REG - Litigation Cap. Mgmt - Full year audited results for the YE 30 June 2024
17/09/2024 07:00
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RNS Number : 4167E Litigation Capital Management Ltd 17 September 2024
17 September 2024
Litigation Capital Management Limited
("LCM" or the "Company")
Full year audited results for the year ended 30 June 2024
Highlights
• Net realised gains of A$32.2m (FY23: A$51.5m), with concluded case
investments generating a 2.4x multiple of cash invested (MOIC)
• Total income of A$44.7m (FY23: A$67.7m)
• Profit after tax for the period of A$12.7m (FY23: A$31.5m)
• Dividend of 1.25p (FY23: 2.25p)
• Net assets of A$188.9m (FY23: A$183.5m) with cases conservatively valued at
1.9x cash invested
· Book value per share of 94.4 pence (FY23: 90.3 pence)
• Total new commitments of A$279m added in the period (FY23: A$176m)
• Fund I which comprises US$150m of external capital is fully committed and
Fund II which comprises US$291m of external capital is 58% committed
· Share buyback program is 70% complete and remains ongoing
Strategic Update
· The Company is continuing its transition to asset management. Fund III
marketing to commence towards the end of 2024 calendar year
· Preparing a disciplined and staged entry into the US market.
· Acquired the intellectual property of a cutting edge legal finance Big Data/AI
platform. Application of this technology to form part of US market entry and
drive enhanced origination and investment diligence more broadly across the
Company
Commenting on the results, Patrick Moloney, CEO of Litigation Capital
Management, said: "We are pleased to have extended our industry-leading track
record with successful case outcomes over the past 12 months driving our
13-year investment performance to an impressive 2.9x multiple of invested
capital. Our transition from balance sheet funder to high return asset manager
is progressing well, and we are looking forward to engaging with our LP
investor base as we commence marketing for Fund III.
"With our London operations firmly established, having generated realisations
of over £100m at a MOIC exceeding 3x, we are now strategically preparing for
a disciplined and staged entry into the US market. As part of this strategic
initiative, we've recently acquired the IP of a leading legal finance Big
Data/AI platform. We see substantial opportunities to leverage this technology
across our business in an asset class that is ideally suited for such
innovation."
Analyst and investor presentation
There will be a analyst call today at 10:00 am BST. Analysts wishing to attend
should contact lcm@tavistock.co.uk (mailto:lcm@tavistock.co.uk) to register.
The Company will also be hosting a live presentation for all existing and
potential shareholders via the Investor Meet Company at 11:00 am today. 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)
The presentation is open to all existing and potential shareholders. Investors
who already follow LCM on the Investor Meet Company platform will
automatically be invited. Questions can be submitted pre-event via your
Investor Meet Company dashboard up until 9:00 am today or at any time during
the event.
Enquiries
Litigation Capital Management c/o Tavistock
Patrick Moloney, Chief Executive Officer
David Collins, Chief Financial Officer
Canaccord (Nomad and Joint Broker) Tel: 020 7523 8000
Bobbie Hilliam
Andrew Potts
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
David Anderson
Tavistock (PR and IR) Tel: 020 7920 3150
Simon Hudson 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
Dear Shareholders,
As I reflect on another year of strategic progress, I am pleased to report
that Litigation Capital Management (LCM) has continued to execute its
long-term vision with resilience and agility, despite the challenges presented
by the broader macroeconomic environment. Our ability to navigate these
challenges while continuing to deliver solid results underscores the strength
of our diversified approach and the commitment of our team.
One of our core objectives over the past few years has been our transition
towards an asset management model. I am pleased to report that we continue to
make significant strides in this direction. To date, we have raised over
US$440m of third party capital from a number of high quality limited partners
across two funds. As we approach the end of this calendar year, we will begin
marketing for Fund III and with all investors from Fund I participating in
Fund II, we hope to secure a high level of investor continuity once again. We
are partnering with some of the highest quality limited partners and those
investors view our relationship as being for the long-term potentially across
multiple funds. If we are able to continue delivering strong performance and
they continue to support us in future fund raises then I believe the long-term
benefits for shareholders could be substantial.
In line with our growth strategy, we are now preparing to expand into the
United States, by far the largest legal finance market in the world. This
represents a major step for LCM and presents a significant growth opportunity.
The US legal finance market, which is still in a relatively early phase of
development, offers us the potential to tap into a market estimated to be
worth billions of dollars.
Our expansion into the US will be conducted with the same disciplined approach
that has served us so well in our existing markets. Indeed, with our London
office now well established and on a firm footing, we feel that the time is
now right to enter the US. As we have done in our existing territories, we
will seek to establish strategic partnerships with leading law firms and
attorneys and we will continue to focus on high-quality cases that align with
our risk management and return expectations.
As we look to the future, we are also making investments in cutting-edge
technologies as we believe that legal finance is perfectly suited for the
application of Big Data and artificial intelligence (AI) strategies. We have
recently acquired the intellectual property of one of the pioneering platforms
in this space in legal finance and we are working with the founder who built
the business over a 5 year period. We aim to be an early mover in this space
and see a number of opportunities including enhancing our origination
capabilities, better assessing risk, improving case selection, and bolstering
the efficiency of our operations. These investments are not just a step toward
modernization-they represent a strategic edge in a competitive asset class.
This year also saw an important transition in our leadership team. Mary
Gangemi has stepped down from her role as Chief Financial Officer and from the
Board of Directors. On behalf of the Board, I would like to thank Mary for her
contributions to LCM during her tenure and we wish her every success in her
future endeavours.
In line with our commitment to ensuring continuity in leadership and
strengthening our executive team, we announced the appointment of David
Collins as our new Chief Financial Officer. David brings a wealth of
experience in both finance and capital markets, and we are confident that his
experience will be invaluable as we continue to execute our strategic plans.
David's appointment marks an important step in ensuring LCM is well-prepared
for the next phase of its development, including our expansion into new
markets and our ongoing technological advancements.
As we head into the next financial year, I am confident that LCM is
well-positioned to continue its growth trajectory. Our focus on becoming a
leading asset manager in the litigation finance space, our expansion into the
US market, and our investments in advanced technology will drive sustainable
growth and enhance shareholder value.
The Board is pleased to declare a final dividend to shareholders for the
financial year ending 30 June 2024 of 1.25p per share. The dividend will be
paid on 4 December 2024 to shareholders on the register on 1 November 2024,
being the record date. The ordinary shares will be marked ex-dividend on 31
October 2024.
I would like to take this opportunity to thank our dedicated team, whose
expertise and commitment continue to drive our success. I would also like to
extend my gratitude to our shareholders for their continued support and trust
in our vision.
We look forward to updating you on our progress throughout the coming year.
Jonathan Moulds
Non-Executive Chairman
CEO Statement
Over the past year, we have made significant strides in our strategic
transformation from a capital-intensive balance sheet litigation funder to a
capital-light asset manager. Our disciplined investment approach continues to
deliver strong results, with cases concluding during the period generating a
2.4x multiple of invested capital (MOIC), closely aligned with our long-term
average of 2.9x. Additionally, we have delivered record levels of new
commitments in the period, and our two flagship investment funds have
delivered robust performance to date for our fund investors.
Looking ahead, the long-term potential of our strategy to create meaningful
shareholder value is clear. Investment management businesses that generate
high returns on investment and earn significant performance fees rank among
some of the most profitable businesses globally. We are attracting the same
sophisticated limited partners (LPs) who have fuelled the huge successes of
private equity, venture capital, and other alternative asset classes.
Our performance thus far for LPs has been outstanding, with Fund I investors
realising a net IRR of 60% to date after all costs and performance fees paid
to LCM (US$29m to date, including those relating to the recent case conclusion
post period end). This level of performance aligns with our long-term track
record and firmly positions us in the top tier of alternative investment
managers, where a net IRR exceeding 20% is typically considered exceptional. I
am confident that if we continue to scale effectively and consistently meet or
surpass the expectations of our LPs, the potential value creation for our
shareholders could be significant.
Our management team is fully aligned with this vision with substantial
personal shareholdings in the company. I hold a 9% stake, our Chairman,
Jonathan Moulds, who joined in 2019, has independently acquired a 4.5% stake,
and collectively, our small team of 25 owns approximately 17% of the company.
This level of ownership underscores our confidence in LCM's future and aligns
our interests closely with those of our shareholders.
As we move forward, I am focused on three strategic priorities:
1. Successfully completing our transition to asset management;
2. Entering the US market in a disciplined manner;
3. Implementing Big Data / AI strategies to enhance our origination and
underwriting capabilities.
Transition to Asset Management
Since March 2020, we have raised over US$440 million of external capital
across two funds: US$150 million in the LCM Global Alternative Returns Fund
(Fund I); and US$290 million in the LCM Global Alternative Returns Fund II
(Fund II).
For Fund I, we have successfully committed US$150 million across 26 cases,
co-investing alongside our balance sheet on a 75:25 basis. As at the end of
June 2024, six of these cases have concluded, all with positive outcomes,
generating a 2.5x net MOIC for our investors and a net IRR of 60% after costs
and fees. This strong performance enabled us to return around 70% of
investors' capital as at 30 June 2024 while approximately three quarters of
their investments remain active.
Fund II was launched in the second half of 2022 with all Fund I investors
participating alongside new investors. To date, Fund II has committed capital
to 33 matters, continuing our 75:25 co-investment model. As at the end of June
2024, the fund was 58% committed and 7% deployed with no cases concluded to
date.
We plan to commence marketing for Fund III towards the end of this calendar
year and are aiming to secure a high level of investor continuity from our
prior funds as we build long-term, enduring relationships with our high
quality LP investor base.
As our business has scaled, operating expenses as a percentage of committed
capital have declined from 7.8% five years ago to 2.6% in the current period,
a trajectory we expect to continue, ultimately falling to around 2%. This
transition demonstrates our shift to a sustainable asset management model.
