Litigation Capital Management Limited (LIT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Litigation Capital Management Limited half year results investor presentation. [Operator Instructions] Before we begin, we'd like to submit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to Patrick Moloney, CEO. Good morning.

Good morning. Good morning to those investors in the United Kingdom, and good evening to those investors in Australia. For those who haven't met me, Patrick Maloney, I'm the Chief Executive Officer. I'm joined by Mary Gangemi, our Chief Financial Officer. And we welcome you to LCM's interim results for the period ending 31 December 2023. And I wanted to take a step back in terms of the presentation and the content of our presentation today and look at a couple of things, rather than simply focusing on financial results, which obviously, we will. But really, the market opportunity for us and the transition of LCM's business from a purely direct investment vehicle using our own balance sheet capital to a blended funds management model. And I hope to demonstrate the really significant advantages that we bring to our balance sheet through that model. So first of all, stepping back and looking at LCM in its entirety. We're a litigation financier. We've been in this business for 25 years. We've been in the business since its inception. So we are one of the pioneers of this industry. Over that period, we've completed 270-odd investments. And our win rate in respect to those is 93%. If we look at the financial performance of those investments, we take as a good proxy in the last 12.5 years has been much reflective of what we think we can achieve moving forward. And if we look at all those investments and disputes, which we've funded and completed and got the capital in for over that period, that's generated a return on invested capital of 180%, that's inclusive of losses during that 12.5-year period. And that has been generated from $368 million worth of cash realizations. Moving now next to the market size, we get asked by investors quite a bit, is the market getting crowded? Is competition increasing? And it's important to think about the size of the market in the context of answering that question. If we look at the cost of legal services globally, it's somewhere in the order of USD 700 billion. And if we look at then what proportion of that has our industry penetrated into the market. And I think we can sort of land at less than 1%. So we'll move more into the market opportunity, but there is a really vast market out there, which is very much underpenetrated by our industry currently. Moving next to LCM's business model that's been developing over the last 3 years, which is a blend of investing our balance sheet capital alongside capital that we manage for third parties. We've raised 2 funds so far. We've got AUD 650 million under management. So about USD 450 million. And that generates some really buoyant performance fees, which we're now starting to see sort of travel through and turn up in our revenue line. Next thing I want to focus on is really LCM's balance sheet. We think that we operate a very conservative balance sheet. We're operating at the end of the period with $70 million of cash on hand. And when we look at the way that we value our portfolio prior to resolution, we're doing that at a relatively significant discount to our historic run rate of a return on invested capital of 180%. If we look at growth generally, LCM, over the past sort of 3 years has been sort of tracking at a growth rate of about 18% net assets per share and we think with the introduction of our funds management model and the revenue started to flow through from that, we'll be able to increase that to 20% CAGR or above that. So let's move on now and just look at the market size. So if we look at the legal services sector in the United Kingdom and in Australia has been the sort of 2 bookends of the markets that we faced. In the U.K., you've got about GBP 35 billion spend per annum currently with growth forecast going forward. In Australia, we're looking at sort of a bit around AUD 30 billion or a bit over AUD 30 billion spent in legal services. If we look at the growth in respect of the disputes part of that market, in the United Kingdom here in terms of the 50 top U.K. law firms, they're seeing annual growth of about 7.5% in that dispute part of the market. And that is in stark contrast to the growth generally across the sector of legal services, which runs at about 4%. If we just roll forward, let's use the U.S. market as a bit of a proxy in terms of market penetration. So if we look at what the estimates are in respect of [indiscernible] industry energy investment into the U.S. market, it's about $3.2 billion. We're committed to fund portfolio of about 350 commercial disputes in the U.S. And if we take that and measure that against what the legal spend is generally on disputes, we see that -- we again get this -- get market penetration of less than 1%. When we think about that in terms of the market size and the market opportunity, it's an enormous market in which to operate in. I want to next talk about LCM, what makes us different and puts us in a really good position where we can really take advantage of that market opportunity? And there's really 3 aspects to this. And the first one is insight experience. We've been operating a litigation finance business now for 25 years. As I mentioned, we were there at the very start of this industry. And the 25 years experience is really important when you think about this, and this is reflected in our track record. We've had an opportunity to test what sort of disputes make good investments and what don't over a prolonged period of time. And we've created systems and methodologies to measure those disputes as investments. And over a period of time, we've got very good at that. And if you look at our 12-year track record in terms of performance, that suggests that we're very good at that. And we are operating really at the top of the market in terms of performance. The next ingredient that one needs if they're going to take advantage of this vast opportunity, is a proper capital source. In 2020, we diversified our capital structure to introduce a funds management business. We started originally with a fund of USD 150 million. We then did a second fund of just other USD 300 million, which gives us our funds under management currently. But the access to that additional capital over and above what we've got on our balance sheet as a public company, really gives us the opportunity to do a number of things, thus scale this business. And secondly, it allows us to build portfolios of all disputes, which are large enough such that they're not suffering for concentration risk and [indiscernible] diversified. So as with any sort of manager of any asset class, we're looking for diversity across our portfolio, and it's really the capital that we have access to through our funds management business, which allow us to diversify our risk. And that also allows us to diversify the risk of our balance sheet capital, whereas once -- when we