Litigation Capital Management Limited ($LIT)

Good morning, ladies and gentlemen, and welcome to the Litigation Capital Management Limited Results 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 the management team. David, Patrick. Good morning to you both.

Good morning, everybody, and good evening to those who are joining in Australia. Patrick Moloney is my name. Most of you will know me as the CEO, and I'm joined by David Collins, the CFO. I will deal with the first part of our presentation as to where we're up to, and David will present with respect to financials. Investors will probably observe that this will be a slightly shorter presentation than we're used to giving. That is principally because of the position the company is in currently. We are very much focused upon management of the existing portfolio, and we are not taking on any new investments at this time. And I want to start with performance. And what we're really seeing flowing through the financials of LCM now is the result of 2 large losses, 2 large losses at trial, which have occurred in previous financial periods, but are really being taken up in the financial accounts now, which David will talk to, but have really sort of impacted pretty significantly upon net assets. And those 2 large and rather concentrated investments, which we were unsuccessful on, have really driven that outcome in this financial period. And that's really detracted from what we look at with LCM on a longer-term basis, which is historically a very high end performance in terms of win-loss ratio and the underlying financial metrics, which came with that. And I'll talk a little bit about what maybe has interrupted that otherwise really strong performance. And it's not really just LCM who's suffering in this market as well. I mean I don't want to detract from presenting LCM's position here, but this is really a symptom that is flowing right across the whole sector at present. You'll see one of our listed peers presently is suffering from a really concentrated position that it had invested in, which has recently been overturned on appeal. And if I look at some of the non-listed peers that we have in all the markets in which we operate, including the U.K. and -- Asia and into the United Kingdom, we are seeing quite a bit of contraction in this industry. And largely, that is a symptom of what LCM is really dealing with now. I want to now turn to the proactive actions that we have taken as management. As investors will know, we launched a strategic review in September of last year. That strategic review continues. The strategic review has identified a couple of opportunities which we are currently working through. We are not at liberty due to confidentiality obligations really to go and delve into the detail of those opportunities. But there are 2 -- at least 2 real and tangible opportunities which we are working on together with our secured credit provider. In addition to that, we have secured covenant waivers, and those covenant waivers have allowed us to continue to operate, to continue to manage and to continue to invest into the portfolios of investments that we currently manage. So not only have we secured covenant waivers, but we've secured an extension on our existing capital facility so that we can do that. For my part, I've returned to a very hands-on position now in terms of case management. I'm working closely with our investment managers in respect of each and every investment that we have as part of our portfolio. And as a consequence of that, we've had to make some fairly tough investment decisions, and we've had to rewrite the entire portfolio in terms of risk and in terms of prospects of success. And in respect to undertaking that exercise, we have had to elect to not pursue certain investments, and we are working our way out of certain other of those investments. So there's very much a rebalancing exercise going on. And that is not something that can be achieved quickly. It's something that is achieved over a period of time. And we've seen some of the consequences in relation to that. One of those is the Gladstone class action, which we had discontinued our funding in some time ago now, but that is now hitting our balance sheet, and David will talk more about that. In addition to that, we've reduced our operating cost by about 50% so far, and we are really focused upon our core team of investment managers. And those -- that core team of investment managers was really responsible for our historic track record and performance. In terms of progress to date of that strategic review, it might seem to investors from the outside that not a lot is happening in respect of that. There is an enormous amount of work going on behind the scenes and an enormous amount of activity and cooperation between ourselves, our capital provider in respect of endeavoring to strike a balance between the interest of parties, including equity, where we can seek to recapitalize LCM. And if not, we move into a process of runoff. And that process is taking more time than what we would like, but it is necessary. And we are pretty hopeful that, that is going to bring about a successful outcome, whereby we inject additional capital into LCM, and we're able to start to rebuild LCM's balance sheet and its portfolio more widely. So when we talk about that strategic review process, it's at an advanced stage. We hope to be able to engage more fully with the interested parties and be in a position where we can report back hopefully, earlier than the end of the next quarter, but certainly by the end of the next quarter. And there's constructive dialogue and there's a significant degree of cooperation occurring between executives and the management team and our lenders throughout this process. I've got to say that there's a range of outcomes that could eventuate in respect of this. And we are reliant upon debt covenant waivers and a continuation of the debt facility, and that is something that represents some risk. So far, we've been working very cooperatively, and there's no indication whatsoever at this stage that capital will still not be forthcoming and debt covenant waivers will not be forthcoming, but it does represent risk. In the absence of being able to negotiate an outcome with the introduction of capital that is satisfactory not only to the Board, taking into account interest of equity participants, but also our lender, we will have to consider and probably move to a lean runoff model in respect of the existing portfolio. So all of those options that we're looking at are not without risk. But I can say from my perspective and from the executive perspective that we are pretty positive about what the opportunities are. We're now going to move to financials. And then beyond financials, we want to move as quickly as we can probably to Q&A, and I'll hand over now to David.

