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

Good morning, and welcome to the Litigation Capital Management Limited full year results investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you to Patrick Moloney, CEO. Good morning to you, sir.

Good morning. Good morning to investors joining us here in the U.K., and good evening to those joining from Australia. Welcome to LCM's full year results presentation for financial year '24. I'm joined by David Collins for the first time, who has joined LCM as our Chief Financial Officer. You'll hear from him as we go through the presentation in relation to financial matters. So I want to start off by just identifying some of the key points in terms of momentum that we have achieved during the past financial period, and the first one is the financial highlights: total income of AUD 44.7 million, which generates a profit before tax of AUD 16.1 million, net assets of 94p per share and the dividend declared of 1.25p per share. In respect of our performance and our tracking performance, we have had 8 realizations or 8 investments mature during the relevant period, generating AUD 56 million of gross revenue at a 2.4 multiple. We have an unrealized portfolio of ongoing investments of 58. We have post-period end realizations early in the new financial period of AUD 13.5 million, and that was generated at a multiple of invested capital of 9.5x. In terms of our 13-year track record, we are tracking at a 2.9 multiple in respect of every single investment that we have realized during that 13-year period, inclusive of losses. In terms of powering long-term growth, we have increased very significantly the commitments in the last period compared to the prior period to AUD 270 million. That's an increase of 53%. And we'll talk a little bit more about our strategy in terms of new commitments as we present through the slide deck. We've committed capital of AUD 725 million, and that's up 50%. In respect of the fund management business, the performance fees that we generated during the financial period of AUD 12 million, over the cumulative duration of Fund I to date, it's generated performance fees of AUD 40 million. Fund I is fully committed and 75% deployed at this point. In terms of the realizations in respect of Fund I, they have generated a net return for LP investors of 61%. And that's a really important metric, because that really solidifies our ability to go out to the market and raise capital in terms of Fund III. Fund II is around 60% now committed, and we've got a really strong pipeline that's feeding into that, which should put us in a position where we are marketing Fund III in the coming months and certainly prior to the end of this calendar year. In terms of LCM's debt position, we have negotiated a new facility with our existing lender. It has 2 features, which are important. The first one is we have negotiated a reduced interest rate in respect of that moving forward, and we've also negotiated some extra capacity. So we're really pleased with that. We have an expectation that we will have that completely finalized within about a month to 6 weeks. In terms of looking forward, we've got 3 strategic priorities that we're focused upon, and the first one is continuing to transition across into an asset management business model. Now I'll talk a little bit more strategically about why that's important and to demonstrate how we've been able to really maximize the returns in respect of every dollar of LCM's invested capital by utilizing third-party funds. So we're transitioning into the asset management really well. The next one is that we've reached a point in the evolution of LCM where we are ready to deploy a staged entry into the U.S. market. Again, I'll talk a little bit more detail about this, but the U.S. is the largest disputes market globally and presents a really fantastic opportunity for LCM. Now as investors will know, from when we have expanded LCM's footprint into other territories, we've always done that in a very disciplined fashion, and we will enter the U.S. market in the same really disciplined fashion. And finally, a really exciting development is that we have acquired a big data and artificial intelligence platform. That platform allows us really access to 3 things: first, an enormous amount of data that we simply could not gain access to through traditional methods; secondly, the ability to originate opportunities in the market for investment that we wouldn't have access to otherwise; and it's enhancing our ability to really make decisions about which applications should translate into investments and which should not. So it should provide us with a really significant advantage in respective markets that we're moving into. So going back to our transition into asset management. LCM currently has raised just above USD 440 million across 2 funds. We've partnered with the highest-quality LPs, and we've developed long-term relationships with them, which we expect to translate into Fund III, IV and V moving forward. We've been able to access the very best quality LPs in respect of that asset management model simply because LCM has been in this business since its very inception in Australia. We're one of the pioneers of the litigation funding industry, and we've been able to come to a funds management model with an exceptional track record. And that has allowed us to really gain investment capital from the very best LPs who have the ability to grow with us through future funds. In terms of Fund I, we've had about 8 realizations now of investments, and they have generated a net return for LP investors of 61%. And that really solidifies our ability to approach them and gain additional capital for them in terms of funds moving forward. Fund II is performing in line with our expectations. We've had no realizations in respect to Fund II to date. However, all of those investments are currently tracking in the way that we expect them to. In terms of performance fees, they're really starting to flow through to LCM and LCM's balance sheet. In the last financial period, we had approximately AUD 12 million in respect to performance fees, and over the life of Fund I to date, we've generated performance fees of around AUD 40 million. We're really demonstrating the power of being able to leverage third-party funds and how that translates into capital flowing into LCM's revenue line. We have an expectation that we'll be going to market and marketing Fund III in the next few months, at least before the end of this calendar year, and we have some expectation that some of our existing cornerstone investors will continue to support us by going into funds of III and moving forward from there. In terms of the asset management or funds management model, I think this slide really demonstrates the ability to leverage that third-party capital. What we're doing here is we're really demonstrating the difference in terms of returns to LCM and LCM's revenue line from the old capital-intensive model of balance sheet investing as against the new funds management or asset manager model. These are all investments which have resolved in the past period. So the first one is a balance sheet investment. LCM's investment was AUD 2.8 million that, upon resolution, derived a 4.3 multiple of invested capital. LCM's total revenue in respect of that investment was AUD 12 million. We now compare that to what that looks like in terms of an investment which is co-funded from balance sheet but utilizing a majority of third-party capital. We have a Fund I investment, which has realized. The investment was AUD 6.8 million. LCM's contribution was AUD 2.2 million. The overall investment generated a multiple of 3.8x. In respect of performance fees, LCM generated AUD 6.1 million, which was a blend, really, of our direct investment and performance fees. And what that has done is it's increased LCM's revenue or it's return to a 6.6x multiple, generating total revenue for LCM of AUD 14.5 million. So investors can really see the leverage that we are able to bring to LCM's balance sheet as we scale this asset management model. Next, want to move to the opportunity which we have and it's now