first started, we were using only balance sheet capital to fund into these claims. We're now funding a blended model where 25% of the capital commitment comes through our balance sheet, 75% comes from our funds management. So it allows every dollar of LCM's balance sheet capital to be much more diversified across the portfolio. And then finally, if we look at the third ingredient here, it's really getting access to the best disputes globally such that we can use the skill set that we've developed over the 25 years and the capital that we've attracted through our funds management business and put that to work. So we really need to get access to the best possible opportunities globally. And that's where we're building out our origination function. And we are partway through a process of that. We have built out our Singapore team over the last quarter and we've built out our London team over the last period as well. So we really are expanding our reach in terms of those opportunities. We're constantly looking in a disciplined way at new territories in which we can do this. We're getting a lot of inquiry coming in from the U.S. We're also getting a lot of query coming in from the Canadian markets. So we're constantly doing that. If we just think about the sheer size of the market available to us, this market has the capacity to sustain probably a multiple of 5 to 10 of the largest litigation finances in our market, given its sheer size. I'm going to talk about next disputes and why they are an attractive asset class? There's 3 aspects to this. So the first one is that it tends to -- our asset class tends to be very buoyant on a current cyclical basis. So it tends to operate in markets, which are unsettled, which are unpredictable, which tend to be on a recessionary cycle as distinct from a very buoyant economic climate. So when we look at those types of markets, it kind of does 2 things. The first thing it does is it drives demand for our capital because people and corporations would much rather manage the risk of their dispute spend by using a third-party source of capital rather than their own. So if you think about a corporate, corporate would really in uncertain markets, such as we're experiencing now, want to utilize their capital for their core business as distinct from risky parts of their business being the funding of disputes. And the second aspect of this is that, in times such as we're experiencing now, there tend to be increased numbers of insolvency and bankruptcies. Now if we're looking at the numbers here in the U.K. we're at somewhere between 65 and 75 year high in terms of those numbers. If we look at Australia, they're also tracking above what they were pre-COVID. So what we're seeing is a lot of insolvency events happening and insolvency and that part of the market is where this industry started, it was the very essence of this industry came out of insolvency events and insolvency disputes. So we're really getting a lot of that type of activity in the unpredictable markets that we're experiencing globally. The second aspect of disputes as an asset class is that they are uncorrelated to the wider market and the drivers of other investments. So we just think about that as [indiscernible]. Many other asset class have claimed to be uncorrelated with the markets. And when the markets have changed, they turned out to be perhaps not as uncorrelated as they could have been. But if we think about a dispute and how a dispute is resolved. And it's the resolution of that dispute which really unlocks the liquidity event for us as a manager or as a litigation financier, it's a resolution of that dispute. And disputes are resolved in 1 of 2 ways, either through a commercial negotiation of the 2 parties to that dispute. And I'll move on in this presentation to how many of our disputes resolved in that way. And the second way, an important way, is that they're adjudicated by a judge. Now that judge undertakes an exercise of taking a given set of facts, applying the legal principles and coming up with a decision. Now that judge does not care whether we have a conservative government or labor government, does not care whether we're in a recessionary cycle or whether we're in a bull market, does not care whether we have high interest rates or high inflation or any of those factors or whether our supply lines have been disrupted horribly because of geopolitical risk. All of those things are utterly irrelevant to the judge who is adjudicating this dispute. So at its core, the outcome of these investments are not impacted by what's going on in the wider market. We take it down a level and think about the entire portfolio of disputes, which LCM is managing at any one time. Every single one of those disputes relies upon a different substratum of facts and a different application of the law. So not only is the asset class uncorrelated with each individual investment comprising the portfolio is uncorrelated to the next investment. So a really important aspect of this asset class and really relevant to what's happening generally in the unpredictable markets in which we operate. And the final aspect that I want to touch upon in terms of disputes as an asset class is the asymmetrical nature of the returns that we generate. Now if you look at LCM historically and our track record, what it shows you is there's much more upside in terms of the returns, which ultimately end up as a multiple of our invested capital compared to the downside. So it has very attractive asymmetrical characteristics, and this is shown in the next slide, which -- this next slide tracks every single investment that we have made and the resolution of that investment per profit and per multiple invested capital over the last 12.5 years. So what we can really see there is the upside that is generated from these investments upon realization is very much larger and indeed a multiple of the downside. So we get this really buoyant and really attractively asymmetric characteristic of these investments. And now I want to move to LCM's business model. And this is a business model that we have been evolving since about 2020 but we can actually now see some of the revenue that's coming through in terms of performance fees. So I just want to step through this business model to make sure it's pretty clear to people. We run a model which has 2 sources of capital. The first source of capital is from our balance sheet and the second source of capital is from our funds management business. And those 2 sources of capital are blended together and co-funded. So every single investment that we manage through our portfolio of disputes, 25% of that capital commitment comes directly from LCM's balance sheet, and 75% of that capital commitment comes from our funds management business, and we're responsible for managing those funds. And that investment activity then creates 2 sources of revenue for LCM. The first source of revenue is very similar to what it was traditionally, which is the economic upside that we generate from the direct investment. So when a resolute -- when a dispute resolves, 25% of that is being directly invested