Omni Bridgeway Limited (OBL) Earnings Call Transcript & Summary

Thanks, Jessie. Good morning, ladies and gentlemen. My name is Andrew Saker. I'm the Managing Director and CEO of Omni Bridgeway. The purpose of today's call is to present our annual results for the year ended June 30, 2020. Joining me on the call today is Stuart Mitchell, our Group CFO; and Jeremy Sambrook, our group GC and Company Secretary. Before commencing the presentation, I would like to take this opportunity to acknowledge very trying circumstances in which we find ourselves, both from a social and economic perspective. I would like to thank our shareholders and investors for their support this year and to acknowledge the wonderful work of our team to manage the challenges that have confronted them. Turning to the presentation and Slide 3. As many of our long-term shareholders are aware, over the past 5 years, we've been working towards the transformation of our business from a balance sheet investor to a fund manager. Whilst we have further work to do in this regard, we've started to see the other benefits of that diversification strategy, including an increased number of completions, driving increased revenues and growth in our investment portfolio. FY '20 has been, by most measures, a tremendous success for the business. We are pleased to report that we generated a record in income, net profitability before tax and fair value adjustments and growth in our investment book. We have made a significant dent in our NCI obligations, moving us closer to the time when we start to see proceeds flowing to our shareholders from the first generation funds. We completed the merger with Omni Bridgeway in Europe, rebranded and made significant progress towards integration. We refinanced our OTC notes, aligning covenants with our bonds, extending maturity to 2026, whilst reducing our borrowing rate. We saw the judgment in Wivenhoe Dam in favor of our clients, which is yet to be brought to account, and we now expect to see the decision in Westgem handed down in late August or early September. We've seen the stock price materially increase and our stock is now included in the ASX 200 Index. These successes have enabled the Board to declare a final fully franked dividend of $0.04 per share, which, together with our interim dividend, has allowed us to declare total dividends for the year of $0.07 per share. This financial year has also presented some challenges and opportunities with the introduction of contingency fees in Victoria and the introduction of regulations for litigation fundings and class actions. I will discuss these further in the presentation. Turning to Slide 4. We experienced a delay in the issuance of our year-end results, largely as a result of the change in position by our auditors at the eleventh hour. We are required to revalue our liability associated with the deferred and variable deferred consideration associated with the acquisition of OBE. As a consequence of the significant increase in the share price between the date of acquisition in June 30, 2020, which saw the share price increase by 40%, and our market capitalized increased -- market capitalization increased by approximately $350 million. The increase in the liability is a noncash item, reflected as a fair value adjustment. The number of shares that may be issued to vendors has not changed, just the underlying value. The Board intends to examine options to mitigate the potential ongoing impact of an increase in share price and the value of this liability, but without compromising the integrity of the commercial arrangements with the vendors. Turning to Slide 5. Total revenue for the financial year -- revenue and income for the financial year was $314 million, a record for the group, up almost 600% from last year, which was admittedly a low base. This financial year's revenue was derived from a record number of fully and partially completed investments, the most significant of which include the PFAS cases, Murray Goulburn, Sirtex and Bellamy class actions, a large confidential appeal matter in the U.S. and a major completion in the U.S. from an award acquisition -- sorry, in Canada from an award acquisition. We also had a few losses, which should be expected with a larger portfolio of cases and made impairments in several other matters. It is worth noting that this total revenue and income figure for FY '20 does not include the revenue from the Wivenhoe investment, which is currently estimated to be between $120 million and $150 million. Of course, if we fair value accounted for our litigation investments, this will have been recognized to some extent in this year's results. Given our higher ROIC this year, particularly from non-U.S. investment, our margin was significantly higher than last year, represented by the net gain. We note 2 areas for further comment in this presentation being our increase in impairment charges and the increase in net operating expenses, both of which increased by about 80% from the last financial year. Net profit before tax and fair value adjustments was $47.1 million, up