diluted earnings per share:
Amounts uncalled on partly paid shares and calls in arrears 1,252,018 1,229,103
Options over ordinary shares 3,257,392 2,140,866
Weighted average number of ordinary shares used in calculating diluted 111,123,337 109,385,707
earnings per share
Cents Cents
Basic earnings per share 29.53 32.65
Diluted earnings per share 28.33 31.64
Dilutive potential shares which are contingently issuable are only included in
the calculation of diluted earnings per share where the conditions are met.
28. Share-based payments
The share-based payment expense for the year was $867,000 (2022: $256,000).
Loan Funded Share Plans ('LSP')
As detailed in note 16, the Group has an equity scheme pursuant to which
certain employees may access a LSP. The shares under LSP are issued at the
exercise price by granting a limited recourse loan. The LSP shares are
restricted until the loan is repaid. Options under this scheme can be granted
without an underlying LSP share until they have been exercised and on this
basis, do not form part of the Group's issued share capital. The underlying
options have been accounted for as a share-based payments. The options are
issued over a 1-3 year vesting period. Vesting conditions include satisfaction
of customary continuous employment with the Group and may include a share
price hurdle.
During the year the Group granted nil (2022: 1,912,489) shares under the LSP.
Set out below are summaries of shares/options granted under the LSP:
2023
Grant date Expiry date Exercise Balance at the start of the year Granted Exercised Expired/ Balance at the end of the year
Price forfeited/
other
04/12/2017 04/12/2027 $0.60 2,000,000 2,000,000
31/08/2018 31/08/2028 $0.77 411,972 411,972
19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058
03/12/2018 03/12/2028 $0.89 100,000 100,000
01/11/2019 01/11/2029 £0.7394 1,432,753 1,432,753
01/11/2019 01/11/2029 £0.7730 66,137 (66,137) 0
13/10/2020 13/10/2030 £0.6655 616,520 616,520
27/10/2021 27/10/2031 £1.06 1,512,638 1,512,638
27/10/2021 27/10/2031 £1.06 269,044 (170,007) 99,037(1)
27/10/2021 27/10/2031 £1.14 130,807 (8,377) 122,430(1)
8,134,929 - - (244,521) 7,890,408
Weighted average exercise price $1.059 $0.000 $0.000 $1.386 $1.049
2022
Grant date Expiry date Exercise Balance at the start of the year Granted Exercised Expired/ Balance at the end of the year
Price forfeited/
other
04/12/2017 04/12/2027 $0.60 2,000,000 2,000,000
31/08/2018 31/08/2028 $0.77 411,972 411,972
19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058
03/12/2018 03/12/2028 $0.89 100,000 100,000
06/03/2019 06/03/2029 £0.5200 4,528,664 (4,528,664) -(1)
01/11/2019 01/11/2029 £0.7394 1,432,753 1,432,753
01/11/2019 01/11/2029 £0.7730 66,137 66,137
04/11/2019 04/11/2029 £0.7394 388,800 (388,800) -(1)
13/10/2020 13/10/2030 £0.6655 616,520 616,520
27/10/2021 27/10/2031 £1.06 - 1,512,638 1,512,638
27/10/2021 27/10/2031 £1.06 - 269,044 269,044(2)
27/10/2021 27/10/2031 £1.14 - 130,807 130,807(2)
11,139,904 1,912,489 - (4,917,464) 8,134,929
Weighted average exercise price $0.885 $1.953 $0.000 $0.985 $1.091
(1) As announced on 17 December 2021, the employment of a former Executive
Director was terminated and his performance related shareholding did not vest.
That benefit comprised 4,917,464 shares held through the Group's Joint Share
Ownership Plan ("JSOP").
These JSOP awards are held by the LCM Employee Benefit Trust, and were due to
vest 19 December 2021 subject to continued employment and performance
conditions including a share price target of 175 pence being achieved at any
time during the vesting period. The JSOP award was subject to malus and
clawback provisions. Although the JSOP awards did not vest by reason of the
termination of employment for cause, the awards had not vested at the date of
termination due to the share price of LCM not trading at 175 pence at any
point during the vesting period.
The awards remain held by the Group in the LCM Employee Benefit Trust.
(2) Options granted without an underlying LSP share until exercised ie, do not
form part of the Group's issued share capital
There were 6,869,211 options vested and exercisable as at 30 June 2023 (2022:
6,318,671).
The weighted average remaining contractual life of options under LSP
outstanding at the end of the financial year was 1.01 years (2022: 0.92
years).
Deferred Bonus Share Plan ('DBSP')
The Company has in place a DBSP. Options granted under the DBSP reflect past
performance and are in the form of nil cost options and will vest in three
equal tranches from the date of issue and are subject to continued employment
over the three year period.
In addition, the Options granted under the DBSP are subject to malus and
clawback provisions. In the event of a change of control of the Company,
unvested awards will vest to the extent determined by the Board, taking into
account the proportion of the period of time between grant and the normal
vesting date that has elapsed at the date of the relevant event.
During the period the Group granted 1,132,692 (2022: nil) shares under the
DBSP.
Set out below are summaries of options granted under the DBSP:
Grant date Expiry date Exercise Balance at the start of the year Granted Exercised Expired/ Balance at the end of the year
Price forfeited/
other
07/10/2022 07/10/2032 $1.1816 - 1,132,692 - - 1,132,692
- 1,132,692 - - 1,132,692
Weighted average exercise price $0.000 $1.182 $0.000 $0.000 $1.182
There were nil DBSP's vested and exercisable as at 30 June 2023.