Good morning, everyone. So I'm going to start on Slide 7, which just gives a summary of the investment activity in the period and then that then filters through to the P&L balance sheet and cash flow. So I mean, as Patrick set out, the second half of the 2025 calendar year, which is our -- the first half of our financial year, was a very challenging period for LCM. On the left-hand side, you can see we had 4 investments concluded in the period. There's 1 small win and then 3 losses. Additionally to that, we had an adverse cost order on the Queensland electricity claim that exceeded the level of ATE insurance protection that was in place. We announced that on the 24th of December. Furthermore, we had 2 other losses in the period, both of which are undergoing appeal. And then post period end, we've had 1 small win and 2 small losses as well. So it's been a very challenging period for LCM. In this period, we're focusing on the second half of last calendar year, which is the first half of our financial year. But really, the 2025 calendar year in total was a very challenging period. On the right-hand side, you can see the position of the book now in terms of ongoing investments, so 46 ongoing investments as at 31 December 2025. If we move now to the P&L on Slide 8. Rather than talk through sort of line by line, if we just think at a high level. So if you look about halfway down the P&L, you see the total income or total loss for this period, which was minus $106 million. As Patrick mentioned, that was driven really by 2 large losses. They were announced, I think, on the 15th of September and the 1st of October last year. And then also the adverse cost loss, which we announced on the 24th of December. So of that $106 million, I think about $87 million or $88 million of that is coming from those 3 cases. We then had a number of smaller losses as well. And then the only other item that I would draw to your attention on this -- on the P&L above the total income result is the second line. So concluded investments, performance fees on third-party capital. You'll see that number is negative $6.6 million in the period. That is the performance fees that we had accrued for on the large Polish case where we were anticipating earning performance fees on the Fund 1 capital that had been invested into that case. In light of the losses that we've suffered and the sort of deterioration in the performance of Fund 1, we've effectively reversed the performance fees that were previously recognized. So now we do not anticipate earning performance fees on that investment, but we still anticipate LCM receiving its 25% share, which can be -- still a very material amount. As we go down the P&L, operating expenses, you'll see have reduced significantly, $6.1 million in the period. As you recall, so the operating expense run rate that LCM was on sort of prior to getting into this period of difficulty was around AUD 20 million per annum. And the actions that we took, which Patrick alluded to, in terms of reducing OpEx brought that down to an annualized run rate of $10 million per annum. And if I break out the operating expenses, the underlying expenses there are around $5 million for the first half, so in line with that $10 million prior guidance. But we have had some exceptionals of $ 1.1 million in the period. About half of that relates to essentially the redundancies that we implemented in the summer of last year and most of that was simply paying people's notice periods. And then we've also incurred a little over AUD 300,000, and that's the adviser fees on the strategic review that we're running. So the underlying OpEx rate on an annualized basis is around AUD 10 million. And again, as Patrick mentioned, the backup plan, if the strategic review does not produce a deal, is that we will go into a runoff model and reduce the operating expenses further. And if that is implemented, then we think the annual OpEx rate will come down to $5 million. So effectively 1/4 of what the company was operating at, call it, 18 to 24 months ago. So yes, looking down the P&L, a very challenging period, and that's produced a large net loss in the period of AUD 108 million. If I move now to the balance sheet. So you can see the impact of that loss on net assets. And obviously, this is what's driven the very meaningful drop in the share price. So net assets have fallen to around AUD 6 million in the period. At the bottom of that -- of this slide, you can see the fair value multiple of invested capital, which is now 0.7x the cash invested. I think the impact on net assets for LCM has been somewhat exaggerated by our move to fair value accounting. So when I joined the company about 18 to 24 months ago, the fair value MOIC of the assets at that point in time was around 2.5x cash invested. Now what we've experienced since is a lot of losses. And as you know, we now value cases that have lost and are under appeal at around 50% of cash invested. And therefore, the quantum of capital invested into cases that are now under appeal is the reason why the fair value MOIC across the book is 0.7x. In general, we've evolved our fair value accounting approach where now the approach is essentially that we don't recognize fair value uplift on cases prior to judgment. If you think about it, fair value accounting is trying to approximate the market value. And while the secondary market for selling litigation funding assets is relatively thin, there isn't really much evidence out there that you can sell cases prior to trial at a premium to cash invested. And so we've sort of evolved our fair value accounting approach. And now we've got a significant quantum of capital that are cases that are under appeal. And so those are held at around 50% of cost. And then other prejudgment cases, the general rule is that they will not be marked up until you've got a positive outcome in the case. And so that's the reason why the fair value multiple of invested capital has came down quite significantly over, let's say, the last 18 months. If I move now to the cash flow statement. So the last 12 months for LCM have been really challenging, right? So there's been a lot of cases that we were sort of hopeful and positive on that have lost. And as a consequence of that, we haven't had much cash coming into the business. So you can see in the first half of our current financial year that we had cash generated from concluded investments of AUD 1.4 million. That's that small single win I mentioned earlier on. If you actually look over the calendar year, the 12 months, to 31 December, the cash generated from concluded investments was only AUD 5 million over that entire period. And so that lack of cash coming into the business, while there's still a lot of cash going out into funding the existing investments is the reason why the net debt of the company has grown so rapidly. So you can see net debt position is AUD 92.4 million. And if I was to give you that position as at today, 31 March, it's increased further to AUD 123 million. And the balance sheet challenges that we are in simply reflect the equity and the debt position, right? So net assets is down to around AUD 6 million, while the net debt is now circa $120 million. And so that's what we are trying to solve for via the strategic review. My last slide is the -- just to give you -- it's a slide I showed, I think 6 months ago and maybe even 12 months ago, to give you a view of the concentration risk that sits within our balance sheet. So this has been our main problem, large cases where a lot of capital was deployed that have unfortunately subsequently lost. So this shows you the top 10 largest concentrations. And just so that you understand the 2 columns on the right, so the global capital invested, that is the sum of total capital invested being LCM shareholder capital, which is actually shown in the right-hand column, plus external fund capital where that's relevant. So GAR 1 and GAR 2 are our 2 funds. And so when those funds are co-investing alongside our balance sheet. Then the global capital invested will be greater than the shareholder capital invested. For this audience, our shareholders, it's the right-hand column, which is of most interest because that identifies the shareholder capital invested into cases. And you can see that most of the large cases we've now sort of had a result on and several of them are under appeal. You can see after sort of #4, there's a real drop-off of concentration risk for shareholders. So a lot of the challenges are somewhat behind us. I would say that the top 3 cases are all under appeal. And so there is still some value within our balance sheet attributed to those cases. It's around AUD 30 million. But hopefully, most of those large lumps are now sort of in the rearview mirror, if that makes sense. With that, I'll hand back to Patrick for the outlook.