Entering the US Market
Since moving to London three years ago, my focus has been on establishing our
presence in the UK market in a disciplined manner. Drawing on our extensive
experience in Australia - the world's oldest litigation funding market - we
have successfully demonstrated that our model can be effectively applied in
other common law jurisdictions.
The performance of our London office has been particularly encouraging, with
over £100 million (cAUD200 million) in proceeds realised for LCM at a MOIC of
over 3x inclusive of losses. Additionally, we have made good progress in
Singapore with one of our larger wins in the period being originated in that
office. While there is still much work to be done, both our UK and Singapore
operations are now firmly established in their respective markets.
Our expansion beyond Australia has enabled us to scale, positioning the
business to capitalize on the long-term potential offered by our transition to
an asset management model. With this growth trajectory in mind, I believe the
time is right to enter the US market - by far the largest disputes market in
the world, exceeding the size of the next largest market (the UK) by more than
tenfold. We have already made a few opportunistic investments in the US from
our London office and we have similarly explored and made investments in the
Canadian market.
The US market is highly attractive for several reasons. Firstly, its sheer
scale. US law firms generate over US$700 billion in revenues, with 20 to 30
per cent of those revenues estimated to come from disputes (litigation and
arbitration). Secondly, US lawyers are accustomed to managing risk, with
contingency fees - where lawyers forego part of their fees in exchange for a
share of the proceeds from successful outcomes - being a widespread practice.
This creates significant opportunities for litigation funders to establish
long-term financing relationships with US law firms, enabling meaningful
capital deployment on attractive terms. Lastly, the US is a data-rich
environment, providing fertile ground for the application of Big Data and
artificial intelligence strategies in a legal market ripe for such innovation.
There is a small number of legal finance businesses that have been successful
in the US and we believe that a market of this magnitude has room for several
more successful players. As one of the oldest and most respected litigation
funders globally, LCM is well-positioned to establish itself as a leading name
in this dynamic market.
Implementing Big Data and AI strategies
In line with our strategic objectives, we have recently completed the
acquisition of the intellectual property of a leading technology platform
specializing in legal analytics. This acquisition, secured for a modest
investment, provides us with a powerful tool to leverage Big Data and
artificial intelligence strategies to significantly enhance both our
origination and underwriting processes.
By integrating this technology into our operations, we aim to sharpen our
ability to assess legal disputes more accurately and efficiently, thereby
improving our decision-making and risk assessment capabilities. This
technology will allow us to better identify promising investment opportunities
and streamline the underwriting process, ensuring that we can scale our
business in a more data-driven and systematic manner.
This acquisition also aligns perfectly with our broader strategy to
differentiate ourselves in the US market-a highly data-rich environment. By
deploying cutting-edge AI and data analytics, we aim to position LCM in a
differentiated way, setting ourselves apart from traditional peers. Our
ability to harness these technological advancements will not only enhance our
core operations but also establish us as a forward-thinking player in the
evolving landscape of legal finance.
Looking ahead, we plan to integrate this technology across our global
operations, ensuring that our expansion is supported by the most sophisticated
tools available. By doing so, we are positioning ourselves at the intersection
of legal finance and technology, which we believe will be key to our long-term
growth and success.
Well-Financed for Long Term Growth
We are close to finalizing a new debt facility that will be of increased size
and lower cost compared to our existing facility. We will provide a full
update to the market when this refinancing has completed.
As communicated with our interim results, we had been exploring the retail
eligible bond market in London as a potential source of debt financing. We
believe that the retail bond market will be attractive to LCM in the longer
term but the prevailing market conditions earlier in our financial year would
have required LCM to lock in long-term debt at high interest rates. Having
already seen a number of central banks begin to cut interest rates we think
the decision to pursue an alternative refinancing was the right thing to do.
Market Developments
Litigation finance gained mainstream attention over the past year,
particularly in light of the scandal involving the sub-postmasters of the
Royal Mail in the UK. This case highlighted the critical role that litigation
finance plays in providing access to justice for plaintiffs who might
otherwise lack the resources to pursue their claims.
Although we did not fund the Royal Mail case, we have numerous examples, both
historical and current, where we have stood up for individuals and smaller
entities in their pursuit of justice.
The main trend that we have seen in the UK over the last twelve months is the
rising number of collective actions being filed in the Competition Appeal
Tribunal (CAT). We have invested in a small number of these cases which carry
large budgets and seek extensive damages. The market for group claims in the
UK is still in its infancy but we expect our experience from the
well-developed Australian market positions us well to understand how
procedures in the CAT may play out over time.
In Australia, the market for class actions remains healthy and competitive.
LCM's close relationships with key law firms as well as its own ability to
originate claims means that the strong pipeline of claims for funding is
likely to continue.
As well as class actions, in Australia LCM is financing insolvency claims and
commercial claims. The insolvency claims we have funded continue to be
smaller but generate healthy returns and we expect that with tightened
economic conditions we will see some larger insolvency claims in the coming
years.
We are also seeing increasing interest for the funding of insolvency claims
both in Singapore and Hong Kong and have positioned our team in Singapore to
take advantage of this opportunity.
LCM funds a broad range of commercial claims across the APAC region and there
are no restrictions on the types of claim we are able to fund. A particular
trend we have noticed in recent times is claims on trade credit insurance made
by trade credit providers whose finance facilities were defaulted on by
commodities traders following the disruption to supply chains during and
following the pandemic. LCM is currently funding four of these claims in the
Australian courts and considering the financing of others in Singapore.
Dividend
The Board has declared a final dividend of 1.25p per share for the financial
year ending 30 June 2024 (FY23: 2.25p). The Board will continue to balance the
opportunities for reinvesting in growth alongside returning capital to
shareholders.
Share Buyback Programme
On 5 October 2023, the Company announced a share buyback programme in respect
of its ordinary shares up to a maximum consideration of A$10.0 million from
the date of the announcement (the "Share Buyback Programme"). The purpose of
the Share Buyback Programme was to reduce the share capital of the Company in
order to return value to shareholders.
To date the Company has purchased 3,681,369 ordinary shares, representing
approximately 3.18 per cent. of the total share capital.
The directors intend to continue with the share buy back programme until the
maximum consideration, as set out in the 5 October 2023 announced, has been
utilised. Accordingly LCM intends to enter into a further irrevocable
non-discretionary instruction with Canaccord Genuity Limited ("Canaccord") on
17 September 2024 in relation to the purchase by Canaccord, acting as
principal during the period commencing on 17 September 2024 and ending upon
the publication of the interim unaudited results of the Company for the six
months ended December 2024, of Ordinary Shares for an aggregate consideration
(excluding expenses) of no greater than A$10.0 million (including those
Ordinary Shares purchased between 5 October 2023 and 17 September 2024) and
the simultaneous on-sale of such Ordinary Shares by Canaccord to LCM, where
they will be held in treasury. Canaccord will make its trading decisions
concerning the timing of the purchases of Ordinary Shares independently of,
and uninfluenced by, the Company.
The Share Buyback Programme will be conducted within certain pre-set
parameters, and in accordance with Chapter 12 of the UK Listing Rules and
the provisions of the Market Abuse Regulation 596/2014/EU as amended by the
Market Abuse (Amendment) (EU Exit) Regulations 2019 ("UK MAR") and the
Commission Delegated Regulation 2016/1052/EU as amended by Technical Standards
(Market Abuse Regulation) (EU Exit) Instrument 2019 which both form part of
the law of the United Kingdom by virtue of the European Union (Withdrawal)
Act 2018. Notwithstanding the average daily volume restrictions set out in
Article 3(3) (b) of the Commission Delegated Regulation (EU) 2016/1052, the
Company may make purchases in excess of these volume restrictions, subject to
prevailing market conditions and liquidity.
Outlook
Looking ahead, we see a significant long-term growth opportunity in the vast
and still underpenetrated global legal finance market. As we continue to
expand our presence, we remain focused on three key strategic priorities:
1. Transitioning to an Asset Management Model: This shift will enable us
to scale our operations and enhance revenue streams, providing a stable
foundation for future growth.
2. Entering the US Market: The US legal disputes market, being the
largest globally, offers tremendous potential. We are confident that our
unique positioning and established expertise will allow us to capitalize on
this opportunity.
3. Leveraging Data and AI to Enhance Origination and Underwriting: By
integrating cutting-edge technology into our processes, we aim to sharpen our
competitive edge, enabling more efficient identification and evaluation of
investment opportunities.
With these priorities in place, we are confident in our ability to drive
sustainable long-term value creation for our shareholders, ensuring that we
remain at the forefront of the legal finance industry.
Patrick Moloney
Chief Executive Officer
Financial Review
Profit and Loss - LCM only (A$m)
FY 2024 FY 2023
Concluded investments - Proceeds on LCM capital $43.3m $59.6m
Concluded investments - Performance fees on 3P capital $12.7m $24.6m
Concluded investments - LCM capital invested ("Cost" ($23.8m) ($32.7m)
Net realised gains from concluded investments $32.2m $51.5m
Fair value movement:
Fair value write-off on concluded investments ($30.9m) ($37.4m)
Net fair value uplift to ongoing investments $43.4m $53.6m
Net fair value movement $12.5m $16.2m
Total income $44.7m $67.7m
Operating expenses ($19.0m) ($15.7m)
FX gains/losses $0.5m ($1.2m)
Operating profit $26.3m $50.8m
Finance costs ($10.2m) ($8.1m)
Profit before tax $16.1m $42.7m
Tax ($3.3m) ($11.3m)
Net income $12.7m $31.4m
Basic EPS (cents) 12.01 29.53
Diluted EPS (cents) 11.33 28.33
2024 Financial Performance
LCM extended its track record of successfully investing in uncorrelated
litigation finance assets during the 2024 financial year. Our investments
concluding in the period generated a 2.4x multiple of invested capital (MOIC)
to LCM, consistent with our long-term track record of 2.7x.
