TIDMLIT
RNS Number : 8397M
Litigation Capital Management Ltd
19 September 2023
19 September 2023
Litigation Capital Management Limited
("LCM" or the "Company")
Full year audited results for the year ended 30 June 2023
Highlights
-- LCM delivered record results during the year with realised
income of A$181m with A$84m directly attributable to LCM
-- Transition to Fair Value accounting, providing greater
transparency with respect to the underlying value of our portfolio
of investments now valued at A$428m1
-- Material resolutions achieved in Fund I delivered strong
performance metrics and increased the cash balance of LCM to A$83m
as at 30 June 2023
-- Fund II had a final close of US$291m with capital commitment
at A$123m as at 30 June 2023 and A$148m as at 31 August 2023
-- Total Funds under Management stand at A$0.66bn
-- Assets under Management (AuM) were A$484m at 30 June 2023
with further commitments in Fund II bringing our AuM to A$553m at
31 August 2023
-- Overall Capital commitments were up significantly on the same prior year period at A$176m
-- The Company ended the period with A$104.5m of gross cash of
which A$83m was attributable to LCM compared with FY22 A$50m of
gross cash of which A$29m was attributable to LCM
-- LCM declares a dividend of 2.25p per share for the full year ended 30 June 2023
-- PFAS settlement approved by the Court post period end will
contribute a further c. A$10m realised income which translates to
cash directly attributable to LCM into FY24
(Capital commitment means the total estimate of an
investment)
(1) A$428m inclusive of A$37m legacy investments held at
cost
Other
-- The Company also announces that it intends to commence a A$10
million share buyback programme covering an aggregate contract term
of approximately twelve months. The Company will continue to assess
how best to provide value to shareholders.
-- Given the improved financial position of the Company's
balance sheet over the past two years, LCM is exploring a sterling
retail eligible bond listed on the ORB at the London Stock
Exchange. The Company expects to announce a fixed income roadshow
in due course. Proceeds raised from the retail bond will optimise
our cost of capital and allow us to take advantage of opportunities
we see in the market.
Commenting on the results, Patrick Moloney, CEO of Litigation
Capital Management, said: " Our fund management strategy is
delivering third party capital for investment. Our referral network
in Europe and APAC is delivering the high-quality investment
opportunities that will underpin our generation of value and cash
to Fund investors and LCM shareholders. As we continue to grow,
increased activity levels will not need to be matched with
proportionate increases in overall costs and this in turn means
greater profitability and cash generation. This is a critical
differentiator for LCM "
LCM will be hosting a webinar for investors today at 11.00 a.m
(BST). The presentation is open to all existing and potential
shareholders. If you would like to attend this presentation, please
register using the following link:
https://www.investormeetcompany.com/litigation-capital-management-limited/register-investor
A webinar presentation for analysts will take place at 9.30am
(BST). Analysts wishing to attend should contact
lcm@tavistock.co.uk to register.
The accompanying results presentation is available on LCM's
website:
https://www.lcmfinance.com/shareholders/investor-presentations-results/
The Financial Report is available at:
https://www.lcmfinance.com/shareholders/annual-reports-financial-reports/
Enquiries
Litigation Capital Management c/o Tavistock
Patrick Moloney, Chief Executive
Officer
Mary Gangemi, Chief Financial
Officer
Canaccord (Nomad and Joint Tel: 020 7523 8000
Broker)
Bobbie Hilliam
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
David Anderson
Tavistock (PR and IR) Tel: 020 7920 3150
Tim Pearson lcm@tavistock.co.uk
Katie Hopkins
NOTES TO EDITORS
Litigation Capital Management (LCM) is an alternative asset
manager specialising in disputes financing solutions
internationally, which operates two business models. The first is
direct investments made from LCM's permanent balance sheet capital
and the second is third party fund management. Under those two
business models, LCM currently pursues three investment strategies:
Single-case funding, Portfolio funding and Acquisitions of claims.
LCM generates its income from both its direct investments and also
performance fees through asset management.
LCM has an unparalleled track record driven by disciplined
project selection and robust risk management. Currently
headquartered in Sydney, with offices in London, Singapore,
Brisbane and Melbourne, LCM listed on AIM in December 2018, trading
under the ticker LIT.
www.lcmfinance.com
Chairman's Statement
The year under review was LCM's most successful 12 months since
inception. This is a testament to the hard work of our management
team and staff, and the foundations that have been laid by the team
over the past few years.
The Financial review details an income statement prepared under
the historical accounting standard and the newly adopted AASB 9 to
provide readers with a bridge of financial performance through this
period of transition. Realised income for the year compared to
revenue as previously disclosed in the prior year was AUD$181m,
A$84m of which was attributable to the shareholders of LCM (FY22
AUD$47m), an increase of 285% on a consolidated basis and 78%
attributable to LCM. Adjusted operating profit of AUD$54m was in
line with the prior year (FY22 adjusted operating profit AUD$54m),
and basic earnings per share of 29.5 cents (FY22 32.7 cents). These
record results meant that the company ended the period with
AUD$104.5m of cash (A$83m attributable to LCM) compared with FY22
AUD$50.0m of which A$29m was attributable to LCM. More information
on the restatement of the Group's results following the adoption of
Fair Value accounting can be found in the CFO report and the notes
to the financial statements.
As a result of the above performance, the Board was pleased to
declare a final dividend to shareholders for the financial year
ending 30 June 2023 of 2.25p per share. The dividend will be paid
on 27 October 2023 to shareholders on the register on 2 9 September
2023 being the record date. The ordinary shares will be marked
ex-dividend on 28 September 2023. As we have set out, the Board is
always looking at ways to return value to shareholders and will
continue to do so.
LCM's experience in the sector has enabled it to navigate the
uncertain economic and political environment which has been in
place since the emergence of the Covid pandemic, and which
continues today due to high levels of inflation and the ongoing war
in Ukraine.
As the year progressed, we began to see courts and tribunals in
jurisdictions across the globe begin to tackle the case backlogs
associated with Covid 19, which has seen more cases settle, a trend
we hope to see continue and accelerate during the next 12 months.
As ever, the timing of resolutions of disputes is out of our hands,
but we will continue to provide market updates to investors in a
timely manner and when it is possible to do so.
During the year LCM has seen the benefits of its move to its
third-party asset management business model, with the first case
investments from Fund I reaching their conclusion, leading to above
average returns for the LCM balance sheet. The Board is confident
that this is the right business model for the Company and will
allow LCM to leverage our capital extremely effectively and build
scale.
In March 2023, Fund II was closed following US$291m of committed
funds and we have already begun to deploy capital within this
structure. We expect this to be a strong driver of growth in the
business in the years to come, and continue to receive interest
from investors looking to commit further.
As the numbers bear out, the performance this year has been
extremely strong, which as ever has been led by strong case
selection and the experience within the Company of originating high
quality deals. We have bolstered our origination business with key
hires in APAC and EMEA, highlighting the increasingly global nature
of our business.
This was CEO Patrick Moloney's first full year based in the UK,
a move driven by our belief in the opportunity for growth in the UK
and Europe. Coupled with the building out of our London team, we
continue to believe that the litigation financing market in EMEA is
set for expansion. This is notwithstanding the recent UK Supreme
Court decision which will have very limited or no impact on LCM's
portfolios of dispute investments in terms of future value.
Additionally, our presence in Singapore has continued to grow, and
we are seeing more and more opportunities in the jurisdiction. We
see these locations as natural complements to each other,
diversifying and de-risking our investment portfolio.
As a business LCM has always been conservative in the way it
apportions value to its portfolio of investments. We will maintain
this conservative approach. However, the Group has reassessed its
classification of the funding of its litigation funding agreements.
This involved a detailed review which resulted in a significant
change to the way in which we report results this year. The change
provides more relevant information on the value of the litigation
funding agreements and reflects the evolution of the primary
business model and changing geographic split of business. This is a
significant change which follows a third-party review and lengthy
and thorough board discussions. We are confident this is the right
move for the business as it continues its shift towards a
third-party asset management business model and will enable
investors more easily to compare us with our peers. More
information about the change to Fair Value Accounting can be found
in the CEO and CFO reports.
In conclusion, this has been an excellent period for LCM, and
can act as a platform from which to continue to expand our asset
management business and develop scale. The litigation funding
market continues to grow, and we expect the quality of
opportunities presented us to expand in line with this.
Jonathan Moulds
Non-Executive Chairman
CEO Review
Introduction
The year to 30 June 2023 was transformational for LCM as we
started to realise the benefits of the asset management business
model and the successful execution of our strategy to grow a
third-party fund management business. The resolution of a number of
Fund I investments has translated into enhanced organic cash
generation, allowing us to scale the business through further
investment into Fund II.
We welcomed an expanded team in London by recruiting additional,
highly experienced litigation finance professionals and have
selectively enhanced our already strong teams in Australia and in
Singapore, which is increasingly a strong hub of opportunities for
the Company. In London and the APAC region our enhanced teams will
help us to continue to take full advantage of the current
favourable market conditions.
As noted in the Chairman's Statement and as set out in more
detail in the Financial Review, the Board evaluated and considered
the appropriate accounting framework with respect to our portfolio
of investments given the business' evolution over recent years. The
outcome being the transition to fair value accounting for
litigation funding assets, which we believe will provide relevant
information on the value of the underlying portfolio and better
reflects our business model.
Operational Review
During the year LCM delivered its strongest set of results to
date, both in terms of financial performance and commitments,
supported by a strong cash position. As a result, we are pleased to
be able to recommend a 2.25p dividend per ordinary share for
shareholders.
We continue to operate against a backdrop of ongoing disruption
caused by high inflation, rising interest rates, geo-political
tension and wider economic uncertainty. Our strong cash position
will enable us to meet the ever growing demand for funding, arising
from the increased level of disputes globally as a consequence of
these external factors. In the current environment, this means
increased demand for capital allocation to fund disputes. This
market demand, together with our ability to deliver superior
uncorrelated returns, places us well for future growth.
We continue to grow and scale our fund management business which
aligns the interests of LCM with our third-party investors through
our co-investment model. Each matter selected for investment will
see us invest our own capital alongside that of the managed funds -
normally on a 25:75 basis. Supported by our track record and
underwriting capabilities, this model allows Fund investors to
benefit from our ability to deliver high returns while LCM
shareholders benefit from performance fees and capital
leverage.
Investment Portfolios and Performance
In terms of investment performance metrics, LCM continues to
deliver outstanding returns. With respect to every investment
completed during the past 12 years, inclusive of losses, LCM has
generated a return on invested capital (ROIC) of 1.78x. On a three
year rolling basis, LCM's investment performance, again including
every completed investment inclusive of losses, has generated an
IRR of 76% and a ROIC of 2.09x. These performance metrics underpin
the high calibre of our investment managers and their underwriting
capabilities with respect to investment selection. LCM has
consistently provided amongst the highest returns in our industry
over a long period of time.
As previously announced, LCM achieved a final close on its
second fund (Global Alternative Returns Fund II) ("Fund II") in
March 2023. Progress in terms of commitments entered into for Fund
II has been strong and we currently enjoy an advanced pipeline of
significant disputes, which we expect to sign into investments in
the near future. Given current demand and levels of enquiry, we
expect we will reach full commitment within the next 12 months. As
with our historical approach, as evidenced by our investment
performance metrics, we continue to build our portfolios of dispute
investments in a manner that maintains diversity across claim type,
industry sector and jurisdiction whilst avoiding concentration
risk. We are at all times focused upon the quality of the
investments that we make, rather than the quantity.
People
Since relocating to the London market in late 2021, I have
focused on both building out the skillset and experience of our
London team, as well as expanding our origination function. LCM now
has the benefit of six highly experienced investment managers in
London, the majority of whom have a deep understanding of the
litigation funding industry both in the UK and Europe. LCM now
boasts the most experienced London team of investment managers
which positions us exceptionally well given the level of enquiry
for our capital being received from the London market.
In terms of the Australian market, we will always consider
adding to our team on an opportunistic basis, however we are
satisfied that the current team is capable of meeting the demands
to perform in that market. We also take a very practical approach
towards our level of operating expenses in each region, ensuring
that in markets where we are not seeing an expansion in the level
of enquiry, that we meet that demand with an appropriate level of
personnel and operating expenses generally. We constantly monitor
market conditions and are in a position to react swiftly to any
changes.
In terms of the Asian markets, we are pleased to report an
increase in activity. Whilst LCM has invested in the Asian market
for many years, we first established a permanent presence with our
Singapore office in 2018. In accordance with LCM's disciplined
approach, we commenced that office with a single experienced
investment manager. Since that time, we have expanded those
operations, such that we now have four investment managers
operating in Singapore. Most recently, we have employed an
investment manager with a focus on insolvency disputes with
experience in the UK, Cayman Islands and Asia. We expect to see
increased activity in the insolvency and restructuring space as
markets continue in a higher interest rate environment and with
continuing economic uncertainty.
Market Environment
Market conditions across the various jurisdictions in which we
operate continue to develop favourably. The economies in which we
operate are seeing central banks continuing with their policy of
increasing official rates in an effort to bring inflation under
control. We continue to see disruption across many industries, some
resulting from Covid hangover, some from geopolitical instability
and some from economic issues. What is clear right across the
markets that we service is that the economic conditions and the
general uncertainty is increasing the number of quality investment
opportunities we see. At one end of the spectrum, we see very
significant increases in the number of liquidations, both voluntary
and court appointed, whereby an insolvency practitioner is
appointed to an insolvent corporation. That dynamic over time will
see an increase in opportunities from that sector. That is of
particular interest to LCM given its extensive experience in
insolvency related disputes and our deep relationships with
insolvency practitioners. At the other end of the market we
service, we have large sophisticated and well capitalised
corporates. Those within the corporates who manage finance, and in
particular disputes budgets, as well as risk, have a more
sympathetic disposition toward exploring litigation finance as a
tool to manage capital and risk in current markets.
Having now worked directly in the UK market for almost two
years, I can make some informed observation regarding opportunity.
I came to the London market with 18 years' experience in the
litigation finance industry, predominantly in the Australian and
Asian markets. The litigation finance market has developed quite
differently in the Australian market than elsewhere in the world.
That experience gives me particular insight into parts of the
market which remain either undeveloped or underserviced in the
United Kingdom. Having now had the opportunity to obtain a direct
insight from referral sources, in particular the dominant dispute
lawyers, I can say that there remains significant opportunity for
LCM in this region. LCM is now very well placed to address the UK
market with a highly experienced London team and an exceptional
working culture.
I have also observed, particularly in the past 12 months, a
contraction in available capital within the litigation financers
operating in this region. There is certainly less competition with
respect to applications than there was two years ago when I
arrived. This leverages this great opportunity for us.
In July of this year and post year end, the Supreme Court of the
United Kingdom delivered a judgment which resulted in certain
litigation funding arrangements being subject to the Damages-Based
Agreement Regulations 2013 in the UK. The Damages-Based Agreement
Regulations 2013 prescribe certain requirements for fee
arrangements between solicitors and their client whereby their
remuneration for the provision of legal services is determined as a
percentage of the financial benefit comprising the outcome of the
dispute. Whilst most commentators accept that the Regulations were
passed to regulate the relationship between a solicitor and client,
the Supreme Court decision has made those Regulations relevant to
litigation funding arrangements whereby the funder's returns are
calculated by reference to a percentage of damages. That decision
has affected the market in the UK in different ways. Some
litigation financers have been affected more than others. LCM is
fortunate to be affected only in a very minor way. First, there are
a very small number of litigation funding arrangements in the UK,
which will require small amendments. Overwhelmingly, our fee
structure is calculated by reference to a multiple of invested
capital rising over time. With respect to the small number of
funding arrangements which are affected by the decision, a minor
component to the funding arrangement involves a percentage. LCM is
in the process of renegotiating that small number of arrangements
and we are very confident that the decision will not impact LCM's
existing portfolio, or its business moving forward. Secondly, and
importantly, LCM does not have any funding arrangement which has
been concluded in the United Kingdom involving a percentage which
might be the subject of an argument that amounts ought to be
repaid. Therefore, overall, LCM's existing and future business will
be almost completely unaffected by the decision.
Accounting Standards
As previously announced, we conducted a review of our accounting
approach following the evolution of our business over recent years.
This led to a transition in the way we value our portfolio of
investments to Fair Value accounting.
We managed this task with discipline and rigour. We believe the
benefit of this transition will facilitate a better understanding
of the underlying value in our portfolio of investments. As funded
matters progress over time, value is attributed to each of the
investments based upon that progress and certain observable
milestones, providing a greater degree of transparency.
In developing a valuation methodology, LCM can draw upon not
only a large pool of data but its many years of experience in the
litigation finance industry. LCM's business has been investing in
disputes for approximately 25 years. Very few of our peers can
point to experience of that nature or duration. The model, which
has been developed to value Litigation Funding Assets on an
individual investment level, considers, among other things,
discounting future investment cash outflows and realisations to
reflect a cost of capital, time and risk. LCM worked with external
advisers at EY in developing the model.