almost 200% from last financial year. We have also seen material increases in cash and net receivables, up 44% from the previous year, and litigation contracts and other assets were up 47% from the previous year, providing a strong platform for future revenue generation. Net assets were up 49% following the merger and an EPV of our combined portfolio was 69%, with an additional $2.3 billion in NPV in conditional and IC-approved investments. Turning to Slide 6. As you'll be aware, Omni Bridgeway is required to capitalize certain expenses in accordance with the application of certain accounting standards as the majority of our litigation assets are classified as intangibles due to the way we choose to structure our arrangements with clients. As such, our total overhead base comprises both expensed and capitalized costs, and as you will know, our assets are largely carried at cost and not fair value adjusted. Total overhead costs, including both capital and expense costs have increased by 63% from FY '19 to FY '20. However, this is a superficial analysis of our operating costs as it does not properly identify those costs that are noncash or one-off expenses, such as LTIP or STIP, which has not been paid -- which has only been paid once in the past 3 years or impairments that are noncash. After adjusting for noncash and extraordinary expenses, the adjusted cash operating costs have increased by 20% from FY '19 to FY '20. This increase reflects, in part, our significant growth in FY '20 in terms of headcount, operating locations and assets under management. Our largest expense is employee costs, some of which is capitalized. Our headcount increased by 61% from FY '19, while our employee cost, excluding STIP, increased by 43%. Given the same period, our net asset base increased by 49% and the EPV of our portfolio increased by 69%. Given the direct correlation between human capital and our investments, this reflects an improvement in operational efficiencies. This is supported by the historical analysis of cash operating costs as a percentage of net assets and as a percentage of investments which confirms our cash operating cost as a percentage of those measures have declined over the period from FY '16 to FY '20. Whilst we have plans for growth in the future, we expect our operational efficiencies will continue to be realized as the average investment size increases over time. Impairment charges have been raised in FY '19 and FY '20. We have long recognized the prospects of success for individual investments will change over time. And as such, an early determination of negative development should be brought to account, but such that it can be reversed if those developments improve. This is the proper reflection of litigation risks as issues become evident during the litigation cycle. We also note that there are 2 material reversals of impaired charges during this year as 1 matter succeeded non-appeal and 1 matter in the U.S. has been -- has had a decision reserved for reconsideration. Turning to Slide 7. Whilst we have generated stronger financial outcome for FY '20 based on our IFRS results, we've also been guiding towards the use of cash analysis for the business. As you'll note from this slide, this year, the group has generated cash and receivables net of cash expenses of over $236 million, which is a $260 million turnaround from the last financial year and almost 3x higher than the net cash production in any year in the past 5. The majority of receivables at June 30 have now been collected. Whilst the cash and receivables have increased by about $100 million, we intend to retain a significant portion of this liquidity to finance the growth opportunities in the group and opportunities that are being presented in the market. Turning to Slide 8. This slide provides an insight into the achievement of several of our goals for the past 5 years over the business plan. We've had a significant increase in liquid assets which was necessary to finance growth, not only operationally, but also in our investments. We see a significant increase in our net asset position, largely contributed to by the growth of NCI from FY '18 to FY '20, reflecting the diversification of our capital source from balance sheet investors to fund managers. This MCI provides capital that can be leveraged to generate returns for shareholders without putting the balance sheet at direct risk. We see a material growth in investments and NPV over the past 5 years of 47% and 69%, respectively, reflecting, in part, a large -- an increase in the average size of investments. We also see a 40% plus CAGR in investments in EPV over the period from FY '16 to FY '20. We see our investments split over balance sheet and fund structures with balance sheet investments decreasing as a percentage of total investments and as a percentage of NPV over time. Turning to Slide 9. The EPV diversity is also a reflection of one of our key goals before our initial 5-year business plan. We thought and have achieved a diversification of investment by both geography and type. At the start of our business