These concluded investments generated net realised gains to LCM of A$32.2
million. These gains are composed of A$19.5 million of profits on investing
our own capital (FY23: A$26.9 million) and A$12.7 million from performance
fees (FY23: A$24.6 million) earned on third party capital.
Our strategic shift towards an asset management model is beginning to yield
significant benefits, as evidenced by the strong performance fees generated in
both the current and prior year. We expect this trend to continue, with the
majority of our current portfolio (45 out of a total of 58) now comprising
cases funded through the asset management model. We have raised two funds to
date with total external funds under management of US$441 million. Both funds
feature performance fees of 25% of profits on third-party capital above an 8%
hurdle rate, increasing to 35% of profits exceeding a 20% return.
The net realised gains from concluded investments of A$32.2 million was
primarily driven by four successful investments, offset by one loss at trial.
The four successful investments generated a combined gross profit of A$42.7
million, reflecting an aggregate MOIC of 4.7x. The loss at trial resulted in a
realised loss of A$8.4 million.
Of the four successful investments, two were funded via our asset management
model, contributing A$12.7 million in performance fees. The net internal rate
of return (IRR) after performance fees to fund investors on these concluded
cases was 46%.
The case that lost at trial was fully funded by our balance sheet. Following a
thorough review of our investment decision in relation to this case, we are
confident that the original decision was sound. However, as with any
investment business, not all investments will succeed. Our long-term track
record underscores the robustness of our investment decision-making process,
and we remain optimistic about our future successes.
The relatively small number of concluded cases driving our 2024 financial
result is consistent with prior years. For instance, in both 2023 and 2022,
three case conclusions in each period accounted for the vast majority of gross
profit. As we continue to grow and fully transition to the asset management
model, we expect the variability in our gross profitability to gradually
diminish over time. Until then, year-on-year comparisons may be less
meaningful, as outcomes will largely depend on the timing and size of case
conclusions. Our primary focus remains on extending our long-term track record
of successful investments.
While our business operates on a cashflow basis, our financial statements are
presented on a fair value basis, providing investors with insight into the
potential value of our ongoing investments, which would otherwise be reported
at the value of the cash invested. Given the unique nature of our investments
and lack of a well-developed secondary market, they cannot be marked to
market. We therefore fair value these assets using a bottom-up case-by-case
approach that builds value based on observable milestones achieved, consistent
with the approach taken by our sector peers.
When a case investment concludes the realised gain in the P&L is
calculated as the gross proceeds due from that investment (including
performance fees) minus the cash that LCM invested. At the same time, the fair
value asset related to that investment is removed from our balance sheet.
For cases concluded in the 2024 financial year, the achieved MOIC of 2.4x
capital invested closely matched the fair value of 2.3x held for those same
assets prior to their conclusion. As a result, the fair value write-off of the
concluded cases of A$30.9 million was similar to the total realised gain of
A$32.2 million. In the prior period, a MOIC of 2.6x was achieved on concluded
cases compared to a fair value of 2.1x, resulting in a realised gain that
comfortably exceeded the fair value write-off.
The net fair value uplift to ongoing cases during the period was A$43.4
million (FY23: A$53.6 million), with ongoing cases on our balance sheet valued
at 1.9x the cumulative cash invested as of the end of the period (FY23: 1.8x).
The combination of the fair value write-off on concluded investments and the
fair value uplift to ongoing investments gives the net fair value impact on
the P&L of A$12.5 million in FY24, which is comparable to the prior year
(FY23: A$16.2 million).
Total income for the period was A$44.7 million, a decrease from the previous
period (FY23: A$67.7 million), primarily due to the larger size of case
conclusions in the 2023 financial year, which was LCM's most successful period
to date.
Operating expenses increased to A$19.0 million, up from A$15.7 million in the
prior year. The increase is mainly attributable to the expansion of our team
as we seek to enhance our origination capabilities across key markets.
Operating profit for the period was A$26.3 million, down from A$50.8 million
in the previous year, reflecting the lower gross profit on concluded case
investments compared to the prior period, as outlined above.
Finance costs rose to A$10.2 million (FY23: A$8.1 million), due to the higher
interest rate environment. We are well advanced in negotiations to refinance
our debt facility and are aiming to lower the interest rate from the 13.0%
rate on the existing facility.
Profit before tax for the period was A$16.1 million (FY23: A$42.7 million)
with a tax charge of A$3.3 million (FY23: A$11.3 million). Going forward, we
expect an effective tax rate of 27.5%, being the average of the UK (25%) and
Australian (30%) corporation tax rates.
The Board has declared a final dividend of 1.25p per share for the financial
year ending 30 June 2024 (FY23: 2.25p). The Board will continue to balance the
opportunities for reinvesting in growth alongside returning capital to
shareholders. The dividend will be paid on 4 December 2024 to shareholders on
the register on 1 November 2024, being the record date. The ordinary shares
will be marked ex-dividend on 31 October 2024.
Balance sheet - LCM only (A$m)
FY 2024 FY 2023
Cash $53.0m $83.0m
Debtors $15.0m $13.9m
Investments at fair value $202.9m $165.8m
Investments held at cost $42.1m $37.3m
Other assets $1.5m $1.7m
Total assets $314.4m $301.7m
Borrowings ($61.9m) ($69.0m)
Tax payable ($0.9m) ($7.8m)
Deferred tax liability ($43.6m) ($36.3m)
Other creditors ($19.1m) ($5.2m)
Total liabilities ($125.5m) ($118.2m)
Net assets $188.9m $183.5m
NAV per share (pence) - Basic 94.4 90.3
NAV per share (pence) - Diluted 89.0 86.6
As of 30 June 2024, LCM was actively invested in 58 ongoing cases (FY23: 53)
with a total balance sheet value of A$245.0 million (FY23: A$203.1 million).
This valuation includes A$42.1 million related to three investments (FY23:
A$37.3 million for four investments) that are held at cost for historic
accounting reasons, and A$202.9 million (FY23: A$165.8 million) attributed to
55 investments (FY23: 49) that are held at fair value.
As previously noted, at the period end our case investments are held at an
aggregate value of 1.9x the cumulative LCM cash invested into those same
cases, a modest increase from the 1.8x multiple at the end of the prior
period. This represents a discount compared to our realised long-term track
record of 2.7x, reflecting our conservative approach to fair value.
It's also worth noting that our long-term track record of 2.7x would translate
to a MOIC over 4.0x for LCM under the asset management model. This reflects
the model's lower capital intensity and high potential for performance fees,
further underscoring the conservative nature of our fair value methodology.
Our cash balance at the period end stood at A$53.0 million (FY23: A$83.0
million), reflecting a robust liquidity position. When offset against
borrowings of A$61.9 million (FY23: A$69.0 million) this results in a net debt
position of A$8.9 million (FY23: net cash of A$14 million).
Debtors, which comprises amounts receivable from successful investments stood
at A$15.0 million (FY23: A$13.9 million). Since the period end, A$11.6 million
of this balance has been collected in cash.
Beyond our borrowings, deferred tax of A$43.6 million (FY23: A$36.3 million)
is the largest liability on our balance sheet. A$29.6 million of this balance
relates to deferred tax on the fair value of our investments and A$16.6
million relates to deductible funding on litigation assets. This tax is
unrealised and will only become payable upon the successful conclusion of the
related cases.
Other assets primarily comprises prepayments and security deposits for leases.
Net assets increased modestly over the 2024 financial year. The net income of
A$14.7 million generated during the period was partially offset by the FY23
dividend payment of A$5.0 million and the cost of shares repurchased of A$5.4
million. The A$10million share buyback program announced with our 2023
financial year results remains ongoing and is expected to complete during the
2025 financial year.
Reflecting the reduced number of shares following the partial completion of
the share buyback, net assets per share increased to 94.4p (FY23: 90.3p).
Cash Flow - LCM only (A$m)
FY 2024 FY 2023
Opening cash balance $83.0m $29.3m
Cash generated from concluded investments $56.7m $96.8m
Cash invested into ongoing cases (case funding) ($39.7m) ($36.3m)
Operating expenses ($17.0m) ($12.1m)
Net finance costs paid ($9.0m) ($6.0m)
Dividend and share buyback ($10.4m) -
Debt repayment ($8.1m) $9.6m
Other ($2.5m) $1.7m
Closing cash balance $53.0m $83.0m
Net debt $8.9m ($14.0m)
During the period, cash generated from concluded investments in the period
amounted to A$56.7 million (FY23: A$96.8 million), inclusive of A$12.7 million
in performance fees (FY23: A$24.6 million).
The cash invested in case funding in the period totalled A$39.7 million (FY23:
A$36.3 million), spread across 65 investments, of which 58 remained ongoing at
the period end.
Operating expenses increased to A$14.8 million (FY23: A$10.3 million)
primarily due to the expansion of the origination team, as previously
outlined.
Net finance costs paid rose to A$9.0 million (FY23: A$6.0 million) driven by
the higher interest rate environment.
Tax paid was A$2.8 million (FY23: A$0.0 million) relating to UK tax paid on
successful case conclusions in the prior financial year.
In our 2024 financial year, we returned A$10.4 million of capital to
shareholders with A$5.0 million distributed as dividends and A$5.4 million
through the share buyback program.
We repaid A$8.1 million of our borrowings during the year (FY23: A$9.6 million
increase in borrowings) to reduce interest costs, reflecting our robust
liquidity position.
At the end of the financial period, we held A$53.0 million in cash (FY23:
A$83.0 million) and had a net debt position of A$8.9 million (FY23: A$14.0
million net cash).
