Omni Bridgeway Limited (OBL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Omni Bridgeway Limited Fiscal Year '25 Results. [Operator Instructions] I would now like to hand the conference over to Mr. Raymond van Hulst, Chief Executive Officer and Managing Director. Please go ahead.

Good morning, everyone, and welcome to Omni Bridgeway's FY '25 Results Presentation for the 12 months ended 30 June, 2025. My name is Raymond van Hulst, Managing Director and Chief Executive Officer. Joining me today are: David Breeney, our Chief Financial Officer; Jeremy Sambrook, our General Counsel and Company Secretary; and Nathan Kandapper, our Head of Corporate Development and Investor Relations. FY '25 has been an intensive and transformational year for Omni Bridgeway, but also an exciting and very positive one. I am pleased to report that we have successfully achieved and advanced our strategic objectives as presented at the Investor Day and at recent results presentations, while also delivering exceptional financial results for FY '25. Over the next 20 to 30 minutes or so, I will first cover the highlights from the year and the performance of our portfolio. David will then take you through the key elements of our financial results before I come back on the strategic priorities for FY '26 and beyond. So let's move on to the highlights for the year. Over the last 12 months, we have managed to deliver on all key strategic objectives. We completed a landmark secondary market transaction, which generated $320 million in cash proceeds to OBL-only. This allowed us to fully repay our debt and deleverage our balance sheet. We achieved and exceeded our OpEx reduction target for the year while also meeting our fee income growth target of 20%. We provided independent validation of our fair value framework and overall business model through the secondary market transaction with Ares Management. Regular completions were also in line with our fair values, providing further validation. And overall, we raised more than $500 million in new third-party capital. Going into FY '26, things look good as we have positive tailwinds. As indicated in our recent quarterly portfolio update, we observed very strong portfolio developments in the second half of FY '25 and shortly thereafter, which provides a good base for FY '26 completions. We are on track to further increase cost coverage through both lower operational expenditures and increased fee income. Similarly, on the new business front, there is good momentum with a notable increase in the pipeline year-on-year and at appropriate risk-adjusted pricing. In terms of capital raising for our flagship Funds 4 and 5 Series II, there is strong engagement from fund investors, and we are on track to complete this project in line with our planning. Turning to the highlights on our portfolio. At the end of FY '25, new investment commitments totaled $517 million, adding nearly $526 million in new fair value to the portfolio. The total portfolio fair value increased by nearly $800 million for the year, reaching a total of $3.6 billion, of which the OBL-only portion is approximately $700 million. We have added assets under management, or AUM, as a new metric in line with asset and fund management standards. As of the end of FY '25, our AUM stood at $5.2 billion. We had a record year in terms of total proceeds with over $555 million received for the year from our Milestone Fund 9 transaction. In terms of realizations, we had 60 full and partial completions across the portfolio, delivering consistent and strong completion returns with a 2.5x multiple on invested capital or MOIC. Our fair value conversion rate remained around 100%, measuring how closely the fair value translates into cash proceeds, noting that this should always be looked at a portfolio level and not on individual matters only. Now moving on to our business performance on Slide 7. David will speak extensively on our statutory accounts, which have largely transitioned to fair value accounting. This change ensures that they are now more reflective of the value creation and intrinsic value of our book. From an OBL-only perspective, total income was $371.4 million, including realized and unrealized gains. We've worked hard to ensure that our operational expenditures met our target of maximum $85 million for FY '25, which we achieved by arriving at $84.1 million. This represents a decrease of 6.2% from FY '24 despite the impact of inflation. As mentioned in the half year results, further cost-saving initiatives have already been executed, putting us on track to achieve the further reduced OpEx target for FY '26. Overall, we arrived at a statutory net profit after tax or NPAT of $416.8 million, which translates to earnings per share or EPS of $1.23 per share. I mentioned earlier that the move to fair value accounting has allowed our balance sheet to better indicate the value of our portfolio. This is reflected in our total book value per share on an IFRS basis, which stands at $2.99 per share. With all investments at fair value, this would be $3.51 per share. Both metrics are indicative of the current discount to book value of our shares. Let us now take a deeper look at how our portfolio progressed for the year on Slide 9. Similar to prior periods, I won't