Strategy
LCM's future strategy is to continue building the scale of its
business. That is achieved by three important building blocks. Over
the years I have made reference to the three building blocks
necessary to establish a successful litigation finance business,
which also provide the foundation for building scale. The first is
maintaining the strict discipline of our due diligence and
underwriting processes. LCM has an exceptionally strong track
record when it comes to investment performance. It is important
that we maintain the discipline of our due diligence processes as
we build scale.
Secondly, there is the need for adequate capital to fund growth,
that is capital to invest. Fundamental to our success, is our
ability to construct our portfolios of disputes with diversity
across industry sector, dispute type and jurisdiction, whilst
avoiding concentration risk. To a certain extent, that requires a
degree of scale. LCM continually considers the diversity of its
capital structure. In 2020, we commenced our funds management
business, and we are now actively committing Fund II. During the
next financial period, LCM will take steps towards launching Fund
III and will carefully consider the appropriate size of that fund.
Additionally, we will continue to review other aspects of our
capital structure, such as debt, in order to optimise our cost of
capital.
Finally, in order to effectively build the scale of LCM's
business, we need to continually monitor and refine the way we gain
access to quality investments through our origination platform. As
noted above, we have already taken steps to bolster the skillset
and capacity of our London team to take advantage of market
opportunity. We have also expanded both our team and the particular
skillsets in our Singapore office so as to accommodate increasing
demand for capital and increasing applications in the area of
insolvency and restructuring.
We have considered new territories and jurisdiction over a
number of years. We think about expansion into new territories very
carefully and with discipline. With signs of a contracting market
in the litigation finance industry, we are seeing an increased
volume of applications coming from the US market as well as Canada.
We are also receiving inward enquiries to represent LCM's interest
in those jurisdictions by experienced teams. This is an ongoing
process and in circumstances where we are sufficiently comfortable
about having a presence in jurisdictions and territories in which
we currently do not operate, we will take advantage of those
opportunities.
Outlook
As set out above and reported to the market together with our
interim results, the prevailing market conditions in all of the
territories and jurisdictions in which we operate, are conducive to
growing our business and are driving demand for LCM's capital. We
expect those market conditions to continue into the medium term. We
also expect that there will be a significant increase in the number
of appointments of external administrators and liquidators in
insolvency, which will translate into increased applications in the
future. That is of particular benefit to LCM given its long history
funding disputes arising from insolvency and restructuring. We are
also able to draw upon the experience gained following the global
financial crisis, which generated many disputes seeking a source of
finance.
Secondly, we are seeing a tightening and contraction of the
competitive landscape in the litigation finance industry. We see
this in several markets, including the United Kingdom, the US and
Canada. Having built LCM's expertise and capacity in the London
market, as well as having access to capital through our funds
management business, LCM is well placed to capitalise on those
industry conditions.
LCM's Fund I has enjoyed a number of resolutions in the
preceding financial period. The performance of those investments
has been very strong. In addition, we are seeing more opportunities
in the market and expect to materially achieve commitments in LCM
Fund II in the financial period ahead. Both of those factors will
position LCM well for launching its third Fund.
Our fund management strategy is delivering third party capital
for investment. Our referral network in Europe and APAC is
delivering the high-quality investment opportunities that will
underpin our generation of value and cash to Fund investors and LCM
shareholders. What this means is that, as we continue to grow,
increased activity levels will not need to be matched with
proportionate increases in overall costs and this in turn means
greater profitability and cash generation.
Patrick Moloney
Chief Executive Officer
Financial Review
We have delivered our strongest results to date, demonstrating
the capability our asset management model has in delivering
accelerated organic growth.
We have delivered meaningful value through our business model
which will continue to create increased long-term shareholder
value.
This year was a defining year for LCM as we delivered our
strongest results to date. The asset management business has
demonstrated our ability to deliver strong returns not only for our
third-party investors but for our underlying equity shareholders.
Leveraging third party capital provides us with a platform to scale
and grow organically, through the use of alternative sources of
capital.
LCM's brand continues to strengthen, as we demonstrate,
year-on-year, our ability to deliver strong and meaningful
accretive returns, with metrics that outperform industry peers. Our
unparalleled track record and investment selection capabilities are
underpinned by the strength of our Investment Managers and
Executive team. Our ability to scale through our asset management
business, coupled with our proven track record, have delivered a
record year in terms of profits and commitments which places us
well for accelerated growth.
During the year ended 30 June 2023, we generated record income
from the realisation of investments of A$181 million on a
consolidated basis and A$84 million on an LCM stand-alone basis.
Commitments increased to A$176m.
We successfully completed a third and final close of Fund II at
US$291 million in a difficult fundraising environment with
continued interest rate rises and started to deliver meaningful
returns from investments in Fund I which places us in a strong
position for subsequent fund raises. We maintained our strong
financial performance with a 12 year ROIC of 1.78x. We are pleased
with the momentum the portfolio has made during the year and expect
further legacy matters to crystalise in the coming year, providing
us with meaningful organic capital for further investment.
Transition to Fair Value accounting
The evolution of the business over recent years has necessitated
the need for our Board to review the Company's accounting policies
to ensure they provide an appropriate representation of the
underlying business model. In careful consultation with our
advisors, a decision was made to transition to Fair Value
accounting to provide investors with a greater level of information
that better reflects both the current business model and the
intrinsic value of our portfolio of investments.
In developing our framework we also looked to industry peers for
alignment in methodology, the benefit being that adopting a similar
methodology provides a level of comparability.
The precise timing and proceeds of the outcomes are difficult to
predict accurately and therefore the actual outcome is inherently
uncertain and likely to differ from the fair value assessment. The
Group has developed a framework that addresses the litigation or
arbitral process across the various jurisdictions, taking into
consideration the varying degrees of risk associated with each
stage and jurisdiction. A Discounted Cash Flow approach is then
applied to each underlying investment on an individual basis.
LCM standalone results, comparatives and restatement
Following the evolution of our business model and the launch of
the Funds Management business in March 2020, which led to a shift
towards an Asset Management model, this necessitated a transition
to Fair Value accounting. Consequently, the consolidated financial
statements for the Statement of Financial Position for the period
ended 30 June 2021 as well as the Consolidated Statement of Profit
and Loss and Other Comprehensive Income, the Consolidated Statement
of Financial Position, the Consolidated Statement of Changes in
Equity and the Consolidated statement of Cash flows together with
the accompanying notes for the 12 month period ended 30 June 2022
have been restated to reflect the impact of the adoption of AASB 9
in those periods.
The performance of the business presented below has been
presented in accordance with the Australian Accounting Standards
(AASB) and the International Financial Reporting Standards
(IFRS).
AASB requires the consolidation of our managed Funds as LCM has
exposure, or rights, to variable returns from its co-investment
with the Funds. Consequently, third party interests have been
consolidated in the financial statements.
Both Management and the Board believe that the Funds should be
excluded from the presentation of our financial performance to
provide a clearer understanding of the underlying performance
attributable to LCM and its shareholders.
The tables following provide a full reconciliation of the
consolidated statement of comprehensive income and consolidated
statement of financial position both under our historical
accounting policies and the newly adopted fair value accounting, to
provide investors with meaningful financials and to bridge the
transition from one accounting standard to the next. Note that
these are non-AASB measures and may not be directly comparable with
adjusted measures of other companies. They are not a substitute for
or replacement of AASB measures.
Historical accounting under IFRS 15
LCM-only LCM-only
AASB as AASB
reported as reported
30 June Fund 30 June 30 June Fund 30 June
2023 interests* 2023 2022 interests* 2022
Income statement Note $'000 $'000 $'000 $'000 $'000 $'000
-------------------------------- ----- --------- ----------- --------- ------------ ----------- --------
Revenue from contracts
with customers
-------------------------------- ----- --------- ----------- --------- ------------ ----------- --------
Litigation service revenue 156,191 96,591 59,600 47,350 207 47,143
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Performance fees 24,598 - 24,598 53 1 52
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
180,789 96,591 84,198 47,403 208 47,195
-------------------------------------- --------- ----------- --------- ------------ ----------- --------
Litigation service expense (53,255) (21,965) (31,290) (16,343) (81) (16,262)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Gross profit 127,534 74,626 52,908 31,060 127 30,933
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Other income 18 - 18 - - -
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Interest income 178 129 49 1 - 1
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Expenses
-------------------------------- ----- --------- ----------- --------- ------------ ----------- --------
Employee benefits expense (9,474) - (9,474) (8,841) - (8,841)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Depreciation expense (166) - (166) (65) - (65)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Corporate expenses (3,547) (673) (4,220) (3, 229) - (3,499)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Finance costs (8,268) (144) (8,124) (4,703) - (4,703)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Fund administration expense (2,368) (1,178) (1,190) (3,169) (2,099) (800)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Foreign currency (gains)/losses (5,081) (3,904) (1,177) (370) (270) (100)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Total expenses (28,904) (4,553) (24,351) (20,377) (2,369) (18,008)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Profit before income tax 98,827 70,202 28,625 10,684 (2,242) 12,926
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Analysed as:
-------------------------------- ----- --------- ----------- --------- ------------ ----------- --------
Adjusted operating profit 110,633 71,524 39,109 20,164 127 20,037
Non-operating expenses (3,539) (1,178) (2,360) (4,778) (2,369) (2,409)
Finance costs (8,268) (144) (8,124) (4,703) - (4,703)
Profit before income tax
expense 98,827 70,202 28,625 10,684 (2,242) 12,926
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Income tax expense (6,864) - (6,864) (4,040) - (4,040)
Profit/(loss) after income
tax expense for the period 91,963 70,202 21,761 6,644 (2,242) 8,886
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Profit for the period is
attributable to:
Third party interests in
the Fund 70,202 70,202 - (2,242) (2,242) -
Owners of Litigation Capital
Management Limited 21,761 - 21,761 8,886 - 8,886
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
91,963 70,202 21,761 6,644 (2,242) 8,886
-------------------------------------- --------- ----------- --------- ------------ ----------- --------
Other comprehensive income
for the year, net of tax 1,513 (673) 2,187 (2,535) (432) (2,103)
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
Total comprehensive income
for the period 93,476 69,528 23,948 4,109 (2,674) 6,783
--------------------------------------- --------- ----------- --------- ------------ ----------- --------
* Third party interests.
** Other adjustments are Non-operating expenses which includes
items which are considered unusual, non-cash or one-off in nature.
Management have opted to separately present these items as it
better reflects the Group's core operations and underlying
performance
Fair Value accounting under IFRS 9
Restated
AASB AASB
as reported LCM-only as reported LCM-only
Consolidated Statement 30 June Fund 30 June 30 June Fund 30 June
of Comprehensive Income 2023 interests* 2023 2022 interests* 2022
$'000 $'000 $'000 $'000 $'000 $'000
Gain on financial assets
at fair value through profit
or loss 5 184,735 117,051 67,684 103,852 39,041 64,811
Movement in financial liabilities
related to third-party interests
in consolidated entities 5 (111,953) (111,953) - (36,672) (36,672) -
Total income 72,782 5,098 67,684 67,180 2,369 64,811
Other income 18 - 18 - - -
Interest income 178 129 49 1 - 1
Employee benefits expense 7 (9,474) - (9,474) (8,841) - (8,841)
Depreciation expense 7 (166) - (166) (65) - (65)
Corporate expenses (4,220) - (4,220) (3,499) - (3,499)
Finance costs 7 (8,268) (144) (8,124) (5,037) (334) (4,703)
Fund administration expense 7 (3,028) (1,178) (1,850) (3,618) (1,765) (1,853)
Foreign currency (gains)/losses (5,081) (3,905) (1,176) (370) (270) (100)
Total expenses (30,237) (5,227) (25,010) (21,430) (2,369) (19,061)
------------- ------------ --------- ------------- ------------ ---------
Profit before income tax
expense 42,741 - 42,741 45,751 - 45,751
Analysed as:
Adjusted operating profit 53,885 - 53,885 53,916 - 53,916
Non-operating expenses (3,020) - (3,020) (3,462) - (3,462)
Finance costs (8,124) - (8,124) (4,703) - (4,703)
Profit before income tax
expense 42,741 - 42,741 45,751 - 45,751
------------- ------------ --------- ------------- ------------ ---------
Income tax expense 8 (11,256) - (11,256) (11,141) - (11,141)
Profit after income tax
expense 31,485 - 31,485 34,610 - 34,610
------------- ------------ --------- ------------- ------------ ---------
Other comprehensive income
for the year, net of tax 2,187 - 2,187 (2,103) (2,103)
Total comprehensive income
for the period 33,672 - 33,672 32,507 - 32,507
------------- ------------ --------- ------------- ------------ ---------
A financial liability at fair value through the income statement
is recognised in the parent entity in relation to the transactions
entered into with certain Fund structures to support the financing
of LFAs. These arrangements fail the derecognition principles in
IFRS 9 and represents the net share of the overall LFA at fair
value apportioned to the Funds.
The performance of the business should be assessed together with
our key performance metrics such as growth in commitments and
assets under management, to provide a more holistic representation
of the performance of the business during the year and a more
accurate indication of the scale of growth in our underlying
portfolio of investments.
The business of litigation finance involves a series of
investments into disputes which historically take, on average,
approximately 29 months to complete. Those investments may resolve
before or after that monthly average and our expectation is that
time to resolution will increase to between 36 and 42 months in the
future. While a review of the business model resulted in a
transition to fair value accounting which better reflects the
underlying value of the portfolio of investments as they progress,
cash flow fluctuations from one year to the next will continue as a
consequence of the actual timing of resolutions.
Adjusted profit before tax inclusive of third party interests
was A$53.9m million in line with the prior period under our
restated financials.
A reconciliation of adjusted profit is provided below:
AASB as
reported AASB as reported
30 June
2023 30 June 2022
$'000 $'000
------------------------------- --------- ----------------
Statutory profit before tax 42,741 45,751
------------------------------- --------- ----------------
Add:
------------------------------- --------- ----------------
Other transaction costs 56 401
------------------------------- --------- ----------------
Share-based payments 867 256
------------------------------- --------- ----------------
Other expenses 57 80
------------------------------- --------- ----------------
Non-recurring consultancy fees 0 183
------------------------------- --------- ----------------
Litigation fees 190 689
------------------------------- --------- ----------------
Finance costs 8,124 4,703
------------------------------- --------- ----------------
Fund administration costs 1,850 1,853
------------------------------- --------- ----------------
Adjusted operating profit 53,885 53,916
------------------------------- --------- ----------------
Historical accounting under IFRS 15
LCM-only LCM-only
AASB AASB
as reported as reported
30 June 30 June 30 June 30 June
2023 2023 2022 2022
Statement of financial Fund interests* Fund interests*
position $'000 $'000 $'000 $'000 $'000 $'000
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Current assets
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Cash and cash equivalents 104,457 21,484 82,973 49,964 20,711 29,253
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Trade and other receivables 21,934 - 21,934 34,491 - 34,491
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Contract costs 47,199 21,141 26,058 21,634 - 21,634
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Other assets 617 75 542 614 (624) 1,238
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Total current assets 174,207 42,700 131,507 106,703 20,087 86,616
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Non-current assets
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Contract costs 179,922 102,804 77,118 162,763 83,130 79,633
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Property, plant and equipment 211 - 211 182 - 182
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Intangible assets 356 - 356 646 - 646
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Other assets 492 - 492 249 - 249
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Total non-current assets 180,981 102,804 78,177 163,840 83,130 80,710
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Total assets 355,188 145,504 209,684 270,543 103,217 167,326
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Liabilities
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Current liabilities
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Trade and other payables 7,535 3,214 4,321 12,840 5,817 7,023
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Tax payable 7,769 - 7,769 68 - 68
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Borrowings - - - 14,494 14,494 -
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Employee benefits 623 - 623 700 - 700
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Total current liabilities 15,927 3,214 12,713 28,102 20,311 7,791
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Non-current liabilities
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Deferred tax liability 9,148 - 9,148 11,513 - 11,513
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Borrowings 68,976 - 68,976 54,915 - 54,915
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Employee benefits 283 - 283 227 - 227
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Third party interests in
consolidated entities 70,773 76,447 (5,674) 81,780 86,794 (5,014)
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Total non-current liabilities 149,180 76,447 72,733 148,435 87,694 61,641
------------------------------ ------------ --------------- -------- ------------ --------------- --------
165,
Total liabilities 107 79,661 85,446 176,537 107,105 69,432
------------------------------ ------------ --------------- -------- ------------ --------------- --------
Net assets 190,081 65,843 124,238 94,006 (3,888) 97,894
------------------------------ ------------ --------------- -------- ------------ --------------- --------
* Elimination of third party interests in Fund I and Fund II
Fair Value accounting under IFRS 9
Restated
LCM-only LCM-only
AASB AASB as
as reported reported
30 June 30 June 30 June 30 June
2023 2023 2022 2022
Fund Fund
Consolidated statement interests* interests*
of financial position $'000 $'000 $'000 $'000 $'000 $'000
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
Assets
Cash and cash equivalents 9 104,457 21,484 82,973 49,964 20,711 29,253
Trade & other receivables 2,209 - 2,209 2,298 - 2,298
Due from resolution
of financial assets 10 11,873 - 11,873 24,340 - 24,340
Financial assets at
fair value through
profit or loss 11 391,410 225,642 165,768 296,980 142,403 154,577
Contract costs 12 37,277 - 37,277 31,782 - 31,782
Property, plant and
equipment 211 - 211 182 - 182
Intangible assets 356 - 356 646 - 646
Other assets 1,110 78 1,032 866 (623) 1,489
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
Total assets 548,903 247,204 301,699 407,058 162,491 244,567
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
Liabilities
Trade and other payables 13 7,535 3,214 4,321 12,840 5,817 7,023
Tax payable 7,769 - 7,769 68 - 68
Employee Benefits 14 906 - 906 927 - 927
Borrowings 15 68,976 - 68,976 69,409 14,494 54,915
Third-party interests
in consolidated entities 29,29 243,990 243,990 - 142,180 142,180 -
Deferred tax liability 8 36,259 - 36,259 32,704 - 32,704
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
Total liabilities 365,435 247,204 118,231 258,128 162,491 95,637
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
Net assets 183,468 - 183,468 148,930 - 148,930
------------------------------ ------ ------------- ------------ --------- ---------- ------------ ---------
* Elimination of third party interests in Fund I and Fund II
Cash
LCM only cash on balance sheet as at 30 June 2023 was $83.0m
million and long-term borrowings was $69.0m, compared with $29.3m
and $54.9m respectively for the same period in 2022.