plan period, we had a concentration of investments in Australia and in multiparty matters. At the end of the initial plan period, we achieved diversification by geography, where about 20% of our investments are now in Australia and 80% outside of Australia with half in the U.S. and the other half split between Asia, U.K., EMEA and Canada. We have also achieved a greater degree of diversification by type with global multiparty matters now representing only 21% of EPV, with our largest investment in commercial litigation and commercial arbitration. As a deal taker, we have not actively rejected investments based on type or geography, the shift in our investment is organic and a function of opportunities that have become available to the group by the expanded geographic footprint, which has created opportunities to invest in new types of matters, which has proved the thesis of our geographic diversification. During the next financial year, we expect to see the completion of the Wivenhoe matter, which is one of our largest balance sheet investment, which will also reduce our investments in multiparty matters in Australia rebalancing our split even further. Turning to Slide 10. We've seen an increase in funding applications over the past 5 years, which reflects a positive correlation to the increase in our headcount and geographic footprint, the increase in applications has translated to an increase in the actual and budgeted funding amounts during the same period, which was a record $313 million. Our conversion rate has slightly declined over the period from 5% to about 3% to 4%. The conversion ratio's consistency is largely a function of the applications being made and the quality of the underwriting process neither of which has materially changed over the period. We have seen funding applications almost double over the 5-year period and funding commitments increase almost fivefold. This again supports the proposition that the average investment -- the average size of the investments is increasing over time, which has collateral benefits for achieving operational efficiencies. We have set our target for this year for FY '21 of $440 million in new commitments, an increase of around 60% over last year's target and 40% over last year's actual. This is a big step-up in the targeted commitments that reflects the benefits of the larger global footprint and IM cohort, cross-selling between our various service offerings and markets and general uptick in opportunities. The start of this financial year has been strong, continuing the growth we've experienced in the last quarter to the last financial year during the COVID period. We believe this increase in applications reflects the needs of our clients to access capital to prosecute their claims and to mitigate risks and reflects the continuation of the transition of litigation funding from fringe to mainstream finance. Turning to Slide 11. We have 7 fund structures in operation, 3 of which are in harvest mode and 4 of which are active funds. Funds 1, 2 and 3 are first-generation funds where investors' capital and preferred returns are required to be distributed prior to any return to Omni Bridgeway. During the course of FY '20, we made significant payments to those investments with anticipated completions in FY '21. We expect that additional payments will be made during the next financial year. Fund 4, 5, 6 and 7 are active based on American waterfall and capital is returned to investors, including Omni Bridgeway under [ pari-passu ] basis and can be recycled. Turning to Slide 12. As shareholders are aware, we've pursued a strategy to diversify capital through the use of third-party capital in the form of close end limited recourse funds. The rationale for this strategy was to mitigate risk on the balance sheet by reducing balance sheet participation in investments to the LP contribution, increasing the size of the portfolio so that shareholders had a larger pool of investments from which a return could be generated and to leverage a return from other investors, limited recourse capital through management and performance fees. This strategy has contributed to our growth over the past 5 years. We are now in the process of returning capital and making preferred returns to our first-generation funds. Approximately $17 million was distributed to investors in Funds 1, 2 and 3 during the course of this financial year. Additional distributions will be made shortly following the receipt of PFAS revenue into the fund account. As additional matters complete during the course of this year, particularly Fund 1, we expect further distributions will be made. Once all external capital and preferred returns are distributed, Omni Bridgeway will commence receiving the return of its capital and fees before taking a share of the profit from the residual revenues, which are 85% in Fund 1 and 80% in Funds 2 and 3, which flowed through to Omni Bridgeway. This leveraged back-end return is the trade-off for the first generation fund structures for returning capital and fixed return to investors on a preferred basis.