or funded by LCM's balance sheet. We enjoy all the economic upside in respect to that 25%. In respect to the 75% capital commitment, which we have managed as a fund manager, we're entitled to performance fees. And those performance fees are really buoyant. So we're entitled to 25% of that profit up to a profit of 20% and IRR of 20% in respect to the realization. And beyond the 20% IRR, we get outperformance of 35%. So when we look at our revenue line moving forward, we look at those 2 different sources of revenue in terms of our performance. So at the end of the period, we were funding an overall portfolio of 53 separate investments, which obviously continued to grow. This is a slide which really sort of unpacks what the performance fee looks like. And so this is very much the model moving forward. So in terms of -- we've had some resolutions from Fund 1. So we've had about 5.5 separate disputes resolved. And that has represented just under 20% of the capital committed and invested in that Fund 1. So $12.4 million has been invested from LCM's balance sheet into that as a co-funding with our funds management business. And the revenue from those direct investments that has been generated $44.8 million. So that's our traditional investment style. And that has generated a multiple of invested capital, 3.6x and an IRR of 117%. We then move across and we look at the revenue, which has been generated from managing third-party funds. A further $32 million has been generated in [indiscernible] LCM and coming to its revenue line as performance fees. So a really significant contribution towards LCM's revenue line in relation to less than 20% realization in respect of the Fund 1 investments. Just a reminder, Fund 1 $150 million, and we're into committing Fund 2, which is just shy of USD 300 million. So as a total, in respect of that, LCM has generated revenue of $76.8 million. And if we look at the financial performance of that. And this is the financial performance of utilizing third-party money, it's actually converted to a 6.2x multiple of our invested capital and an IRR of 184%. So hopefully, that really demonstrates to investors that the new model that will be the implied here of co-funding and managing third-party funds, is a really buoyant source of revenue for LCM and it really is going to improve the performance of this business. I want to look now at LCM's 12.5 year records. So we have continually updated the market in terms of our financial metrics and our financial performance in respect of that 12.5 years. But I want to break that down and give a bit more granular detail. So over that 12.5 years, we've committed $181 million. Of that $181 million, $130 million was actually invested up until the time that we had a liquidity event. And the outcome predictively sort of fits into 3 categories. We've got adjudicated wins. So that is a dispute that's been adjudicated by a third party, a judge or an arbitrator. And the realizations, which have been generated from that is $119 million. That was over an average life of 32 months, and that generated a multiple invested capital of 5.4x and an internal rate of return of 147%. And we've got losses inevitable running a strategy like this. Interestingly, we had $12.8 million in terms of losses. But now we said that we lost, we had recoveries nonetheless, of $5.2 million from a variety of sources. And then finally, the largest proportion of these disputes that we invest in actually resolve themselves through the commercial negotiation. And what we can see here is the financial returns and the metrics in respect to the settlement are less than an adjudication, but of course, they're attended with much less risk as well. So we're talking about generating $244 million of realizations and the financial metrics, a multiple of invested capital of 2.7x and an internal rate of return of 2.3x. So if we look at that total over that period of $368 million in terms of realizations. And that brings us to our 12-year running track record, obviously, inclusive of losses of a multiple invested capital of 2.82x and an IRR of 78%. Now these -- that really gives investors quite a lot more detail in respect of how we've achieved those results. That return on invested capital is really important because it's very instructive in terms of thinking about LCM's book moving forward and what sort of returns we might be able to generate in the future in respect to existing commitments. This is our 12.5-year track record broken out into 3-year rolling periods. The reason why we measure it in 3-year rolling period is we're encouraging investors to think about the life of these investments of being about 3 years. So when we look at -- there's a number of factors here. So the first one is, the internal rate of return, which is generated on a 3-year rolling basis is remarkably tight and since we really -- it's quite a tight band when you think about the myriad of outcomes that one can get from the resolution of dispute. The second interesting fact and metric to take account of here is that over about the last sort of 5 to 6 years, our performance in terms of a multiple of invested capital has actually increased above our historic run rate of 2.8x and it's tracking sort of just above a 3x multiple. So we actually are performing better into the last sort of 5 or so years than we have done historically. And then we're seeing -- in addition to that, the time for the conclusion of these investments tracking up a bit, which is entirely expected for 2 reasons: one, the impact of COVID and the embedded delays that are present throughout all of those investments, which covered that period. But secondly, with the increased pool of capital that we are managing now through the funds management business, where we can fund larger, more complex disputes, which have the benefit of having higher returns, but because you're fighting for our largest sum of money, they tend to elongate in terms of time. And just drawing all of those things together, some observations about how we're tracking in terms of growth. So if we look at consolidated new commitments, in this interim period, we've busted through $0.5 billion of assets under management or commitments under management at $561 million. In terms of capital invested, we're seeing strong growth year-on-year in terms of the amount of capital that we're investing, which is a combination of our balance sheet capital and obviously, our funds management business. And then cash flow concluded investments. We're also seeing really strong upward trends in terms of the cash realized from the resolution of these disputes. As most investors will appreciate, there's very little correlation between one interim period and perhaps another. If we take sort of our last financial year's performance, most of our revenue was realized in the second half, there's no real trend for that. But what's important is we are tracking up year-on-year. And then finally, net assets per share, again, really encouragingly growing period by period. I'm going to hand over to Mary to talk about the financial performance this -- at the end of the 31 December period.