New commitments
New commitments during the period rose significantly to A$279.0m (FY23:
A$176.3m) reflecting our strategic focus on scaling the business. A
substantial portion of this growth was driven by our London office, where we
have invested in a select number of large group claims that are being pursued
through the Competition Appeal Tribunal.
Committed and Invested Capital
As of the end of the period, LCM was actively invested in 58 ongoing case
investments. Among these, 13 were cases fully funded by our balance sheet (of
which three cases comprise the majority of the invested capital, while 45 were
co-funded through our asset management model, where LCM typically funds 25% of
the investment cost.
Committed capital, which represent LCM's share of total commitments across all
active cases net of conclusions and terminations, increased to A$725.0 million
at the period end (FY23: A$484.0 million). Of this amount, A$281.0 million has
already been deployed.
Asset management
Since 2020, we have been transitioning our business model from solely funding
investments through our own balance sheet to operating as an asset manager. In
this capacity, we raise third party capital and invest in new cases with the
funding typically split 25% from our own balance sheet and 75% from our
limited partners (LPs) invested in our funds. This model not only reduces
capital demands on LCM but also provides the potential to earn substantial
performance fees, ranging from 25% to 35% of the gross profits generated for
our LPs above a minimum hurdle level.
To date, we have successfully raised USD441 million in external funds across
two funds: Fund 1 (USD150 million) and Fund II (USD291 million).
Fund I has invested in 26 case investments and was fully committed and 71%
deployed as of 30 June 2024. Six of these 26 cases had concluded by that date,
all with successful outcomes, generating gross proceeds of USD101.9 million on
LP capital of USD29.7 million. After accounting for performance fees of
USD24.9 million paid to LCM, LP investors have achieved a 2.5x MOIC and a net
IRR of 60%.
Fund II has invested into 33 case investments to date, and as of 30 June 2024,
it was 58% committed and 7% deployed. The investments in Fund II are
performing in line with our expectations. None of these investments have yet
concluded.
We anticipate commencing marketing efforts for Fund III towards the end of
this calendar year.
Post period end
Shortly after the period end, we had a successful conclusion in relation to a
bilateral investment treaty claim that was funded 25% by LCM and 75% by Fund I
investors. A total of A$5.9 million was invested in the case generating
revenue of A$29.6 million, equivalent to a 5.0x MOIC on a global basis. LCM's
return was further amplified through performance fees of A$6.1 million,
resulting in a total return of A$13.5 million from a A$1.5 million investment
- a pleasing 9.5x MOIC for LCM shareholders.
We are well advanced on refinancing our debt facility with the objective of
increasing the size and lowering the cost. We will provide an update to the
market at the appropriate time.
Key Performance Indicators
We have changed our Key Performance Indicators this year to better reflect
what management is focused on as we drive the business.
The updated KPIs are chosen to reflect our focus on growing committed capital
(new commitments in the period and cumulative committed capital at the period
end); growing invested capital (invested capital in the period and cumulative
invested capital at the period end); and delivering strong investment
performance via our cumulative long-term MOIC. Furthermore, given the
importance of our transition to the asset management model, external funds
under management remains a KPI.
Consolidated statement of profit or loss and other comprehensive income
For the period ended 30 June 2024
Consolidated
2024 2023
Note $'000 $'000
Income
Gain on financial assets at fair value through profit or loss 5 86,926 184,735
Movement in financial liabilities related to third-party interests in 5 (48,382) (111,953)
consolidated entities
Litigation service revenue 5 12,443 -
Total income 50,987 72,782
Litigation service expense (3,236) -
Gross profit 47,752 72,782
Expenses
Employee benefits expense 6 (11,471) (9,474)
Depreciation expense 6 (145) (166)
Corporate expenses (5,171) (4,220)
Fund administration expense 6 (3,400) (3,010)
Foreign currency gains/(losses) (1,432) (5,081)
Total operating expenses (21,619) (21,951)
Operating profit 26,133 50,831
Finance costs 6 (10,083) (8,090)
Profit before income tax expense 16,050 42,741
Income tax expense 7 (3,335) (11,256)
Profit after income tax expense 12,715 31,485
Other comprehensive income
Items that may be subsequently reclassified to profit and loss:
Movement in foreign currency translation reserve 2,013 2,187
Total comprehensive income for the period 14,728 33,672
Profit for the period is attributable to:
Owners of Litigation Capital Management Limited 12,715 31,485
12,715 31,485
Total comprehensive income for the period is attributable to:
Owners of Litigation Capital Management Limited 14,728 33,672
14,728 33,672
Cents Cents
Basic earnings per share 8 12.01 29.53
Diluted earnings per share 8 11.33 28.33
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
For the period ended 30 June 2024
30-Jun-24 30-Jun-23
Note $'000 $'000
Assets
Cash and cash equivalents 10 68,113 104,457
Trade receivables 11 10,986 2,063
Due from resolution of financial assets 12 3,980 11,873
Contract costs 13 42,072 37,277
Financial assets at fair value through profit or loss 14 465,213 391,410
Property, plant and equipment 157 211
Intangible assets 305 356
Other assets 977 1,256
Total assets 591,803 548,903
Liabilities
Trade and other payables 15 30,376 7,535
Tax payable 883 7,769
Employee benefits 1,112 906
Borrowings 16 61,917 68,976
Financial liabilities related to third-party interests in consolidated 17 264,950 243,990
entities
Deferred tax liability 7 43,624 36,259
Total liabilities 402,862 365,435
Net assets 188,941 183,468
Equity
Issued capital 18 69,674 69,674
Treasury shares 18 (5,396) -
Reserves 4,171 1,042
Retained earnings 120,492 112,753
Parent interest 188,941 183,468
Total equity 188,941 183,468
The above Consolidated Statement of Financial Position should be read in
conjunction with accompanying Notes to the Financial Statements.
Consolidated statement of changes in equity
For the period ended 30 June 2024
Share based Foreign
Issued Treasury Retained payments currency Total
capital shares earnings reserve translation equity
Consolidated $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 July 2022 (restated) 69,674 - 81,268 1,573 (3,585) 148,930
Profit after income tax expense for the period - - 31,485 - - 31,485
Other comprehensive income for the period - - - - 2,187 2,187
Total comprehensive income for the period - - 31,485 - 2,187 33,672
Equity Transactions:
Share-based payments (note 29) - - - 867 - 867
- 867 - 867
Balance at 30 June 2023 69,674 - 112,753 2,440 (1,398) 183,468
Share based Foreign
Issued Treasury Retained payments currency Total
capital shares earnings reserve translation equity
Consolidated $'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 July 2023 69,674 - 112,753 2,440 (1,398) 183,469
Profit after income tax expense for the period - - 12,715 - - 12,715
Other comprehensive income for the period - - - - 2,013 2,013
Total comprehensive income for the period - - 12,715 - 2,013 14,728
Equity Transactions:
Share-based payments (note 29) - - - 1,116 - 1,116
Dividends paid (note 20) - - (4,976) - - (4,976)
Treasury shares acquired (note 18) - (5,396) - - - (5,396)
- (5,396) (4,976) 1,116 - (9,256)
Balance at 30 June 2024 69,674 (5,396) 120,492 3,556 615 188,941
The above Consolidated Statement of Changes in Equity should be read in
conjunction with accompanying Notes to the Financial Statements.
Consolidated statement of cash flows
For the period ended 30 June 2024
Consolidated
2024 2023
Note $'000 $'000
Cash flows from operating activities
Proceeds from litigation contracts 116,636 192,563
Payments for litigation contracts (78,265) (94,543)
Payments to suppliers and employees (16,337) (13,434)
Income tax paid (2,830) -
Net cash from operating activities 9 19,203 84,587
Cash flows from investing activities
Payments for property, plant and equipment (31) (90)
Payments for intangibles (9) (57)
Refund/(payment) of security deposits 8 (51)
Net cash used in investing activities (31) (198)
Cash flows from financing activities
Payments for treasury shares 18 (5,396) -
Dividends paid 20 (4,976) -
Proceeds from borrowings 16 - 9,636
Repayments of borrowings 16 (8,139) (14,848)
Payments of finance costs (8,960) (6,171)
Payments of placement fees related to third-party interests (2,206) (1,832)
Contributions from third-party interests in consolidated entities 17 30,505 74,980
Distributions to third-party interests in consolidated entities 17 (56,407) (94,373)
Net cash (used in) financing activities (55,578) (32,608)
Net increase/(decrease) in cash and cash equivalents (36,405) 51,781
Cash and cash equivalents at the beginning of the period 104,457 49,964
Effects of exchange rate changes on cash and cash equivalents 61 2,712
Cash and cash equivalents at the end of the period 10 68,113 104,457
(1) The Group changed its cash flow presentation from indirect method to
direct method to be in line with market practice and in accordance with how
management from the Group reviews the cashflows of operations. The comparative
information for the year ended 30 June 2023 has been restated to reflect the
change in the cash flow presentation.
The above Consolidated Statement of Cash Flows should be read in conjunction
with accompanying Notes to the Financial Statements.
Notes to the financial statements
30 June 2024
Note 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 17 September 2024. The Directors have the power to
amend and reissue the financial statements.
Basis of preparation
The Financial Report:
· has been prepared in accordance with the Australian Accounting Standards
adopted by the Australian Accounting Standards Board (AASB) and International
Financial Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board (IASB);
· has been prepared in accordance with the requirements of the Corporations Act
2001 (Cth);
· is presented in Australian dollars, which is the Group's functional and
presentation currency, with all values rounded to the nearest thousand
dollars, or in certain cases to the nearest dollar, in accordance with ASIC
Corporations Instrument 2016/191 unless otherwise indicated;
· includes foreign currency transactions that are translated into the functional
currency, using the exchange rates prevailing at the date of the Financial
Report;
· has been prepared on a going concern basis using a historical cost basis,
except for certain assets and liabilities measured at fair value;
· presents assets and liabilities on the face of the Balance Sheets in
decreasing order of liquidity;
· where required, presents restated comparative information for consistency with
the current year's presentation in the Financial Report; and
· contains accounting policies that have been consistently applied to all
periods presented, unless otherwise stated.