spend too long on this slide as we have provided many of the highlights earlier, and this has been part of our quarterly reporting. However, we felt that it [indiscernible] continue providing the breakdown. Completion activity [indiscernible] at a strong level with 60 full and partial completions for the year, delivering $235.5 million in proceeds, of which $33 million is OBL-only. As mentioned earlier, investment return metrics have been strong with an overall MOIC of 2.5x, up from our life-to-date track record of 2.3x. We anticipate completion activity and momentum to increase based on investments, which are subject to anticipated or current settlement discussions or for which an award or judgment is expected. I refer to our quarterly portfolio update for more details on that. But as indicated there, we had a strong series of positive judgments and awards with a total judgment amount exceeding $2.4 billion. We also outlined in the quarterly, that we are completing settlements on 21 investments with anticipated gross Omni Bridgeway proceeds of $260 million with very strong metrics. Looking at our portfolio on a fair value basis, our portfolio continues to be remarkably well balanced between the regions and the different investment types. This level of diversification within the legal finance asset class is unique to Omni Bridgeway and reflects the geographic scope and expertise of our platform. Such diversification mitigates the risks associated with adverse regulatory, legal and economic events in any particular region or area of law. I'm equally pleased with our limited exposure to single large investments with the largest 10 investments representing less than 15% of our commitments and just below 25% of the total fair value of the portfolio. This focus on diversification does not preclude us from investing in larger matters. Rather, we do so on a co-funded basis with nonfund external capital, which we refer to as sidecar capital or sidecar Investments. Sidecar capital helps us mitigate concentration risk while we typically still receive management fees, transaction fees and/or carried interest, enhancing our return on capital and equity. I will provide some further information on sidecar Capital later. [indiscernible] robust portfolio growth. Firstly, looking at the right-hand side of Page 11, the total portfolio fair value has increased by 29% since FY '24 to $3.6 billion. This is net of new commitments, completions and material litigation events and represents the embedded value of the group's gross investment portfolio. Of the $3.6 billion, approximately $700 million is attributable to OBL-only, representing our co-invest and carried interest. I will provide more details on these on Pages 12 and 13. The left-hand side shows the total commitments and deployments on active investments year-on-year with an overall CAGR over the last 5 years, 32%, which reflects both market growth and growth of market share. In breaking down the 29% gain in portfolio fair value for the 12-month period, the impact of new commitments and completions is relatively straightforward to follow. As per prior years, the value added from deployments and the discount unwind reflects the reduction in future deployment obligations and the value increase from the passage of time as investments move closer to an expected completion. Material litigation events or MLEs amounted to $140 million and reflect the net effect of all positive and negative fair value development, which involves 199 of our investments in this period. These can be interim judgments, but more often include timing changes following updated court schedules or externally driven adjustments to budgets or claim values. New in this period and to better align with industry practice is that we have added sidecar investments, which reflect third-party capital outside the fund capital in investments managed by OBL. As indicated, OBL is generally entitled to separately agreed management fees, transaction fees and/or carried interest on such sidecar investments. In total, this adds $310 million to the total portfolio fair value across 25 sidecar investments, of which approximately $72 million was added during FY '25. Sidecar investments are a great example of our transition to a capital-light fund management model. Such investments reduce the OBL balance sheet investment requirements, while management and carried interest income on the sidecar investments [indiscernible] return on equity. Slide 13 provides the OBL-only perspective on our portfolio. The Fund 9 transaction was naturally the largest contributor to the fair value movement for the period. We essentially traded approximately $400 million in fair value for $320 million in cash proceeds, reflective of a fair value conversion [indiscernible] slightly above 80%. Portfolio development, judgments and awards on a number of large investments, which were originally expected for the second half of FY '25 contributed to the negative MLEs. As reported in the quarterly, a remarkable series of successful judgments and awards came in shortly after the financial year-end, which will lead to positive MLEs and reversals for the current or following period. I will now hand over to David to take us through the financial results in more detail.