Andrew has now been reconnected. Please go ahead.

Thank you and my apologies. Just recapping on Slide 13. ROIC is a misunderstood concept, as we saw in the PJC hearing. Most investors know that ROIC requires an understanding of duration and some commentators have previously misunderstood that. As we've noted over the past couple of years, as we migrate from being a balance sheet investor to a fund manager, ROIC will become less relevant to the analysis of our business, and IRR will become more relevant. In any event, ROIC for completed matters was relatively stable between FY '19 and '20 with higher returns in non-U.S. investments, offset by lower returns in some U.S. investments. These U.S. investments were expected to produce a lower ROIC and a marginally higher IRR given the expected durations and that there was no adverse cost risk in the U.S. Turning to Slide 14 on Wivenhoe and Westgem. Firstly, to Wivenhoe. The first decision was handed down in November 2019 in favor of our funded clients, which found that the defendant Seqwater, Sunwater and the State were reliable in negligent. Seqwater and Sunwater have appealed that decision. The court subsequently apportioned liability between the defendants of 50%, 30% and 20%, respectively. Only Seqwater has advised they will appeal that decision. The next step in this process is for mediation to take place in September 2020, with the trial scheduled for October to follow if all matters not agreed at mediation. If a settlement is not reached beforehand, the appeal is now scheduled for May 2021. We are hopeful that a resolution can be found by way of a settlement in which case our clients will receive a distribution earlier than if the appeal is required and the decision handed down. Turning now to Westgem, our investment was made in 2011, almost 10 years ago. The hearing as to liability was in July 2018, with some additional evidence tended in November 2018. We currently expect that the decision may be handed down before the end of this month or even early September. If our clients succeed, we will then proceed to a hearing on quantum. If our clients fail, we currently estimate that our adverse cost exposure net of adverse cost insurance and co-funded contributions will be approximately $7.5 million. That is the expected cash impact of the loss. There will be a significantly higher profit and loss impact, given the age of the matter with the commensurate capitalization of overheads and the general carrying value of that investment. If our clients succeed, subject to the outcome on the hearing on liability or a settlement, we expect to receive several multiples of the cash exposure. There is a high likelihood that whatever the outcome and appeal will follow. Turning to Slide 15. This financial year has produced some significant developments in the Australian regulatory scene, including the introduction of regulation and litigation funders in relation to class actions, the introduction of contingency fees in Victoria and the High Court's ruling in relation to common fund orders. Taking those issues chronologically, the High Court's decision in relation to CFOs initially caused some consternation in the industry but have not generally influenced the viability of open class actions or the appetite for CFOs. Next, with the Victorian government's decision to introduce contingency fees. This was one of the legislative -- widest legislative significance during the COVID crisis or in complete disregard to the obvious conflicts that contingency fees create remain ministry. In any event, the legislation was passed in June 2020. This was expected to have an impact on our usual way of business, given the potential for law firms to undercut pricing until they obtain market share. We gave consideration and continue to do so to establishing our own law firm to address this market development or providing law firm funding as we do in the contingent fee environment in the U.S. However, the introduction of regulation of litigation funders in relation to class actions have perhaps represented the most significant impact on the way class actions will be conducted in Australia. The regulations required that litigation funders who provide funding for class actions hold in AFSL and conduct the class action as an MIS. This is likely to affect both CFOs and contingency fees, possibly such that promoters will be required to conduct these as MISs and may impact on their application. We have lodged our AFSL with application with ASIC. And as noted in our announcement this morning, we've been granted approval based on certain conditions to be satisfied before the end of the month. And we also continue to liaise, we -- ASIC in relation to the application of the MIS regime with a view to ensuring that we can execute on the class actions post 22 August. Turning to Slide 16. As we've spoken about in our last -- our last 5-year business plan was focused on diversification. Over the planned period, we've achieved many of our goals, including geographic diversification, diversification of case type, size and numbers, reduced our key person risks through diversification of our team and diversified our capital structure with the transition from being a balance sheet investor to a fund investor. The Chevron diagram in this slide summarizes all of those key points. The objective of diversification was to mitigate risks and generate attractive returns and in doing so, reduce the lumpiness of our earnings, leaving us less exposed to one-off large losses, regulatory risks and competition. We have now established the platform for our future growth, operating from 18 offices in 10 countries with 160-plus staff managing over 300 investments with an EPV of close to $16 billion if we include both conditional and IC-approved investments. With capital largely sourced from our 7 Funds with funds under management of close to $2 billion. This is a significant change in position from when we started the strategy in July 2015. I'd like to thank our team for implementing this plan and our shareholder support for executing the strategy. Turning to Slide 17. Our next 5-year plan is to focus on differentiation. We now find ourselves as the largest litigation funder in the world with the biggest team and the most diverse geographic footprint. It is from this platform that we set our next 5-year plan. Our key growth targets for the next 5 years include increasing funds under management with existing and new fund structures with a view to improving our leveraging by reducing balance sheet commitments to the fund participation whilst maintaining our fee returns. Expanding our geographic footprint with headcount, both within and -- sorry, footprint and headcount, both within our current markets but also in new markets around the world, including Asia, South America and Africa, on a sustainable basis that is in response to the need to the market. And thirdly, expanding our product offering, using our current skill base and experience into areas where additional capital can be deployed on investments that will enhance our returns, but also diversify our returns by providing lower risk and lower-return type investments, such as law firm receivable funding. We've placed ourselves in a strong position with both financial and human capital available to execute on our plans in a way that will drive growth into the future. I'd be pleased to take questions now.

[Operator Instructions] The next question comes from Michael Peet with Goldman Sachs.

Andrew and Stuart. Just first question, just on the -- just at the moment, what are you seeing in terms of demand from capital seeking to sort of get into the industry and also just also funding opportunities that you're seeing as well? How do you see that at the moment, given what we're going through?

Sure. Thanks, Michael. What I am aware of is that close to $1 billion in new capital has been raised [indiscernible], predominantly U.S., some of those to existing operators and also to one new operator. So I think it reflects that there is continuing interest in the industry and capital [indiscernible] for the right operator with the proven track record. In terms of investment opportunities, as we've noted, we've seen a significant increase, particularly in the last quarter of last financial year, in funding applications. That's going to translate into new investment opportunities for us during FY '21. And we're continuing to see those -- that level of [indiscernible] continuing to [indiscernible] just in the last couple of months. So we don't look as though there is a great deal of demand for opportunities, they're not just in an -- for an [indiscernible] type of client, they're also for corporates that are looking [indiscernible] risk management type opportunities and cash flow management type opportunities given the current risks that are in the market.