So if we look now at what management is focused on looking forward, it's really proactively looking at what happened in the last 12 months and making sure that we manage going forward to avoid the concentration risk that has perpetuated previously. We have increased the vigor with which we are managing these investments, and most of that is really done on a hands-on basis by me supervising that very closely. We have continued to secure the support from our lender. And if we just think about what that relationship is, the lenders' collateral in respect of this is the portfolio which we are managing. So we really are sort of both looking at the same outcome here, which is continuing to manage these investments closely, continuing to fund these investments closely through to a successful outcome. And then finally, we're very focused in respect of bringing the strategic review to a conclusion. There is meaningful interest in a capital transaction that could change the way the company looks and the way that the company operates through the injection of additional capital. And we are working sort of very closely with all interested parties to achieve that outcome. And I think from there, what we'll do is we will sort of move on to questions, which investors might have, and that might be the best way to sort of work through specific issues that we might need to discuss.

That's great. Patrick, David, thank you very much indeed for updating investors. [Operator Instructions] Just while Patrick and David take a couple of moments to review your questions, I'd just like to remind you a recording will be available post today's call. David, as you can see, you've had a number of questions from investors, both ahead of today's event and during the presentation. Thank you to everybody for your engagement. If I may just hand back to you, David, and we'll pick up from you there. If you rush through the questions, that would be great.

Yes. So we've got a number of pre-submitted questions, which we will start with. So the first 2 are from sort of long-term shareholders, but basically saying what's sort of gone wrong over the last 12 months with cases losing and drop off versus the historic win rate? Patrick, I don't know if you want to respond to those.

Yes. So look, I think it's -- really, we had the outcome of a number of investments, which were unsuccessful over the last 12-month period. But really, that is a reflection of investing in concentrated investments, which were invested in many, many years before that. So I think it's probably not the right thing to say what has happened in the last 12 months. To use an expression, the die was in the water for a long time in respect of these investments. Some of those we had to make a tough decision in relation to such as the Gladstone class action. But we are genuinely sort of working very hard now and very focused upon the management of the existing portfolio through to conclusion. And I think that's the way that we look at the last 12-month period.

The next question is, is there a backup plan in case Northleaf withdraws support? So what I'd say on that is Northleaf to date have continued to provide us funding. They've provided us with covenant waivers. And it's really not in their interest at all to withdraw support, right? They're interested in recovering the value of their debt. So to date, they've behaved in the way that we would expect. They've continued to provide funding. In terms of the backup plan, if the strategic review does not produce new capital, then the plan is to, as we described earlier, move into what we call a lean runoff model where we will take the operating expenses down by another 50%. So the annual burn rate on OpEx will be around AUD 5 million. Again, in that scenario, we would -- can't speak for Northleaf, but we believe they would continue to provide funding to allow the cases to run off through to conclusion. The only point that we would need to reiterate is in that scenario, we would obviously still be reliant on securing future debt covenant waivers from Northleaf. So that's important to remember. But that would be that's our current position in terms of the backup plan. The next question is what is, the value added stemming from the assistance of Luminis Partners? And what are the costs associated with their services? Patrick, maybe you can take the value added. And then just on the costs, I think I mentioned in the slides earlier on that I think to date or in the period, we paid AUD 300,000, and that's essentially their fees for managing the strategic review. Sorry, Patrick.

Yes. I think there's 2 issues there in relation to Luminis Partners. The first one is Luminis Partners have identified 2 prospective capital partners here who we are engaged with and who our lender is engaged with currently. So it's really about just moving that forward to consummate if we can, a transaction, which will be for the advantage of all stakeholders. In relation to any retainer, we are not paying Luminis Partners a retainer in respect of this. We did in the early stages of this. So it's really just a success fee, which is determinative of a transaction occurring.