Good morning, and thank you, Raymond. I'm delighted to be delivering my first full year Omni Bridgeway financial results in what has been a landmark year for Omni Bridgeway. The Fund 9 transaction was a pivotal event this year and has provided an important first step for us to simplify our financial statements by deconsolidating Funds 2, 3 and 4 and reclassifying Funds 5 Series I and II, thus ensuring our balance sheet better reflects the intrinsic and economic value by measuring our assets at fair value under IFRS. The transaction itself and our fair value conversion ratio of over 100% further vindicates our fair value assessment and OBL's net asset position. This is truly a remarkable achievement in a single financial year and has provided a fair amount of work for the finance team at OBL. There is still scope for further improvement and simplification with Fund 6 and 8, which are outside of the Fund 9 transaction, and therefore, those funds remain reported under a cost basis and represent the remaining noncontrolling interest. Deconsolidation took place at the end of February, causing the P&L to represent somewhat of a hybrid with 8 months under the old regime and 4 months under the new. I look forward to a long queue of people wanting to talk about technical accounting standards. Let's move on to the statutory financial performance view. Total statutory income reached $651.2 million, a 253% increase year-on-year, driven by the Fund 9 transaction totaling $294.7 million and fair value gains of $293.6 million. That driven by Fund 9 assets, carried interest and the revalued co-investments in Fund 4, 5 and Series II. Net profit after tax rose to $416.8 million, up from $30.5 million in FY '24, whilst EBIT came in at $495.5 million, reflecting strong underlying performance. These results underscore the strength of our portfolio and the value creation from our strategic repositioning. The OBL-only fair value P&L is management's preferred view of our P&L since we established OBL's fair value methodology in December '23. This view shows the movement in fair value of the OBL-only investments at fair value for the full year, inclusive of Fund 6 and 8. This is the direction of our statutory P&L, which is heading post Fund 9 transaction. When excluding the Fund 9 transaction, OBL has generated $428 million in net profit before tax in FY '25 with $120.1 million in new book growth. Fund 9 transaction increases the EBIT for FY '25 to $287.3 million. Our cash OpEx at $84.1 million has come well in under our projected $85 million for FY '25. And as disclosed at the half, we will see further improvement as these cost initiatives are annualized. Providing comparatives are a challenge for us as a business, given fair value has only been in place for 18 months. We have attempted to address this by providing 3 halves, which can be found in the appendix on Page 43. I look forward to the 31st of December '25 results, where we will have full period comparatives to present. The OBL-only cash P&L reflects the cash view of P&L items for FY '25 and is a cash bridge to the quarterly reports we release. When excluding nonrecurring cash items, OBL achieved net inflows of $268.2 million for the year, an improvement of $331.5 million on FY '24. OBL-only co-invest deployments reduced by 36% to $43.8 million, predominantly due to the Fund 9 transaction as OBL reduced its co-invest, thereby decreasing the requirement to deploy at the same level. Cash OpEx in the year has reduced 6.2% during an inflationary period, which reflects our disciplined cost management. Additionally, following the debt facility repayment, OBL will no longer suffer interest repayments, of which represent $19 million in FY '25. Our improved cost coverage further emphasizes our sharp focus on cost discipline. OBL-only cash OpEx was reduced to $84.1 million [indiscernible] beating our FY '25 target. We are now targeting $80 million for FY '26. Fee income grew to $30.3 million in FY '25 with a target of $35 million in FY '26. A growing part of the fee income book is transaction fees, which averaged 3% on new commitments across Funds 4 and 5. As a result, we remain on track to achieve 70% cost ratio by FY '28, a key milestone in our long-term efficiency strategy. Moving to Page 20. This chart provides a bridge of cash movements and our liquidity balance at the end of the full year. On an OBL-only basis, we have $146.2 million in cash and receivables at 30th of June, up $20 million since the 31st of December. The Fund 9 transaction has allowed for full debt repayment, removed all interest payments and will reduce deployments by an expected further 30% in FY '26 on Funds 2, 3 and Fund 4, 5 Series I. OBL-only cash flow and liquidity profile is a probabilistic analysis reflecting a range of possible outcomes, the assumptions of which are driven by the 300 underlying matters and therefore, are live and dynamic. On previous slides, we stated we are targeting management fees of $35 million and platform expenses of $80 million. Using our Monte Carlo simulation to drive a P50 scenario, the expected cash flows to OBL-only from completions is potentially around $90 million with deployments in this scenario around $30 million. The candlestick ends similarly represent a potential range of different scenarios based on a P80/P20 or 60% confidence interval. We have included a category for potential secondary sales as they present a potential source of revenue that we have constantly proved over time for an origination platform like ours. You will note that there is no central box on that note, indicating that this is not an expected event, but rather something that could occur if the stars align and the opportunity arises. With that, we expect the portfolio to be on track to deliver positive free cash flows for the year ahead. I would like to hand back to Raymond.