LCM cash generated from the resolution of matters during the
period was $96.8 million, as compared to $26.6 million in FY22,
reflecting the benefits of leveraging third-party capital through
our asset management business model to generate organic cash flows
for further investment. Payments related to capital invested was
$36.3 million, compared to the same prior period in FY22 of $29.8
million. The following waterfall is exclusive of third party fund
interests.
The following financial and non-financial KPIs are measures we
believe are relevant to the performance of our business and reflect
progress in the growth of our assets under management, portfolio of
investments and shareholder value. During the year:
-- Inclusive of third party funds, Realisations from the
resolution of investments increased to A$180.8m compared to A$47.4m
in the prior period, the resolution of investments directly
attributable to LCM increased by 78% to A$84.2 million from A$47.2
million in the prior year;
-- Investment Commitment was A$176 million inclusive of third
party funds, increasing from A$104 million in FY22;
-- 12 year cumulative portfolio Return on Invested Capital (ROIC) was 1.78x;
-- LCM operating expenses (exclusive of third-party funds of
A$13.9m increasing from A$10.9m in the prior period;
-- Applications received were 434 from 442 in FY22 a decrease of 2%;
-- Statutory profit before tax and adjusted operating profit on
an LCM only basis in line with the prior period under the restated
financials of $A42.7m and A$53.9m respectively.
Portfolio update
Capital invested during FY23 was A$95m inclusive of A$58m third
party fund investments, compared to $68 million in FY22, inclusive
of $38.5 million of third party fund investment on a cash
basis.
LCM's ability to originate deals and deploy capital is a measure
of its growth and future performance as the value of our future
profits are derived from the capital we deploy in our investments
at the time a resolution is achieved.
LCM's portfolio of investments comprises 52 investments as at 30
June 2023 with 20 direct balance sheet investments, 20 Fund I
co-investments and 12 Fund II investments. Total LCM commitments at
the period end were A$183m comprising A$73.7m 100% direct
investments, A$59.5 million Fund I commitments and A$49.8m Fund II
commitments.
We continued to maintain diversity across our portfolio across
industry sector, jurisdiction and capital commitment, in line with
LCM's investment philosophy.
Financial performance
During the year we had a number of significant resolutions from
our Fund which translated into meaningful cash returns for LCM and
fund investors.
The Group's overall realisations from investments was $180.8m,
A$84.2m of which is directly attributable to LCM. This compares
with A$47.4m and A$47.2 million respectively in the prior
period.
Adjusted operating profit directly attributable to LCM was
A$53.9 million, in line with the prior period and statutory profit
before tax was A$42.7 million compared with A$45.8 million in the
prior period.
The Group's portfolio of Investments at the period end had a
value of A$428.7m, A$203m exclusive of third party funds but
inclusive of A$37m of legacy investments held as contract assets.
Gains during the period was A$67.7mm of which A$16.2m was related
to unrealised gains attributable to LCM.
Operating expenses directly attributable to LCM of A$13.9
million for the period ended 30 June 2023 increased by 27% compared
to A$10.9 million in FY22. We continue to expect to see an increase
in operating costs as we expand, however these are expected to
remain appropriate relative to the size of the portfolio under
management.
Non-operating expenses of $3 million include; A$1.9 million of
costs related to fund administration, $0.8 million of share-based
payment expenses and $0.3m related to other non-recurring expenses
(see note 7). (FY22: A$3.5m)
We have delivered a record set of results.
Finance costs
On 22 February 2021, the Company entered into a credit facility
with Northleaf Capital Partners to provide the Company with
additional investment capital. Northleaf is a global private
markets investment firm, with experience in the litigation finance
sector. The Credit Facility, which is secured against LCM's assets,
is available for general corporate purposes, and has an overall
term of four years. The coupon comprises a based rate of 8% per
annum together with a profit participation calculated by reference
to the profitability of LCM's direct investments. In all
circumstances, the overall cost of the facility is capped at 13%
per annum. The Credit Facility was available to be drawn down
during the first two years. The facility otherwise contains the
usual financial covenants and reporting conditions of a facility of
this nature.
Dividend
As previously announced and following the financial performance
of the business in the period ended 30 June 2023, the Board has
decided to pay a dividend of 2.25p per ordinary share to
Shareholders. The Board remains committed to returning value to
shareholders while also maintaining a disciplined approach to
preserving the right levels of cash to meet any increase in demand
for investments in order to accelerate growth in our portfolio.
Mary Gangemi
Chief Financial Officer
Consolidated statement of profit or loss and other comprehensive
income
For the period ended 30 June 2023
Consolidated
---------------------
Restated
2023 2022
Note $'000 $'000
----- ---------- ---------
Income
Gain on financial assets at
fair value through profit or
loss 5 184,735 103,852
Movement in financial liabilities
related to third-party interests
in consolidated entities 5 (111,953) (36,672)
---------- ---------
Total income 72,782 67,180
Other income 18 -
Interest income 178 1
Expenses
Employee benefits expense 7 (9,474) (8,841)
Depreciation expense 7 (166) (65)
Corporate expenses (4,220) (3,499)
Finance costs 7 (8,268) (5,037)
Fund administration expense 7 (3,028) (3,618)
Foreign currency (gains)/losses (5,081) (370)
---------- ---------
Total expenses (30,237) (21,430)
----- ---------- ---------
Profit before income tax expense 42,741 45,751
Analysed as:
Adjusted operating profit 53,885 53,916
Non-operating expenses 7 (3,020) (3,462)
Finance costs 7 (8,124) (4,703)
---------- ---------
Profit before income tax expense 42,741 45,751
Income tax expense 8 (11,256) (11,141)
----- ---------- ---------
Profit after income tax expense 31,485 34,610
Other comprehensive income
Items that may be subsequently
reclassified to profit and
loss:
Movement in foreign currency
translation reserve 2,187 (2,103)
----- ---------- ---------
Total comprehensive income
for the period 33,672 32,507
----- ---------- ---------
Profit for the period is attributable
to:
Owners of Litigation Capital
Management Limited 31,485 34,610
----- ---------- ---------
31,485 34,610
----- ---------- ---------
Total comprehensive income
for the period is attributable
to:
Owners of Litigation Capital
Management Limited 33,672 32,507
----- ---------- ---------
33,672 32,507
----- ---------- ---------
Cents Cents
---------- ---------
Basic earnings per share 27 29.53 32.65
Diluted earnings per share 27 28.33 31.64
Where applicable, comparative information has been restated to
reflect a change in accounting for litigation funding agreements.
Refer to Note 3.
The above Consolidated Statement of Profit or Loss and Other
Comprehensive Income should be read in conjunction with
accompanying Notes to the Financial Statements.
Consolidated statement of financial position
As at 30 June 2023
Consolidated
Restated Restated
As at
1 July
2023 2022 2021
Note $'000 $'000 $'000
------ -------- --------- ---------
Assets
Cash and cash equivalents 9 104,457 49,964 49,736
Trade & other receivables 2,209 2,298 2,242
Due from resolution of financial
assets 10 11,873 24,340 4,408
Financial assets at fair value
through profit or loss 11 391,410 296,980 176,838
Contract costs 12 37,277 31,782 28,633
Property, plant and equipment 211 182 186
Intangible assets 356 646 391
Other assets 1,110 866 881
-------- --------- ---------
Total assets 548,903 407,058 263,315
-------- --------- ---------
Liabilities
Trade and other payables 13 7,535 12,840 12,308
Tax payable 7,769 68 84
Employee Benefits 14 906 927 601
Borrowings 15 68,976 69,409 50,424
Financial liabilities related
to third-party interests in
consolidated entities 26,29 243,990 142,180 62,870
Deferred tax liability 8 36,259 32,704 21,632
-------- --------- ---------
Total liabilities 365,435 258,128 147,919
-------- --------- ---------
Net assets 183,468 148,930 115,396
======== ========= =========
Equity
Issued Capital 16 69,674 69,674 68,904
Reserves 17 1,042 (2,012) (165)
Retained Earnings 112,753 81,268 46,657
-------- --------- ---------
Parent interest 183,468 148,930 115,396
Total equity 183,468 148,930 115,396
======== ========= =========
Where applicable, comparative information has been restated to
reflect a change in accounting for litigation funding agreements.
Refer to Note 3.
The above Consolidated Statement of Financial Position should be
read in conjunction with accompanying Notes to the Financial
Statements.
Consolidated statements of changes in equity
For the period ended 30 June 2023
Share
based Foreign
Issued Retained payments currency Total
capital earnings reserve translation equity
Consolidated $'000 $'000 $'000 $'000 $'000
---------------------------------- -------- --------- --------- ------------ --------
Balance at 1 July 2021 68,904 20,028 1,317 (1,377) 88,872
Adjustment on restatement
of litigation funding assets
(Note 3) - 26,629 - (105) 26,524
-------- --------- --------- ------------ --------
Balance at 1 July 2021
(restated) 68,904 46,657 1,317 (1,482) 115,396
======== ========= ========= ============ ========
Profit after income tax
expense for the year (restated) - 34,610 - - 34,610
Other comprehensive income
for the year - - - (2,103) (2,103)
-------- --------- --------- ------------ --------
Total comprehensive income
for the year - 34,610 - (2,103) 32,507
Equity Transactions :
Share-based payments (note
28) - - 256 - 256
Contributions of equity
(note 16) 770 - - - 770
-------- --------- --------- ------------ --------
770 - 256 - 1,026
-------- --------- --------- ------------ --------
Balance at 30 June 2022
(restated ) 69,674 81,268 1,573 (3,585) 148,930
======== ========= ========= ============ ========
Balance at 1 July 2022
(restated) 69,674 81,268 1,573 (3,585) 148,930
Profit after income tax
expense for the year - 31,485 - - 31,485
Other comprehensive income
for the year - - - 2,187 2,187
-------- --------- --------- ------------ --------
Total comprehensive income
for the year - 31,485 - 2,187 33,672
Equity Transactions:
Share-based payments (note
28) - - 867 - 867
-------- --------- --------- ------------ --------
- - 867 - 867
-------- --------- --------- ------------ --------
Balance at 30 June 2023 69,674 112,753 2,440 (1,398) 183,468
======== ========= ========= ============ ========
Where applicable, comparative information has been restated to
reflect a change in accounting for litigation funding agreements.
Refer to Note 3.
The above Consolidated Statement of Changes in Equity should be
read in conjunction with accompanying Notes to the Financial
Statements.
Consolidated statements of cash flows
For the period ended 30 June 2023
Consolidated
--------------------
Restated
2023 2022
Note $'000 $'000
----- --------- ---------
Cash flows from operating activities
Profit after income tax expense for
the period 31,485 34,610
Adjustments for:
Gain on financial assets at fair value
through profit or loss (72,782) (67,180)
Depreciation and amortisation of intangibles 166 284
Share-based payments 867 256
Finance costs reclassified to financing
activities 8,268 5,038
Income tax expense 11,256 11,141
Exceptional items 1,200 800
Foreign exchange rate movements 11,601 517
Change in operating assets and liabilities:
(Funding) of financial assets 11 (89.049) (65,139)
Proceeds from resolution of financial
assets 10 192,623 26,792
Decrease/(increase) in trade and other
receivables (89) 56
(Increase) in contract costs - litigation
contracts (5,494) (3,150)
(Decrease)/Increase in trade and other
payables (5,305) 516
(Decrease)/Increase in employee benefits (21) 327
Income Tax paid (139) (85)
----- --------- ---------
Net cash from/(used in) operating
activities 84,587 (55,217)
----- --------- ---------
Cash flows from investing activities
Payments for property, plant and equipment (90) (38)
Payments for intangibles (57) (278)
Refunds of security deposits (51) (19)
----- --------- ---------
Net cash used in investing activities (198) (335)
----- --------- ---------
Cash flows from financing activities
Proceeds from issue of shares - 770
Proceeds from borrowings 15 9,636 13,298
Repayments of borrowings 15 (14,848) -
Payments of finance costs (6,171) (4,637)
Payments of transaction costs related
to third-party interests (1,832) (1,853)
Contributions from third-party interests
in consolidated entities 29 74,980 45,465
Distributions to third-party interests
in consolidated entities 29 (94,373) (406)
Payments for fund establishment &
administration costs - (778)
----- --------- ---------
Net cash (used in)/from financing
activities (32,608) 51,859
----- --------- ---------
Net increase/(decrease) in cash and
cash equivalents 51,781 (3,693)
Cash and cash equivalents at the beginning
of the financial year 49,964 49,736
Effects of exchange rate changes on
cash and cash equivalents 2,712 3,921
----- --------- ---------
Cash and cash equivalents at the
end of the financial year 9 104,457 49,964
----- --------- ---------
Where applicable, comparative information has been restated to
reflect a change in accounting for litigation funding agreements.
Refer to Note 3.
The above Consolidated Statement of Cash Flows should be read in
conjunction with accompanying Notes to the Financial
Statements.
Notes to the financial statements
1. General information
The financial statements cover Litigation Capital Management
Limited (the 'Company') as a Group consisting of Litigation Capital
Management Limited and the entities it controlled at the end of, or
during, the year (referred to as the 'Group'). The financial
statements are presented in Australian dollars, which is Litigation
Capital Management Limited's functional and presentation
currency.
Litigation Capital Management Limited was admitted onto the
Alternative Investment Market ('AIM') on 19 December 2018.
Litigation Capital Management Limited is a listed public company
limited by shares, incorporated and domiciled in Australia. Its
registered office and principal place of business is:
Level 12, The Chifley Tower
2 Chifley Square
Sydney NSW 2000
A description of the nature of the Group's operations and its
principal activities are included in the Directors' report, which
is not part of the financial statements.
The financial statements were authorised for issue, in
accordance with a resolution of Directors, on 19 September 2023.
The Directors have the power to amend and reissue the financial
statements.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of
the financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
Where necessary, comparative amounts have been reclassified and
repositioned for consistency with current year accounting policy
and disclosures. Further details on the nature and reason for
amounts that have been reclassified and repositioned for
consistency with current year accounting policy and disclosures,
where considered material, are referred to separately in the
financial statements or notes thereto.
New or amended Accounting Standards and Interpretations
adopted
The Group has adopted all of the new or amended Accounting
Standards and Interpretations issued by the Australian Accounting
Standards Board ('AASB') that are mandatory for the current
reporting period.
Any new or amended Accounting Standards or Interpretations that
are not yet mandatory have not been early adopted.
The adoption of these Accounting Standards and Interpretations
did not have any significant impact on the financial performance or
position of the Group.
Basis of preparation
These general purpose financial statements have been prepared in
accordance with Australian Accounting Standards and Interpretations
issued by the Australian Accounting Standards Board ('AASB') and
the Corporations Act 2001, as appropriate for for-profit oriented
entities. These financial statements also comply with International
Financial Reporting Standards as issued by the International
Accounting Standards Board ('IASB'). The financial report has been
prepared on a historical cost basis, except for the financial
assets and liabilities that have been measured at fair value.
Critical accounting estimates
The preparation of the financial statements requires the use of
certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group's
accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in note
4.
Parent entity information
In accordance with the Corporations Act 2001, these financial
statements present the results of the Group only. Supplementary
information about the parent entity is disclosed in note 24.
Principles of consolidation
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of Litigation Capital Management
Limited ('Company' or 'parent entity') as at 30 June 2023 and the
results of all subsidiaries for the year then ended. Litigation
Capital Management Limited and its subsidiaries together are
referred to in these financial statements as the 'Group'.
The Group includes fund investment vehicles over which the Group
has the right to direct the relevant activities of the fund under
contractual arrangements and has exposure to variable returns from
the fund investment vehicles. See Note 26.
Subsidiaries are all those entities over which the Group has
control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power to direct the activities of the entity. Subsidiaries are
fully consolidated from the date on which control is transferred to
the Group. They are de-consolidated from the date that control
ceases.