Yes. The next question is, what was the rationale for introducing fair value accounting? And basically, it sort of identifies the challenges of using that accounting approach to reflect economic reality. So I think, look, the industry has moved to fair value accounting. And the difficulty that you need to sort of remember is the nature of our investments, right? So they are binary investments, which means they can either produce a 0 or a very big number. I mean LCM has made north of 8x capital on some of its capital invested on some of its historic investments. So it can produce a very wide range of outcomes. And the difficulty with any set of financial statements for a litigation funder is that for each investment, you have to put single value on that asset at the balance sheet date. And I think the challenges that come from that is, what we've experienced in the last 12 months, where you put what you believe may be a conservative value on the investment and certainly much lower than the potential win if the case is successful. But nonetheless, if you have a bad outcome, you have to write that investment off entirely. So in my view, the use of fair value accounting in the sector is going to be this continuous evolution and honing the model over time. As I say, probably one of the big learnings for us over the last 12 months or so is really thinking about cases that are prejudgment or pretrial, should you really be marking those up really at all. I don't think there's much evidence in the secondary market of cases being sold at a premium to cash invested. There's one transaction that I can recall where a book of cases were sold at a premium, but there was a back-end guarantee associated with that deal. And therefore, the upfront price is, in my opinion, somewhat artificial. So we have sort of learned and evolved the model, but -- and I think with fair value accounting, it's going to be something continuous. But the main challenge just comes back to in this sector, particularly single case funding, the range of outcomes is so wide and yet at each balance sheet date, we're required to put a singular value on each investment. And I think in other sectors, where fair value accounting is used, you probably don't get anything like that range of outcomes. And therefore, the impact of fair value accounting can look more pronounced for a litigation funder if you have a bad run of case outcomes. The next question is, do investment managers have personal stakes in the company? How high are those relative to their salaries? I mean, as you know, I think Patrick has around a 10% shareholding in the company. The Chairman of the company has a 5% shareholding, which he's acquired with his own money in the market. So there was strong alignment. And then there are -- some of the longer-serving staff also have shareholdings that are meaningful relative to their salaries. So there has been a lot of sort of staff buy into LCM and therefore, staff also participating in the difficulties that shareholders have faced over the last 12 months. The next one, I'll give this for you, Patrick. So the question is, given the company is trading at a low valuation, can the Board give shareholders comfort that transaction, capital raise or sale of the business will be conducted on terms that reflect the economic value of the litigation portfolio and that minority shareholders will be treated fairly?

Look, there's no doubt that we, as a Board at LCM are highly focused upon all of the stakeholders involved in the company, and that includes equity participants. When we start talking about valuation, this really sort of swings right back into what David was saying about ascribing a fair value to the book, and that's really what we're talking about here, is what is the true value of the underlying portfolio here. That is a very, very difficult thing to put one's finger on. Now if you look at some of the transactions which are listed there and rolled up into that question, would a capital raise be done at a value? I mean a capital raise would now be done at what I think shareholders would perceive to be an undervalue of the book. But the reality is that the shares are trading on the public market and shareholders are making a decision about what they regard as being the value of this company. So what assurance I can give is that the Board is highly focused upon making sure that equity participants and a larger part of the Board are equity holders as well will be treated fairly.

The next one is, can you confirm LCM still writing more cases such as Cadence Minerals?

We are not entering into any new financial commitments at present. So if we look at Cadence, Cadence was an investment that we entered into and signed a funding agreement more than 12 months ago. And we've just issued a funding confirmation notice in respect of that investment. So it's a Fund II investment, and it was entered into quite some time ago.

Yes. And so on Slide 7, where we said there's 46 ongoing investments as of 31 December 2025, Cadence is in there. It was sort of undergoing due diligence sort of at that period of time. Next question is, with the sort of utilization of the credit facility, how long can LCM keep meeting its ongoing financial commitments? So that's back to really what we were saying earlier on. So our lender, Northleaf has behaved very professionally with us during this challenging period. We announced that we upsized the facility from USD 75 million to USD 100 million, and they've also provided covenant waivers. Again, it's not in their interest to sort of stop. They're interested in preserving the value of their debt. And so while we can't speak for them, certainly my expectation is that the funding, as it's required, will continue to be provided. So we don't foresee any sort of hard stop. The only qualification I can put to that is that's not within our control. That is entirely their decision, but it's not in their interest to stop funding. The next case is, during the recent earnings call, you mentioned the case that was lost on the 1st of October 2025, the so-called [ Doyce ] case. Can you tell us more about it? How do you evaluate the probability to overturn it historically such appeals were not largely successful. So what I'd say on that. So yes, we announced that on the 1 of October. We are -- it probably doesn't make sense for us to publicly talk about our strategy in terms of pursuing that appeal. But we are following the procedures and seeking permission to appeal on that case. And therefore, rather than talk about it publicly, that's probably the most that we can say. Regarding the losses under appeal, how are you feeling about the prospects for those appeals? Patrick?