Thank you, David. Following the full debt repayment through the Fund 9 transaction, one of the most frequently asked questions has been whether and when the company can now can and will now make returns to investors. In line with prior considerations on this provided over the last 18 months, on Slide 23, we now outline a clear set of guidelines that will steer our liquidity, capital allocation and distribution decisions going forward. Noting the nature of the asset class, OBL will aim to maintain a net liquidity position between 12 and 24 months of forecasted net OpEx plus OBL-only deployments. Should this exceed 24 months, the company will look to return the excess to shareholders in principle via a share buyback. Would net liquidity be between 12 and 24 months, management review of portfolio maturity dynamics and opportunities will drive even when distributions are made. The net liquidity below 12 months warrants no distributions. We are, at the moment, solidly between 12 and 24 months, but want to see how the recent positive portfolio developments progress into cash completions before considering distributions. The team has accomplished a lot in the 15 months since our Investor Day in March '24. We have deleveraged and derisked the balance sheet and moved to a net cash position, having repaid outstanding debt in full. This has put the balance sheet in a strong position during a period of global economic transition and industry consolidation. We increased cost coverage by significantly reducing cash OpEx while increasing fee income by over 20%. Cost savings already implemented and the trajectory of fee income put us on track for the stated 70% cost coverage target by the end of FY '28. Few asset managers have been able to externally validate their business and fair value framework by a third party via an extensive transaction due diligence. This is something OBL was able to do with Ares in the Fund 9 transaction, which demonstrated the underlying value of OBL's portfolio and affirmed OBL as the leading institutional grade fund management platform for legal assets. Similarly, the Fund 9 transaction has allowed OBL to accelerate the transition to a capital-light fund management model by reducing our overall co-invest and aligning our reporting with the broader asset management industry. Over the last 12 months, we have raised around $500 million in third-party capital. And as mentioned earlier, the capital raise for Funds 4 and 5 Series II is on track for completion by the end of this year. Slide 25 is largely self-explanatory, and I will not spend much time on it now. The legal finance industry is entering what we call the fourth development cycle with the core theme being consolidation to a limited set of global and regional leaders. Market dynamics are favorable with continued market growth, while supply is stable or reducing, allowing for appropriate risk-adjusted returns. Omni Bridgeway is very well positioned to benefit from these positive market dynamics. Our strategic focus is to further grow Omni Bridgeway as the leading global and institutional grade fund management platform for legal assets and legal finance. We plan to achieve this through balancing 4 strategic areas. We aim for controlled and sustainable growth of the book, targeting double-digit annualized growth of AUM over the next 3 years. We plan to deliver this by further leveraging our origination and underwriting capabilities, our track record and existing infrastructure to expand and diversify the product offering or capital types for legal assets. This expansion will incorporate a range of options from equity investments or full asset acquisition to portfolio debt structures and everything in between. Additionally, we will focus on limited and cost-efficient geographic expansion where market dynamics are favorable. On the capital side, we are committed to the capital-light fund management model, which allows for maximum return on equity. We, therefore, strive to further expand and diversify third-party capital sources, matching the risk-adjusted return profile of the expanded opportunity set and increasing capital flexibility in funding our investment opportunities. Platform stability and operational efficiency with disciplined cost management and growth of fee income will remain central while we execute on this strategy. One of the key objectives stated at the Investor Day was to enhance our reporting and align it more closely with asset and fund management benchmarks. With the changes to our statutory reporting this period, we have largely completed this journey. In the upcoming period, we will release a comprehensive data pack to the market, which will assist existing and new shareholders and analysts in analyzing and modeling the company based on the revised disclosures. Now to our strategic priorities for FY '26. Completing the Funds 4 and 5 Series II capital raise is at the top of the list. As indicated, we aim and expect to complete this during the first part of the financial year. As mentioned on the prior slide, we will be looking to further expand our sources of capital, our shareholder base and our product offering. We may also consider a smaller strategic secondary market transaction as part of the normal course of business, but only if it is economically and strategically attractive. And we will also look to deconsolidate the 2 remaining funds, 6 and 8 as well as roll out the carried interest program. In terms of a summary of the tangible targets that we have set ourselves for FY '26 and beyond, they are listed in the right-hand column. OpEx of maximum $80 million for FY '26 and fee income of $35 million for the year, achieving 70% cost coverage by the end of FY '28 and double-digit growth in AUM over the next 3 years. And to conclude this presentation, we are pleased to provide a positive management update. As part of our ongoing efforts to streamline our operating structure, Tom Glasgow, our current Managing Director for APAC, will take on the role of Chief Operating Officer. In this new role, Tom will work closely with our portfolio managers globally to coordinate our global origination, underwriting and management operations, ensuring we achieve our growth targets and continue to improve our operational leverage. As mentioned in the earlier investment portfolio report, Greg Crowe joined us earlier this year as Head of Capital Formation after having worked with us as a consultant since last year. It's fair to say that Greg has had an excellent start so far. Both of these roles are integral parts of our strategy to further grow OBL as the leading global and institutional-grade assets and fund management platform for legal assets. Thank you for your attention. I would now like to open the call for any questions you may have.