available to us with respect to the U.S. market. Most investors will recognize that the U.S. is the largest disputes market globally. It's larger than all of the other markets that we have operated in historically, and it provides a very significant opportunity. The U.S. market, in terms of total commitments, is estimated to be around $3 billion across our entire industry. In addition to it being a larger disputes market, it also has different types of investments which aren't currently available in any of the other markets that we operate in, and that is providing contingency law firms with a portfolio of capital to invest across a large contingent fee book. Now that allows us to invest much larger parcels of capital at reduced risk. In addition, the big data and AI platform that we have acquired recently is built for the U.S. market, and we are looking at that in terms of expanding that into other markets, but it is tailor-built to operate in the U.S. market. Just moving to the benefits that can be brought to us after acquiring this technology, and the first one lies in data. So this model gives us access to an enormous amount of data that we couldn't possibly crunch through in the more traditional anodyne way of sort of getting access to that data and then manually analyzing it. The platform allows us to analyze great swaths of data very, very quickly, and in a way that we could not possibly do in a manual fashion. In many ways, the asset class of litigation finance is perfectly suited towards the use of data and AI strategies, but it's important to remember that what we are not doing here is we are not replacing the very skilled investment managers which currently undertake that work, but rather enhance that job that they can undertake in respect of measuring the risk associated with investments by the use of data. The next aspect of this platform that I want to talk about is its ability to enhance our origination or give us access to enormous parts of the market that we currently do not have access to, not only in the U.S., but potentially in the other markets in which we operate. So it allows us to scrape data in real time and give us access to disputes as soon as they're filed within the various jurisdictions across the U.S. market. And finally, I want to touch upon the ability of this platform to assist us in terms of our underwriting capabilities or underwriting the risk of these investments. As I say, it's not a replacement for what we currently do with our investment managers, which is take a given set of facts, apply the law and predict the outcome. This allows us to apply enormous volumes of data to that decision-making process that we simply could not have done previously in the way that we undertake that due diligence exercise. So some really significant advantages that are available to us through the acquisition of that platform. Then looking at LCM more widely. As most investors know, we're a pioneer in this industry. We've got a 25-year track record. Over that 25 years, we have an 87% win ratio, and that's across circa 275 separate concluded investments. We have generated, over the last 13 years, industry-leading returns, a multiple of invested capital of 2.86x, and that's from $444 million worth of cash realizations. In terms of the markets that are available to us, and in particular, the U.S. market, they present a really very significant and large opportunity. The U.S. market is estimated to be in the order of $700 billion per annum, and the estimated sort of penetration rate in respect to the litigation finance industry is around 1%. So a really attractive market and a very large market. In terms of the capital that we're applying and the business model that we are applying to that market and the established markets that we're in, the funds management model, as we've demonstrated, really enhances the returns. We currently have 2 funds with USD 441 million of capital under management. We maintained a conservative balance sheet, cash at the end of period, AUD 53 million, and live cases as part of a portfolio of 58 separate investments moving forward. And finally, just touching upon our CAGR of 17% in net assets per share. I just want to remind our investors of some of the attributes of our asset class, which are really important. The first one is that the returns that we're able to generate from these underlying investments is uncorrelated to the wider market. And what I mean by that is at its most basic level, we invest in disputes, and those disputes are resolved through one of 2 ways. They're either the subject of a commercial negotiation between the parties, or they're adjudicated by a judge or an arbitrator. And that judge or arbitrator is unaffected by what's happening in the wider markets, whether the wider markets are suffering from economic stress or uncertainty or high inflation or high interest rates. They simply apply the law to a given set of facts, and they adjudicate in that fashion. So the outcome of these individual investments is otherwise uncorrelated to what's happening in the wider market, unlike almost all other asset classes. We operate in a market which is largely underpenetrated. I've given you some of the data historically in respect to the markets that we operate, and now that we sort of look towards the U.S. and moving into the U.S. as we are, that is a vast -- and remains relatively underpenetrated at around 1%. There are enormous barriers to entry in respect of litigation finance as an asset class in a number of fashions. First of all, the ability to actually gain the skill set to be able to operate successfully in our asset classes, exceptionally difficult to get. And for those of us who have operated in this industry since inception, we've managed to garner a significant amount of experience over those 25 years of operation. In addition, without a demonstrable track record that LCM has, it's very hard to get access to meaningful amounts of capital. I want to move next to the countercyclical nature of this strategy. We have economic conditions which are punctuated with uncertainty, volatility and the potential for there to be economic downturns. Those types of economic conditions drive demand for capital in our industry. So right from one end, which is the insolvency and restructuring space, right through to the use of litigation finance by large and sophisticated corporate users, all of that market is the increased demand when you have uncertain economic conditions. Two more points to make. First of all, our investments in the individual disputes that we invest in tend to have a much shorter duration than equivalent asset classes that we compare to, such as private equity and venture capital, so we're guiding investors that we expect that investments moving forward will average between 36 and 42 months. Some will be less than that, some will be more than that, but that is about the duration that we should expect moving forward. And finally, these investments tend to exhibit asymmetric returns. In other words, the ability to generate returns, which are a multiple of our invested capital as distinct from the potential for loss, the returns can be much outsized compared with the potential downside. And just moving forward to looking at LCM's track record over the last 13 years, that represents AUD 208 million worth of commitments, deployments of around AUD 155 million against that. We've got adjudicated wins, losses and settlements, and we can see the metrics which have been generated from those, so $149 million worth of realizations at a 5.4 multiple and an IRR of 143%. In respect of losses, notwithstanding that we've had losses, we've actually generated returns of AUD 5.2 million from those. And then finally, settlements, the largest of those categories. $289.7 million worth of realizations at a 2.8x multiple and 203% IRR. And those all together generate our 13-year track record at 2.9x multiple and a 77% IRR inclusive of losses. And the observation I'd make here is the requisite returns that one makes from an adjudicated realization of 5.4x as distinct from settlements at a 2.8x multiple. And then I'll pass over to David in terms of the financials.