And I guess, that goes to next question is corporate portfolios. Is that something that -- you didn't specifically call out, but I guess, reading between the line there, risk management might sort of come into that. Is that part of that new product sort of suite potentially still?

Most definitely. Corporate portfolio is a bit of a -- and there's no note, it's corporate financing that will be spread over [indiscernible] these investment opportunities. It's not a common situation that we come across the book with multiple large litigation opportunities to qualify for funding. But we definitely have discussions with a number of interested parties with our corporate portfolio. And we do expect that, that will be part of the offering over the next financial year.

And I just missed the exact number, but I think you mentioned what the new commitments were. This is at around $400 odd million?

Yes. The target for this year that we're looking to commit is $440 million.

And what's your -- would it be roughly, given you're mainly in the fund structure now, would I just take 20% of that is roughly your share of what you need to contribute?

That's the current arrangement under Funds 4 and 5. But for Fund 6, it's 5%. So it will be a mixture of that, but 20% is probably a reasonable basis for that.

Yes. And I imagine you wouldn't have paid a dividend if you weren't confident you had the capital there to fund those commitments?

Yes, that's correct.

The next question comes from Peter Meichelboeck with Select Equities.

Just -- if I just focus on Fund 1 for a minute. You've roughly gone through, I think, 40% of the cases for Fund 1 and returned about 40% of the capital but only about 20% of the combined preferred return and management fees on my numbers, obviously, no profit share. The reported ROIC is 20%, which I estimate is probably less than 10% if you include the impairments, et cetera, in the IRRs, 10%. So my question is sort of given what I think would be sort of fairly disappointing returns on Fund 1 to date and that you're already about 40% of the way through the fund. Do you believe that Fund 1 will end up being able to pay 100% of the preferred return over the life of the fund as well as 100% of the management fee to you guys?

Peter, yes, based on our view of the current investments in EPV associated with those investments in Fund 1, we do expect that 100% of the prior year capital, preferred return, our capital as well as management fees will be paid. And then whatever is left over is, as I mentioned, the split, 85% to us and 15% to Fortress.

Right. So to get to sort of a -- to get to that point and sort of putting aside profit share for a moment, but just to sort of get to that sort of, I suppose, breakeven, if that's the right term or not. What sort of IRR would you need to do for the remaining 30 cases or ROIC on the remaining 30 cases? How much would you need to improve by to get to that point?

Well, look, to be honest, I haven't recalculated on a ROIC basis. IRR isn't particularly relevant to Fund 1. It's not -- performance fee is not driven by IRRs. But in terms of ROIC return, based on our long-term conversion rate, based on the EPV that we've got, we would expect that, that's going to generate sufficient capital to repay all of those obligations and also get to the profit share portion.

So given that the ROICs are quite different between the U.S. and non-U.S., what are you -- what ROIC are we looking at there for U.S. for that?

Well, we're looking at the long-term conversion rate of our EPV there, which is, I think, historically generated about at the 1.4 ROIC. And our expectations are that for those complete matters yet to complete, which, of course, are quite different to the ones that have already completed that there will be sufficient capital generated to repay all of those obligations.

So the 1.4 for U.S., you're saying?

Well, that's what we've achieved historically. I think as you read our note, Peter, we always suggest that you can't always rely on path to be a predictor for the future. And we're not looking necessarily at a 1.4 ROIC. What we are looking at is the EPV, our historical conversion rate.

Okay. Given that -- I think it's $28 million of preferred and special -- that special return or whatever for Fortress to like USD 28 million at the start of FY '21. And obviously, that number will increase given that they will earn preferred return in FY '21. Would you expect Omni shareholders to get anything at all from Fund 1 in FY '21?

I think based on our expectation of completions that it is possible, depending obviously on success rates and the timing of those completions, but it's very much at the back end of FY '21.

Right. Okay. Just on Fund 4 and 5. Can I just clarify my understanding, they've got 4 years from the respective launch dates to commit the $500 million to each fund. What happens if, for argument's sake, if it took longer than the 4 years, is there sort of a mechanism for that? Or...

Yes. It can extend by agreement if it was necessary to do so.

Right. Okay. And in terms of the second series going from $500 million to $1 billion each in each of those funds, sort of how -- does that just involve everyone like mutual agreement on that or how does that work? I guess what I'm essentially asking is anyone that's sort of on the hook for the second $500 million at this point?