Thank you, Patrick. I will start with looking at new investments, which are one of our KPIs as the number of applications we see and then the number of applications we then convert obviously contribute to revenue in the future. So an increase of 50%. We saw 242 applications during the 6-month period. That translates into 5 new commitments and a contribution of $90 million of new investments. We had 3 investments concluded in the period, generating $28.4 million of revenue. This includes $10.2 million of performance fees. Patrick did touch upon about the funds management model and the significance of those performance fees on our overall results. We continue to see high-performing Fund 1 investments, generating strong returns for LCM. We recognized a 3.3x multiple on most concluded investments on capital invested of $8.7 million. We move forward to our ongoing portfolio. We have 53 live matters, inclusive of the 5 that we signed on during the year. $561 million of assets under management, which Patrick touched upon in his previous slide, is broken out into $230 million being LCM commitments, $168 million being Fund 1 commitments and $162 million being Fund 2 commitments. Total invested capital for LCM is $107 million, and we obviously have the remainder of the $230 million to continue to invest in, likewise, for Fund 1 and Fund 2. Touching upon our financial highlights for the year. We touched upon the total realizations in the period and just how meaningful those performance fees that we're starting to see come through actually are, to our business model moving forward. They generated $28.4 million of realizations in the period, which is up 846% on the prior half year period of $3 million. Realized gross profits were $19.6 million, unrealized fair value gains was a net of $1.9 million. And just to sort of clarify that point, that is a combination of the fair value that we've recognized in the period on the ongoing portfolio of investments, but also we then did recognize the fair value on the matters that have now shifted into the realizations. So that is just the net movement in the period, making total income $21.6 million versus $7.1 million in the prior period. After costs and finance charges and FX gains, we delivered a profit before tax of $8.9 million and a profit after tax of $7.3 million in comparison to a loss in the same prior period. Moving on to the balance sheet. Our cash remains strong, and I'll go into more detail on the cash when we come to the cash flow waterfall. Our investments at fair value $173.8 million. And just again, that's against a cost of $107 million. I'll touch upon that a little bit further down. Investments held at cost. These are the cases that are still being held under our old IFRS-15. It really is just an interpretation of the accounting standards. Those cases, we still have very high conviction in them. And as you can see from one period to the next, we have continued to deploy into those investments, and we expect to see realizations in those matters across the short to medium term. The will fall away. And then all of our investments moving forward will be captured under the fair value model. If we come down to net assets, we have had a very marginal increase in net assets. We did deliver a profit this year, but the net assets were suppressed by the dividend payment that we made in period as well as the share buyback. So it's net assets of $185 million versus $183 million, and that translates to net assets per share of 90p. If we touch upon the fair value model and the conservative approach to valuing our ongoing investments, as mentioned, our cumulative cash invested into ongoing cases was $107 million at the period end. And I've already covered $173 million of assets that are fair value versus the $39.4 million held at cost. What that translates to is $213 million on our balance sheet as at the period end. Now if we look at that in terms of historical performance, that's a 2x on our cash invested and comparing that to our long-term track record, that's versus 2.8%, means there's another 0.8% of intrinsic value, which has not been captured in our balance sheet at the period end. That's overlaying on that, if we actually use that $2.8 million, what that translates into under the funds management model with the overlay of the performance fees is that $1 of LCM's invested capital will generate roughly 4x MOIC. You'll see that to date, we've actually generated 6.1x MOIC. So there is still quite a bit of intrinsic value that is not captured in our balance sheet, and will continue to see as we deploy into matters, that fair value, obviously, in the net assets increasing. A lot of you will be familiar with the cash flow waterfall. Probably the only thing really to focus on here is that we've had 3 resolutions that have generated $33.8 million. One of those were a resolution that was recorded in the prior period and the cash for that has now come through. We invested $17.5 million in investments. OpEx remains in line, borrowings remain in line, but I did want to draw to the fact that we did pay down $8.1 million of our borrowings during the period, and we also had dividend payments of $5 million and a share buyback as at the period end of $0.8 million. That leaves us with a cash position of $70.3 million as of the period end.