Great. Okay. Good morning, everyone. So I'll start on Slide 15. And this gives you a summary of our investments broken down into 3 categories, being the investments that concluded in the period, the new investments that we added in the period and then the ongoing investments that we have at the end of the period. I think it's important to start with these 3 categories, because they really drive then what plays out through the P&L balance sheet and cash flow statements. So if you start on the left-hand side, so you can see we had 8 investments concluded in the period. That was 6 wins and 2 losses. And in aggregate, they generated $56 million of proceeds for LCM, inclusive of $12.7 million of performance fees. And I think as Patrick mentioned, that translates -- the cases that concluded in the period translated to a 2.4x multiple of invested capital for LCM. For the new investments, we continue to see strong demand, and we've made 16 new investments in the period, which in total sum to new commitments of $279 million. That's up over 50% on the prior period, and I think the prior period goes up a similar amount as well. And I'll come back a little bit later on to talk about how we've been stepping up those new commitments to take advantage of the fund management model we're now operating under. On the right-hand side, you can see the ongoing investments, which is 58 ongoing investments at the balance sheet days. If we break those down, so 44 of those investments are co-funded by our fund management level, where we typically invest 25% of the capital in the cases, and the remaining 75% comes from the third-party funds that we manage, and then the 14 cases are funded 100% by our own balance sheet. The vast majority of those, in terms of committed and invested capital, relates to 3 historic Australian cases that we value on our balance sheet at cost, and I'll come back and touch on those a little bit later on as well. Finally, you can see on the slide, I've included a table which summarizes the total commitments for LCM for Fund I investors and for Fund II investors alongside the amount of capital that we invested in the period with the cumulative capital invested to date into those ongoing 58 investments. And later on, I'm going to come back talk about our progress in terms of both committed capital and invested capital, because I think those best signal the strong growth that LCM has been delivering over the last 5 years. So let's move now to talk to the P&L. So here, you can see the $56 million of proceeds that we generated from those 8 concluded cases, with AUD 43.3 million being the proceeds from investing our own capital and $12.7 million being the performance fees that we earned on the third-party capital. To date, all the performance fees that we've earned have come from concluded investments in Fund I. So Fund I was launched in March 2020, and to date, 7 of the investments in Fund I have concluded, all successfully. And so cumulatively, we've earned over $40 million in performance fees from those successful conclusions to date. At a gross IRR perspective, they translate into an IRR of around 80%. And then in terms of what flows to our LP investors, net of the performance fees and net of all other costs, I think, as Patrick mentioned, our LP investors are currently looking at a net IRR of 61%, which we think is a very strong performance. So through the 8 investments that concluded in the period, you can see on the third line that LCM invested $23.8 million of its own capital into those cases. And so netted against the $56 million of proceeds, that gives us a net realized gain of $32.2 million. Below the net realized gain, you can see the net fair value impact on the P&L in the period of around $12.5 million, so somewhat comparable to the prior periods. If I break that net fair value movement down, there's 2 key components to it. So the first of all is the fair value in relation to concluded investments that we write off on realization. So that's AUD 30.9 million, which is a negative impact on the line. And then the positive impact is $43.4 million, and that relates to the fair value uplift in ongoing cases as we deploy more capital into those investments. But when I get on to the balance sheet, I'll spend a little time describing our approach to the fair value methodology and why we think it's conservative. So if you take the sum of the realized gains and the net fair value movement, you can see that we had total income in the period of $44.7 million, and that is down on the prior period, but that simply reflects that the prior year had a greater volume of concluding investments. And I think the key thing to focus on is the multiple of invested capital that we're generating on the concluded investments. And as mentioned earlier, that 2.4x multiple that we achieved in FY '24, we think, is still strong and is consistent with our long-term track record. Below total income, you see operating expenses, which came in at $19 million. That's a 20% increase over the prior period, and it's largely attributable to 3 factors. First of all, about 12 months ago, we put through a salary increase for all staff of 5%, and it was part of the annual salary review, and that just reflects the inflationary environment at the time. We've also had an increase in headcount of 4 people over the period, which takes us up to 24 staff total, and then we've also incurred some consulting fees in the London market as we focused on enhancing our origination capabilities there. Looking further down the P&L, you'll see finance costs of $10.2 million. That reflects the impact of the higher interest rate environment on our debt facility. So if we bring this all together, it produces PBT of $16 million for the period or $12.7 million on an after-tax basis. But just looking forward in terms of the tax rate, I'd expect the effective tax rate to be 27.5%, which is the average of the Australian and U.K. corporation tax rates. So if you move now to the balance sheet, so again, starting