No. The option to move into series 2 occurs at the earlier of the third year of the 75% of commitment. At that point in time, the LPs, including us, have an option to invest. And if they choose not to, then it gets put out to the other investors as a right of first refusal or we can go out to other investors to take up that option for that second series. But it is, again, by agreement to upsize.

Right. Okay. Just in terms of OpEx, what would be your expectations for FY '21, including the capitalized costs, I guess?

Well, from a cash perspective, we would expect it to be similar to this year.

Even though FY '21 will have all of -- on the acquisition in it and the...

Yes. No, it's a fair point. But part of those costs are recovered from Fund 6 as a management fee, so largely offset.

That actually led me to my next question, which was, I'm a little bit confused about how that actually works, the reimbursement. I mean given that Fund 6 is consolidated, I think, does this just mean that the costs are sort of within Fund 6 and not within Omni? And once the whole group's consolidated, did it sort of washes out? Or am I misunderstanding that?

I think on a consolidated basis, it does wash out, so the income and the expense will net out. There will not -- it won't be fully recoverable because we've put on some additional staff that will be paid for out of the corporate overhead, but it will largely be a wash.

Right. So the returns in sort of Fund 6 are sort of effectively lower because it's paying for the costs of Omni. Is that right? So they're sort of lower in Fund 6, but higher in Omni?

In terms of -- sorry, the returns, did you say?

I'm just trying to work out, so the costs that are being reimbursed by Fund 6, Omni's -- the legacy Omni business, to avoid confusion, is being reimbursed by Fund 6. So doesn't that just mean that Fund 6's returns are lower and Omni's are sort of higher, and once you consolidate everything that doesn't matter, that's all the same?

If I follow you correctly, I think the answer is no because your management fee is separate from your performance fee. So your performance fees, they're very much structured on a similar type of basis as Funds 4 and 5. So they're driven on a performance fee of 20%, up to a 20% IRR and then 30% above a 30% IRR. So they're a little bit different. So the performance fees are dissimilar to what we achieve in the other funds, but the management fee is slightly different in that the management fees is -- corresponds to an agreed budget of costs for the operation of that legacy Omni Bridgeway business.

Right. Okay. Just in terms of Wivenhoe, that doesn't get mediated or settled and ends up going through to the court in May next year. Obviously, I assume that would mean that I'm very unlikely to see any proceeds until FY '22, I guess. If that were to occur, that time frame to occur, would Omni Bridgeway be able to fund all its commitments to its various funds, et cetera? And given the way that the waterfall, et cetera, is working on the first-generation funds, will it have enough funds at a group level to fund what it needs to do without doing another equity raising?

Sure. So that's why we sit on such a significant cash buffer. We've got, I think, something close to about $200-odd million in both cash and receivables. And that should be enough to meet both the cash overheads as well as the cash commitments as we move through FY '21.

Because if you take out the -- if you look at just the cash that's on balance sheet versus -- excluding the cash that's in the funds because, obviously, once it's in the funds, it's only for the funds. You've now got $133 million cash, $144 million debt, albeit there is cash that's come in since then as you've pointed out with the receivables. So if I look at it in those terms, it's near enough sort of a net -- a slight net debt position, it's pretty small. So going back to the Wivenhoe situation and where the sort of operating costs are now, you're still comfortable that you wouldn't have to do an equity raising if Wivenhoe was delayed?

Well, the debt is not due until 2023 for the notes and 2026 for the bonds. So if -- I'm not sure why you would be building that into FY '21, but there's enough cash. So PFAS is all being collected. And as I said, there's cash and receivables there now, which is predominantly cash and a lower amount of receivables of around $200 million. There's also cash, as you say, sitting in the funds, some of which has prepaid our obligations into those funds. Capital can get recycled into those funds. So as I said, where we sit today, we feel very comfortable about being able to meet the obligations for the funds and also for operations in FY '21.

And just on the -- finally, on the parliamentary inquiry. So I note that I think the company made in total 15 separate submissions there or thereabouts in terms of submissions, replies to questions on ADIs, et cetera, as well as, obviously, you gave evidence as well, Andrew. And as you know, I mean one of the things that struck me was a number of times the company made reference that its returns are either misunderstood or inaccurately analyzed, et cetera, and that people should be looking at IRR rather than ROIC, and that it's also best to measure returns after accounting for all costs, including capitalized overheads, cost of doing business, i.e., the OpEx, et cetera. And that if we did this, we'd see that the returns are actually a lot less than what some people think. And I think in one of the submissions, you actually said that if we look at -- if we include all the costs incurred in making the return, they're -- all our ROIC for the company over the last 20 years would be about 17% before tax, which is obviously a fair bit different to some of the pre-overhead numbers, et cetera, that have been used. So I'm just trying to work out what -- sort of trying to reconcile those comments. And given the way that sort of the company continues to present its results, et cetera, on a -- largely focusing on ROIC and largely focusing on returns that are sort of pre-capitalized overheads usually and pre-impairment pre-OpEx. Just trying to reconcile that.