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 2024 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 4.
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.
Note 2. Material accounting policies
New and amended accounting standards and interpretations adopted during the
year
The accounting policies adopted are consistent with those followed in the
preparation of the Group's annual consolidated financial statements for the
year ended 30 June 2023.
The Group has applied the Amendments to IAS 1, IFRS Practice Statement 2 -
Disclosure of Accounting Policies for the first time for its annual reporting
period commencing 1 July 2023. The amendment did not have any impact on the
amounts recognised in prior periods and are not expected to significantly
affect the current or future periods.
New and amended accounting standards and interpretations issued but not yet
effective
The new and amended standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial statements that
the Group reasonably expects will have an impact on its disclosures, financial
position or performance when applied at a future date, are disclosed below.
· Amendment to IFRS 9 and IFRS 7 - Classification and Measurement of Financial
Instruments.
· IFRS 18 Presentation and Disclosure in Financial Statements.
· IFRS 19 Subsidiaries without Public Accountability: Disclosures.
· IFRS S1, 'General requirements for disclosure of sustainability-related
financial information.
The Group intends to adopt these new and amended standards and
interpretations, if applicable, when they become effective. The Group has not
listed other standards and interpretations which are issued but not yet
effective, as they are not expected to impact the Group.
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
22
· Quantitative disclosures of fair value measurement hierarchy Note 22
· Financial instruments Note 21
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.
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 for trade receivables and contract assets, 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. Contract costs are financial assets
for impairment purposes. 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 assets are derecognised when the contractual rights to the cash
flows expire or when the asset, along with the associated risks and rewards of
ownership, are substantially transferred to another entity.
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 'Movement in financial
liabilities related to third-party interests in consolidated entities'. 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.
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.
Net finance costs
Net finance costs comprise interest income from the investment of excess funds
in short-term, highly liquid investments, and interest expense and borrowing
costs related to the borrowing of funds.
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.
Treasury shares
Where Group purchase shares in the listed Company, the consideration paid is
deducted from issued capital and the shares are treated as treasury shares
until they are subsequently sold, reissued or cancelled. Where such shares are
sold or reissued, any consideration received is included in shareholders'
equity.
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.
Note 3. 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.
Key judgements
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 4). 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.
Significant estimates and assumptions
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 22.
Note 4. Segment information
For management purposes, the Group is organised into two operating segments
comprising the operations of Litigation Capital Management Limited and its
wholly owned subsidiaries ("LCM") and the Group's fund structures ("Fund").
LCM
The LCM column includes the 25% co-investment in the Funds, Balance Sheet
investments (ie, 100% investment by LCM) and corporate operations.
Fund I & II
This comprises LCM Global Alternative Returns Fund and LCM Global Alternative
Returns Fund II and their entities as disclosed in note 25. AASB 10
Consolidated Financial Statements 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. The Fund column
includes the 75% co-investment in the litigation funding assets and costs of
administering the funds.
Intersegment revenue
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 net residual 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 profit or loss and other comprehensive income,
consolidated statement of financial position and consolidated statement of
cash flows.
Effective from 1 July 2023, the Group has revised its internal segment
reporting structure, resulting in a change from one reportable segment to two
reportable segments. This change aims to provide more relevant and transparent
information to stakeholders. This change aligns with the way the Group's chief
operating decision maker reviews financial performance. The comparative
information for the year ended 30 June 2023 has been restated to reflect the
new segment reporting structure however was also presented in note 26 of the
FY23 Annual Report.
Consolidated Statement of Comprehensive Income
2024 2023
Consolidated Fund LCM Consolidated Fund LCM
$'000 $'000 $'000 $'000 $'000 $'000
Income
Gain on financial assets at fair value through profit or loss 86,926 51,416 35,511 184,735 117,051 67,684
Movement in financial liabilities related to third-party interests in (48,382) (48,382) - (111,953) (111,953) -
consolidated entities
Litigation service revenue 12,443 - 12,443 - - -
Total income from litigation assets 50,987 3,033 47,954 72,782 5,098 67,684
Litigation service expense (3,236) - (3,236) - - -
Gross profit 47,752 3,033 44,718 72,782 5,098 67,684
Expenses
Employee benefits expense (11,471) - (11,471) (9,474) - (9,474)
Depreciation expense (145) - (145) (166) - (166)
Corporate expenses (5,171) - (5,171) (4,220) - (4,220)
Fund administration expense (3,400) (1,220) (2,180) (3,010) (1,178) (1,832)
Foreign currency gains/(losses) (1,432) (1,968) 537 (5,081) (3,905) (1,176)
Total operating expenses (21,619) (3,189) (18,430) (21,951) (5,083) (16,868)
Operating profit 26,133 (155) 26,288 50,831 15 50,816
Finance costs (10,083) 155 (10,238) (8,090) (15) (8,075)
Profit before income tax expense 16,050 - 16,050 42,741 - 42,741
Income tax expense (3,335) - (3,335) (11,256) - (11,256)
Profit after income tax expense 12,715 - 12,715 31,485 - 31,485
Other comprehensive income for the period, net of tax 2,013 - 2,013 2,187 - 2,187
Total comprehensive income for the period 14,728 - 14,728 33,672 - 33,672
Consolidated statement of financial position
2024 2023
Consolidated Fund LCM Consolidated Fund LCM
$'000 $'000 $'000 $'000 $'000 $'000
Assets
Cash and cash equivalents 68,113 15,089 53,024 104,457 21,484 82,973
Trade & other receivables 10,986 - 10,986 2,063 - 2,063
Due from resolution of financial assets 3,980 - 3,980 11,873 - 11,873
Contract costs 42,072 - 42,072 37,277 - 37,277
Financial assets at fair value through profit or loss 465,213 262,300 202,913 391,410 225,642 165,768
Property, plant and equipment 157 - 157 211 - 211
Intangible assets 305 - 305 356 - 356
Other assets 977 (22) 999 1,256 78 1,178
Total assets 591,803 277,367 314,436 548,903 247,204 301,699
Liabilities
Trade and other payables 30,376 12,417 17,959 7,535 3,214 4,321
Tax payable 883 - 883 7,769 - 7,769
Employee Benefits 1,112 - 1,112 906 - 906
Borrowings 61,917 - 61,917 68,976 - 68,976
Third-party interests in consolidated entities 264,950 264,950 - 243,990 243,990 -
Deferred tax liability 43,624 - 43,624 36,259 - 36,259
Total liabilities 402,862 277,367 125,494 365,435 247,204 118,231
Net assets 188,941 - 188,941 183,468 - 183,468
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.
Consolidated Statement of Cash Flows
2024 2023
Consolidated Fund LCM Consolidated Fund LCM
$'000 $'000 $'000 $'000 $'000 $'000
Proceeds from litigation contracts 116,636 59,864 56,771 192,563 95,807 96,756
Payments for litigation contracts (78,265) (38,572) (39,693) (94,543) (58,293) (36,251)
Payments to suppliers and employees (16,337) (1,572) (14,765) (13,434) (3,049) (10,385)
Income tax paid (2,830) - (2,830) - - -
Net cash from/(used in) operating activities 19,203 19,720 (517) 84,587 34,465 50,121
-
Cash flows from investing activities -
Payments for property, plant and equipment (31) - (31) (90) - (90)
Payments for intangibles (9) - (9) (57) - (57)
Refund/(payment) of security deposits 8 - 8 (51) - (51)
Net cash used in investing activities (31) - (31) (198) - (198)
Cash flows from financing activities
Payments for treasury shares (5,396) - (5,396) - - -
Dividends paid (4,976) - (4,976) - - -
Proceeds from borrowings - - - 9,636 9,636
Repayments of borrowings (8,139) - (8,139) (14,848) (14,848) -
Payments of finance costs (8,960) - (8,960) (6,171) (132) (6,039)
Payments of placement fees related to third-party interests (2,206) - (2,206) (1,832) - (1,832)
Contributions from third-party interests in consolidated entities 30,505 30,505 - 74,980 74,980 -
Distributions to third-party interests in consolidated entities (56,407) (56,407) - (94,373) (94,373) -
Net cash (used in)/from financing activities (55,578) (25,901) (29,677) (32,608) (34,372) 1,766
Net increase/(decrease) in cash and cash equivalents (36,405) (6,181) (30,224) 51,781 92 51,689
Cash and cash equivalents at the beginning of the period 104,457 21,484 82,973 49,964 20,711 29,253
Effects of exchange rate changes on cash and cash equivalents 61 (214) 275 2,712 681 2,031
Cash and cash equivalents at the end of the period 68,113 15,089 53,024 104,457 21,484 82,973
Note 5. Income
Consolidated
2024 2023
$'000 $'000
Fair value through profit and loss
Realised gains on litigation assets 10,299 26,879
Realised performance fees 12,735 24,598
Fair value adjustment during the period, net of previously recognised 11,600 11,134
unrealised gains transferred to realised gains
Foreign exchange gains 877 5,073
Total income from litigation assets attributable to LCM 35,511 67,684
Gain on financial assets related to third-party interests in consolidated 51,416 117,051
entities
86,928 184,735
Loss on financial liabilities related to third-party interests in consolidated (48,382) (111,953)
entities
Total income from litigation assets 38,544 72,782
Total income from litigation assets 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.
Litigation service revenue
Litigation service revenue Consolidated
2024 2023
$'000 $'000
Major service lines
Revenue attributable to LCM 12,443 -
Attributable to third party interests - -
12,443 -
Geographical regions
Australia 12,443 -
12,443 -
Litigation service revenue relates to an individual litigation asset which
resolved during the period and had a contract duration of more than 4 years.
