TIDMJIL
RNS Number : 5954H
Juridica Investments Limited
17 March 2015
Juridica Investments Limited
('Juridica' or the 'Company')
Audited final results for the year ended 31 December 2014
Juridica (AIM: JIL), a leading provider of strategic capital for
corporate legal claims to both businesses and legal markets,
announces its audited financial results for the year ended 31
December 2014.
Financial highlights
-- Net cash proceeds received during fiscal year 2014 rises 99%
to US$73.9 million (2013: US$37.2 million)
-- Total 2014 dividend of 20p per share (US$34.5 million) paid
from net cash proceeds generated from 2014 investment activity
(paid to shareholders on 14 January 2015)
-- Dividends paid since inception total 58.6p per share (US$98.8
million)
-- Net Asset Value at 31 December 2014 of US$184.2 million,
which primarily consists of the discounted terminal value of the
Company's investment portfolio (having a current fair value of
US$150.1 million)
-- IRR on completed investments at 66.67%
-- Fully diluted loss per share of 4.49c (2013: earning per
share of 4.85c)
Operating highlights
-- Gross cash proceeds of US$105.7 million generated primarily
from five settlements within the antitrust and competition
portfolios
-- Loss per share for period reflects increased operating
expenses primarily due to earned performance fee payable to JCML
2007 Limited (in which Juridica has a 36.17% holding), reduction in
discounted terminal value of investments, and increased due
diligence costs
-- Enhanced investment management arrangements, including
expansion of investment management team and adoption of a
co-allocation policy, creates greater capabilities and
opportunities for the Company's remaining capital base
Outlook
The Company has a high quality portfolio of cases that continue
to progress as expected. Several of these investments are
anticipated to see significant activity within the next 12 to 24
months. One antitrust case, in particular, has significant upside
potential and is expected to resolve within the next twelve
months.
In addition, Juridica expects to make several investments in
medium to large sized patent portfolios and various commercial
cases during 2015.
Commenting on the results, Lord Brennan QC, Chairman of
Juridica, said:
"Our investments have continued to mature throughout 2014. Our
successes this year enabled the payment of substantial dividends..
We continue to see significant opportunities to deploy capital. We
look to the future with optimism and expect the portfolio to
deliver attractive returns."
- Ends -
This document contains forward looking statements, which are
based on Juridica Asset Management Limited's (JAML) current
expectations and assumptions and involve known and unknown risks
and uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied in such
statements. It is believed that the expectations reflected in these
statements are reasonable, but they may be affected by a number of
variables which could cause actual results or trends to differ
materially. Each forward looking statement speaks only as of the
date of this announcement. Except as required by the AIM Rules, the
London Stock Exchange or otherwise by law, the Company expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward looking statements contained
herein to reflect any change in the Company's or JAML's
expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is
based.
For further information contact:
Juridica Asset Management
Limited Richard W. Fields +1 (866) 443 1080
Cenkos Securities PLC
(Nominated Adviser and Broker)
Nicholas Wells
Ian Soames +44 (0) 20 7397 8900
Investec Bank PLC
(Joint Broker)
Jeremy Ellis
Darren Vickers +44 (0)20 7597 4000
Peel Hunt LLP
(Joint Broker)
Guy Wiehahn +44 (0)20 7418 8900
Bell Pottinger
Olly Scott
Helen O'Hara +44 (0) 20 3772 2500
About Juridica Investments Limited
Juridica Investments is a leading provider of strategic capital
to the business community and the legal markets for corporate
claims. It invests directly and indirectly in a diversified
portfolio of corporate claims in litigation and arbitration.
Juridica is one of the premier sources of value-added and direct
financing for large business claims in the United States and one of
the leading sources in the United Kingdom.
The Company's clients are Fortune 1000 companies, FT Global 500
companies, inventors, major universities, and the leading law firms
that represent them. Juridica only accepts cases that have already
been carefully vetted and undertaken by leading lawyers.
Juridica's capital enables the legal system to better address
business claims. It does not invest in speculative claims or claims
that do not demonstrate economic value and clear merits. Juridica
invests only in business claims, and does not invest in class
actions, personal injury, product liability, or mass tort claims.