So just moving on to outlook. What are we looking at? So specifically, a number of aspects that we're looking at closely. First of all, the market conditions generally, which is driving considerable demand for capital into the disputes market. So we think about where we are in the economic cycle, think about how much uncertainty there is around many things, including soft or hard landings, inflation when -- if and when that's going to be brought under control. The geopolitical risk, and we've got a high interest rate environment, which will ease at some point. All of those factors really push legal towards once you use a third-party source of capital to fund their disputes rather than taking that risk on themselves. Secondly, in respect of getting access to our disputes [indiscernible] in many of the markets that we operate in, such that we can add those to our portfolio of investments. We're really well positioned here because we're seeing some improvement in the competitive landscape. So we're seeing consolidation of some of our competitors in the marketplace, which is translating through to us to 2 things. One, source of talent that's spilling into the marketplace looking for a new position. And secondly, it's a less competitive environment when we're looking at pitching for particular investments. Next thing is where are we at in terms of our fund management business. So Fund 1 is fully committed. And as we've demonstrated here, starting to really show some tremendous performance in terms of those realizations, which is translating through to the performance fees in our revenue line. Our expectation is that Fund 2 will be fully committed within the next 12 months. And in addition, we will launch Fund 3. We have the tremendous benefit consequent upon our track record and our experience in the industry to have the very best financial investors and supporters in respect to our funds management business, many of which have contractual entitlements to participate in Funds 3 and 4. In respect of our modest debt leverage on our balance sheet, we are exploring a number of options with respect to refinancing that debt. Part of it is in the private markets and part of it is in the public markets through a bond issue. I think as most investors will recognize, there is a certain degree of speculation about where interest rates will travel from here. I think the consensus is that the interest rates will ease. The real question is the timing in respect of that. I think LCM and its Board are looking pretty carefully and giving some careful thought to whether we would lock in a bond at a point where we expect interest rates to lease or whether we refinance in the private markets. We're in pretty advanced discussions with a number of options there and we have an expectation that we will be able to bring down our cost of capital. We have had a degree of uncertainty brought into the litigation funding sector here in the United Kingdom as a consequence of a decision of the Supreme Court in PACCAR. That is a decision which hasn't really affected LCM's business directly, but it has been quite challenging for some of our competitors. Now I think -- what has been really encouraging for us in recent months is that the government have proactively said that they are going to pass legislation at the first available opportunity, to correct the Supreme Court judgment such that there's certainty associated with that market. And whilst that won't have any direct impact upon LCM's portfolio or the way we run our business, it is a really strong endorsement of the recognition of governments in the U.K. government, in particular, the Litigation finance is a really necessary part of the system and access to justice. We've seen this in other jurisdictions and legislation passed in both Hong Kong and in Singapore to entrench Litigation financing and to allow it to be used in the marketplace. And finally, given the market conditions, our access to capital, we're really confident that we are in a position from here really taking into account the revenue that we can generate from our funds management business to drive long-term shareholder growth. And I want to just move from here into the bigger picture and see really what the opportunity is for LCM of the platform that we've got to at this point in time. We've talked about some estimates about the size of the business. So in terms of global legal spend USD 700 billion, an enormous amount of capital going into the legal sector. In terms of the markets in which we operate, plus 200,000 lawyers plus -- and if we look at the U.S. market, just by way of comparison, more than 1 million lawyers operating in the U.S. And then if we translate that into market penetration, it's less than 1% market penetration in respect of the litigation funding industry. So a real opportunity there for growth without really having to take market share from any of our competitors. Now I want to just move to -- is LCM really well placed to take advantage of that? And we just touch upon some of the factors which we started with, which is LCM's breadth of experience. We are fortunate enough to having been around since the inception of this industry. No other litigation financier you can really point to, with greater and longer experience than LCM in the market. And that places us in a very good position in terms of being able to underwrite the risk of these investments and take advantage of the tremendous opportunity. Our performance is really a reflection of the skill set that we've developed over that period of time, a win loss ratio of 93% across more than 270 investments or disputes, which have been funded through the completion. In terms of the last 12.5 years, we've generated a return on invested capital of 180%. You've seen how that's made up in greater detail, but really buoyant returns. And then finally, bringing that track record and the skills that we've developed over time and bringing that and putting that to work, we need capital. And our third-party funds model that we really kicked off in 2020 is a really significant step forward in terms of LCM's access to capital. And it's also going to really drive returns for the future. We've seen how the performance fee and introducing that into our revenue line is really going to enhance the returns for equity investors moving forward. And I think at that point, we're going to move on to questions.