Intercompany transactions, balances and unrealised gains on
transactions between entities in the Group are eliminated.
Unrealised losses are also eliminated unless the transaction
provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the
Group.
The acquisition of subsidiaries is accounted for using the
acquisition method of accounting. A change in ownership interest,
without the loss of control, is accounted for as an equity
transaction, where the difference between the consideration
transferred and the book value of the share of the non-controlling
interest acquired is recognised directly in equity attributable to
the parent.
Non-controlling interest in the results and equity of
subsidiaries are shown separately in the statement of profit or
loss and other comprehensive income, statement of financial
position and statement of changes in equity of the Group. Losses
incurred by the Group are attributed to the non-controlling
interest in full, even if that results in a deficit balance.
Where the Group loses control over a subsidiary, it derecognises
the assets including goodwill, liabilities and non-controlling
interest in the subsidiary together with any cumulative translation
differences recognised in equity. The Group recognises the fair
value of the consideration received and the fair value of any
investment retained together with any gain or loss in profit or
loss.
Operating segments
Operating segments are presented using the 'management
approach', where the information presented is on the same basis as
the internal reports provided to the Chief Operating Decision
Makers ('CODM'). The CODM is responsible for the allocation of
resources to operating segments and assessing their
performance.
Foreign currency translation
The financial statements are presented in Australian dollars,
which is Litigation Capital Management Limited's functional and
presentation currency.
Foreign currency transactions
Foreign currency transactions are translated into the entity's
functional currency using the exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at financial year-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in
profit or loss.
Foreign operations
The assets and liabilities of foreign operations are translated
into Australian dollars using the exchange rates at the reporting
date. The revenues and expenses of foreign operations are
translated into Australian dollars using the average exchange
rates, which approximate the rates at the dates of the
transactions, for the period. All resulting foreign exchange
differences are recognised in other comprehensive income through
the foreign currency reserve in equity.
The foreign currency reserve is recognised in profit or loss
when the foreign operation or net investment is disposed of.
Fair value measurement
The Group measures its financial instruments such as litigation
funding agreements and financial liabilities related to third-party
interests at fair value at each balance sheet date.
When an asset or liability, financial or non-financial, is
measured at fair value for recognition or disclosure purposes, the
fair value is based on the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date; and assumes
that the transaction will take place either: in the principal
market; or in the absence of a principal market, in the most
advantageous market.
Fair value is measured using the assumptions that market
participants would use when pricing the asset or liability,
assuming they act in their economic best interests. For
non-financial assets, the fair value measurement is based on its
highest and best use. Valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value, are used, maximising the use of relevant
observable inputs and minimising the use of unobservable
inputs.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data is available to measure
fair value, maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities
-- Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable
-- Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
For assets and liabilities that are recognised in the financial
statements at fair value on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
The Group's Executive Leadership Committee determines the
policies and procedures for fair value measurement, including the
litigation funding agreements. The Committee is comprised of the
Chief Executive Officer, Chief Financial Officer and Head of
Investments or equivalent.
The level of involvement of external valuers or specialist
valuation experts is determined annually by the Committee after
discussion with and approval by the Company's Audit Committee.
Selection criteria include market knowledge, reputation,
independence and whether professional standards are maintained.
At each reporting date, the Committee analyses the movements in
the values of assets and liabilities which are required to be
remeasured or re-assessed as per the Group's accounting policies.
For this analysis, the Committee verifies the major inputs applied
in the latest valuation by agreeing the information in the
valuation computation to contracts and other relevant
documents.
The Committee also compares the change in the fair value of each
asset and liability with any relevant external sources to determine
whether the change is reasonable.
Fair-value related disclosures for financial instruments and
non-financial assets that are measured at fair value or where fair
values are disclosed, are summarised in the following notes:
-- Disclosures for valuation methods, significant estimates and
assumptions Note 20
-- Quantitative disclosures of fair value measurement hierarchy
Note 20
-- Financial instruments Note 19
Revenue recognition
The Group recognises revenue as follows:
Revenue from contracts with customers
Revenue is recognised at an amount that reflects the
consideration to which the Group is expected to be entitled in
exchange for transferring services to a customer. For each contract
with a customer, the Group: identifies the contract with a
customer; identifies the performance obligations in the contract;
determines the transaction price which takes into account estimates
of variable consideration and the time value of money; allocates
the transaction price to the separate performance obligations on
the basis of the relative stand-alone selling price of each
distinct service to be delivered; and recognises revenue when or as
each performance obligation is satisfied in a manner that depicts
the transfer to the customer of the services promised.
Variable consideration within the transaction price, if any,
reflects the variability of potential outcomes in awards or
settlements of the litigation and any other contingent events. Such
estimates are determined using either the 'expected value' or 'most
likely amount' method. The measurement of variable consideration is
subject to a constraining principle whereby revenue will only be
recognised to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised
will not occur. The measurement constraint continues until the
uncertainty associated with the variable consideration is
subsequently resolved. Amounts received that are subject to the
constraining principle are recognised as a refund liability.
Litigation service revenue
The performance of a litigation service contract by the Group
entails the management and progression of the litigation project
during which costs are incurred by the Group over the life of the
litigation project.
As consideration for providing litigation management services
and financing of litigation projects, the Group receives either a
percentage of the gross proceeds of any award or settlement of the
litigation, or a multiple of capital deployed, and is reimbursed
for all invested capital.
Revenue, which includes amounts in excess of costs incurred and
the reimbursement for all invested capital, is not recognised as
revenue until the successful completion of the litigation project
ie, complete satisfaction of the performance obligation, which is
generally at the point in time when a judgment has been awarded or
on an agreed settlement between the parties to the litigation, and
therefore when the outcome is considered highly probable. On this
basis, revenue is not recognised over time and instead recognised
at the point in time when the Group satisfies the performance
obligation. Costs include only external costs of funding the
litigation, such as solicitors' fees, counsels' fees and experts'
fees.
The terms and duration of each settlement or judgment varies by
litigation project. Payment terms are not defined by the Group's
litigation contracts however upon successful completion of a
litigation project, being the satisfaction of the single
performance obligation, funds are generally paid into trust within
28 days. The funds will remain in trust until the distribution
amounts have been determined and agreed by the relevant parties,
after which payment will be received by the Group.
Interest
Interest income is recognised as interest accrues using the
effective interest method. This is a method of calculating the
amortised cost of a financial asset and allocating the interest
income over the relevant period using the effective interest rate,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the
net carrying amount of the financial asset.
Income tax
The income tax expense or benefit for the period is the tax
payable on that period's taxable income based on the applicable
income tax rate for each jurisdiction, adjusted by the changes in
deferred tax assets and liabilities attributable to temporary
differences, unused tax losses and the adjustment recognised for
prior periods, where applicable.
Deferred tax assets and liabilities are recognised for temporary
differences at the tax rates expected to be applied when the assets
are recovered or liabilities are settled, based on those tax rates
that are enacted or substantively enacted, except for:
-- When the deferred income tax asset or liability arises from
the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and that, at the
time of the transaction, affects neither the accounting nor taxable
profits; or
-- When the taxable temporary difference is associated with
interests in subsidiaries, associates or joint ventures, and the
timing of the reversal can be controlled and it is probable that
the temporary difference will not reverse in the foreseeable
future.
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary
differences and losses.
The carrying amount of recognised and unrecognised deferred tax
assets are reviewed at each reporting date. Deferred tax assets
recognised are reduced to the extent that it is no longer probable
that future taxable profits will be available for the carrying
amount to be recovered. Previously unrecognised deferred tax assets
are recognised to the extent that it is probable that there are
future taxable profits available to recover the asset.
Deferred tax assets and liabilities are offset only where there
is a legally enforceable right to offset current tax assets against
current tax liabilities and deferred tax assets against deferred
tax liabilities; and they relate to the same taxable authority on
either the same taxable entity or different taxable entities which
intend to settle simultaneously.
Litigation Capital Management Limited (the 'head entity') and
its wholly-owned Australian subsidiaries have formed an income tax
consolidated group under the tax consolidation regime. The head
entity and each subsidiary in the tax consolidated group continue
to account for their own current and deferred tax amounts. The tax
consolidated group has applied the 'separate taxpayer within group'
approach in determining the appropriate amount of taxes to allocate
to members of the tax consolidated group.
In addition to its own current and deferred tax amounts, the
head entity also recognises the current tax liabilities (or assets)
and the deferred tax assets arising from unused tax losses and
unused tax credits assumed from each subsidiary in the tax
consolidated group.
Assets or liabilities arising under tax funding agreements with
the tax consolidated entities are recognised as amounts receivable
from or payable to other entities in the tax consolidated group.
The tax funding arrangement ensures that the intercompany charge
equals the current tax liability or benefit of each tax
consolidated group member, resulting in neither a contribution by
the head entity to the subsidiaries nor a distribution by the
subsidiaries to the head entity.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand, deposits held
at call with financial institutions, other short-term, highly
liquid investments with original maturities of three months or less
that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
Trade and other receivables
Trade receivables are initially recognised at fair value and
subsequently measured at amortised cost using the effective
interest method, less any allowance for expected credit losses.
Trade receivables generally do not have a specifically defined time
frame for settlement, additionally, when the receivable is due from
part of the portfolio of litigation projects, the settlement of the
receivable is generally made upon an additional resolution of
another litigation project within the portfolio which also may not
be within a specifically defined time frame.
The Group has applied the simplified approach to measuring
expected credit losses, which uses a lifetime expected loss
allowance. To measure the expected credit losses, trade receivables
have been grouped based on days overdue.
Due from resolution of financial assets
Amounts due from the settlement of financial assets relate to
the realisation of litigation funding assets that have been
successfully concluded and where there is no longer any litigation
risk remaining and represent the expected cash flow to be received
by the Group. The settlement terms and timing of realisations vary
by litigation funding asset. The majority of settlement balances
are received shortly after the period end in which the litigation
funding asset has concluded, and all settlement balances are
generally expected to be received within 12 months after
completion.
Contract costs
Contract costs are recognised as an asset when the Group incurs
costs in fulfilling a contract and when all the following are met:
(i) the costs relate directly to the contract; (ii) the costs
generate or enhance resources of the Group that will be used to
satisfy future performance obligations; and (iii) the costs are
expected to be recovered. Refer to the Group's revenue recognition
policy for further information.
Financial assets at fair value through profit or loss
Financial assets are recognised at fair value through profit or
loss and are fair valued using an income approach. Financial assets
at fair value through profit or loss are carried in the statement
of financial position at fair value with net changes in fair value
recognised in the statement of profit or loss. This category
includes the Group's litigation funding assets. The litigation
funding assets are primarily derecognised when the underlying
litigation resolves and transfers to Due from resolution of
financial assets.
Financial liabilities related to third-party interests in
consolidated entities
Non-controlling interests where the Group does not own 100% of a
consolidated entity are recorded as financial liabilities related
to third-party interests in consolidated entities. Financial
liabilities related to third-party interests in consolidated
entities are initially recognised at the fair value. Gains or
losses on liabilities held at fair value through profit or loss are
recognised in the statement of profit or loss as 'Net
gains/(losses) relating to third-party interests in financial
liabilities at fair value through profit or loss'. They are
subsequently measured at fair value using an income approach.
Amounts included in the consolidated statement of financial
position represent the net asset value of the third-parties'
interests. These amounts have been elected to be measured at fair
value to reduce the accounting mismatch between the related
financial asset measured at fair value through profit or loss.
Financial liabilities are derecognised when the obligation to
settle through cash flows has expired or been transferred.
Leases
Lease payments on short-term leases and leases of low-value
assets are recognised as an expense on a straight-line basis over
the lease term. The short-term lease recognition exemption applies
to those leases that have a lease term of 12 months or less from
the commencement date. It also applies to leases over assets that
are considered of low value.
Impairment of non-financial assets
Non-financial assets are reviewed for impairment at each
reporting date and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's
carrying amount exceeds its recoverable amount.
Recoverable amount is the higher of an asset's fair value less
costs of disposal and value-in-use. The value-in-use is the present
value of the estimated future cash flows relating to the asset
using a pre-tax discount rate specific to the asset or
cash-generating unit to which the asset belongs. Assets that do not
have independent cash flows are grouped together to form a
cash-generating unit.
Trade and other payables
These amounts represent liabilities for goods and services
provided to the Group prior to the end of the financial year and
which are unpaid. Due to their short-term nature they are measured
at amortised cost and are not discounted. The amounts are unsecured
and are usually paid within 30 days of recognition.
Borrowings
Borrowings are initially recognised at fair value net of
transaction costs incurred. Subsequent to initial recognition,
borrowings are stated at amortised cost.
Employee benefits
Short-term employee benefits
Liabilities for wages and salaries, including non-monetary
benefits, annual leave and long service leave expected to be
settled wholly within 12 months of the reporting date are measured
at the amounts expected to be paid when the liabilities are
settled.
Other long-term employee benefits
The liability for annual leave and long service leave not
expected to be settled within 12 months of the reporting date are
measured at the present value of expected future payments to be
made in respect of services provided by employees up to the
reporting date. Consideration is given to expected future wage and
salary levels, experience of employee departures and periods of
service. Expected future payments are discounted using market
yields at the reporting date on high quality corporate bonds with
terms to maturity and currency that match, as closely as possible,
the estimated future cash outflows.
Defined contribution superannuation expense
Contributions to defined contribution superannuation plans are
expensed in the period in which they are incurred.
Share-based payments
Equity-settled share-based compensation benefits are provided to
employees.
Equity-settled transactions are awards of shares, or options
over shares, that are provided to employees in exchange for the
rendering of services.
The cost of equity-settled transactions are measured at fair
value on grant date. Fair value is determined using either the
Monte Carlo or Black-Scholes option pricing model that takes into
account the exercise price, the term of the option, the impact of
dilution, the share price at grant date and expected price
volatility of the underlying share, the expected dividend yield and
the risk free interest rate for the term of the option, together
with non-vesting conditions that do not determine whether the Group
receives the services that entitle the employees to receive
payment. No account is taken of any other vesting conditions.
The cost of equity-settled transactions are recognised as an
expense with a corresponding increase in equity over the vesting
period. The cumulative charge to profit or loss is calculated based
on the grant date fair value of the award, the best estimate of the
number of awards that are likely to vest and the expired portion of
the vesting period. The amount recognised in profit or loss for the
period is the cumulative amount calculated at each reporting date
less amounts already recognised in previous periods.
Market conditions are taken into consideration in determining
fair value. Therefore any awards subject to market conditions are
considered to vest irrespective of whether or not that market
condition has been met, provided all other conditions are
satisfied.
If equity-settled awards are modified, as a minimum an expense
is recognised as if the modification has not been made. An
additional expense is recognised, over the remaining vesting
period, for any modification that increases the total fair value of
the share-based compensation benefit as at the date of
modification.
If the non-vesting condition is within the control of the Group
or employee, the failure to satisfy the condition is treated as a
cancellation. If the condition is not within the control of the
Group or employee and is not satisfied during the vesting period,
any remaining expense for the award is recognised over the
remaining vesting period, unless the award is forfeited.
If equity-settled awards are cancelled, it is treated as if it
has vested on the date of cancellation, and any remaining expense
is recognised immediately. If a new replacement award is
substituted for the cancelled award, the cancelled and new award is
treated as if they were a modification.
Issued capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Dividends
Dividends are recognised when declared during the financial year
and no longer at the discretion of the Company.
Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to the owners of Litigation Capital Management
Limited, excluding any costs of servicing equity other than
ordinary shares, by the weighted average number of ordinary shares
outstanding during the financial year, adjusted for bonus elements
in ordinary shares issued during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into account the
after income tax effect of interest and other financing costs
associated with dilutive potential ordinary shares and the weighted
average number of shares assumed to have been issued for no
consideration in relation to dilutive potential ordinary
shares.
Goods and Services Tax ('GST') and other similar taxes
Revenues, expenses and assets are recognised net of the amount
of associated GST, unless the GST incurred is not recoverable from
the tax authority. In this case it is recognised as part of the
cost of the acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of
GST receivable or payable. The net amount of GST recoverable from,
or payable to, the tax authority is included in other receivables
or other payables in the statement of financial position.
Cash flows are presented on a gross basis. The GST components of
cash flows arising from investing or financing activities which are
recoverable from, or payable to the tax authority, are presented as
operating cash flows.
Commitments and contingencies are disclosed net of the amount of
GST recoverable from, or payable to, the tax authority.
Rounding of amounts
The Company is of a kind referred to in Corporations Instrument
2016/191, issued by the Australian Securities and Investments
Commission, relating to 'rounding-off'. Amounts in this report have
been rounded off in accordance with that Corporations Instrument to
the nearest thousand dollars, or in certain cases, the nearest
dollar.
3. Restatement of comparative
The Group has reassessed its classification of the funding of
its litigation funding agreements. This involved a detailed review
of the terms and conditions of these contracts and a qualitative
assessment of the evolution of the Group's business model. The
Group carefully considered and formed their opinion for the
appropriate accounting based on the composition of the portfolio of
funded claims, the activities performed by the business, the
transition to an asset management model, management's business
judgement as to this analysis and the relevant accounting
standards. The change provides more relevant information on the
value of the litigation funding agreements and reflects the
evolution of the primary business model and changing geographic
split of business.