Juridica's investment strategy provides business clients with
financial choices that reduce risk and assist in maximizing claim
value.
The Company's goal is to provide business clients with financial
choices that reduce risk and assist in maximising claim value.
Juridica was established on 21 December 2007 as a limited
liability, closed-ended investment company registered in Guernsey.
It has over US$200 million of assets under management. It was the
pioneer in alternative litigation financing and the first
closed-end fund of its kind ever listed on AIM, a market operated
by the London Stock Exchange (AIM: JIL.L).
The Company has appointed Juridica Asset Management Limited as
its exclusive investment manager to locate, evaluate and manage
direct and indirect investments in cases, claims and disputes.
http://www.juridicainvestments.com
Chairman's statement
On behalf of the Board, I present the results of Juridica
Investments Limited ("JIL" or the "Company") for the year ended 31
December 2014.
Since the end of 2007, JIL has developed and monetised a
portfolio of investments focused exclusively on
business-to-business related claim investments. The portfolio is
comprised of the following sectors: antitrust and competition;
patents and other forms of intellectual property; and general
commercial litigation. The Company does not invest in shareholder
class actions, personal injury, product liability, or mass tort
claims.
The Company has just completed its seventh year of operation and
I am pleased to report that during 2014 the portfolio generated a
record amount of cash proceeds because of five settlements in our
antitrust and competition portfolio. Although our recent returns
are not indicative of future returns, they are a strong endorsement
of the quality of the portfolio we have invested in and developed.
In addition, we have reasonable grounds for anticipating further
realisation of part of the carrying value of our investments into
cash proceeds over the next 12 to 24 months.
Highlights of the Company's performance include:
-- Over the course of 2014, settlements in our antitrust and
competition portfolio generated gross proceeds of US$97.7 million
of which US$31.8 million has been used to fulfil contingency
obligations on cases that are still active in the antitrust and
competition portfolio and to satisfy the necessary reserves for
estimated taxes. In addition, US$8.0 million of case proceeds
generated from prior period settlements in our antitrust and
competition portfolio was released to the Company in accordance
with the relevant investment agreements. From this combined
activity, a total of US$73.9 million in net proceeds was
transferred to the Company during the year ended 31 December 2014
(a portion of which was received by the Company on 30 December 2014
and a portion of which was received by the Company on 12 January
2015). An additional US$250,000 in proceeds was generated from two
small settlements and a patent sale in one of our patent
investments. These patent related proceeds were retained in the
investment entity to fund expansion of the patent portfolio.
-- On 10 November 2014, the Company declared a dividend of 20
pence per share (approximately US$0.31 per share based on the
prevailing exchange rate at that date with an aggregate amount
distributed of US$34.5 million). The dividend was paid on 14
January 2015 to shareholders on the Register at 12 December
2014.
-- From inception to date, the Company's investments have
generated US$275.6 million in gross proceeds. Included in this
amount is US$13.1 million in gross proceeds received by the Company
subsequent to 31 December 2014. Approximately US$64.1 million of
these proceeds have been directed towards meeting contingent
investment funding obligations and payment of taxes (or in the case
of proceeds received during 2014, reserving for estimated taxes).
As a result of this activity, a total of US$211.5 million
represents our investments' life-to-date net cash proceeds.
-- The fair value of the Company's investments as at 31 December
2014 was US$150.1 million which represents the present value of the
Company's investments' expected terminal value.
-- The NAV per ordinary share decreased from US$2.02 as at 31
December 2013 to US$1.66 at 31 December 2014. This decrease in NAV
per ordinary share was attributable to the declaration of the 2014
dividend payable of US$34.5 million (approximately US$0.31 per
share) as described above and a total comprehensive loss of US$5.0
million (approximately US$0.05 per share) generated during the year
ended 31 December 2014.
The Company's record cash settlement results generated in 2014
and the estimated fair value of the Company's investments reflect
the continued maturity of the Company's existing portfolio and
serve to highlight the ability of Juridica Asset Management Limited
(the "Manager") to identify and invest in strong cases, and to
effectively manage those assets to conclusion.