Look, I've had [Technical Difficulty]

Sorry, David. There is a little bit of lag on Patrick's line. Just bear with us one second. Yes. Patrick, can you hear us there? We're just getting a dip in your connection coming through. Just bear with us for 2 seconds. I'm just going to bring you back in. Thank you. Ladies and gentlemen, just bear with us for just 2 seconds. Thank you very much indeed. Thank you, Patrick. I'll just request control there, and I'll just bring you back through. Okay. Can you hear us there, Patrick?

I certainly can hear you.

Yes. Thank you. Carry on, sir, thank you. I don't know if you want to just repeat that question, David. Thank you.

There was a question around appeals and how we're feeling about those appeals. Look, all appeals have their difficulties associated with them. It's always -- you're in a much better position if you can be successful at first instance. All that said, we recently concluded the appeal hearing in respect of one of those appeals very recently, and we felt pretty good about the way that, that was received by the court. So it's not particularly helpful for me to make predictions about what they will be just based upon feedback from the bench and the judges that heard that appeal, but we're still feeling pretty good about that.

Then the next case question is, looking at some of your larger case wins like GreenX or the 2 arbitration wins, have there been any recent developments? Patrick?

I think [Technical Difficulty]

We are just -- yes, you've just got -- I'm going to keep your camera down, Patrick. Do bear with us 30 seconds, and we'll just bring you back in. Thank you, Patrick. I'll just request control one more time, and then I might just keep your camera for the purposes of the Q&A. Thank you. Patrick, can you hear us? I'm just going to keep your camera off for the time being, but can you hear us okay? I'm just going to take your camera, David, down as well just for uniformity, just bear me one second. Patrick, can you hear us in the room? Can you hear us there, Patrick?

Want me to take the question?

Yes, please, if you could just in the meantime, and I'll try and bring Patrick through. Thank you.

Yes. So there was a question on GreenX in terms of update on recent developments. So I think we put out an announcement fairly recently. I can't remember the exact date. So on the GreenX case, as many of you will recall, we have 2 awards. One is under the Energy Charter Treaty and one is under the Australia-Poland Bilateral Investment Treaty. That's important because to avoid payment, Poland needs to defeat the 2 awards via the set-aside proceedings, which is a bit like an appeal, but typically set-asides have a very low success rate. So the ECT award set-aside took place, I think, it was September of last year in Singapore. The judgment, if you like, has been handed down on that, and we were successful or our plaintiff was -- our client was successful in that instance. They are seeking -- so Poland is seeking to appeal that decision. That will be the last stage of that procedure. And I think our expectation is that, that will conclude -- it's probably around Q3. And again, we're very confident that that will resolve favorably. And then there is also a set-aside procedure for the Australia-Poland Bilateral Investment Treaty award, which I understand is taking place in London in October. Again, on our side, we are very confident that, that will resolve in our favor. So we have had positive developments there on that. Patrick, are you back?

I can hear you. I've got -- my screen looks different, but if you can hear me, that's fine.

Taking the cameras off there, Patrick. So we can hear you now. So please go ahead. Thank you.

Yes. Did you want to add anything to that, Patrick, on GreenX?