Note 6. Profit before tax
Consolidated
2024 2023
$'000 $'000
Profit before income tax expense includes the following specific expenses:
Employee benefits expense
Salaries & wages 8,513 7,337
Non-Executive directors' fees 457 393
Superannuation and pension 311 287
Share based payments expense 1,116 867
Other employee benefits & costs 1,074 590
11,471 9,474
Depreciation
Plant and equipment 84 63
Intangible assets 60 103
145 166
Net finance costs
Net interest on borrowings 9,017 7,511
Net finance costs of third-party interests (155) 144
Other finance costs 1,221 435
10,083 8,090
Fund administration expense
General administration expenses 1,220 970
Set-up expenses - 209
Placement fees 2,180 1,831
3,400 3,010
Leases
Short-term lease payments 906 777
Note 7. Income tax expense
Consolidated
2024 2023
$'000 $'000
Numerical reconciliation of income tax expense and tax at the statutory rate
Profit before income tax expense 16,050 42,741
At the Group's statutory income tax rate of 30% (2023: 25%) 4,815 10,685
Tax effect amounts which are not deductible/(taxable) in calculating taxable
income:
Foreign tax rate adjustments (2,385) (1,718)
Share-based payments 335 217
Other assessable income 139 143
Other non-deductible expenses 215 -
Unrealised foreign exchange - -
Change in tax rate - 1,929
Adjustment in respect of income and deferred tax of previous years 217 -
Income tax expense / (benefit) 3,335 11,256
Consolidated
2024 2023
$'000 $'000
Current tax (4,030) 7,701
Deferred tax 7,365 3,555
Income tax expense / (benefit) 3,335 11,256
Consolidated
2024 2023
$'000 $'000
Deferred tax asset/(liability)
Deferred tax asset/(liability) comprises temporary differences attributable
to:
Tax losses - 14,197
Employee benefits 302 273
Accrued expenses 172 929
Expenditure deductible for income tax over time 1,706 -
Share based payments 464 -
Deductible funding on contract costs and financial assets (16,634) (23,374)
Fair value adjustments to financial assets (29,634) (28,284)
Deferred tax asset/(liability) (43,624) (36,259)
Movements:
Opening balance (36,259) (32,704)
Charged to profit or loss (7,365) (3,555)
Closing balance (43,624) (36,259)
Note 8. Earnings per share
2024 2023
$'000 $'000
Profit after income tax 12,715 31,485
Profit after income tax attributable to the owners of Litigation Capital 12,715 31,485
Management Limited
Number Number
Weighted average number of ordinary shares used in calculating basic earnings 105,849,093 106,613,927
per share(1)
Adjustments for calculation of diluted earnings per share:
Amounts uncalled on partly paid shares 1,301,770 1,252,018
Options over ordinary shares 5,103,344 3,257,392
Weighted average number of ordinary shares used in calculating diluted 112,254,207 111,123,337
earnings per share
(1) Weighted average number of ordinary shares on issue during the year,
excludes treasury shares held
Cents Cents
Basic earnings per share 12.01 29.53
Diluted earnings per share 11.33 28.33
Dilutive potential shares which are contingently issuable are only included in
the calculation of diluted earnings per share where the conditions are met.
Note 9. Reconciliation of cash flows
Reconciliation of profit after income tax to net cash from operating
activities:
2024 2023
$'000 $'000
Profit after income tax expense for the period 12,715 31,485
Adjustments for:
Fair value adjustments to financial liabilities related to third party 48,382 111,953
interests
Finance costs reclassified to financing activities 10,083 8,090
Fund costs reclassified to financing activities 2,180 1,851
Depreciation and amortisation of intangibles 145 166
Share-based payments 1,116 867
Other, including foreign exchange rate movements 407 11,527
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables (8,923) 89
Decrease/(increase) in due from resolution of financial assets 7,893 12,468
Decrease/(increase) in financial assets (73,803) (94,430)
Decrease/(increase) in contract costs (4,795) (5,495)
(Increase) in other assets 279 84
(Decrease)/Increase in trade and other payables 22,841 (5,307)
(Decrease)/Increase in employee benefits 206 (21)
Increase in deferred tax assets and liabilities 7,365 3,555
Increase in income tax payable (6,886) 7,704
Net cash from operating activities 19,203 84,587
Disclosure of borrowings
Refer to note 16.
Changes in liabilities related to third party interests in consolidated
entities
Refer to note 17.
Note 10. Cash and cash equivalents
Consolidated
2024 2023
$'000 $'000
Cash at Bank 22,963 82,973
Investment securities held for liquidity purposes 30,061 -
Cash of third-party interests in consolidated entities 15,089 21,484
68,113 104,457
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.
Note 11. Trade receivables
Consolidated
2024 2023
$'000 $'000
Due from litigation service 10,986 2,063
10,986 2,063
The significant increase in trade receivables in the period was mainly due to
the resolution of one litigation asset which was received immediately after
the period on 1 July 2024.
As at 30 June 2024, trade receivables are expected to be settled within 12
months after the Balance Sheet date.
Allowance for expected credit losses
The Group has recognised a loss of $nil (2023: $nil) in profit or loss in
respect of the expected credit losses for the year ended 30 June 2024.
Note 12. Due from resolution of financial assets
2024 2023
$'000 $'000
At start of period (as restated as at 1 July 2022) 11,873 24,340
Transfer from realisation of litigation funding assets (including Foreign 104,400 180,155
Exchange gain)
Proceeds from litigation funding assets (112,990) (192,623)
Other income 697 -
Balance as at end of period 3,980 11,873
From 1 July 2023, management has changed their analysis of the transfer from
the realisation of litigation funding assets to account for realisation
including foreign currency gains. This change has been reflected in the 30
June 2024 disclosure, and the 30 June 2023 comparative has been updated for
consistency. This change is a disclosure change only and has not changed the
total balance at the end of the period.
As at 30 June 2024, amounts due from resolution of financial assets are
expected to be settled within 12 months after the Balance Sheet date.
Note 13. Contract costs - litigation contracts
2024 2023
$'000 $'000
Contract costs - litigation contracts 42,072 37,277
There are a small number of legacy investments which are still being recorded
under AASB 15 Revenue from Contracts with Customers 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:
2024 2023
$'000 $'000
Balance at 1 July 37,277 31,783
Additions during the period 8,030 5,495
Realisations of contract assets (3,236) -
Balance as at end of period 42,072 37,277
The Group has recognised impairment losses of $nil (2023: $nil) in profit or
loss on contract costs for the period ended 30 June 2024.
Note 14. Litigation funding assets at fair value through profit or loss
2024 2023
$'000 $'000
At start of period (as restated as at 1 July 2022) 391,410 296,980
Deployments 45,301 30,756
Deployments - third-party interests 45,975 59,094
Realisations of litigation funding assets (including foreign exchange (104,400) (180,155)
(losses)/gains)
Income for the period 86,926 184,735
Balance as at end of period 465,213 391,410
Litigation funding assets at fair value through income statement 202,913 165,768
Litigation funding assets at fair value through income statement - third-party 262,300 225,642
interests
Total litigation funding assets 465,213 391,410
Effective from 1 July 2023, management has adopted a new approach to the
realisation of litigation funding assets and the recognition of foreign
exchange gains. Consequently, the comparative note disclosure for the period
ended 30 June 2023 has been restated to rectify the allocated amounts to
certain line items. This restatement has affected the disclosure of certain
line items from the prior year's note, including income for the period. It is
important to note that the overall balance at the end of the prior period
remains unchanged.
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 capital via a fund
management model. The table above sets forth the changes in litigation funding
assets at the beginning and end of the relevant reporting periods.
Note 15. Trade and other payables
2024 2023
$'000 $'000
Trade payables 29,789 7,001
Other payables 587 534
30,376 7,535
Refer to note 21 for further information on financial instruments.
Note 16. Borrowings
2024 2023
$'000 $'000
Borrowings 61,917 68,976
61,917 68,976
Reconciliation of borrowings of third-party interests in consolidated 2024 2023
entities:
$'000 $'000
Balance 1 July - 14,494
Proceeds from borrowings - -
Repayment of borrowings - (14,848)
Net accrued interest - (17)
Amortisation of borrowing costs - 34
Other non-cash items - 336
Balance as at end of period - -
Reconciliation of borrowings of LCM: 2024 2023
$'000 $'000
Balance 1 July 68,976 54,915
Proceeds from borrowings - 9,636
Repayment of borrowings (8,139) -
Payments for borrowing costs (819) (256)
Net accrued interest 648 1,943
Amortisation 1,221 399
Other non-cash items 29 2,339
Balance as at end of period 61,917 68,976
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
$74,704,916(1) (the "Facility"). The Facility carries interest together with a
profit participation, capped at 13% per annum. The Facility has an overall
term of four years and is secured against LCM's assets. As at 30 June 2024,
LCM has nil outstanding utilisation. Borrowings have a maturity date of
February 2025.
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 2024. 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 2024, $422,000 of these loan arrangement fees
remained outstanding.
(1) Converted at the functional currency spot rates of exchange at the
reporting date
Note 17. Financial liabilities related to third-party
interests in consolidated entities
2024 2023
$'000 $'000
Balance 1 July 243,990 142,180
Proceeds - capital contributions from Limited Partners 30,505 74,980
Payments - distributions to Limited Partners (56,407) (94,373)
Movement on financial liabilities related to third-party interests in 48,382 111,953
consolidated entities (note 5)
Other non-cash items, including foreign exchange gain/loss (1,521) 9,250
Balance as at end of period 264,950 243,990
Note 18. Equity - issued capital
2024 2023 2024 2023
Shares Shares $'000 $'000
Ordinary shares - fully paid 104,118,534 106,613,927 69,674 69,674
Ordinary shares - loan share plan and Employee Benefit Trust 12,331,148 12,586,405 - -
116,449,682 119,200,332 69,674 69,674
Movements in ordinary share capital Date Shares $'000
Balance 30 June 2022 106,613,927 69,674
Balance 30 June 2023 106,613,927 69,674
Options exercised 31 October 2023 87,993 -
Options exercised 23 November 2023 167,264 -
Shares bought back during the period (treasury shares) Various (2,750,650) -
30 June 2024 104,118,534 69,674
As announced on 5 October 2023, the Group commenced a share buyback programme
in respect of its ordinary shares up to a maximum consideration of A$10.0
million from the date of this announcement.