Historically the revenue receipted from the successful
resolution of funded litigation funding agreements has been
considered under AASB 15 as revenue with customers. AASB 15 was
adopted for these arrangements and reflected our legacy business
model, which was to provide a bundle of financial and risk
management services related to the resolution of disputes. This
resulted in a litigation asset, or contract asset classification
for all bundle of services under AASB 15. As the Group has evolved,
the supporting rationale for AASB 15 has diminished with a
significant reduction in the concept of a bundle of services. There
remain a small number of legacy contracts where this bundle of
services remains implicit in the contract and therefore AASB 15 has
been retained.
As a result of this reassessment, the majority of the Group's
litigation funding assets will now be recognised under AASB 9.
Under this change, litigation funding agreements and third-party
interest in consolidated entities are accounted for as financial
instruments under AASB 9. The following principles have been
adopted where the underlying litigation funding arrangements
satisfy the conditions of a financial instrument:
- due to the nature of the expected returns the financial
instruments fail the solely payments of principal and interest test
(the 'SPPI test') in AASB 9 and are classified at fair value
through the income statement
- management have established a fair value framework to
appropriately account for the underlying instruments at fair
value
- further details on the fair value methodology as shown in Note
20
- any transaction costs (i.e., directly attributable due
diligence and closing costs) would be expensed in the profit and
loss as they are incurred
- third-party interests in consolidated entities have been fair
valued using the same fair value framework for the litigation
funding assets
As a result of implementing this accounting for litigation
funding agreements for relevant contracts, the Group has restated
the Statement of financial position as at 30 June 2021 and 30 June
2022, and the Statement of profit or loss, Statement of other
comprehensive income for the year ended 30 June 2022 for
comparative purposes.
The restatement of each of the affected financial statement line
items for the prior periods, as follows:
Impact on equity (increase/(decrease) in equity)
Consolidated
------------------------
30 June
2022 1 July 2021
$'000 $'000
Trade & other receivables (32,193) (11,601)
Due from resolution of financial assets 24,340 4,408
Contract costs (152,615) (105,925)
Financial assets at fair value through
profit or loss 296,980 176,838
Other assets 2 -
---------- ------------
Total Assets 136,514 63,720
Third-party interests in consolidated
entities 60,400 23,106
Deferred tax liability 21,191 14,090
---------- ------------
Total Liabilities 81,591 37,196
---------- ------------
Net Impact on equity 54,924 26,524
========== ============
Impact on statement of profit and loss (increase/(decrease) in
profit)
Consolidated
-------------
30 June
2022
Income
Litigation service revenue (47,350)
Litigation service expense 16,343
Net gains/(losses) on financial assets at fair value
through profit or loss 103,853
Net gains/(losses) on financial liabilities related
to third-party interests in
consolidated entities (36,672)
Total expenses (1,054)
Income tax expense (7,101)
Net impact on profit for the year 28,019
Attributable to:
Equity holders of the parent 28,019
Non-controlling interests -
Other comprehensive income 432
Net impact on total comprehensive income for the
period 28,451
Impact on basic and diluted earnings per share
(EPS) (increase/(decrease) in EPS)
Consolidated
-------------
30 June
2022
Earnings per share
Basic, profit for the year attributable to ordinary
equity holders of the parent 26.37
Diluted, profit for the year attributable to ordinary
equity holders of the parent 25.55
Statement of cashflows
The change did not have a net impact on the Group's operating,
investing and financing cash flows but did require some change to
components within each cash flow class.
The Group has also adopted the liquidity based presentation of
its balance sheet after the restatement under AASB 9 as it provides
information that is reliable and more relevant. On adoption, the
Group present all assets and liabilities in order of liquidity. A
presentation of assets and liabilities in increasing or decreasing
order of liquidity provides information that is reliable and more
relevant than a current/non-current presentation because the Group
does not supply goods or services within a clearly identifiable
operating cycle.
4. Critical accounting judgements, estimates and assumptions
The preparation of the financial statements requires management
to make judgements, estimates and assumptions that affect the
reported amounts in the financial statements. Management
continually evaluates its judgements and estimates in relation to
assets, liabilities, contingent liabilities, revenue and expenses.
Management bases its judgements, estimates and assumptions on
historical experience and on other various factors, including
expectations of future events, management believes to be reasonable
under the circumstances. The resulting accounting judgements and
estimates will seldom equal the related actual results. The
judgements, estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities (refer to the respective notes) within the next
financial year are discussed below.
Revenue from contracts with customers
The entity has a small number of legacy litigation service
contracts where the service provided and accordingly the litigation
funding contracts are within the scope of AASB 15 'Revenue from
Contracts with Customers', and so are excluded from the scope of
AASB 9 'Financial Instruments'. AASB 15 was adopted for these
arrangements and reflected our legacy business model, which was to
provide a bundle of financial and risk management services related
to the resolution of disputes. This resulted in a litigation asset,
or contract asset classification for all bundle of services under
AASB 15. As the Group has evolved, the supporting rationale for
AASB 15 has diminished with a significant reduction in the concept
of a bundle of services. There remain a small number of legacy
contracts where this bundle of services remains implicit in the
contract and therefore AASB 15 been retained.
Performance obligations and recognition of revenue
In the provision of litigation management services and financing
of litigation projects, management has determined that there is a
single performance obligation and that complete satisfaction of
that performance obligation occurs at the point in time when the
Group achieves a successful resolution for the client as it is the
predominant purpose of the service provided. On this basis, revenue
is not recognised over time and only recognised at the point in
time when the Group satisfies that performance obligation.
Consolidation of entities in which the Group holds less than
100% of interests
The Group has assessed the entities in which it has an interest
to determine whether or not control exists and the entity is,
therefore, consolidated into the Group (refer note 25). Where the
Group does not own 100% of interests, the Group makes judgements to
determine whether to consolidate the entity in question by applying
the factors set forth in AASB 10, including but not limited to the
Group's equity and economic ownership interest, the economic
structures in use in the entity, the level of control the Group has
over the entity through the entity's structure or any relevant
contractual agreements, and the rights of other investors.
Recovery of deferred tax assets
Deferred tax assets includes an amount relating to
carried-forward tax losses in Australia. The Group only recognises
the deferred tax asset if it is probable that future taxable
amounts of the Group's business in Australia will be available to
utilise those losses and therefore they are assessed as recoverable
(refer to note 8). The extent to which these amounts are recognised
is based on an estimate of future taxable amounts which is key
estimate in relation to this balance. The tax losses can be carried
forward indefinitely and have no expiry date.
Net gains/(losses) on financial assets & liabilities at fair
value through profit or loss
The Group carries its financial assets and liabilities at fair
value, with changes in fair value being recognised in the statement
of profit or loss. A valuation methodology based on an income
approach.
The fair values of these financial assets and liabilities cannot
be measured based on quoted prices in active markets, and as a
result a fair value methodology is utilised. The measurement
valuation technique includes a discounted cash flow (DCF) model
based on the Group's estimated, risk adjusted future cash flows.
The adopted discount rate reflects the funding cost of deploying
capital, and is intended to capture the time value of money and
market factors such as interest rates and foreign exchange
rates.
The fair value framework incorporates assumptions, including the
discount rate, the timing and amount of expected cash inflows and
additional funding, and a risk-adjustment factor reflecting the
inherent uncertainty in the cash flows due to litigation risk,
which is dependent on observable case progression and
milestones.
The inputs to these models are taken from observable markets
where possible, but where this is not feasible, a degree of
judgement is required in establishing fair values. Judgements
include considerations of inputs such as case progress, credit risk
and volatility. Changes in assumptions relating to these factors
could affect the reported fair value of financial instruments.
The key assumptions used to determine the fair value of the
litigation funding agreements, financial liabilities related to
third-party interests in consolidated entities and sensitivity
analyses are provided in note 20.
5. Income
Consolidated
---------------------
Restated
2023 2022
$'000 $'000
Realised gains on Litigation Funding assets 26,879 30,117
Realised performance fees 24,598 53
Fair value adjustment during the period 11,134 29,782
Foreign exchange gains 5,073 4,859
---------- ---------
Total income as reported on the consolidated
statements of profit or loss attributable to
LCM 67,684 64,811
---------- ---------
Gain on financial assets related to third-party
interests in consolidated entities 117,051 39,041
---------- ---------
184,735 103,852
---------- ---------
Movement in financial liabilities related to
third-party interests in consolidated entities (111,953) (36,672)
---------- ---------
Total income as reported on the consolidated
statements of profit or loss 72,782 67,180
========== =========
Total income as reported on the consolidated statements of
profit or loss attributable to LCM represents realised and
unrealised gains that relate to LCM's funded proportion of
litigation contracts. The gain and loss related to third party
interests in consolidated entities represents realised and
unrealised gains and losses that relate to third party funded
proportions from LCM controlled entities. Realised gains relate to
amounts where litigation risk has concluded and amounts are
expected to be received by LCM. Unrealised gains or losses relate
to the fair value movement of assets and liabilities associated
with litigation contracts.
6. Segment information
The Group's operating segments are based on the internal reports
that are reviewed and used by the Board of Directors (who are
identified as the Chief Operating Decision Makers ('CODM')) in
assessing performance and in determining the allocation of
resources.
The Directors have determined that there is one operating
segment. The information reported to the CODM is the consolidated
results of the Group. The segment result is as shown in the
statement of profit or loss and other comprehensive income. Refer
to statement of financial position for assets and liabilities.
7. Profit before tax
Consolidated
-----------------
Restated
2023 2022
$'000 $'000
Profit before income tax expense includes the
following specific expenses:
Employee benefits expense
Salaries & wages 7,337 7,337
Directors' fees 393 390
Superannuation and pension 287 254
Share based payments expense 867 256
Other employee benefits & costs 590 604
------ ---------
9,474 8,841
------ ---------
Depreciation
Plant and equipment 63 41
Intangible assets 103 24
------ ---------
166 65
------ ---------
Interest on borrowings (note 15) 7,689 4,376
Finance costs of third-party interests 144 334
Other finance costs 435 327
------ ---------
8,268 5,037
------ ---------
Fund administration expense
Finance costs -
General administration expenses 988 276
Set-up expenses 209 1,489
Placement fees 1,831 1,853
------ ---------
3,028 3,618
------ ---------
Fund administration expenses relates to costs associated with
the setup and administration of the LCM Global Alternative Returns
Funds which are wholly attributable to the third party interest in
consolidated entities.
Leases
Short-term lease payments 777 639
Adjusted operating profit
Adjusted operating profit excludes non-operating expenses which
includes items which are considered unusual, non-cash or one-off in
nature.
Non-operating expenses
Management have opted to separately present these items as it
better reflects the Groups underlying performance. Non-operating
expenses includes the following items:
Share based payments expense 867 256
Consultancy - 183
Other transaction costs 56 401
Litigation fees 190 689
Other expenses 57 80
Fund administration expenses 1,850 1,853
------ ------
Total non-operating expenses 3,020 3,462
------ ------
8. Income tax expense
Consolidated
-----------------
2023 2022
$'000 $'000
Numerical reconciliation of income tax expense
and tax at the statutory rate
Profit before income tax expense 42,741 45,751
-------- -------
At the Group's statutory income tax rate of
25% (2022: 25%) 10,685 11,438
Tax effect amounts which are not deductible/(taxable)
in calculating
taxable income:
Foreign tax rate adjustments (1,718) (26)
Share-based payments 217 64
Other assessable income 143 98
Other non-deductible expenses - -
Unrealised foreign exchange - -
Change in tax rate 1,929 (433)
Adjustment for tax effect of loss attributable
to third party interests - -
Adjustment in respect of deferred tax of previous
years - -
-------- -------
Income tax expense / (benefit) 11,256 11,141
======== =======
Statutory tax rate of 25% is applicable to Australian entities
with aggregated turnover below $50 million for the period ended 30
June 2023. The Group's turnover is expected to be above the
threshold of $50 million in the future reporting periods which will
attract a statutory tax rate of 30%. As a result, recognition of
deferred tax asset is made by applying a 30% statutory rate instead
of the lower 25% tax rate.
Consolidated
----------------
2023 2022
$'000 $'000
Current tax 7,769 59
Deferred tax 3,555 11,072
Adjustment recognised for prior periods (68) 10
------- -------
Income tax expense / (benefit) 11,256 11,141
======= =======
Consolidated
-------------------- ---------
Restated
As at
Restated 1 July
2023 2022 2021
$'000 $'000 $'000
Deferred tax asset/(liability)
Deferred tax asset/(liability) comprises
temporary differences attributable
to:
Tax losses 14,197 13,425
Employee benefits 273 279
Accrued expenses 929 255
Deductible funding on contract costs
and financial assets (23,374) (25,195)
Fair value adjustments to financial
assets (28,284) (21,736)
--------- --------- ---------
Transaction costs on share issue - 268
--------- --------- ---------
Deferred tax asset/(liability) (36,259) (32,704)
========= ========= =========
Movements:
Opening balance (32,704) (21,632) (7,543)
Charged to profit or loss (3,555) (11,072) (14,089)
--------- --------- ---------
Closing balance (36,259) (32,704) (21,632)
========= ========= =========
9 Cash and cash equivalents
Consolidated
-----------------
2023 2022
$'000 $'000
Cash at Bank 82,973 29,253
Cash of third-party interests in consolidated
entities 21,484 20,711
-------- -------
104,457 49,964
======== =======
Cash of third-party interests in consolidated entities is
restricted as it is held within the fund investment vehicles on
behalf of the third-party investors in these vehicles. The cash is
restricted to use cashflows in the litigation funding assets made
on their behalf and costs of administering the fund.
10. Due from resolution of financial assets
Consolidated
--------------------------------
Restated Restated
As at
1 July
2023 2022 2021
$'000 $'000 $'000
At start of period (as restated) 24,340 4,408
Transfer from realisation of litigation
funding assets 150,447 50,571
Proceeds from litigation funding assets (192,623) (26,792)
Foreign Exchange gain/(losses) 29,708 (3,848)
---------- --------- ---------
At end of period 11,873 24,340 4,408
---------- --------- ---------
11. Litigation Funding assets at fair value through profit or
loss
Consolidated
--------------------------------
Restated Restated
As at
1 July
2023 2022 2021
$'000 $'000 $'000
At start of period (as restated) 296,980 176,838
Deployments 30,756 26,675
Deployments - third-party interests 58,293 38,464
Realisations of litigation funding
assets (150,447) (50,571)
Unrealised gains for the period 136,638 101,225
Foreign exchange gains/(losses) 19,190 4,349
---------- --------- ---------
At end of period 391,410 296,980 176,838
Litigation funding assets at fair
value through income statement 165,768 154,577
Litigation funding assets at fair
value through income statement - third-party
interests 225,642 142,403
---------- --------- ---------
Total litigation funding assets 391,410 296,980 176,838
---------- --------- ---------
Litigation Funding assets are financial instruments that relate
to the provision of capital in connection with legal finance. The
Group fund through both direct investments as well as using third
party funders via a Fund model. The table above sets forth the
changes in LFA assets at the beginning and end of the relevant
reporting periods.
12 Contract costs - litigation contracts
Consolidated
----------------
2023 2022
$'000 $'000
Contract costs - litigation contracts 37,277 31,782
------- -------
There are a small number of legacy investments which are still
being recorded under IFRS 15 due to the timing the contracts were
entered into. These are expected to resolve in the short to medium
term.
Reconciliation of litigation contract costs
Reconciliation of the contract costs at the beginning and end of
the current period and previous financial year are set out
below:
Consolidated
-----------------------------
Restated Restated
As at
1 July
2023 2022 2021
$'000 $'000 $'000
Opening balance 31,783 28,633 28,633
Additions during the period 5,494 3,150 -
------- --------- ---------
Closing balance 37,277 31,783 28,633
------- --------- ---------
The Group has recognised impairment losses of $nil (2022: $nil)
in profit or loss on contract costs for the year ended 30 June
2023.
13. Trade and other payables
Consolidated
---------------
2023 2022
$'000 $'000
Trade payables 7,001 12,562
Other payables 534 278
------ -------
7,535 12,840
====== =======
Refer to note 19 for further information on financial
instruments.
14. Employee benefits
Consolidated
---------------
2023 2022
$'000 $'000
Annual Leave 623 700
Long Service Leave 283 227
------- ------
906 927
======= ======
15. Borrowings
Consolidated
----------------
2023 2022
$'000 $'000
Borrowings of third-party interests in consolidated
entities - 14,494
Borrowings 68,976 54,915
------- -------
68,976 69,409
======= =======
Reconciliation of borrowings of third-party interests in
consolidated entities:
Consolidated
------------------
2023 2022
$'000 $'000
Balance 1 July 14,494 13,253
Proceeds from borrowings - -
Repayment of borrowings (14,848) -
Net accrued interest (16) 17
Payments for borrowing costs - (185)
Amortisation of borrowing costs 34 230
Other non-cash items 336 1,179
--------- -------
Balance as at 30 June - 14,494
--------- -------
Reconciliation of borrowings of LCM:
Consolidated
----------------
2023 2022
$'000 $'000
Balance 1 July 54,915 37,171
Proceeds from borrowings 9,636 13,298
Payments for borrowing costs (256) (259)
Amortisation 2,441 919
Other non-cash items 2,240 3,786
------- -------
Balance as at 30 June 68,976 54,915
------- -------
On 22 February 2021, LCM entered into a credit facility with
Northleaf Capital Partners for an aggregate amount of
US$50,000,000, AUD equivalent of $75,017,5171(1) (the "Facility").