[Operator Instructions] As I mentioned at the outset, we did have a number of questions, and Patrick and Mary, I know you've touched on a number of those during the presentation. But [ Tim ], if I may just hand back to you now to moderate us through today's Q&A, and I'll pick up from you at the end.

Thanks, Mark. A couple of questions on some individual cases, just for an update on Queensland power class action and the GreenX Metals case.

Yes. Look, we get -- I know investors are really keen to try and drill down into individual investments, and very happy to answer that, but I really do want to step back and say, we think about our investments in terms of our portfolio. So it's really important to think about diversifying risk across the portfolio. And we strive and we work very hard to ensure that the portfolios of disputes that we manage are not suffering from concentration risk in any individual investment. That said, in terms of GreenX, GreenX went to a hearing about 12 months ago now. We're still waiting on a determination of the tribunal in respect of that. In terms of treaty disputes, they can take 12 months or beyond 12 months before a determination. We would be hopeful to receive a determination of that in the near future. If we look at the electricity class action in the South Queensland in Australia, we're going to a hearing very shortly in respect of that during this year, and that will be a hearing in relation to sort of early issues in terms of liability. And then ultimately, if we're successful in respect of that, we will go on to an adjudication of what the damage is that's being suffered by the consumers of electricity in that state.

Next question. Ultimately, when the company is of sufficient size, the payment of dividend rewards investors for their commitment and patience as well as potentially strengthening the shareholder base. However, until then, is it not more cost effective for the company from a tax perspective to purchase back its own shares as it currently is doing?

Look, I think LCM's Board, we spent some time thinking about the payment of dividends. Different markets and different investors have very different views in respect of how we should approach this. I think our position is, is that we've certainly got an open mind in terms of dividends. We would like to move towards establishing a dividend policy, but if you think about LCM's position, and we're in a position where we're growing strongly and we have a lot of investments available to us, which, as we can all see, are really high yielding, most of our focus really is in growing the platform and also investing the organically generated capital from the business model back into investments at this point in time. But as I say, we do spend, as a Board, a lot of time thinking about this, but that's our position currently.

Next question. Is there any -- and I think you sort of covered this. Is there any inbuilt conservatism in the fair value framework? For example, can we value items in multiple of invested capital or if [ their contracting ] might be in touch with the higher percentage award on the multiple invested capital?

Yes, we did touch upon this in the presentation. So again, if you have a look at our invested capital at the period end, we were -- we had invested $107 million and that compares to fair value markup of $213 million at the period end. So that really translates into an implied MOIC of 2x, and we've been running on an average of 2.8x. So there's 0.8 of tracked value that still hasn't been recognized on our books. But I'd say overlay on that, that the performance fees of the funds management business to date have actually generated higher returns in the multiple. So far, this has actually been 6.1%. But if you actually translate our 2.8x historical multiple into what the performance fees would look like under the funds management business. It's -- $1 invested will generate a MOIC of 4x.

Next question. LCM are taking on bigger claims, such as a class action against mobile phone contract selling. Can you explain why you will fund such large cases only on the basis of a multiple of invested capital?

Yes. I mean this is a good question. In terms of the -- so when we're talking about the mobile phone class action, we're talking about a claim, which is being brought here in the United Kingdom in the competition tribunal. So at present, the tribunal has only approved class actions and certified class actions based upon the funder receiving a multiple invested capital. So unlike the class action regime in Australia where we typically get remunerated as a percentage of the gross pool of capital that we create, the law has developed in the United Kingdom in respect to competition claims, which is the only true part of the market which can be -- can operate as a class action. They have been approved only in terms of multiple of invested capital.

How do management expect to handle the maturing of existing debt next year?

So I think we might have touched upon this during the presentation. We were pretty advanced discussions both in the private markets and the public markets. We would be in a position to, without a problem, refinance our current facility. What we're trying to do is really sort of extract our lowest cost of capital that we possibly can.

Next question. How can LCM optimize their capital? Many cases have positive judgments with a high chance of recovery, yet we have a long way to obtain the final settlement. Is there a solution to this such as selling on to another party, for example, insurance company?

Yes. There's a number of aspects to this question. I think if I think about this in terms of historical data, there's been very few cases historically where we have enjoyed a positive outcome in terms of an award and then had to wait any length of time. So as you can see in terms of the last 12.5 years,and even dating back before that, the vast majority of the disputes that we invest in actually resolve themselves through a commercial negotiation. There have, from time to time, been isolated incidents where we have obtained an award, and we then have to enforce that award in terms of getting our return. Now typically, those types of investments -- indeed, all of our investments, are on a rising multiple over time. So our returns are really not only protected, but in many ways, enhanced by the elongation of time in respect of that. So that's one aspect to the question. The second aspect of the question is, are we considering or have we interacted with the secondary market in respect of disputes? And we're always giving consideration to whether we can avail ourselves to the secondary markets. It's really just a matter of weighing out the returns and what is going to optimize the returns given our estimates in respect of time. So, so far, we have not participated in the secondary markets. We would certainly not rule that out, and it's something that we really do consider in respect of each investment as it progresses through the system.

A question on the Panthera Resources case. Can you explain, does the $1 billion value quoted in the Indian press help support the valuation? And once you enter arbitration, is there still an opportunity for an early negotiated settlement?