Movements in ordinary shares issued under loan share plan ('LSP') and held by
Employee Benefit Trust:
Date Shares $'000
Balance 30 June 2022 12,586,405 -
Balance 30 June 2023 12,586,405 -
Options exercised 31 October 2023 (87,993) -
Options exercised 23 November 2023 (167,264) -
LSP expired 30 June 2024 (388,800) -
LSP shares allocated to LCM 30 June 2024 388,800 -
30 June 2024 12,331,148 -
Reconciliation of ordinary shares issued under LSP:
2024 2023
Total shares allocated under existing LSP arrangements with underlying LSP 7,501,608 7,890,408
shares (note 29)
Less shares allocated under existing LSP arrangements without underlying LSP (221,467) (221,467)
shares (note 29)
Shares held by LCM Employee Benefit Trust for future allocation under employee 4,917,464 4,917,464
share and option plans
Exercise of options during the period held by the LCM Employee Benefit Trust (255,257) -
Shares held by LCM for future allocation under employee share and option plans 388,800 -
12,331,148 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 29 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 - held by Employee Benefit Trust
The Employee Benefit Trust ('EBT') holds performance related shareholdings
awarded to former executive which did not vest. That benefit comprised
4,917,464 shares of which 4,662,207 remain unallocated as at 30 June 2024
(2023: 4,917,464).
Ordinary shares - partly paid
As at 30 June 2024, 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
Treasury shares
As at 30 June 2024, there were 2,750,650 treasury shares (2023: nil) which has
resulted in $5,396,000 being deducted from equity (2023: nil). Treasury shares
comprises shares bought back from shareholders which are held by Canaccord on
behalf of LCM and classified as treasury shares.
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 2023
Annual Report.
Note 19. 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 1 July 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
Movements in reserves during the period 1,116 2,013 3,129
Balance at 30 June 2024 3,556 615 4,171
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.
Note 20. Equity - dividends
2024 2023
$'000 $'000
Final unfranked ordinary dividend paid (2024: 2.25 cents, 2023: nil) 4,976 -
The Directors declare a dividend for the year ended 30 June 2024 of 1.25 pence
per ordinary share, to be paid on 4 December 2024 to eligible shareholders on
the register as at 1 November 2024. The ordinary shares will be marked
ex-dividend on 31 October 2024. The financial effect of dividends declared
after the reporting date is not reflected in the 30 June 2024 financial
statements and will be recognised in subsequent financial reports.
Franking credits
The franking credits available to the Group as at 30 June 2024 are $338,000
(2023: $338,000).
Note 21. 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.
Financial instruments of the Group is comprised of litigation funding assets
classified as financial assets at FVTPL and financial liabilities at FVTPL
related to third party interests with the remaining financial instruments held
at amortised cost.
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:
Assets Liabilities Assets Liabilities
2024 2024 2023 2023
Consolidated $'000 $'000 $'000 $'000
US dollars 178,625 (314,768) 203,912 (314,923)
Pound Sterling 267,971 (16,500) 173,064 (2,542)
Singapore Dollars 2,346 (16) - -
United Arab Emirates Dirham 2 (4) 5,614 (744)
Hong Kong dollars - - 28,087 -
Other 4 - 490 (1)
448,947 (331,288) 411,167 (318,210)
The Group had net assets denominated in foreign currencies of $117,659,000
(assets of $448,947,000 less liabilities of $331,288,000) as at 30 June 2024
(2023: net assets $92,956,000). Based on this exposure, had the Australian
dollars 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 $11,766,000 (2023:
$9,296,000). 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 2024 was $2,934,000 (2023: loss of 2,892,000). The movement in the
foreign currency translation reserve for the year ended 30 June 2024 was a
gain of $2,013,000 (2023: gain $2,187,000).
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 (2023: 50) basis points
would have a favourable/adverse effect on profit before tax of $341,000 (2023:
$522,000) 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.
For trade receivables and due from resolution of financial assets, at every
reporting date, the Group evaluates whether the trade receivables and due from
resolution of financial assets is considered to have low credit risk using all
reasonable and supportable information that is available without undue cost or
effort. In making that evaluation, the Group reassesses indicators of changes
in credit quality of their counterparties. In addition, the Group considers
that there has been a significant increase in credit risk when contractual
payments are more than 90 days past due or if sufficient indicators exist that
the debtor is unlikely to pay. Refer to note 11 and 12 for the respective
notes on these items. 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.
In addition, the fair value of Litigation Funding Assets (LFA's) is measured
using valuation techniques including the discounted cash flow (DCF) model. 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 liquidity
risk, credit risk and volatility. Changes in assumptions relating to these
factors could affect the reported fair value of financial instruments,
including credit risk, refer to note 22.
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 Total
Consolidated - 2024 $'000 $'000 $'000 $'000 $'000
Financial liabilities
Trade payables 29,752 - - - 29,752
Other payables 624 - - - 624
Borrowings 68,200 - - - 68,200
Third-party interest in consolidated entities - - - 264,950 264,950
Total non-derivatives 98,576 - - 264,950 363,526
Less than 1 year Between 1 and 5 years Over 5 years No contractual maturity date Total
Consolidated - 2023 $'000 $'000 $'000 $'000 $'000
Financial liabilities
Trade payables 7,001 - - - 7,001
Other payables 241 - - - 241
Borrowings 9,320 75,988 - 85,309
Third-party interest in consolidated entities - - - 243,990 243,990
Total non-derivatives 16,562 75,988 - 243,990 336,541
Note 22. Fair value measurements
The fair value measurements used for all assets and liabilities held by the
Group listed below are level 3:
Assets 2024 2023
Litigation funding assets $'000 $'000
APAC 111,662 158,836
EMEA 353,551 232,574
Total Level 3 assets 465,213 391,410
Liabilities
Financial liabilities related to third-party interests in consolidated 264,950 243,990
entities
Total Level 3 liabilities 264,950 243,990
Refer note 14 for movements in level 3 assets and note 17 for movements in
level 3 liabilities. There were no transfers into or out of level 3 during the
period ended 30 June 2024.
As at 30 June 2024, the financial liability due to third-party interests is
$264,950,000 (2023: $243,990,000), recorded at fair value as represented in
note 17. 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, see note 4.
Sensitivity of Level 3 Valuations
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.
The 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.
30 June 2024
Item Valuation technique Unobservable Input Min Max Weighted Ave
Litigation funding asset Discounted cash flow Discount rate 12.80% 12.80% 12.80%
Duration 0.75 7.08 4.57
Adjusted risk premium 0% 85% 17%
Adjusted risk premium - case milestone: Min(1) Max(1) Weighted Ave % of portfolio(2)
Pre-commencement & commenced 0% 20% 29% 48%
Pleadings 5% 35% 20% 12%
Discovery & evidence 20% 40% 25% 9%
Significant ruling or other objective event prior to trial court judgment 25% 80% 47% 7%
Settlement 70% 85% 80% 1%
Trial court judgment or tribunal award 0% 85% 63% 9%
Appeal judgment 0% 85% 3% 12%
Enforcement 75% 85% 83% 3%
30 June 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 0.67 5.83 4.10
Adjusted risk premium 0% 85% 18%
Adjusted risk premium - case milestone: Min(1) Max(1) Weighted Ave % of portfolio(2)
Pre-commencement & commenced 0% 20% 0% 46%
Pleadings 5% 35% 10% 3%
Discovery & evidence 20% 40% 21% 15%
Significant ruling or other objective event prior to trial court judgment 25% 80% 48% 21%
Settlement 70% 85% 70% 3%
Trial court judgment or tribunal award 0% 85% 80% 1%
Appeal judgment 0% 85% 7% 9%
Enforcement 75% 85% 76% 1%
(1) Minimum and maximum within each cohort represent the actual adjusted risk
premiums applied in the period
(2) Percentage of portfolio represents the percentage of the book within the
cohort
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
$46,521,000 as at 30 June 2024 (30 June 2023: $39,141,000). 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 $26,495,000 as at
30 June 2024 (30 June 2023: $24,399,000).
At 30 June 2024, should discount rates been 50 bps or 100 bps higher or lower
than the actual discount rate 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:
2024 2023
Hypothetical Change $'000 $'000
100bps lower interest rates 5,441 2,182
50bps lower interest rates 2,743 1,084
100bps higher interest rates (5,440) (2,126)
50bps higher interest rates (2,736) (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.
Note 23. 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
2024 2023
$ $
Short-term employee benefits 2,844,106 2,188,144
Post-employment benefits 67,584 59,611
Long-term benefits 28,975 13,145
Share-based payments 408,583 375,014
3,349,249 2,635,914
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/ Long service leave Share-based payments Total
Pension
2024 $ $ $ $ $ $ $ $
Non-executive Directors
Dr David King 111,458 - - - 12,302 - - 123,760
Jonathan Moulds 214,255 - - - - - - 214,255
Gerhard Seebacher 127,377 - - - - - - 127,377
453,091 - - - 12,302 - - 465,393
Executive directors & other executives
Patrick Moloney 1,316,062 183,783 114,754 36,864 - 28,975 199,145 1,879,583
David Collins(1) 22,921 - - - - - - 22,921
Mary Gangemi(2) 552,818 163,814 - - 55,282 - 209,438 981,352
1,891,800 347,597 114,754 36,864 55,282 28,975 408,583 2,883,856
2,344,891 347,597 114,754 36,864 67,584 28,975 408,583 3,349,249
(1) David Collins appointed as Chief Financial Officer on 18 June 2024 on a
base salary of £350,000 (AUD equivalent $672,000). Refer note 26 for details
on amounts paid to Greatham Advisors Limited, a related entity of David
Collins, for Investor Relation services prior to David becoming an employee.