Sure. No, I think just to put your comments in context, it was largely in response to a report done by Menzies Research Centre, which compared ROIC to annualized returns from other subsets of investments such as investments in the ASX Index. I think they were looking at hedge funding indices as well as venture capital type indices, which were annual returns. So they were, I think, saying that the annualized return out of an ASX investment was 9%, yet we had generated 150% ROIC over of the life of Omni Bridgeway. And the point we were trying to make is you're comparing apples and oranges because an annualized return from the ASX does not correspond to a ROIC figure, which is generated over the life of an investment, which obviously -- which is, I think, obvious to any investment professional. I was quite surprised at how superficial that analysis was. But it was latched on to by the media and the commentators. So we were starting from a position of trying to understand some pretty basic investment concepts. So if you look at 150% ROIC, which is generated over a 3-year period, the actual IRR or annualized return from that, of course, is going to be somewhere around probably 35%, 36%, if my mental arithmetic is correct. And to -- so you're comparing 36% to the 8%, not 150% to the 8%. So that was the fundamental floor that they were starting with. The second was, is that to generate that 30% odd, 36%, 37% type of IRR, you've actually got to have a business to run. You can't just put it on an index. It's -- that's not comparing proper investment processes that are required for running a litigation funding business. So there's overheads associated with running that business. And if you factor all of those things in, this is the type of net annualized return that you get. And I can't remember what the exact figure was that we quoted, but it's significantly less than a ROIC figure for very obvious reasons. And I was just stunned to think that Menzies Research would be so superficial in putting forward that type of analysis. But as I said, the media picked up on it and banged on about it quite a bit. So we were having to explain it to quite a different audience. I'm hopeful and fully expect that most of the brokers and investors in Omni Bridgeway understand the difference and can reconcile the numbers. But it doesn't seem to apply to some of the other commentators in that exchange.

Yes. Look, some of the stuff, as you said, was -- that was reported and some of that stuff was mind-blowing. But just finally, just on that. So you've talked about that you need to include these other costs. Is -- would the company move towards providing its sort of longer-term numbers that it's previously -- well, continues to provide in terms of ROIC, et cetera, on a fully costed-in basis as opposed to excluding capitalized overheads, impairments and the OpEx, would you consider changing that?

Look, Peter, I'm not sure that doing the work for a broker is necessarily what we need to do, but I'm happy to explore any option that would make it easier to understand our company. So we'd be pleased to consider that.

[Operator Instructions] Our next question comes from Alex Zhao with Kabouter Management.

I just have one quick question. So I think you mentioned that the average investment cases has been becoming bigger. Just curious, when you're looking at the funding applications and in the case that you're deploying money, is there a way to segment it further? Like I know from historical records, you historically had cases in the $2 million to $10 million, either U.S. dollar or Australian dollar range. But there are a few cases that are in the $10 million to $30 million U.S. dollar or Australian dollar range. So are you seeing more opportunities to commit to that $10 million to $30 million funding range? I'm just trying to understand basically, are you kind of -- are you spending more money on the kind of bucket of the bigger cases? That's one. And also on the lower smaller cases in that $2 million to $10 million range, are you seeing more competition because I've seen a lot of companies has been using COVID to get out of contracts and then there's more kind of contractual dispute. It seems that there's more supply there and also at the same time, there's more competitors going for those kind of smaller cases. So those are kind of the 2 questions.