The weighted average remaining contractual life of options under DBSP
outstanding at the end of the financial year was 1.265 years.
Executive Long Term Incentive Plan ('LTIP')
The Company has in place an Executive LTIP. Options over ordinary shares in
the capital of the Company ("Ordinary Shares") are issued to recipients under
the LTIP plan. The options set out above have been granted under the LTIP in
the form of nil cost options and are subject to performance conditions which
require the growth of Funds under Management ('FuM') over a five year
performance period. The performance conditions associated with the options are
set out below:
(1) 50% vesting on reaching a minimum of FuM of US$750m; and
(2) 100% vesting on reaching FuM of US$1bn.
The vesting date of options granted is the later of:
(1) the third anniversary of the Grant Date;
(2) the satisfaction of the Performance Condition; or
(3) the date of any adjustment under the Plan rules of the Plan at the
Boards discretion.
Any awards made to the participants are subject to a five year holding period
from the grant date. In the event of a change of control of the Company,
unvested awards will vest to the extent determined by the Board, taking into
account the proportion of the period of time between grant and the normal
vesting date that has elapsed at the date of the relevant event and the extent
to which any performance condition has been satisfied at the date of the
relevant event.
During the period the Group granted 5,671,516 (2022: nil) shares under the
LTIP.
Set out below are summaries of shares/options granted under the LTIP:
2023
Grant date Expiry date Exercise Balance at the start of the year Granted Exercised Expired/ Balance at the end of the year
Price forfeited/
other
07/10/2022 07/10/2032 $1.1816 - 5,671,516 - - 5,671,516
- 5,671,516 - - 5,671,516
Weighted average exercise price $0.000 $1.182 $0.000 $0.000 $1.182
There were nil LTIP's vested and exercisable as at 30 June 2023.
The weighted average remaining contractual life of options under DBSP
outstanding at the end of the financial year was 4.266 years.
For the options under LSP granted during the current financial year, the
valuation model inputs used in the Black-Scholes pricing model to determine
the fair value at the grant date, are as follows:
Grant date Expiry date Share price at grant date Exercise price Expected volatility Dividend yield Risk-free interest rate Fair value at grant date(1)
04/10/2022 04/10/2032 £0.73 £0.00 35.00% 0.00% 3.19% $1.287
04/10/2022 04/10/2032 £0.73 £0.00 35.00% 0.00% 3.21% $1.287
(1) AUD amount. GBP equivalent £0.726
The expected volatility reflects the assumption that the historical volatility
over a period similar to the life of the options is indicative of future
trends, which may not necessarily be the actual outcome.
29 Financial liabilities related to third-party interests in consolidated
entities
Reconciliation to balance sheet without FV:
Note that these balances do not include the LCM placement fees anymore - fund
only
2023 2022 2021
$'000 $'000 $'000
Balance 1 July (86,793) (43,725) (14,795)
Cash proceeds - capital contributions from LPs (74,980) (45,060) (29,234)
Cash payments - distributions to LPs 94,373 778 635
Other non-cash items - to reconcile to balance sheet (9,048) 1,214 (331)
(76,447) (86,793) (43,725)
(76,447)
Consolidated
Restated Restated
2023 2022 As at 1 July 2021
$'000 $'000 $'000
Balance 1 July (142,180) (62,870) (43,725)
Proceeds - capital contributions from Limited Partners (74,980) (45,465)
Payments - distributions to Limited Partners 94,373 406
Other non-cash items (9,250) 2,421
Loss on financial liabilities related to third-party interests in (111,953) (36,672) (19,145)
consolidated entities (note 5)
Balance as at 30 June (243,990) (142,180) (62,870)
30. Events after the reporting period
On 4 September 2023, LCM announced the resolution of a class action investment
that forms part of LCM's managed Global Alternative Returns Fund ("Fund I")
and was funded directly from LCM's balance sheet (25%) and Fund I Investors
(75%). As announced previously on 15 May 2023, the class action was brought in
the Federal Court of Australia against the Commonwealth of Australia on behalf
of persons who are alleged to have suffered loss and damage as the result of
the contamination of their land at seven sites around Australia in proximity
to Department of Defence military bases.
The Commonwealth has agreed to pay the sum of AUD$132.7m in order to resolve
the class action. A confidential deed of settlement was executed and has now
been approved by the court, allowing the disbursement of funds, subject to the
unlikely event of appeal.
LCM expects to receive income of approximately A$10.6m. That amount includes
capital invested of approximately A$3.4m together with an expected net gain of
approximately A$7.2m. The Company's final income and gain figures are subject
to change pending final distribution of settlement monies.
DIRECTORS DECLARATION
In the directors' opinion:
- the attached financial statements and notes comply with the Corporations Act
2001, Australian Accounting Standards and other mandatory professional
reporting requirements;
- the attached financial statements and notes comply with International
Financial Reporting Standards as issued by the International Accounting
Standards Board as described in note 2 to the financial statements;
- the attached financial statements and notes give a true and fair view of the
consolidated entity's financial position as at 30 June 2023 and of its
performance for the financial year ended on that date; and
- there are reasonable grounds to believe that the company will be able to pay
its debts as and when they become due and payable.
Signed in accordance with a resolution of directors.
-end-
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