[Operator Instructions] The first question comes from David Fraser at MST Financial.

Can you hear me okay?

Yes, we can hear you.

First question, in the last IP, you made the comment that you'd basically close or had completed $2.4 billion of investment completions, and then there was a few hundred million of other cases that were at advanced stages. Could you give us an indication of how much the group will receive of that $2.4 billion? And then more importantly, how much of that OBL-only will get?

David, that's a good question. So the -- as always, until payments, there is remaining uncertainty with very large judgements and awards, there may be appeals and maybe enforcement proceedings required. But on a high level, putting those 2 categories together, so the awards and the pending settlement proceeds [indiscernible] would be somewhere between $750 million and $1 billion. And we would say about $150 million to max $200 million to OBL-only, but likely more closely to that $150 million. And it reflects, I would say -- I would say it reflects about $600 million in fair value or these cases altogether stood at about $600 million in fair value as per last year's report, so FY '24.

My second question was at the beginning of last year, you talked about the potential for $800 million of fair value completions in '25, given the investment proceeds to the group was $236 million. Obviously, the fair value associated with that is probably less than that. Can you comment on -- I presume, a lot of that fair value that you were forecasting is in that $2.4 billion that's coming through now.

Yes. No, indeed, as I think I just tried to indicate the fair value of that group of settlements and awards reflects about $600 million or slightly more in fair value as at last year's report. So that sits in that $800 million. So I think it's fair to say that we were off by 3 to 6 months and the cash still has to come in. But that is reflective of the uncertainty of our assets. We never know exactly when a judgment or an award comes in. But indeed, those settlements and those awards would fill the gap between the $800 million and what has been completed and then some extra. Does that answer your question?

Yes. I'm just going to keep asking questions if that's okay, Raymond. Of that $700 million to $800 million or $1 billion, that will go to the group, is there -- can you give us an indication of how much of it came from Funds 2 and 3 Series IV -- Series I; 4 and 5 and come out of 6, clearly nothing coming out of 8 at this stage.

I don't have the complete split at hand, and we've moved away from detailed fund waterfall reporting. But I can indicate that we would significantly exceed the 2/3 preferred. So I would get into the profit range there. And we would, for a very significant part, repay the preferred part of the Fund 9 fund, a preferred return in the Fund 9 fund, if all of these matters complete and the cash comes in as per current expectations. We wouldn't get past the Fund 9 hurdle yet.

And last one for me, and then I'll jump back in the queue. You talked about cash coverage from management fees, transaction fees to cover 70% of forecast management costs in full year '30. How confident are you that you'll get there?

Well, for FY '26, we're very confident. And there's more -- I would say there's slightly -- I don't want to make any promises, but there's slightly more upside potential there than downside potential. So I think that's -- that part, I'm reasonably comfortable with. That puts us on track for the 70% in FY '28. I'm still solidly committed to that number, and I think we're going to achieve it, but it will take further growth and a very disciplined management over the next few years to get to the 70%. But I think we're slightly ahead of schedule in achieving that.

The next question comes from Peter Meichelboeck from Select Equities.

Just on the capital allocation approach that you've spilled out on Slide 23. A couple of things. Can I just confirm, so the net liquidity that you currently talk about, it's cash plus the net receivables? I assume that's -- can you actually -- are you able to sort of give us the numbers on where that is at the moment?

No, I don't have the actual numbers at hand, but it would indeed be cash plus net receivables.

Right. And just on the cash, which -- is this the $105 million number that you speak of in the presentation? Or is it?

Yes.

Yes. Okay. So it includes the...