The Facility carries interest with reference to SOFR as a benchmark
based rate of 8 per cent together with a profit participation
calculated by reference to the profitability of a defined category
of LCM's investments, and a non-utilisation margin of 1 per cent
which expired after the first two years. The overall cost of the
Facility is capped at 13% per annum. The Facility was available to
be drawn down during the first two years, has an overall term of
four years and is secured against LCM's assets. As at 30 June 2023,
LCM has nil outstanding utilisation.
LCM agreed to various debt covenants including a minimum
effective net tangible worth, borrowings as a percentage of
effective net tangible worth, minimum liquidity, a minimum
consolidated EBIT and a minimum multiple of invested capital on
concluded contract assets over a specified period. There have been
no defaults or breaches related to the Facility during the year
ended 30 June 2023. Should LCM not satisfy any of these covenants,
the outstanding balance of the Facility may become due and
payable.
LCM incurred costs in relation to arranging the Facility of
$1,649,000 which were reflected transactions costs and will be
amortised over the 4 year term of the borrowings. As at 30 June
2023, $825,000 of the loan arrangement fees remained
outstanding.
(1) Converted at the functional currency spot rates of exchange
at the reporting date
16. Equity - issued capital
Consolidated
2023 2022 2023 2022
Shares Shares $'000 $'000
Ordinary shares - fully
paid 106,613,927 106,613,927 69,674 69,674
Ordinary shares - under
loan share plan 12,586,405 12,586,405 - -
------------ ------------ ------- -------
119,200,332 119,200,332 69,674 69,674
============ ============ ======= =======
Movements in ordinary share capital
Date Shares $'000
-------------- ------------ -------
Balance 30 June 2021 105,014,157 68,904
Conversion of partly paid shares 22 October
paid up at $0.17 per share 2021 498,583 85
Conversion of options paid up at 5 November
$1.00 per share 2021 600,000 600
Conversion of partly paid shares 16 December
paid up at $0.17 per share 2021 501,187 85
------------ -------
Balance 30 June 2022 106,613,927 69,674
------------ -------
30 June 2023 106,613,927 69,674
============ =======
Movements in ordinary shares issued under loan share plan
('LSP'):
Date Shares $'000
------------- ----------- ------
Balance 30 June 2021 11,073,767 -
Conversion of partly paid shares 27 October
paid up at $0.17 per share 2021 612,638 -
Conversion of partly paid shares 5 November
paid up at $0.17 per share 2021 900,000 -
----------- ------
Balance 30 June 2022 12,586,405 -
----------- ------
30 June 2023 12,586,405 -
=========== ======
Reconciliation of ordinary shares issued under LSP:
2023 2022
----------- -----------
Total shares allocated under existing LSP arrangements
with underlying LSP shares (note 28) 7,890,408 8,134,929
Less shares allocated under existing LSP arrangements
without underlying LSP shares (note 28) (221,467) (465,988)
Shares held by LCM Employee Benefit Trust for
future allocation under employee share and option
plans 4,917,464 4,917,464
----------- -----------
Balance as at 30 June 12,586,405 12,586,405
----------- -----------
Ordinary shares
Ordinary shares entitle the holder to participate in dividends
and the proceeds on the winding up of the Company in proportion to
the number of and amounts paid on the shares held. The fully paid
ordinary shares have no par value and the Company does not have a
limited amount of authorised capital.
On a show of hands every member present at a meeting in person
or by proxy shall have one vote and upon a poll each share shall
have one vote.
Ordinary shares - under loan share plan ('LSP')
The Company has an equity scheme pursuant to which certain
employees may access a LSP. The acquisition of shares under this
LSP is fully funded by the Company through the granting of a
limited recourse loan. The shares under LSP are restricted until
the loan is repaid. The underlying options within the LSP have been
accounted for as a share-based payment. Refer to note 28 for
further details. When the loans are settled the shares are
reclassified as fully paid ordinary shares and the equity will
increase by the amount of the loan repaid.
Ordinary shares - partly paid
As at 30 June 2023, there are currently 1,433,022 partly paid
shares issued at an issue price of $0.17 per share. No amount has
been paid up and the shares will become fully paid upon payment to
the Company of $0.17 per share. As per the terms of issue, the
partly paid shares have no maturity date and the amount is payable
at the option of the holder.
Partly paid shares entitle the holder to participate in
dividends and the proceeds of the Company in proportion to the
number of and amounts paid on the shares held. The partly paid
shares do not carry the right to participate in new issues of
securities. Partly paid shareholders are entitled to receive notice
of any meetings of shareholders. The partly paid shareholders are
entitled to vote in the same proportion as the amounts paid on the
partly paid shares bears to the total amount paid and payable.
Capital risk management
The Group's objectives when managing capital is to safeguard its
ability to continue as a going concern, so that it can provide
returns for shareholders and benefits for other stakeholders and to
maintain an optimum capital structure to reduce the cost of
capital.
Capital is regarded as total equity as recognised in the
statement of financial position.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt.
The capital risk management policy remains unchanged from the 30
June 2022 Annual Report.
17. Equity reserves
Movements in reserves
Movements in each class of reserve during the current and
previous financial year are set out below:
Consolidated Share based Foreign Total
payments currency reserves
reserve translation
$'000 $'000 $'000
------------------------------ ------------ ------------ ---------
Balance at 30 June 2021 1,317 (1,482) (165)
Movements in reserves during
the period 256 (2,103) (1,847)
Balance at 30 June 2022 1,573 (3,585) (2,012)
Movements in reserves during
the period 867 2,187 3,054
------------------------------ ------------ ------------ ---------
Balance at 30 June 2023 2,440 (1,398) 1,042
============================== ============ ============ =========
Share-based payments reserve
The reserve is used to recognise the value of equity benefits
provided to employees and Directors as part of their remuneration,
and other parties as part of their compensation for services.
Foreign currency translation reserve
This reserve is used to record differences on the translation of
the assets and liabilities of foreign operations.
18. Equity - dividends
There were no dividends declared or paid for the year ended 30
June 2023 (2022: nil cents per share).
On 18 July 2023, the Directors declared a partially franked
final dividend for the year ended 30 June 2023 of 2.25 pence per
ordinary share, to be paid on 27 October 2023 to eligible
shareholders on the register as at 2 9 September 2023 being the
record date. The ordinary shares will be marked ex-dividend on 28
September 2023. This equates to a total estimated distribution of
GBP2,571,364, AUD equivalent as at reporting date of $4,901,964(1)
. The financial effect of dividends declared after the reporting
date are not reflected in the 30 June 2023 financial statements and
will be recognised in subsequent financial reports.
(1) Converted at the functional currency spot rates of exchange
at the reporting date
Franking credits
Consolidated
---------------
2023 2022
$'000 $'000
Franking credits available for subsequent financial
years based on a tax rate of 25% (2022: 25%) 338 338
------- ------
19. Financial instruments
Financial risk management objectives
The Group's activities expose it to a variety of financial
risks: market risk (including foreign currency risk, price risk and
interest rate risk), credit risk and liquidity risk. The Group's
overall risk management program focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects
on the financial performance of the Group. The Group uses different
methods to measure different types of risk to which it is exposed.
These methods include sensitivity analysis in the case of interest
rate, foreign exchange and other price risks and ageing analysis
for credit risk.
Risk management is carried out by senior finance executives
('finance') under policies approved by the Board of Directors ('the
Board'). These policies include identification and analysis of the
risk exposure of the Group and appropriate procedures, controls and
risk limits. Finance identifies, evaluates and hedges financial
risks within the Group's operating units. Finance reports to the
Board on a monthly basis.
Market risk
Foreign currency risk
The carrying amount of the Group's foreign currency denominated
financial assets and financial liabilities at the reporting date
were as follows:
Restated
Assets Liabilities Assets Liabilities
2023 2023 2022 2022
Consolidated $'000 $'000 $'000 $'000
US dollars 203,912 (314,923) 73,582 (214,821)
Pound Sterling 173,064 (2,542) 153,762 (4,857)
New Zealand dollars 1 - 1,819 -
United Arab Emirates Dirham 5,614 (744) 5,478 (718)
Hong Kong dollars 28,087 - 8,521 -
Other 489 (1) 631 (567)
-------- ------------ -------- ------------
411,167 (318,210) 243,793 (220,963)
======== ============ ======== ============
The Group had net assets denominated in foreign currencies of
$92,956,000 (assets of $411,167,000 less liabilities of
$318,210,000) as at 30 June 2023 (2022 restated: net assets
$22,830,000). Based on this exposure, had the Australian dollar
weakened or strengthened by 10% against these foreign currencies
with all other variables held constant, the Group's profit before
tax for the year would have increased and decreased respectively by
$9,296,000 (2022 restated: $2,283,000). The percentage change is
the expected overall volatility of the significant currencies,
which is based on management's assessment of reasonable possible
fluctuations taking into consideration movements over the last 12
months. The actual realised foreign exchange loss for the year
ended 30 June 2023 was $2,892,000 (2022: loss of $100,000). The
movement in the foreign currency translation reserve for the year
ended 30 June 2023 was a gain of $2,187,000 (2022 restated: loss
$2,103,000). The restatement of litigation funding agreements and
third-party interest in consolidated entities as financial
instruments under AASB 9 has resulted in a material increase in
foreign currency risk than in previous years however the value is
predominately unrealised.
Foreign exchange risk arises mainly from litigation funding
assets and borrowings which are denominated in a currency that is
not the functional currency in which they are measured. The risk is
monitored using sensitivity analysis and cash flow forecasting. The
Group's contract cost assets are not hedged as those currency
positions are considered to be long term in nature.
Interest rate risk
Aside from the litigation funding agreements at fair value, the
Group's main interest rate risk arises from interest on cash at
bank.
An official increase/decrease in interest rates of 50 (2022: 50)
basis points would have a favourable/adverse effect on profit
before tax of $522,000 (2022: $250,000) per annum. The percentage
change is based on the expected volatility of interest rates using
market data and analysts forecasts.
Credit risk
Credit risk refers to the risk that on becoming contractually
entitled to a settlement or award a defendant will default on its
contractual obligation to pay resulting in financial loss to the
Group. The Group assesses the defendants in the matters funded by
the Group prior to entering into any agreement to provide funding
and continues this assessment during the course of funding.
Whenever possible the Group ensures that security for settlements
sums is provided, or the settlements funds are placed into
solicitors' trust accounts. However, the Group's continual
monitoring of the defendants' financial capacity mitigates this
risk.
The maximum credit risk exposure represented by cash, cash
equivalents, trade and other receivables, due from resolution of
financial assets and financial assets at fair value through profit
or loss is specified in the consolidated statements of financial
position. The exposure for financial assets held at amortised cost
is the carrying amount, net of any provisions for impairment of
those assets, which includes cash, cash equivalents and trade and
other receivables. The Group does not hold any collateral.
To mitigate credit risk on cash and cash equivalents, the Group
holds cash with Australian and American financial institutions with
at least an AA- credit rating.
The Group applies the simplified approach to recognise
impairment on settlement and receivable balances based on the
lifetime expected credit loss at each reporting date. The Group
reviews the lifetime expected credit loss rate based on historical
collection performance, the specific provisions of any settlement
agreement, assessments of recoverability during the due diligence
process and a forward-looking assessment of macro-economic factors
however note that the Group's operations are generally uncorrelated
to market conditions and therefore has little to no impact on the
recoverability of the Group's financial assets.
Financial assets are generally considered to be in default when
amounts are more than 90 days past due or if sufficient indicators
exist that the debtor is unlikely to pay. Generally, trade
receivables are written off when there is no reasonable expectation
of recovery. Indicators of this include the failure of a debtor to
engage in a repayment plan, no active enforcement activity and a
failure to make contractual payments for a period greater than 1
year.
Liquidity risk
Vigilant liquidity risk management requires the Group to
maintain sufficient liquid assets (mainly cash and cash
equivalents) to be able to pay debts as and when they become due
and payable.
The Group manages liquidity risk by maintaining adequate cash
reserves and by continuously monitoring actual and forecast cash
flows and matching the maturity profiles of financial assets and
liabilities.
Remaining contractual maturities
The maturity profile of the Group's financial liabilities based
on contractual maturity on an undiscounted basis are:
Less Between No contractual Remaining
than 1 and Over maturity contractual
1 year 5 years 5 years date maturities
Consolidated - 2023 $'000 $'000 $'000 $'000 $'000
Non-derivatives
Non-interest bearing
Trade payables 7,001 - - - 7,001
Other payables 241 - - - 241
Borrowings - current - - - 0
Borrowings 9,320 75,988 - 85,308
Third-party interest in
consolidated entities - - - 243,990 243,990
-------- --------- --------- --------------- -------------
Total non-derivatives 16,562 75,988 - 243,990 336,540
-------- --------- --------- --------------- -------------
Restated
Less Between No contractual Remaining
than 1 and Over maturity contractual
1 year 5 years 5 years date maturities
Consolidated - 2023 $'000 $'000 $'000 $'000 $'000
Non-derivatives
Non-interest bearing
Trade payables 12,562 - - - 12,562
Other payables 190 - - - 190
Borrowings 21,047 74,414 - - 95,461
Third-party interest in
consolidated entities - - - 142,180 142,180
-------- --------- --------- --------------- -------------
Total non-derivatives 33,799 74,414 - 142,180 250,393
-------- --------- --------- --------------- -------------
20. Fair value measurement
The fair value measurements used for all assets and liabilities
held by the Group listed below are level 3:
Consolidated
Assets 2023 2022
Litigation funding assets $'000 $'000
APAC 158,836 82,203
EMEA 232,574 214,777
-------- --------
Total Level 3 assets 391,410 296,980
======== ========
Liabilities
-------- --------
Financial liabilities related to third-party
interests in consolidated entities 243,990 142,180
-------- --------
Total Level 3 liabilities 243,990 142,180
======== ========
Refer note 11 for movements in level 3 assets. There were no
transfers into or out of level 3 during the periods ended 30 June
2023 or 30 June 2022.
Sensitivity of Level 3 Valuations
The key risk and sensitivity across all of the litigation
funding agreement assets ('LFA assets') relates to the underlying
litigation associated with each case that is underwritten and
financed. The sensitivity to this Level 3 input is therefore
considered to be similar across the different types of LFA assets
and is expressed as a portfolio-wide stress.
he Group implemented a new valuation methodology for LFA assets
during the year ended 30 June 2023. LFA assets are fair valued
using an income approach which is the technique adopted for LFA
Assets. Under the income approach, future cash flows associated
with; cash out flows, including investments and deployments, and
cash inflows such as settlements or resolutions, are converted to a
single current (discounted) amount, reflecting current market
expectations about those future amounts. That is, the amount that
could reasonably be expected to be paid to acquire the asset at
that point in time. In developing our framework we also looked to
Industry peers for alignment in methodology, the benefit being that
adopting a similar methodology provides a level of comparability.
Similar to industry peers, the framework developed applied
probabilities based on observable milestones for each investment
within the portfolio as well as making informed assumptions around
inputs such as discount rates, timing and risk factors, all of
which are considered Level 3 inputs. In cases where cash flows are
denominated in a foreign currency, forecasts are developed in the
applicable foreign currency and translated to AUD dollars.
A Discounted Cash Flow approach is then applied to each
underlying investment on an individual basis to arrive at a net
present value of the future expected cash flows.
The cash flow forecast is updated each reporting period, based
on the best available information on progress of the underlying
matter at the time. These objective events could include, among
others:
- stage of the investment
- ongoing developments
- progress
- recovery or sovereign risk
- legal team expertise
- other factors impacting the expected outcome
Each reporting period, the updated risk-adjusted cash flow
forecast is then discounted at the then current discount rate to
measure fair value. The discount rate includes an applicable
risk-free rate and credit spread to incorporate both market and
idiosyncratic asset-class risk.
The Group's fair value policy provides for ranges of percentages
to be applied against the risk adjustment factor to more than 159
discrete objective litigation events. The tables below set forth
each of the key unobservable inputs used to value the Group's LFA
assets and the applicable ranges and weighted average by relative
fair value for such inputs.