Yes. So I think there's always sort of room between what a litigant's perception of what they might achieve at the end of the day and what happens in reality. And there's normally a bit of delta in between those 2 positions. So I think the starting point is when we give consideration to whether we're going to fund a particular dispute, one of the really important factors that we look at is proportionality, proportionality between how much do we need to invest in this dispute to bring about a liquidity event, and we want to make sure that there's a nice balance between that such that everyone's interests remain aligned. Second proposition is that if we were to look at a claim like that, we would get independent advice with respect to quantum. So we would go to an independent expert and have them make an assessment as to what they think the ultimate value of this business which has been appropriated is, and then sort of we work off that. So I think it's fair to say that we take a pretty considered cautious approach when we are considering the quantum of damages. And it's important, I think, that we don't get seduced by really big numbers.

Question on fair value and how you can explain fair value. Do you bucket cases stage by stage?

So we can touch upon this, and probably a more helpful slide in the presentation at the last year end, but typically, when we're looking at our portfolio of investments, each and every matter is valued on a discounted cash flow basis. There is a risk premium associated with each case. There will be the time cost of capital and -- sorry, there will be the time cost of money as well as the cost of capital. And then as each of those matters progress, we -- in that we see the observable milestones progressing along the line, we recalibrate the value accordingly. Again, I would say the best way to have a look at the conservatism of how we apply our fair value is to have a look at the capital invested at the period end and to compare that to the fair value on balance sheet of $213 million and then to compare that to our running track record of 2.8x multiple. So at the period end, it was a 2x multiple. Historical track record is a 2.8x multiple, so there's an intrinsic value of about 0.8. And then you need to overlay on that the value of the performance fees under the funds management model moving forward.

Next question. Gabriel Resources Limited lost its ICSID arbitration case this March. Does LCM intend to reassess its portfolio, taking into account this ruling?

This is a pretty detailed and specific question. In relation to -- Gabriel Resources is a Canadian mining company that made a claim under the bilateral investment treaty. It is true that they're unsuccessful. We didn't know the complete reason for that because the judgment is yet to be published or the award is yet to be published, so we can't really dig into that. There's a bit of commentary around that. What I can say is that based upon the commentary and not having yet had an opportunity to review the award, it seems to have turned very much on the facts of that particular case rather than giving us any guidance as to sort of a changing wider -- in terms of wider principles. So very happy to update the market in respect to that, but I do not anticipate that this is going to have any wider implications in respect to legal principles, then. It's confined to that one particular dispute.

Next question. State NAV per share. I think we've done that in the presentation. And can you confirm if buybacks will continue and why you think they have value versus spot NAV?

Sure. So we stated in our presentation that the current NAV per share is 90p. Again, if I touch upon what I've said previously, this is conservative versus our historical track record. So currently, we're sitting at the implied MOIC of 2x versus 2.8x. This is based on the cash invested to date of $107 million. We obviously have commitments of $220 million. So as we continue to deploy the remainder of the $220 million, we will naturally see that drive growth in our NAV per share. Again, we need to have a look at the meaningful returns that the funds management business can deliver in terms of performance fees. If we have a look at the funds that we've raised to date, that's USD 450 million and the potential performance fees off the back of that are quite meaningful. That is not captured in our balance sheet at present. So if we believe that we will generate the returns in line with our historical returns, which we believe we can, there's quite a lot of value there that is not recognized at our year-end position. So again, the current share price is well below the intrinsic value of the business and the portfolio even just based on commitments to date. And again, if you have a look at the performance fee element of that, $1 today translates into $4 based on the 2.8 historical. So it makes perfect sense to be buying back the shares at the current share cost because they are undervalued.

There has been reduced news flow in the last 6 months. Was this deliberate or a consequence of less case outcomes?

No, I think we have had case outcomes. This is the best question today in terms of news flow. We're obviously very conscious that we need to update the market, but in terms of news flow, in terms of issuing RNSs, it's obviously a balancing act and it needs to be measured against materiality. So we -- as our portfolio gets larger and as our revenue starts to increase, the materiality threshold tends to be lower. We are thinking about a number of ways that we can address giving more information to the market. One of those is we're contemplating actually doing a podcast. That podcast will not be simply about LCM, but really about insights into what's happening in the market. But it will allow us to more regularly communicate with investors really about what's happening in the industry more widely and from time to time, what's happening in LCM.

Under the fair value framework, when are performance fees recognized?

So performance fees are recognized as part of the overall fair value that's captured. And to sort of put a number to that, the current fair value at $213 million comprises an element of performance fees, which really is just a calculation based on the fair value that's been recognized to date. So that is circa $40 million in the current position for LCM.

How does the multiple on invested capital get calculated? Does it increase on an annual basis? Or is another method used? [ Is it ] accrued monthly?

So when we think about what LCM's return is with respect to investing or funding these disputes, the first observation to make is their embodied litigation funding agreement, and each individual litigation funding agreement is separately negotiated, is a bespoke funding arrangement and we'll have different metrics in it. But as a general proposition, we get remunerated on the higher of a multiple invested capital rising over time or a percentage of the pool of capital that we create. And there's certain individual models such as what we can charge in the Competition Tribunal, which is based upon a multiple in the Australian market in terms of class action specifically, a percentage of the gross pool of capital that we create. In terms of calculated multiple, it will typically rise on 6 monthly intervals and then cap out at a particular rate and then will go on to a compounding interest.