from the top, you can see we've got cash of $53 million, which gives us a strong liquidity position. And if you look a little bit further down the balance sheet, you'll see borrowings of $61.9 million. So netting those 2 against each other gives us net debt of $8.9 million at the end of the period, so a modest net debt position. Below cash, you can see we have AUD 15 million of debtors. Around AUD 12 million of that has been collected post-period end. And then the main feature of the asset side of our balance sheet is clearly our investments. You can see that broken down into 2 lines. So in total, the investments sum to AUD 243 million, and that's broken into investments held at fair value of $202.9 million, and that relates to 55 of those 58 ongoing cases. The remaining 3 cases are those all sort of Australian cases which are held at cost for historic accounting reasons, and that comprises the $42.1 million that you can see there on the balance sheet. Looking a little bit further down -- well, actually, let's just pause there. So take that $243 million. So one way for you to think about -- is that conservative, et cetera, is the cash that we've invested into those 58 ongoing cases is $128 million as of the period end. So if you take that $243 million and you divide by $128 million, that will give you a multiple of cash invested at 1.9x. And if you think about comparing that to our long-term track record of achieving 2.9x, we think that gives you some evidence that the way that we are fair valuing these investments is conservative in terms of that balance sheet value. So moving further down the balance sheet to the liabilities section. So we've spoken about the borrowings. You can see the other balance beneath that is deferred tax and tax payable. The vast majority of that balance relates to deferred tax on the fair value assets on our balance sheet. So effectively, by recognizing fair value on ongoing cases, we've created an unrealized gain on the asset side of the balance sheet, and so we therefore need to create a corresponding unrealized deferred tax liability in relation to that unrealized gain. The other creditors that you see there at the period end primarily relate to invoices that we've received for case funding that has subsequently been paid post-period end. And if you bring this all together, at the end of the period, we had net assets of $188.9 million, equal to 94p on a per share basis. And it's worth also noting that 94p is net of the 2.25p per share dividend that was declared with the FY '23 results that was paid in the first half of this year. So let's move now to the cash flow statement. So we've begun the period with cash of $83 million, and we generated cash from those concluded investments of $56.7 million. We invested just shy of AUD 40 million of our own cash into case funding, and it's worth noting that the typical life of one of our investments is between 3 and 4 years. So the cash that we invest into cases is typically spread across several accounting periods. Below that, we have $17 million of operating expenses and $9 million of interest costs. The difference between the amounts shown here in the cash flow statement and the P&L is simply accruals. So we have some accruals for operating expenses for professional fees, rent, things like that. The interest, we have an accrual for the original issue discount on our debt that we accrue for and will pay back when that debt is repaid. Below that, we have the dividend and the share buyback, so summing just over $10 million in total. And I think as Patrick mentioned earlier on, the buyback is around 70% complete as of today, and that will continue until conclusion later this financial year. You'll also see debt repayments. So we took the opportunity to repay part of our borrowing. It was around $8 million. That was to reduce interest costs. And then the other cash movement that you see there is tax paid in the U.K. in relation to successful case conclusions in the prior period. And this leaves us with a strong cash position at the end of the period of around $53 million. So before I close, so we walked through sort of P&L balance sheet cash flow, giving you a 1-year view. I think given the long-term nature of this business, it's more interesting to look at what's happening over a longer period. And so on Slide 19, I've set out here the growth in new commitments, committed capital and invested capital. So new commitments is the new business that we're effectively out adding every year, committed capital is the sum of all commitments as of the balance sheet date for those ongoing cases and then invested capital is the cash that we've invested into those cases to date. In my opinion, the growth in committed capital and invested capital are the best indicators of the growth that LCM has been delivering over the last 5 years. So you can see committed capital there has grown strongly at a compound annual growth rate of over 40% since FY '19. And similarly, invested capital has grown at a CAGR of over the same period. And ultimately, it's the returns that we generate on this invested capital that will drive shareholder value over the long term. I think the other thing to note on this slide is you can see the change in mix. So over time, you can see the growth in the third-party capital via our funds model. That benefits our shareholders because it reduces the capital intensity for LCM, but it also brings in the potential to earn lucrative performance fees on those third-party assets. And then the last slide for me is Slide 20, and this is just showing you how our operating expenses as a percentage of committed capital have been steadily declining over time as we've driven that growth in the committed capital base, and we think that the operating expenses will ultimately fall below 2% of committed capital, and I would take that as a good signal that we've successfully transitioned to an asset management model on a sustainable basis. So with that, I'll hand back to Patrick for the outlook.