Not really. I think you summed it up there. Look, we've got a very strong judgment in respect to the set-aside at first instance in Singapore. We would be confident that, that will be upheld when that is appealed. We expect that, that second appeal will be heard and probably the judgment delivered at or about the same time as the set-aside application will be heard for the first time in the London courts. And at that stage, we'll be in a position where we can start to enforce at least that side of the judgment, and hopefully, that will bring about a resolution.

Okay. The next question is, do you expect the case won on the 10th of March to be accretive to your historic MOIC? Patrick?

Look, I think if you look at our running MOIC, there is a slide in respect of this. I think we are running now at about 1.7x MOIC over the last 15 years. And if you look at -- if you go back about sort of 12 to 18 months, we were running a MOIC of about 2.4x -- 2.3x, 2.4x. So you can see that that's really a reflection of the losses that we've sustained in the last sort of 12 months or so. And if you think about David's comments earlier in relation to fair value accounting and the current fair value uplift is 0.7x. That kind of coincides with our running track record over the last 15 years.

So the next question is, have you been required to present your grants for appeal on the cases that have lost to Northleaf? Does their leniency reflect their confidence in committing further money to those appeals. So obviously, the discussions that we have with Northleaf, it's not just the cases that are under appeal. We're in discussions with them around the entire book, and we have their support. So there's nothing in terms of those specific cases that is going to influence Northleaf's behavior. We expect them to continue providing funding to all of the cases in the book. Will shareholders be able to participate in any capital raise? I would just say let's see where we get to. So the strategic review has been running since, I think, 15th of September. We're publishing our results today, the 31st of March. I think that's the last day as an unlisted business that we could publish our financial statements for the period. We were hoping -- we pushed it so late because we were hoping to be able to give you a meaningful update on the progress of the strategic review. I think in Patrick's slides, he said that we hope to be able to give you a further update in the second quarter. And at that point in time, we'll be able to set out more detail on whether or not there is an equity raise and shareholders' ability to participate in that. But again, as Patrick reiterated earlier, we are interested and focused as a Board on trying to protect minority shareholders' interests. We just need to keep qualifying that statement with -- we aren't entirely in control of the ball because of the situation with our lender and our reliance on them to continue providing debt covenant waivers Let's see. Some of these questions are similar to what we've had before. There's a lot of hypothetical questions around an equity raise, which I think I would just refer you to my prior answer. Has LCM now fully concluded the re-underwrite of its existing case portfolio? Or is more work being done to reevaluate the prospects of its current cases? Patrick, do you want to respond to that one?

Yes. So there's no question that we have undertaken a full re-underwriting of the entire portfolio. But I need to stress that, that is an ongoing process. So we do that on a quarterly basis. So we look and we look at developments, and we continue to underwrite the risk associated with these investments. The second thing I would add to that is in circumstances where you change your view about prospects when you're underwriting/re-underwriting the risk associated with these, it doesn't mean that the only option you've got available to you is to cease funding and therefore, crystallize a balance sheet loss in respect of that investment. It's often the case that we will start to negotiate our way out of those. So in respect of some of those investments where we don't have sufficient commitment to want to invest for the full length right through to a contested hearing, we have engaged in a process of trying to manage our way out of that through a negotiated outcome.

The next question says, in my view, one of the biggest problems of LCM is limited disclosure, especially on the expected pipeline of future verdict. Are you planning to change anything in your communication in that regard? So what I would say in terms of future verdict is we've gone through a period where a lot of capital invested has concluded and unfortunately, a lot of that capital has lost. If I look at the rest of the book, the rest of the book is relatively young. So I don't expect, certainly over the course of this calendar year, for there to be the level of conclusions that will be anything like what we experienced in the 2025 calendar year. That's probably the first point. And then the second point I would say is one of the things that's really hard in this sector is predicting duration because the legal process is always -- I would say, always delayed. You always start out these investments and the lawyers tell you, "2 to 3 years and it will all be done, we'll be in a trial in 18 to 24 months." And that just never happens. The cases are always delayed. You always get trials being pushed back, et cetera. And duration is a common problem for funders to manage. And therefore, it's very difficult for us to say to you exactly this is what's going to conclude in the period. I mean we revisit our financial assumptions every 6 months. And it's a continual process of the investment managers telling us, "Oh, that one has been delayed by another 6 months. That one has been delayed by another 12 months." So it's just -- it's a common issue in the litigation sector. And therefore, it is very difficult for us to give you an accurate sort of time line in terms of expectation of investments maturing.