2023
Valuation Weighted
Item technique Unobservable Input Min Max Ave
Litigation
funding Discounted
asset cash flow Discount rate 12.80% 12.80% 12.80%
Duration (years) 0.42 4.00 2.94
Adjusted risk premium 0% 80% 37%
Significant ruling or
other objective event
prior to trial court judgment 5% 50% 50%
Trial court judgment
or tribunal award 25% 80% 2%
Appeal judgment 65% 85% 23%
Settlement 70% 85% 11%
Enforcement 75% 85% 80%
Other 0% 45% 16%
2022
Valuation Weighted
Item technique Unobservable Input Min Max Ave
Litigation
funding Discounted
asset cash flow Discount rate 9.80% 9.80% 9.80%
Duration (years) 0.42 4.00 2.63
Adjusted risk premium 0% 80% 31%
Significant ruling or
other objective event
prior to trial court judgment 5% 50% 58%
Trial court judgment
or tribunal award 25% 80% 12%
Appeal judgment 65% 85% 0%
Settlement 70% 85% 0%
Enforcement 75% 85% 80%
Other 0% 45% 17%
At each reporting period, the Group reviews the fair value of
each litigation funding asset in connection with the preparation of
the consolidated financial statements. A fair value of 10% higher
or lower, while all other variables remain constant, in financial
assets at fair value through profit or loss would have increased or
decreased the Group's income and net assets by $39,141,000 as at 30
June 2023 (2022 restated: $29,698,000, 1 July 2021 restated:
$17,684,000). Similarly, a fair value of 10% higher or lower, while
all other variables remain constant, in financial liabilities at
fair value through profit or loss would have increased or decreased
the Group's income and net assets by $24,399,000 as at 30 June 2023
(2022 restated: $14,218,000, 1 July 2021 restated: $6,287,000).
At 30 June 2023, should interest rates have been 50 bps or 100
bps higher or lower than the actual interest rates used in the fair
value estimation, while all other variables remained constant,
consolidated income and net assets would have increased and
decreased by the following amounts:
30-Jun-23
Hypothetical Change $'000
100bps lower interest
rates 2,182
50bps lower interest
rates 1,084
100bps higher interest
rates (2,126)
50bps higher interest
rates (1,070)
Reasonably possible alternative assumptions
The determination of fair value for litigation funding assets
involves significant judgements and estimates. While the potential
range of outcomes for the assets is wide, the Group's fair value
estimation is its best assessment of the current fair value of each
asset, as applicable. Such estimate is inherently subjective, being
based largely on an assessment of how individual events have
changed the possible outcomes of the asset, as applicable, and
their relative probabilities and hence the extent to which the fair
value has altered. The aggregate of the fair values selected falls
within a wide range of reasonably possible estimates. In the
Group's opinion, there is no useful alternative valuation that
would better quantify the market risk inherent in the portfolio and
there are no inputs or variables to which the values of the assets
are correlated other than interest rates which impact the discount
rates applied.
21. Key management personnel disclosures
Compensation
The aggregate compensation made to Directors and other members
of key management personnel of the Group is set out below:
Consolidated
2023 2022
$ $
Short-term employee benefits 2,188,144 2,279,794
Post-employment benefits 59,611 57,615
Long-term benefits 13,145 63,210
Share-based payments 375,014 257,129
---------- ----------
2,635,914 2,657,748
Details of the remuneration of key management personnel of the
Group are set out in the following tables.
Cash Long
salaries Accrued service Share-based
and fees Bonus Benefits leave Superannuation/Pension leave payments Total
2023 $ $ $ $ $ $ $ $
Non-executive
Directors
Dr David King 100,000 - - - 10,500 - - 110,500
Jonathan
Moulds 178,586 - - - - - - 178,586
Gerhard
Seebacher 111,357 - - - - - - 111,357
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
389,943 - - - 10,500 - - 400,443
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
Executive
Directors
Patrick
Moloney 1,071,517 118,249 5,709 (29,023) - 13,146 252,293 1,431,891
Mary Gangemi 491,112 140,637 - - 49,111 - 122,721 803,581
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
1,562,629 258,886 5,709 (29,023) 49,111 13,146 375,014 2,235,472
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
1,952,572 258,886 5,709 (29,023) 59,611 13,146 375,014 2,635,915
========== ======== ========= ========= ======================= ======== ============ ==========
Cash Long
salaries Accrued service Share-based
and fees Bonus Benefits leave Superannuation/Pension leave payments Total
2022 $ $ $ $ $ $ $ $
Non-executive
Directors
Dr David King 100,000 - - - 10,000 - - 110,000
Jonathan
Moulds 183,319 - - - - - - 183,319
Gerhard
Seebacher 103,488 - - - - - - 103,488
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
386,807 - - - 10,000 - - 396,807
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
Executive
Directors
Nick
Rowles-Davies 513,294 - 3,701 - 1,211 - - 518,206
Patrick
Moloney 998,817 - - 187,678 27,500 63,210 241,583 1,518,788
Mary Gangemi 189,048 - 449 - 18,904 - 15,546 223,947
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
1,701,159 - 4,150 187,678 47,615 63,210 257,129 2,260,941
---------- -------- --------- --------- ----------------------- -------- ------------ ----------
2,087,966 - 4,150 187,678 57,615 63,210 257,129 2,657,748
========== ======== ========= ========= ======================= ======== ============ ==========
Directors' share options
The details of options over ordinary shares in the Company held
during the financial year by each Director is set out below:
Balance Balance
at Expired/ at
the
start the
Exercise of forfeited/ end of
Grant Expiry the the
Director date date price year Granted Exercised other year
Patrick
Moloney(2) 19/11/2018 25/11/2028 $0.47 1,595,058 - - - 1,595,058
Patrick
Moloney(2) 04/12/2017 04/12/2027 $0.60 1,000,000 - - - 1,000,000
Patrick
Moloney(2) 04/12/2017 04/12/2027 $0.60 1,000,000 - - - 1,000,000
Patrick
Moloney(2) 01/11/2019 01/11/2029 GBP0.7394 1,166,400 - - - 1,166,400
Patrick
Moloney(2) 13/10/2020 13/10/2030 GBP0.6655 291,597 - - - 291,597
Patrick
Moloney(2) 27/10/2021 27/10/2031 GBP1.06 279,232 - - - 279,232
Patrick
Moloney(1,2) 27/10/2021 27/10/2031 GBP1.06 900,000 - - - 900,000
Mary Gangemi(2) 27/10/2021 27/10/2031 GBP1.06 93,585 - - - 93,585
Mary Gangemi(2) 27/10/2021 27/10/2031 GBP1.14 26,315 - - - 26,315
Patrick
Moloney(2) 07/10/2022 07/10/2032 GBP0.00 - 169,276 - - 169,276
Patrick
Moloney(2) 07/10/2022 07/10/2032 GBP0.00 - 3,303,796 - - 3,303,796
Mary Gangemi(2) 07/10/2022 07/10/2032 GBP0.00 - 201,325 - - 201,325
Mary Gangemi(2) 07/10/2022 07/10/2032 GBP0.00 - 1,266,455 - - 1,266,455
6,352,187 4,940,852 - - 11,293,039
========== ========== ========== =========== ===========
(1) On 27 October 2021, Patrick Moloney exercised 900,000
unlisted options at an exercise price of A$1.00 which were granted
under the Employee share option scheme. Upon exercise, the Group
issued 900,000 new ordinary shares in the capital of the Group to
Patrick Moloney which have been granted under the Loan Share Plan
with the sole purpose to fund the exercise price of the 900,000
unlisted options
(2) Outstanding share options as disclosed in Note 28
Directors' interests
The number of shares in the Company held at the end of the
financial year by each Director is set out below:
30 June 2023 30 June
2022
Name of the Director Description of Number Number
shares
Fully paid ordinary
Jonathan Moulds shares 5,250,000 2,080,000
Fully paid ordinary
Dr David King shares 1,951,484 1,951,484
Fully paid ordinary
Patrick Moloney shares 4,204,813 3,970,971
Unlisted partly
Patrick Moloney paid shares 1,433,022 1,433,022(1)
Gerhard Seebacher N/A - -
Fully paid ordinary
Mary Gangemi shares 27,500 27,500(2)
(1) Unlisted partly paid shares in the Company were issued at a
price of $0.17 per share, wholly unpaid and will convert to a share
upon payment to the Company of $0.17 per share. Further details
provided in Note 16 to the financial statements.
(2) Directorship commenced effective 14 February 2022.
No changes took place in the interest of the directors between
30 June 2023 and 19 September 2023.
22. Remuneration of auditors
During the financial year the following fees were paid or
payable for services provided by BDO Audit Pty Ltd, the auditor of
the Company, and its network firms:
Consolidated
2023 2022
$ $
Audit Services - BDO Audit Pty Ltd
Audit or review of financial report 149,700 112,500
-------- --------
149,700 112,500
======== ========
Audit Services - Firms related to BDO
Audit Pty Ltd
Audit of statutory report of controlled
entities 124,113 93,554
-------- --------
124,113 93,554
======== ========
Audit Services - Unrelated Firms
Audit of statutory report of controlled
entities 27,904 2,750
-------- --------
27,904 2,750
======== ========
23 Contingent liabilities
The majority of the Group's funding agreements contain a
contractual indemnity from the Group to the funded party that the
Group will pay adverse costs awarded to the successful party in
respect of costs incurred during the period of funding, should the
client's litigation be unsuccessful. The Group's position is that
for the majority of litigation projects which are subject to
funding, the Group enters insurance arrangements which lessen or
eliminate the impact of such awards and therefore any adverse costs
order exposure.
24. Parent entity information
Set out below is the supplementary information about the parent
entity.
Consolidated
2023 2022
Statement of profit or loss and other
comprehensive income $'000 $'000
Profit/(loss) after
income tax 943 (256)
-------- --------
Total comprehensive
income 943 (256)
======== ========
Statement of financial
position
-------- --------
Total current assets - -
-------- --------
Total assets 70,274 68,404
-------- --------
Total current liabilities - -
-------- --------
Total liabilities - -
-------- --------
Equity
Issued capital 69,674 69,674
Share based payments
reserve 2,440 1,573
Retained profits (1,840) (2,843)
-------- --------
Total equity 70,274 68,404
-------- --------
Guarantees entered into by the parent entity in relation to the
debts of its subsidiaries
Litigation Capital Management Limited (as holding entity), LCM
Operations Pty Ltd, LCM Litigation Fund Pty Ltd, LCM Corporate
Services Pty Ltd, LCM Recoveries Pty Ltd, LCM Funding Pty Ltd, LCM
Singapore Pty Ltd, LCM Funding SG Pty Ltd and LCM Group Holdings
Pty Ltd are parties to a deed of cross guarantee under which each
company guarantees the debts of the others. The specified
subsidiaries represent a 'closed group' for the purposes of the
guarantee, and as there are no other parties to the Deed that are
controlled by the Group, they also represent the 'extended closed
group'.
Contingent liabilities
The parent entity had no contingent liabilities as at 30 June
2023 and 30 June 2022.
Capital commitments - Property, plant and equipment
The parent entity had no capital commitments for property, plant
and equipment as at 30 June 2023 and 30 June 2022.
Significant accounting policies
The accounting policies of the parent entity are consistent with
those of the Group, as disclosed in note 2, except for the
following:
-- Investments in subsidiaries are accounted for at cost, less
any impairment, in the parent entity.
-- Dividends received from subsidiaries are recognised as other
income by the parent entity and its receipt may be an indicator of
an impairment of the investment.
25. Interests in subsidiaries
The consolidated financial statements incorporate the assets,
liabilities and results of the following subsidiaries in accordance
with the accounting policy described in note 2:
Principal place
of business
/
Country of
incorporation Ownership Interest
2023 2022
Name % %
LCM Litigation Fund Pty Ltd Australia 100% 100%
LCM Operations Pty Ltd Australia 100% 100%
LCM Corporate Services Pty Ltd Australia 100% 100%
LCM Singapore Pty Ltd Australia 100% 100%
LCM Recoveries Pty Ltd Australia 100% 100%
LCM Advisory Limited Australia 100% 100%
LCM Funding Pty Ltd Australia 100% 100%
LCM Funding SG Pty Ltd Australia 100% 100%
LCM Corporate Services Pte. Ltd. Singapore 100% 100%
LCM Operations UK Limited United Kingdom 100% 100%
LCM Corporate Services UK Limited United Kingdom 100% 100%
LCM Recoveries UK Limited United Kingdom 100% 100%
LCM Funding UK Limited United Kingdom 100% 100%
LCM Group Holdings Pty Ltd Australia 100% 100%
LCM Global Alternative Returns
Fund
LCM Global Alternative Returns
Fund GP Limited Jersey 100% 100%
LCM Global Alternative Returns
Fund (Special Partner) LP Jersey 100% 100%
LCM Global Alternative Returns
Fund II(1)
LCM Global Alternative Returns
Fund II GP Limited Jersey 100% 100%
LCM Global Alternative Returns
Fund II (Special Partner) LP Jersey 100% 100%
(1) The Group launched the LCM Global Alternative Returns Fund
II ("Fund II") on 14 October 2021. The Fund comprises two
partnerships, the LCM Global Alternative Returns Fund II LP and the
LCM Global Alternative Returns Feeder Fund II LP. The partnerships
are between the LCM Global Alternative Returns Fund II GP Limited,
LCM Global Alternative Returns Fund II (Special Partner) LP (which
are both 100% owned by the Group as reflected within this note),
and fund investors ie, third party interests. The Group is deemed
to control the Fund from an accounting perspective on the basis
that the Group has exposure, or rights, to variable returns from
its involvement with the Fund. As a result, the LCM Global
Alternative Returns Fund II entities have been consolidated into
the Group. Further information disclosed in note 26.
26. Third-party interests in consolidated entities
AASB requires the Group to consolidate fund investment vehicles
over which it has exposure to variable returns from the fund
investment vehicles. As a result, third party interests in relation
to the Funds have been consolidated in the financial
statements.
As at 30 June 2023, the financial liability due to third-party
interests is $243,990,000 (2022 restated: $142,180,000), recorded
at fair value as represented per Note 3. Amounts included in the
consolidated statement of financial position represent the fair
value of the third-party interests in the related financial assets
and the amounts included in the consolidated statement of profit or
loss and other comprehensive income represent the third-party share
of any gain or loss during the period. Third-party interests
exclude the 25% co-investment made by Litigation Capital Management
Limited and its wholly owned subsidiaries ("LCM"). The third-party
interests in the Funds carry an entitlement to receive an 8% soft
return hurdle. Upon satisfaction of the third-party interests soft
return hurdle, LCM is entitled to performance fees as fund manager
on the basis of a deal by deal waterfall. The residual net cash
flows are to be distributed 25% to LCM and 75% to the third-party
interests until a IRR of 20% is achieved by the third-party
interests, thereafter the net residual cash flows are distributed
35% to LCM and 65% to the third-party interests.
The following tables reflect the impact of consolidating the
results of the Funds with the results for LCM to arrive at the
totals reported in the consolidated statement of comprehensive
income and consolidated statement of financial position. The Fund
column in the table below presents the interests of third-party
investors comprising both the investment in the litigation funding
assets made on their behalf and costs of administering the funds.
The LCM column includes the 25% co-investment in these litigation
contracts.
Restated
2023 2022
Consolidated
Statement
of Comprehensive
Income LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Income
Gain on
financial
assets
at fair
value through
profit
or loss 67,684 117,051 184,735 64,811 39,041 103,852
Movement
in financial
liabilities
related
to third-party
interests
in consolidated
entities - (111,953) (111,953) - (36,672) (36,672)
--------- ---------- ------------- --------- --------- -------------
Total
income 67,684 5,098 72,782 64,811 2,369 67,180
Other
income 18 - 18 - - -
Interest
income 49 129 178 1 - 1
Expenses
Employee
benefits
expense (9,474) - (9,474) (8,841) - (8,841)
Depreciation
expense (166) - (166) (65) - (65)
Corporate
expenses (4,220) - (4,220) (3,499) - (3,499)
Finance
costs (8,124) (144) (8,268) (4,703) (334) (5,037)
Fund administration
expense (1,850) (1,178) (3,028) (1,853) (1,765) (3,618)
Foreign
currency
(gains)/losses (1,176) (3,905) (5,081) (100) (270) (370)
--------- ---------- ------------- --------- --------- -------------
Total
expenses (25,010) (5,227) (30,237) (19,061) (2,369) (21,430)
--------- ---------- ------------- --------- --------- -------------
Profit
before
income
tax expense 42,741 - 42,741 45,751 - 45,751
Analysed
as:
Adjusted
operating
profit 53,885 - 53,885 53,916 - 53,916
Non-operating
expenses (3,020) - (3,020) (3,462) - (3,462)
Finance
costs (8,124) - (8,124) (4,703) - (4,703)
--------- ---------- ------------- --------- --------- -------------
Profit
before
income
tax expense 42,741 - 42,741 45,751 - 45,751
Income
tax expense (11,256) - (11,256) (11,141) - (11,141)
--------- ---------- ------------- --------- --------- -------------
Profit
after income
tax expense 31,485 - 31,485 34,610 - 34,610
Other
comprehensive
income
for the
year, net
of tax 2,187 - 2,187 (2,103) (2,103)
--------- ---------- ------------- --------- --------- -------------
Total
comprehensive
income
for the
period 33,672 - 33,672 32,507 - 32,507
========= ========== ============= ========= ========= =============
Restated
2023 2022
Consolidated
statement
of financial
position LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Assets
Cash and
cash equivalents 82,973 21,484 104,457 29,253 20,711 49,964
Trade &
other receivables 2,209 - 2,209 2,298 - 2,298
Due from
resolution
of financial
assets 11,873 - 11,873 24,340 - 24,340
Financial
assets
at fair
value through
profit
or loss 165,768 225,642 391,410 154,577 142,403 296,980
Contract
costs 37,277 - 37,277 31,782 - 31,782
Property,
plant and
equipment 211 - 211 182 - 182
Intangible
assets 356 - 356 646 - 646
Other assets 1,032 78 1,110 1,489 (623) 866
-------- -------- ------------- -------- -------- -------------
Total assets 301,699 247,204 548,903 244,567 162,491 407,058
-------- -------- ------------- -------- -------- -------------
Liabilities
Trade and
other payables 4,321 3,214 7,535 7,023 5,817 12,840
Tax payable 7,769 - 7,769 68 68
Employee
Benefits 906 - 906 927 - 927
Borrowings 68,976 - 68,976 54,915 14,494 69,409
Third-party
interests
in consolidated
entities - 243,990 243,990 142,180 142,180
Deferred
tax liability 36,259 - 36,259 32,704 - 32,704
-------- -------- ------------- -------- -------- -------------
Total
liabilities 118,231 247,204 365,435 95,637 162,491 258,128
-------- -------- ------------- -------- -------- -------------
Net assets 183,468 - 183,468 148,930 - 148,930
======== ======== ============= ======== ======== =============
A financial liability at fair value through the income statement
is recognised in the parent entity in relation to the transactions
entered into with certain Fund structures to support the financing
of LFAs. These arrangements fail the derecognition principles in
IFRS 9 and represents the net share of the overall LFA at fair
value apportioned to the Funds.