Conscious of time, I think what a lot of investors were looking at when LCM came to the public markets here in the United Kingdom, and then prior to that, in the public markets in Australia, was whether LCM was able to replicate its track record moving forward. What we've been able to demonstrate is that we are able to replicate that track record over an extended period of time and over multiple cycles of capital. So the real focus that we have got from a management team's perspective is now starting to scale this business. You can measure scale by the increased number of commitments. We've also demonstrated that whilst we're scaling this business and maintaining the track record that we've been able to achieve, we've been able to reduce our operating expenses as a measurement against commitments that we make over a period of time. Next thing I want to touch upon is the sheer size of the opportunity entering the U.S. markets. As investors will know, when we have sought to expand and put down a base and put boots on the ground in new jurisdictions historically, we've been very measured and very disciplined about the way we do that. We've been looking at the U.S. market now for a number of years. We've decided, given the strength of the business that we've developed here in the London market and across Europe, in the Asian markets through Singapore and our traditional market of Australia, that we're now ready, and it's now the right time for us to be moving into the U.S. market. It's a vast market. And finally, I want to just touch upon the acquisition of this big data and AI platform. First of all, it provides a staging point for us to operate in the U.S. It is a system which has been generated so far for the U.S. markets. I just want to give an example of this just to sort of make this relatable to investors, and I want to pick investor-state treaty investments. So this is a claim where we will fund a party in a claim brought under a treaty against a sovereign. Now this AI platform is able to crunch an enormous amount of data and make some predictions with respect to that data at how a newly commenced case will perform. And just let me give you a couple of data points so that you can sort of relate to the power of this system. When we are considering a new investment, we think -- and in particular, a treaty investment, we think about a number of dynamics, not just the state of the law and the given set of facts. We're looking at the skill of the practitioners involved, we're looking at the makeup of that arbitral panel, and we're looking at the behavior of that sovereign. And this data platform crunches every single data point with respect to everyone involved in that dispute since they began practicing. So we can measure the actual performance of the lawyers that are acting. We can measure the actual performance of the arbitrators who sit on that panel. We can measure the actual performance of that sovereign rather than get a subjective view about that from the market generally. So that's just but one example of the sheer power of this AI platform and this big data platform that we have acquired. And just conscious of the number of questions that we've got, I might close there and open the floor to questions.