I'd just add to that. If we were to give estimates, they would be persistently wrong because we are trying to predict 1 of 2 outcomes here, either a negotiated outcome between 2 commercial parties over which we don't have control or alternatively, we're trying to predict the period in which a judgment will be delivered on the assumption that, that judgment is successful. Now judges can take anywhere from 3 months to 2 years to deliver a judgment in respect to that, and we would get 2 days' notice or maybe only a day's notice in respect to that. So if you look at our listed peers, none of our listed peers make forecasts in respect of individual investments for single case investments. And for the reasons we just described, it's very difficult, if not impossible, for us to do that in any sort of meaningful way.

Then I think the last -- there's some questions that are probably not appropriate for us to comment on. There's -- probably the last question is, how have discussions been with investors in Fund I and Fund II? And what's the hurdle rate before performance fees become payable again? Patrick, do you want to pick up on the discussions and then I can pick up on the sort of hurdle rate point?

Yes. So look, we are in constant dialogue with the LPs who are investing in the funds. They have probably not been as impacted in the same way as equity investors because of concentration. That said, I think that our LP investors are pretty anxious in the same way that we are to try and negotiate a situation where fresh capital could be injected into this business such that we have the confidence that we can say with conviction that we will be able to meet our co-funding commitment with them. So I think that they're very supportive of us, but at the same time, like equity investors, would like to see more progress in respect of the process that we're undertaking the strategic review, but we are really -- we're pushing that as hard as we can.

And then just on the performance fees. So to date, LCM has received USD 29 million of performance fees from Fund 1. We have disclosed as a contingent liability that there is a clawback on those performance fees. And therefore, we've disclosed a contingent liability of potentially, call it, USD 12 million to USD 17 million repayable of those performance fees. That will depend on how the remainder of the cases in Fund I play out. So I would say, so for Fund I, I certainly wouldn't expect more performance fees from here. And then for Fund II, it's still relatively early days in Fund II. So we haven't received any performance fees to date or booked anything, and it will depend on how the cases in the book play out in terms of the potential performance fees. But just as a reminder, so the performance fees that we earn. So LCM doesn't receive a management fee from the funds. It receives a 25% performance fee on the third-party profits, if you like, on fund asset profits, and that's up to a 20% IRR for the fund asset invested -- fund investor. And then above a 20% IRR, it's potentially a 35% performance fee. So that's the mechanism in terms of how it works. But for Fund II, it's still relatively early days. Thanks.

That's great. David, Patrick, thank you very much indeed. And as we come up to the hour, thank you once again to everybody for your engagement as well this morning. David, Patrick, I'll shortly redirect investors on the call to provide you with their thoughts, their expectations and give you their feedback. But before doing so, I just wondered, Patrick, if I may just come back to you for a couple of closing comments.

Yes. Look, I think we are grateful to be through 2025 as a calendar year. It's been a very difficult year for LCM and LCM's performance. We, as a company and as a Board, are very focused upon bringing this strategic review to a conclusion. We feel optimistic about that. There is real opportunity there to really recapitalize LCM and allow it to go forward for the benefit of all shareholders. And we are as impatient as you are about that process, but we are seeing some tangible steps forward in respect of that. And I just finally say, we are not reticent to update the market. We're just constrained by confidentiality obligations whilst that process is on foot. So it's been pretty difficult for us to actually update equity investors. But as soon as we're in a position to do so, we will.

That's great. David, Patrick, thank you once again for updating investors. If I could please ask investors not to close this session as we'll now redirect you for your feedback. On behalf of the management team of LCM, we'd like to thank you very much indeed for attending today's presentation, and wish you all a good rest of the day.