Sure. Thanks, Alex. In terms of the average investment size, that has been increasing over time. 5 years ago, I think our average investment size was about $2 million. This is all in Aussie dollars. What we've seen is that's now increased to around the $5 million range, and we expect to see that probably around the $10 million -- $5 million to $10 million range in the -- in over the last couple of years. The -- what we are seeing is a large number of applications for funding, which are at the upper end or exceed our concentration limits under our fund structures, which are $25 million for individual investments, $50 million for law firm funding and $100 million for corporate portfolio funding. So we're in receipt of applications for funding that are in excess of those. So we're looking at either co-funding through third parties or raising a new fund for overflow or splitting those that we can attract those large investments, keep majority of them within the fund. They are predominantly U.S.-based investment applications. We have seen some larger ones in other parts of the world, but not as large as those $100 million-plus type applications as we've seen in the U.S. In terms of smaller cases, now that we are part of the EMEA team, we do see a number of smaller cases, particularly for ROLAND in Germany as well as throughout the EMEA operation. So there will be a full spectrum of small and large cases. But the smaller cases are predominantly in EMEA. Competition there is definitely high but not as intense as it is in the U.S. So yes, we do see competition for smaller size cases in EMEA. We generally don't do those smaller size cases in other jurisdictions, but competition is not as intense as we've seen in the U.S. for those smaller type cases, which is largely why we've moved out of that end of the market.

Got it. And in U.S., would you invest -- would you say that the competition intensity is similar to pre-COVID or it has actually increased after COVID?

Well, in the very large investments, we have seen a couple of the competitors, but we don't see the full spectrum of the 20 or 30 litigation funders that operate over there. We have seen a mixture. So at the very top end, it's been less competition on some investments as capital has been constrained. Though, some of those competitors have now raised additional capital. So we would probably expect to see them around on other matters. I think it's fair to say, Alex, it's a mixed bag on the competition. U.S. has presented challenges at the lower end, where there is an intense level of competition, and that's the type of market that we've tried to shift away from now.

Got it. Got it. And one last question from me is that there seems to -- when I look at the EPV that you give out every time for the portfolio update, there is kind of slippage in terms of EPV for this year, next year and the year after. And I understand some of that is just -- the EPV for next year and the year after is hard to predict but I just want to understand like how much -- roughly speaking, how much of that is because of kind of normal course of case delays versus courts are being closed because of COVID and there's -- there are delays.

Well, look, in the U.S., we are definitely seeing COVID-related delays in court hearings, particularly for jury trials. And we're expecting that will continue for the short term. For judge only interlocutory or interrogatory type processes, we haven't seen that much of a delay. And so there is movement in activity in the U.S. legal fee, just not the jury trials. And I think jury trials will be problematic for some time. The delays that we've experienced recently aren't so relevant to non-U.S. type investments. It's been a little bit here and there. It's difficult for arbitration matters to be conducted where there are participants in different timezones around the world. And with the restrictions on travel, that's been a little more complicated to organize. But arbitrations and -- the arbitration process itself has been moving ahead, taking into account those types of issues. So the biggest issue is, unfortunately, in the U.S. with jury trials. The rest seems to be heading okay.

The last question comes from Nick Caley with Baillieu.

You got me?

Yes, Nick. Sorry about the difficulties with the call.

No, that's all right. Just -- so I sort of missed a little bit there, but -- so what you're saying is, based on your EPV as they stand today, you expect to [ dissolve ] the third-party capital priority, returning #1 fund by the sort of the very end of FY '21?

All things being equal based on our expectations for completions as well as for the success rates, yes.

Yes. Okay. And Funds 2 and 3, sort of a year later?

Well, I think the issue with Fund 2, 3 is that we haven't fully drawn down the capital, even though we're fully committed to capital. So we are significantly ahead of actually repaying the capital in Funds 2, 3. And particularly with respect to the PFAS collection that we've made recently, we're going to be pretty close to having substantially repaid or if not the majority of drawn capital. So that reduces the preferred costs and means that we're getting a lot closer towards actually repaying and getting in distribution. So long answer to your question, there's a possibility we may see some type of return of capital this year to Omni Bridgeway from Fund 2, 3 on completions and the usual caveats.

Okay. And just with Fund 6, are you pushing the revenue through another income line of the gross litigation revenue?

I think the answer is yes, Nick, but I'll -- if Stuart's on the line, he might be able to answer that better than me. Stuart, are you -- he might be on mute. So Nick, we might have to get back to you on that. I think the answer is that.

It's Stuart. Can I talk? Can you hear me?

Yes, Stuart.

Yes. The nature of the assets within OB, some of them are intangibles, particularly the merits investments that are in the ROLAND business, which is in Germany. So they would have the same sort of treatment as what you've seen historically for IMF. But there are other asset classes within that business that meet the classification that the proceeds of revenue. And indeed, some of the new investments that, if you like, legacy IMF business is doing these days. Equally, we'll meet that type of asset classification, and therefore, will come through on the revenue line, which is just a reflection of more sophistication and diversification across the book.