I think this was covered in the presentation, but an update on the percentage of cases which have concluded successfully since inception. You mentioned 270.

Yes. So I think in terms of our win rate is 93% over just -- I think it's a little more than 270 separate disputes, which have resolved. And if you want to take a subset of that, you can take the performance of our [ 12.5-year ] track record, which is one of the slides in this presentation deck.

And an update on the average time a case takes to go through the courts, and if there's been significant change in the reasons for this.

Yes. So I think the best way to look at that, so I think if we look at the average over the last 12.5 years, it's just shy of 30 months. Another place to look there is in the 3-year rolling performance metrics. So that will show you that the time is trending up. I touched upon this during the presentation. There's really 2 reasons for that over the last sort of 3, 4, 5 years, and that is twofold. First of all, it's a consequence of COVID. And what I mean by that is not simply the delays that were caused because courts were closed during various periods during COVID, but the interruption to those cases is much more widespread than that. So it was availability of witnesses, it was availability of experts, and it was a whole series of things that prevented the case from progressing through its normal path. Any investment that we had entered into probably about 18 months prior to the onset of COVID in early 2020 right through the end of COVID will have some measure of disruption as a consequence of that those factors. The second aspect which is elongating time is the fact that with access to a greater pools of capital for us to manage, we're able to fund, without causing concentration risk, much larger disputes. And if we think about this logically and simply, [ fuel ] fighting about $10 million or $20 million as compared to fighting about $1 billion, you get a much longer and harder, about $1 billion in the [indiscernible] small sum. So we really expect that there's going to be a lot more fighting, a lot more skirmishing, whether we're in the court system or the arbitral process when we're talking about larger sums of money. So I think those 2 factors are elongating time. But it's important to remember that we protect the returns that we're able to generate by having a rising multiple of our invested capital over time. So that tends to shift the risk in terms of time on to the funded party as distinct from us as the investor.

[Operator Instructions] During the last period, from 50% more applications, new commitments contributed less capital. Should we expect more applications needed to commit less capital in the future?

No, we shouldn't. It's really just a matter of timing. So when an application comes in, that application is typically not complete for our purposes. So these -- the consideration of an application to work out whether it is actually converted into an investment or not is a very iterative process. So it may take anything from sort of 1 month through to 6, 8 to 10 months. So you can't really draw any conclusions from period to period because there's a lot of these applications, which will traverse the end of the interim period.

Are there any considerations regarding change in pricing policy because of extending duration of the cases beyond 4 to 5 years?

Look, we're actually not -- we look at the expected life of these investments. There's very few, if any, investments that we're entering into where we have an expectation that they're going to have a life of more than 5 years. What we do, do in terms of protecting the value of our returns is having a rising multiple over time. And once that caps out, it goes into a compounding interest rate. So I think we've thought long and hard at the front end of this about what our returns are going to be, and we build in, in terms of what our returns are, a model that really protects our position.

Probably the last question. What mix of fund versus balance sheet investments do you envisage getting to when any bond funding is approved? Do you envisage heading back towards balance sheet only?

Look, I think the answer to that is I would hope that investors are as enthusiastic as we are, as executives, about the type of leverage that we can really generate from using third-party funds. I think, at the moment, in terms of LCM's evolution, we've struck a really comfortable balance between investing 25% of our balance sheet capital and managing 75% of the capital commitments through our funds management business. And you can really see the generation of returns. That is not only going to allow us to fund much larger portfolios, so they're not [ intended ] with the same risk, it's also allowing us to leverage our returns. So I think at this stage, we're really comfortable with this sort of blended model, and we intend to continue raising third-party capital.

I think we've hit 12:00 p.m.

That's great. That's great, Tim. Thank you both, and thank you for your time this afternoon, this morning. I know investor feedback, Patrick, will be particularly important to you and Mary, and I'll shortly redirect those on the call to give you their thoughts and their expectations. But I wondered, before doing so, if I may, Patrick, just come back to you for a couple of closing comments and then ask on investors to give you their feedback.

Yes. Look, I think from an executive perspective, we're feeling really positive about the way forward. I think we've touched on this presentation in the sheer size of the market and the opportunities before us. We've touched upon the fact that LCM comes to that market with tremendous historical experience and access to more capital than we've ever had in the past. So we are looking forward to really sort of maximizing shareholder value as we move forward.

That's great. Patrick, Mary, thank you once again for updating investors. Could I please ask investors not to close this session as we will now automatically direct you for the opportunity to provide your feedback in order for company can better understand your views and expectations. This only takes a few moments to complete, but I'm sure it will be greatly valued by the company. On behalf of the management team of the Litigation Capital Management Limited, I would like to thank you for attending today's presentation, and good afternoon to all.