Restated
2023 2022
Consolidated
Statement
of Cash
Flows LCM Fund Consolidated LCM Fund Consolidated
$'000 $'000 $'000 $'000 $'000 $'000
Cash flows
from operating
activities
Profit/(loss)
after income
tax expense
for the
year 31,485 - 31,485 34,610 - 34,610
Adjustments
for:
Fair value
adjustments
to financial
assets (67,684) (5,098) (72,782) (64,811) (2,369) (67,180)
Depreciation
and amortisation
of intangibles 166 - 166 65 219 284
Share-based
payments 867 - 867 256 - 256
Finance
costs reclassified
to financing
activities 8,124 144 8,268 4,704 334 5,038
Income
tax expense 11,256 - 11,256 11,141 - 11,141
Exceptional
items 1,200 - 1,200 800 - 800
Foreign
exchange
rate movements 7,094 4,507 11,601 586 (68) 518
Change
in operating
assets
and liabilities:
(Funding)
of financial
assets (30,756) (58,293) (89,049) (26,675) (38,464) (65,139)
Proceeds
from resolution
of financial
assets 96,815 95,808 192,623 26,585 207 26,792
Decrease/(increase)
in trade
and other
receivables (89) - (89) 56 - 56
(Increase)
in contract
costs -
litigation
contracts (5,494) - (5,494) (3,150) - (3,150)
(Decrease)/Increase
in trade
and other
payables (2,702) (2,603) (5,305) (923) 1,439 516
(Decrease)/Increase
in employee
benefits (21) - (21) 327 - 327
Increase/(decrease)
in tax
payable (139) - (139) (85) - (85)
--------- --------- ------------- --------- --------- -------------
Net cash
from/(used
in) operating
activities 50,121 34,465 84,587 (16,514) (38,702) (55,217)
--------- --------- ------------- --------- --------- -------------
Cash flows
from investing
activities
Payments
for property,
plant and
equipment (90) - (90) (38) - (38)
Payments
for intangibles (57) - (57) (278) - (278)
Payments
of security
deposits (51) - (51) (19) - (19)
--------- --------- ------------- --------- --------- -------------
Net cash
used in
investing
activities (198) - (198) (335) - (335)
--------- --------- ------------- --------- --------- -------------
Cash flows
from financing
activities
Proceeds
from issue
of shares - - - 770 - 770
Dividends
paid - - - -
Proceeds
from borrowings 9,636 - 9,636 13,298 - 13,298
Repayments
of borrowings - (14,848) (14,848) - - -
Payments
of finance
costs (6,039) (132) (6,171) (4,127) (511) (4,638)
Payments
of transaction
costs related
to third-party
interests (1,832) - (1,832) (1,853) - (1,853)
Contributions
from third-party
interests
in consolidated
entities - 74,980 74,980 - 45,465 45,465
Distributions
to third-party
interests
in consolidated
entities (94,373) (94,373) (406) (406)
Payments
for fund
establishment
& administration
costs - - - - (779) (779)
--------- --------- ------------- --------- --------- -------------
Net cash
(used in)/from
financing
activities 1,766 (34,372) (32,608) 8,088 43,770 51,857
--------- --------- ------------- --------- --------- -------------
Net increase/(decrease)
in cash
and cash
equivalents 51,689 92 51,781 (8,761) 5,068 (3,693)
Cash and
cash equivalents
at the
beginning
of the
financial
year 29,253 20,711 49,964 35,526 14,210 49,736
Effects
of exchange
rate changes
on cash
and cash
equivalents 2,031 681 2,712 2,488 1,433 3,921
--------- --------- ------------- --------- --------- -------------
Cash and
cash equivalents
at the
end of
the financial
year 82,973 21,484 104,457 29,253 20,711 49,964
--------- --------- ------------- --------- --------- -------------
27. Earnings per share
Consolidated
Restated
2023 2022
$'000 $'000
Profit after
income tax 31,485 34,610
Profit after income tax attributable
to the owners of Litigation Capital
Management Limited 31,485 34,610
Number Number
Weighted average number of ordinary
shares used in calculating basic
earnings per share 106,613,927 106,015,738
Adjustments for calculation of
diluted earnings per share:
Amounts uncalled
on partly paid
shares and calls
in arrears 1,252,018 1,229,103
Options over
ordinary shares 3,257,392 2,140,866
Weighted average number of ordinary
shares used in calculating diluted
earnings per share 111,123,337 109,385,707
Cents Cents
Basic earnings
per share 29.53 32.65
Diluted earnings
per share 28.33 31.64
Dilutive potential shares which are contingently issuable are
only included in the calculation of diluted earnings per share
where the conditions are met.
28. Share-based payments
The share-based payment expense for the year was $867,000 (2022:
$256,000).
Loan Funded Share Plans ('LSP')
As detailed in note 16, the Group has an equity scheme pursuant
to which certain employees may access a LSP. The shares under LSP
are issued at the exercise price by granting a limited recourse
loan. The LSP shares are restricted until the loan is repaid.
Options under this scheme can be granted without an underlying LSP
share until they have been exercised and on this basis, do not form
part of the Group's issued share capital. The underlying options
have been accounted for as a share-based payments. The options are
issued over a 1-3 year vesting period. Vesting conditions include
satisfaction of customary continuous employment with the Group and
may include a share price hurdle.
During the year the Group granted nil (2022: 1,912,489) shares
under the LSP.
Set out below are summaries of shares/options granted under the
LSP:
2023
Balance
at the Balance
start Expired/ at the
Grant Expiry Exercise of the forfeited/ end of
date date Price year Granted Exercised other the year
04/12/2017 04/12/2027 $0.60 2,000,000 2,000,000
31/08/2018 31/08/2028 $0.77 411,972 411,972
19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058
03/12/2018 03/12/2028 $0.89 100,000 100,000
01/11/2019 01/11/2029 GBP0.7394 1,432,753 1,432,753
01/11/2019 01/11/2029 GBP0.7730 66,137 (66,137) 0
13/10/2020 13/10/2030 GBP0.6655 616,520 616,520
27/10/2021 27/10/2031 GBP1.06 1,512,638 1,512,638
27/10/2021 27/10/2031 GBP1.06 269,044 (170,007) 99,037(1)
27/10/2021 27/10/2031 GBP1.14 130,807 (8,377) 122,430(1)
---------- -------- ---------- ------------ -----------
8,134,929 - - (244,521) 7,890,408
---------- -------- ---------- ------------ -----------
Weighted average exercise
price $1.059 $0.000 $0.000 $1.386 $1.049
2022
Balance
at the Balance
start Expired/ at the
Grant Expiry Exercise of the forfeited/ end of
date date Price year Granted Exercised other the year
04/12/2017 04/12/2027 $0.60 2,000,000 2,000,000
31/08/2018 31/08/2028 $0.77 411,972 411,972
19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058
03/12/2018 03/12/2028 $0.89 100,000 100,000
06/03/2019 06/03/2029 GBP0.5200 4,528,664 (4,528,664) -(1)
01/11/2019 01/11/2029 GBP0.7394 1,432,753 1,432,753
01/11/2019 01/11/2029 GBP0.7730 66,137 66,137
04/11/2019 04/11/2029 GBP0.7394 388,800 (388,800) -(1)
13/10/2020 13/10/2030 GBP0.6655 616,520 616,520
27/10/2021 27/10/2031 GBP1.06 - 1,512,638 1,512,638
27/10/2021 27/10/2031 GBP1.06 - 269,044 269,044(2)
27/10/2021 27/10/2031 GBP1.14 - 130,807 130,807(2)
----------- ---------- ---------- ------------ -----------
11,139,904 1,912,489 - (4,917,464) 8,134,929
----------- ---------- ---------- ------------ -----------
Weighted average exercise
price $0.885 $1.953 $0.000 $0.985 $1.091
(1) As announced on 17 December 2021, the employment of a former
Executive Director was terminated and his performance related
shareholding did not vest. That benefit comprised 4,917,464 shares
held through the Group's Joint Share Ownership Plan ("JSOP").
These JSOP awards are held by the LCM Employee Benefit Trust,
and were due to vest 19 December 2021 subject to continued
employment and performance conditions including a share price
target of 175 pence being achieved at any time during the vesting
period. The JSOP award was subject to malus and clawback
provisions. Although the JSOP awards did not vest by reason of the
termination of employment for cause, the awards had not vested at
the date of termination due to the share price of LCM not trading
at 175 pence at any point during the vesting period.
The awards remain held by the Group in the LCM Employee Benefit
Trust.
(2) Options granted without an underlying LSP share until
exercised ie, do not form part of the Group's issued share
capital
There were 6,869,211 options vested and exercisable as at 30
June 2023 (2022: 6,318,671).
The weighted average remaining contractual life of options under
LSP outstanding at the end of the financial year was 1.01 years
(2022: 0.92 years).
Deferred Bonus Share Plan ('DBSP')
The Company has in place a DBSP. Options granted under the DBSP
reflect past performance and are in the form of nil cost options
and will vest in three equal tranches from the date of issue and
are subject to continued employment over the three year period.
In addition, the Options granted under the DBSP are subject to
malus and clawback provisions. In the event of a change of control
of the Company, unvested awards will vest to the extent determined
by the Board, taking into account the proportion of the period of
time between grant and the normal vesting date that has elapsed at
the date of the relevant event.
During the period the Group granted 1,132,692 (2022: nil) shares
under the DBSP.
Set out below are summaries of options granted under the
DBSP:
Balance
at the Balance
start Expired/ at the
Grant Expiry Exercise of the forfeited/ end of
date date Price year Granted Exercised other the year
07/10/2022 07/10/2032 $1.1816 - 1,132,692 - - 1,132,692
-------- ---------- ---------- ------------ ----------
- 1,132,692 - - 1,132,692
-------- ---------- ---------- ------------ ----------
Weighted average exercise
price $0.000 $1.182 $0.000 $0.000 $1.182
There were nil DBSP's vested and exercisable as at 30 June
2023.
The weighted average remaining contractual life of options under
DBSP outstanding at the end of the financial year was 1.265
years.
Executive Long Term Incentive Plan ('LTIP')
The Company has in place an Executive LTIP. Options over
ordinary shares in the capital of the Company ("Ordinary Shares")
are issued to recipients under the LTIP plan. The options set out
above have been granted under the LTIP in the form of nil cost
options and are subject to performance conditions which require the
growth of Funds under Management ('FuM') over a five year
performance period. The performance conditions associated with the
options are set out below:
(1) 50% vesting on reaching a minimum of FuM of US$750m; and
(2) 100% vesting on reaching FuM of US$1bn.
The vesting date of options granted is the later of:
(1) the third anniversary of the Grant Date;
(2) the satisfaction of the Performance Condition; or
(3) the date of any adjustment under the Plan rules of the Plan at the Boards discretion.
Any awards made to the participants are subject to a five year
holding period from the grant date. In the event of a change of
control of the Company, unvested awards will vest to the extent
determined by the Board, taking into account the proportion of the
period of time between grant and the normal vesting date that has
elapsed at the date of the relevant event and the extent to which
any performance condition has been satisfied at the date of the
relevant event.
During the period the Group granted 5,671,516 (2022: nil) shares
under the LTIP.
Set out below are summaries of shares/options granted under the
LTIP:
2023
Balance
at the Balance
start Expired/ at the
Grant Expiry Exercise of the forfeited/ end of
date date Price year Granted Exercised other the year
07/10/2022 07/10/2032 $1.1816 - 5,671,516 - - 5,671,516
-------- ---------- ---------- ------------ ----------
- 5,671,516 - - 5,671,516
-------- ---------- ---------- ------------ ----------
Weighted average exercise
price $0.000 $1.182 $0.000 $0.000 $1.182
There were nil LTIP's vested and exercisable as at 30 June
2023.
The weighted average remaining contractual life of options under
DBSP outstanding at the end of the financial year was 4.266
years.
For the options under LSP granted during the current financial
year, the valuation model inputs used in the Black-Scholes pricing
model to determine the fair value at the grant date, are as
follows:
Share Fair
price Risk-free value
Grant Expiry at grant Exercise Expected Dividend interest at grant
date date date price volatility yield rate date(1)
04/10/2022 04/10/2032 GBP0.73 GBP0.00 35.00% 0.00% 3.19% $1.287
---------- ------------ --------- ---------- ----------
04/10/2022 04/10/2032 GBP0.73 GBP0.00 35.00% 0.00% 3.21% $1.287
---------- ------------ --------- ---------- ----------
(1) AUD amount. GBP equivalent GBP0.726
The expected volatility reflects the assumption that the
historical volatility over a period similar to the life of the
options is indicative of future trends, which may not necessarily
be the actual outcome.
29 Financial liabilities related to third-party interests in
consolidated entities
Reconciliation to balance sheet without FV:
Note that these balances do not include the LCM placement fees
anymore - fund only
2023 2022 2021
$'000 $'000 $'000
Balance 1 July (86,793) (43,725) (14,795)
Cash proceeds
- capital contributions
from LPs (74,980) (45,060) (29,234)
Cash payments
- distributions
to LPs 94,373 778 635
Other non-cash
items - to reconcile
to balance sheet (9,048) 1,214 (331)
(76,447) (86,793) (43,725)
(76,447)
Consolidated
-------------------------------------
Restated Restated
As at 1 July
2023 2022 2021
$'000 $'000 $'000
---------- ---------- -------------
Balance 1 July (142,180) (62,870) (43,725)
Proceeds - capital
contributions
from Limited
Partners (74,980) (45,465)
Payments - distributions
to Limited Partners 94,373 406
Other non-cash
items (9,250) 2,421
Loss on financial
liabilities related
to third-party
interests in
consolidated
entities (note
5) (111,953) (36,672) (19,145)
---------- ---------- -------------
Balance as at
30 June (243,990) (142,180) (62,870)
---------- ---------- -------------
30. Events after the reporting period
On 4 September 2023, LCM announced the resolution of a class
action investment that forms part of LCM's managed Global
Alternative Returns Fund ("Fund I") and was funded directly from
LCM's balance sheet (25%) and Fund I Investors (75%). As announced
previously on 15 May 2023, the class action was brought in the
Federal Court of Australia against the Commonwealth of Australia on
behalf of persons who are alleged to have suffered loss and damage
as the result of the contamination of their land at seven sites
around Australia in proximity to Department of Defence military
bases.
The Commonwealth has agreed to pay the sum of AUD$132.7m in
order to resolve the class action. A confidential deed of
settlement was executed and has now been approved by the court,
allowing the disbursement of funds, subject to the unlikely event
of appeal.
LCM expects to receive income of approximately A$10.6m. That
amount includes capital invested of approximately A$3.4m together
with an expected net gain of approximately A$7.2m. The Company's
final income and gain figures are subject to change pending final
distribution of settlement monies.
DIRECTORS DECLARATION
In the directors' opinion:
- the attached financial statements and notes comply with the
Corporations Act 2001, Australian Accounting Standards and other
mandatory professional reporting requirements;
- the attached financial statements and notes comply with
International Financial Reporting Standards as issued by the
International Accounting Standards Board as described in note 2 to
the financial statements;
- the attached financial statements and notes give a true and
fair view of the consolidated entity's financial position as at 30
June 2023 and of its performance for the financial year ended on
that date; and
- there are reasonable grounds to believe that the company will
be able to pay its debts as and when they become due and
payable.
Signed in accordance with a resolution of directors.
-end-
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September 19, 2023 02:00 ET (06:00 GMT)
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