[Operator Instructions] I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. [Operator Instructions] [ Josh ], if I could hand over to you to start the Q&A with the pre-submitted questions, that would be great, and then I'll pick up from the room at the end.

Thanks very much, Patrick and David. So some of these questions have actually been answered during the presentation, so bear with us. But just on the share buyback program, perhaps, David, can you just reiterate where you are and what your expectation is going forward on that?

Yes. So as of today, the buyback is around 70% complete. It has been put in the RNS. That's going to be ongoing. So we would expect that will conclude later this financial year, this 2025 financial year for LCM.

Okay. Thank you. There's a question around the research in the market. What research is in the market at the moment?

I should just add to that last question. Investors have also asked us why we can't sort of speed up the process of that buyback. It's a heavily regulated area here on the U.K. markets, and we are constrained in terms of what we can buy. It's a backward-looking metric, and we can only buy a certain percentage of the previous 5 days trade. So just in answer to some investors who have been asking us why simply can't we speed up that process, it is heavily regulated, and we can't do it any quicker than what we're doing.

Yes. But we are buying back at the limit to what we can do every day.

And just on the research on market in the current...

Sure. So our brokers will -- so there are estimates out there. So Zeus Capital publish the news, and our brokers would also be sort of putting their numbers back out into the marketplace over the coming week or so.

Thank you. There's a question on whether you would consider follow-on investments, with an example given of Panthera. Do you do this? Do you think you miss an opportunity if you don't do this in terms of enhanced terms? Does that exist?

Yes, I think certainly follow-on investment or secondary investments is something that we sort of follow the market in and we watch quite closely. But when it comes to sort of measuring risk associated with the type of secondary investment that's being considered here, which is the Panthera Resources one, that's really an investment, from our perspective, at an equity level of that company, and it's subjected to all sorts of risks that we're really not capable of making a proper assessment in. We feel much more comfortable making the investment decision at a dispute level as distinct from taking an equity position in the funded party.

Wonderful. Thank you. And noting that a lot of cases are outside your control, that said, there's 3 questions on GreenX and Queensland power. Is there any update you can give on the time line for that, of those 2 cases?

So we get a lot of inquiry about certainly GreenX and historically different other publicly identified investments, which form part of our portfolio. With respect to GreenX, it's completely out of our hands. That was a hearing that took place more than 18 months ago now. That tribunal ought to be giving a determination in respect of that at any particular time. Just touching upon the acquisition of the big data and AI platform, that will give us an enormous amount of data with respect to duration risk, with respect to investments of that nature on an empirical basis rather than what we have at the moment, which is really just sentiment. So no real update in respect of GreenX. No one should read anything into that, good or bad, in respect to the underlying merits of that. It's just taking this much time for that arbitral panel to deliver its award. In respect of the Queensland energy claim, we've had a first hearing in respect of the issues associated with any competitive behavior. The decision with respect to that has been reserved and we would expect, all things being equal, sometime between 3 and 12 months that we'll get a judgment in respect of that investment.