David Collins has not been appointed as a Director as at 30 June 2024.
(2) Stepped down as Chief Financial Officer 18 June 2024 and resigned as
Director 5 September 2024
Cash salaries and fees Bonus Benefits Accrued leave Superannuation 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 111,356 - - - - - - 111,356
389,943 - - - 10,500 - - 400,443
Executive Directors
Patrick Moloney 1,071,517 118,249 5,709 (29,023) - 13,145 252,293 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 13,145 375,014 2,235,472
1,952,572 258,886 5,709 (29,023) 59,611 13,145 375,014 2,635,914
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:
Name of the Director Grant date Expiry date Exercise price Balance at the start of the year Granted Exercised Expired / forfeited / other Balance at the end of 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 - - (388,800) 777,600
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 - (67,108) - 134,217
Mary Gangemi(2) 07/10/2022 07/10/2032 £0.00 1,266,455 - - - 1,266,455
Patrick Moloney(2) 04/10/2023 04/10/2033 £0.00 - 167,043 - - 167,043
Mary Gangemi(2) 04/10/2023 04/10/2033 £0.00 - 148,893 - - 148,893
11,293,039 315,936 (67,108) (388,800) 11,153,067
(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 29.
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 2024 30 June 2023
Name of the Director Description of shares Number Number
Jonathan Moulds Fully paid ordinary shares 5,250,000 5,250,000
Dr David King Fully paid ordinary shares 1,951,484 1,951,484
Patrick Moloney Fully paid ordinary shares 4,204,813 4,204,813
Patrick Moloney Unlisted partly paid shares 1,433,022 1,433,022
Gerhard Seebacher N/A - -
Mary Gangemi Fully paid ordinary shares 64,348 27,500
(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 18 to the
financial statements.
No changes took place in the interest of the directors between 30 June 2024
and 17 September 2024.
Note 24. 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
2024 2023
$ $
Audit Services - BDO Audit Pty Ltd
Audit or review of financial report 253,727 149,700
253,727 149,700
Audit Services - Firms related to BDO Audit Pty Ltd
Audit of statutory report of controlled entities 186,721 124,113
186,721 124,113
Audit Services - Unrelated Firms
Audit of statutory report of controlled entities 64,625 27,904
64,625 27,904
Note 25. 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 into insurance arrangements which lessen or
eliminate the impact of such awards and therefore any adverse costs order
exposure.
Note 26. Related party transactions
The following transactions occurred with related parties:
Consolidated
2024 2023
$ $
Consulting fees paid to Greatham Advisors Limited - a related entity of 47,957 -
David Collins
47,957 -
David Collins is a shareholder and director of Greatham Advisors Limited,
which carries out Investor Relations services. The services provided by
Greatham Advisors Limited ceased once David Collins became an employee of the
Group on 18 June 2024. As at 30 June 2024 there were no amounts owing to
Greatham Advisors Limited (2023: $nil).
Note 27. Parent entity information
Set out below is the supplementary information about the parent entity,
Litigation Capital Management Limited.
Consolidated
2024 2023
Statement of profit or loss and other comprehensive income $'000 $'000
Profit/(loss) after income tax 50,491 943
Total comprehensive income 50,491 943
Statement of financial position
Total assets 103,055 70,274
Total liabilities (20,390) -
Equity
Issued capital 64,278 69,674
Share based payments reserve 3,556 2,440
Retained earnings 14,831 (1,840)
Total equity 82,665 70,274
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 2024 and 30 June
2023.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant and equipment
as at 30 June 2024 and 30 June 2023.
Material 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.
Note 28. 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 / Country of incorporation Ownership Interest
Country of incorporation
2024 2023
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
LCM Global Alternative Returns Fund II GP Limited Jersey 100% 100%
LCM Global Alternative Returns Fund II (Special Partner) LP Jersey 100% 100%
Note 29. Share-based payments
The share-based payment expense for the period was $1,116,000 (2023:
$867,000).
Loan Funded Share Plans ('LSP')
As detailed in note 18, 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 period the Group granted nil (2023: nil) shares under the LSP.
Set out below are summaries of shares/options granted under the LSP:
2024
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
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 (388,800) 1,043,953
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 99,037 99,037(1)
27/10/2021 27/10/2031 £1.14 122,430 122,430(1)
7,890,408 - - (388,800) 7,501,608
(1)Options granted without an underlying LSP share until exercised ie, do not
form part of the Group's issued share capital
Weighted average exercise price $1.049 $0.000 $0.000 $1.420 $1.089
2023
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
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) -
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
(1)Options granted without an underlying LSP share until exercised ie, do not
form part of the Group's issued share capital
There were 7,201,260 options vested and exercisable as at 30 June 2024 (2023:
6,869,211).
The weighted average remaining contractual life of options under LSP
outstanding at the end of the financial year was 0.892 years (2023: 1.01
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 771,911 (2023: 1,132,692) options under
the DBSP.
Set out below are summaries of options granted under the DBSP:
2024
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
Price
forfeited/
other
07/10/2022 07/10/2032 $0.00 1,132,692 - (255,257) - 877,435
04/10/2023 04/10/2033 $0.00 - 771,911 771,911
1,132,692 771,911 (255,257) - 1,649,346
Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000
2023
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
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 $0.000 $0.000 $0.000 $0.000
There were 377,564 options vested and of these 255,257 exercised as at 30 June
2024 (2023: nil).
The weighted average remaining contractual life of options under DBSP
outstanding at the end of the financial year was 0.814 years (2023: 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 nil (2023: 5,671,516) options under the
LTIP.
Set out below are summaries of shares/options granted under the LTIP:
2024
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
Price
forfeited/
other
07/10/2022 07/10/2032 $0.0000 5,671,516 - - - 5,671,516
5,671,516 - - - 5,671,516
Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000
2023
Grant date Expiry date Exercise Balance at the start of the period Granted Exercised Expired/ Balance at the end of the period
Price
forfeited/
other
07/10/2022 07/10/2032 $0.0000 - 5,671,516 - - 5,671,516
- 5,671,516 - - 5,671,516
Weighted average exercise price $0.000 $0.000 $0.000 $0.000 $0.000
There were nil LTIP's vested and exercisable as at 30 June 2024 (2023: nil).
The weighted average remaining contractual life of options under DBSP
outstanding at the end of the financial year was 1.263 years (2023: 2.266
years).
For the options under LSP granted during the current period, 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)
04/10/2023 04/10/2033 £0.98 £0.00 35.00% 1.10% 3.79% $1.820
(1) AUD amount. GBP equivalent £0.952
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.
Note 30. Events after the reporting period
On 17 July 2024, LCM announced the resolution of a single case investment
which 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, the investment generated realisations for LCM of at least
AUD$12.5 million, including performance fees, compared to LCM's invested
capital of AUD$1.5 million, representing a MOIC of 8.3x.
Of the resolutions which concluded close to period end which were disclosed as
outstanding receivables as at 30 June 2024, AUD$11.6 million was received
throughout July 2024.
Consolidated entity disclosure statement
For the year ended 30 June 2024
Name Type of entity Trustee, partner, or participant in joint venture % of share capital held Country of incorporation Australian resident or foreign resident (for tax purposes) Foreign tax jurisdiction of foreign residents
Litigation Capital Management Limited Body corporate n/a n/a Australia Australia n/a
LCM Litigation Fund Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Operations Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Corporate Services Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Singapore Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Recoveries Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Advisory Limited Body corporate n/a 100% Australia Australia n/a
LCM Funding Pty Ltd Body corporate Trustee(1) 100% Australia Australia n/a
LCM Funding SG Pty Ltd Body corporate Trustee(1) 100% Australia Australia n/a
LCM Corporate Services Pte. Ltd. Body corporate n/a 100% Singapore Australia n/a
LCM Group Holdings Pty Ltd Body corporate n/a 100% Australia Australia n/a
LCM Operations UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom
LCM Corporate Services UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom
LCM Recoveries UK Limited Body corporate n/a 100% United Kingdom Foreign United Kingdom
LCM Funding UK Limited Body corporate Trustee(1) 100% United Kingdom Foreign United Kingdom
LCM Global Alternative Returns Fund LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Feeder Fund LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Fund GP Limited Body corporate Partner 100% Jersey Foreign Jersey
LCM Global Alternative Returns Fund (Special Partner) LP Partnership Partner n/a Jersey Foreign Jersey
LCM Global Alternative Returns Fund II LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Feeder Fund II LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Fund II Holding 1 LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Fund II Holding 2 LP Partnership n/a n/a Jersey Foreign n/a(2)
LCM Global Alternative Returns Fund II GP Limited Body corporate Partner 100% Jersey Foreign Jersey
LCM Global Alternative Returns Fund II (Special Partner) LP Partnership Partner n/a Jersey Foreign Jersey
(1) A trustee relationship is established through a Nominee Agreement, where
the entity (the nominee) and the relevant Fund agree that the nominee will
hold the Fund's investment on its behalf.
(2) Limited Partners in the Funds are tax transparent and, as a result, are
not considered tax residents of any particular jurisdiction
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 2024 and of
its performance for the period ended on that date;
· there are reasonable grounds to believe that the company will be
able to pay its debts as and when they become due and payable; and
· the consolidated entity disclosure statement is true and correct.
Signed in accordance with a resolution of directors.
On behalf of the directors
Director
Dated this 17 day of September 2024
-end-
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