Thank you. And then this is a question just around the [ explosion ] portfolio. Burford was driven by a large win. Does LCM have any cases where it has a similar large participation percentage?

I mean if you look at the way we structure data, also typically our terms are -- we will get the higher of a multiple of our invested capital or a percentage share of the awards, but we do have cases in our portfolio where the nominal value of the claim is very large. So that upside is there. But I guess I would focus people on look at the growth in that invested capital that I showed on Slide 19. And it's the returns, those multiples of invested capital, on that invested capital base that's going to ultimately drive shareholder value. And I think there's a strong signal there in terms of that growth in committed and invested capital and the multiples that we're generating. I think investors can get comfortable with that. And then yes, there is the potential for big wins potentially coming from our portfolio, but I focus more on the invested capital from my side.

And if I can just add to that, when we build a portfolio of investments of disputes, whether it be for Fund I or for Fund II, we are trying to build a portfolio which is not suffering for concentration risk in any one single large investment and that's punctuated by diversity across industry sector, across jurisdiction. And all of those things are really fundamental to the way we think about portfolio construction in the same ways you might think about that in respect to other asset classes.

A question now to cash. Why is it so low, given most cases are advanced and many are subject to performance fees? Is this an indicator of portfolio deterioration or the LCM conservatism to fair value?

Okay. So there's a few things there. So if you think about it, just stepping back, so when we invest cash into the cases, so that cash goes from the cash line on our balance sheet into the investments line. And I think I said that the 58 ongoing cases, we've invested $128 million of cash into those cases. So I think you need to think about that in terms of rather than just looking at the cash balance on the balance sheet alone, I don't think there's any real meaningful analogy there comparing the cash to the NAV. In fact, if we were mostly cash and a lower investment balance, that would signal that the business was sort of in decline. As I showed in Slide 19, we've been growing the value of the portfolio over time. I don't think -- I think it was a question on is there a sign of deterioration. No. I mean, if you want to think about the quality of the portfolio, just -- I would focus on the track record, right? So the 2.9x multiple of invested capital. And if we look at the period, so 2.4x multiple of invested capital in the last 12 months, remember that's just capturing those investments that concluded in that 12-month window, right? We signaled that there was a case that concluded actually just a couple of weeks beyond the window where we've made 9.5x multiple. Had that case concluded a couple of weeks earlier, then we would have been saying to you, we made actually 2.7x in the period. So I think if I was you, in terms of thinking about the quality of the portfolio, just focus on that long-term track record and are we extending it with strong performance period in, period out. And then was there a last...

Another question has just come on the NAV calculation. Does that include performance fees?

Yes. And there was a fair value piece as well in your prior question. So let's try and deal with both of those. So the first one, I think, is the fair value conservative. So again, I would emphasize the fair value is valuing the case on our balance sheet at 1.9x cash invested. Again, compare that to the track record of 2.9x. So I would say, yes, that's conservative. The other nuance, when we disclose our track record, we do so on a global basis, which means excluding performance fees. Now how do you -- if we translate that 2.9x to an inclusive of performance fees basis, that 2.9x would increase to over 4x. And that's where our business model is transitioning as you've seen our balance sheet move towards the sort of co-funded model with third-party folks. So I think that does emphasize that we're conservative. So that 94p of book value was conservative. And then the question on, do we include performance fees in our fair values? Yes, we do, but that's included within the 1.9, right? So the 1.9, we still view as conservative. And we do recognize a component of performance fees within that, but that's still a discount to the track record or the uplift to track record, if you were to translate it to the funded model. Hopefully that makes sense.

That does, David. It leads us on to another question, just on that transition to the funding model. Do you provide any sort of guidance over the next 5 years of what that return of CAGR looks like? And equally, on the same time frame, what sort of range of growth in the book value per share?

So just so I understand the question, the CAGR is on the growth in commitments?

It's exactly that. Yes.

Yes. So new commitments. So as we transition to this new fund management model, where we have this lower capital intensity and that ability to access performance fees on the third-party capital. So what you have seen us doing over the last couple of years, again, as shown on Slide 19, is sort of stepping up those new commitments, so up 50% in FY '24, and similarly, '23 was also up more than 50%. So we've stepped up those new commitments, $279 million in the last 12 months. I think we're operating now at the right sort of level to really leverage this fund management model. So looking forward, I think like any investment business, we don't want to promise that we're going to invest a certain amount of capital because it's going to depend on the quality of opportunities that we see, but broadly, if we're in that sort of $200 million to $300 million in new commitments range, and we can sustain that for a period, we think that will really sort of -- over time, will flow through and drive real operating leverage in the P&L, which we think will benefit shareholders. And then was there a second...

It was...

Book value. Yes, so we put on one of Patrick's slides, on Slide 6 or something like that, the compound annual growth rate in net assets per share have been 17% I think over the last 4 or 5 years. We feel like 15% to 20% is a good range for us to be delivering over the medium term, but it won't be in a perfectly straight line, just back to what we were talking about earlier on in terms of we can't really control when our investments will mature. So from period to period, there will be different levels of lumpiness, if you like. So in FY '23, we had more investments concluding. But over the medium term, which I think is how you should look at this business, I think that's sort of 15% to 20% compound growth in net assets per share is an achievable target [ for us ].

Thank you. And just on the fund model. What's the target size of Fund III? Should we consider that same size as Fund II or larger?

We're hoping to actually attract a larger size in terms of Fund III. We're going to set a target in respect of Fund III immediately before we go to market for that. What we want to do is pick a target that we know that we can achieve a full commitment during the investment period of 24 months. So I would like to think that we will increase the size of Fund III, perhaps to $350 million, perhaps $400 million.

Thank you. And at the half year, you thought Fund II would be fully committed by the end of the calendar year. Is that still the case?

We're tracking very well. We've got a very strong pipeline with respect to Fund II, and we can go to market with respect to Fund III as soon as we get to an amount of 75% fully committed. So we're pretty close to that target now.

Thank you very much. Just on the new move into the U.S., is this a recent development, given that there hasn't been an RNS and there hasn't been any disclosure of the structure? Is that for commercially-sensitive reasons?

No, we've been looking at the U.S. as an attractive market for LCM for a number of years now, in the same way that we looked at the U.K. for a number of years before we actually opened an office here, ample boots on the ground. There's really been no event thus far of a material nature which would engage the need for us to publish an RNS. What we're doing now is we've made the decision we're entering the U.S. market. We're looking at all those options which are available to us including the availability of teams, which are currently on the ground, some -- the strategic alliance with an existing team that can convert across to become LCM's representative, or any other option that might be available to us. So we made the decision, and now we're going about planning that move.

Thank you. Conscious of time, we've probably got about another 2 minutes for the last round of questioning. To what extent has the post year-end realizations of the $13.5 million been recognized in these numbers? And how much profit will be recognized in the next financial year?

Yes. So that case that concluded, that was not recognized in the period. So we invested $1.5 million into that case and generated proceeds, inclusive of performance fees, of $13.5 million. So you can see there, there's a realized gain of $12 million, and that will be recognized in the first half of this...

Okay. And then just back to the U.S., there's a question on the multiple of cash invested. Do you expect it to be lower in the U.S. cases? As a comparison, Burford's return on invested capital since inception is 86%...

Yes. I think when you're talking about the U.S. market, there's a number of things to consider. Not only is it a larger market, but it also presents an opportunity for different types of investments. I mentioned during the presentation that the contingency [ bar ] in the U.S. makes available what is known in the industry as law firm portfolios, which is providing a capital source to a law firm, which will be collaterally secured across a large portfolio of disputes. And the funded then participates by sharing in the contingent upside for the law firm. Now that is a particular product which is not available in any of the other markets which we currently invest into. And that, because it's a lower-risk product, will generate lower returns than what we typically are able to generate with respect to single case investments. So it will be a blend across a number of different investment styles once we get into the U.S.

Perfect. Patrick, David, thank you very much for answering those questions. I might just jump in now just as we've got -- we're coming to the hour. Just before redirecting investors to provide you their feedback, which I know is particularly important to the company, Patrick, just wondering if you had any closing comments?

Look, only that I think, from an operational level and from a commitment level, we've made tremendous strides and steps forward in the past financial period. And we've got tremendous opportunities ahead of us, both with the big data and AI strategy platform that we've acquired and the opportunity of moving into new and large markets as well as the prevailing conditions, which are driving demand for our capital across all of our existing markets that we operate in.

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