Investment Valuation
The methodology used to value our investments is applied in a
manner that follows International Financial Reporting Standards
("IFRS") fair value accounting rules and agrees with the views of
our auditor.
The fair value of our remaining investment portfolio is US$150.1
million, a reduction of US$41.1 million from the US$191.2 million
fair value reflected at 31 December 2013.
The change in investment valuation of US$41.1 million reflects
the following:
-- The receipt of the US$75.2 million in net proceeds (including
US$1.3 million related to a forward currency contract held during
2014 to protect the Company from currency fluctuations relating to
the 2013 dividend which was paid on 15 January 2014).
-- Cash additions to our investments of US$12.9 million.
-- Recognition of a realised gain of US$28.8 million relating
primarily to the proceeds received from the 2014 settlements in the
antitrust and competition portfolio. Specifically, this amount
reflects the gain in excess of unrealised gains recognised in prior
periods and includes a portion related to the forward currency
contract.
-- Net decrease of US$7.6 million in the carrying value of the
Company's investment portfolio. This decrease reflects the present
value of changes in the Manager's expectations in terms of timing
and/or quantum for the terminal value of the Company's
investments.
Operating Results
Most importantly, for the year ended 31 December 2014, the
Company realised a gain of US$28.8 million which was primarily
attributable to the five settlements occurring within our antitrust
and competition portfolio. Overall, the Company reported a total
comprehensive loss of approximately US$5.0 million as compared to
total comprehensive gain of approximately US$5.1 million for the
year ended 31 December 2013. The total comprehensive loss for the
year ended 31 December 2014 was due to a combination of the
following factors:
-- The realised gain of US$28.8 million described above.
-- A net unrealised loss generated from the change in valuation
of the Company's investments of approximately US$7.6 million. This
change in valuation was driven by reassessments of the Manager's
expectation of quantum and/or timing of potential settlements in
cases making up our portfolio of investments having regard to
information or facts that became available or occurred during
2014.
-- Unrealised loss of US$690,000 associated with the change in
valuation of the Company's forward currency hedge held by the
Company at 31 December 2014 to protect the Company from currency
fluctuations relating to the 2014 dividend which was paid on 14
January 2015. This unrealised loss is predominately offset by a
lower US dollar denominated dividend payable at 31 December 2014
than that which was relevant at the date of declaration.
-- Company operating expenses of US$9.9 million. This amount is
approximately US$2.0 million greater than it was in 2013 and was
primarily due to higher management fees, due diligence and
transaction costs as well as legal and professional fees. The
increase in management fees resulted from the settlement proceeds
received during 2014.
-- Intangible amortisation expense of US $1.1 million.
-- A performance fee payable of US$14.5 million due to the
Company's former investment manager, JCML 2007 Limited ("JCML") in
which JIL has a 36.17% holding.
The performance fee payable was generated as a result of the
Company's life-to-date portfolio cash profits (including cash
profits paid to JIL, cash profits reinvested directly into
investments, and cash profits set aside as reserves in special
purpose entities used to fund particular investments) exceeding the
8% cumulative hurdle ("Hurdle").
Investment Portfolio Activity
As more fully described in the Manager's report, the Company's
investments continue to have significant activity in their
underlying cases.
The Company's antitrust and competition portfolio had five
settlements during the year ended 31 December 2014 as follows:
-- Settlement in a single defendant case that generated a
significant amount of gross proceeds. While the case confronted and
overcame many delays, the ultimate award reached the high-end of
the Manager's settlement expectations.
-- Settlement from the final defendant in a multi-defendant
case.
-- Settlements from three small defendants in a multi-defendant
case. During 2014, this case had its trial delayed following an
adverse ruling on the scope of the plaintiff's damages. Subsequent
to 31 December 2014, the Manager was advised that the appeal effort
is now advancing and that a formal request for review by the
Supreme Court of the United States is being prepared.
The net amount of proceeds from the above settlements, along
with the additional US$8.0 million of case proceeds generated from
prior period settlements in our antitrust and competition portfolio
that was released to the Company in 2014 totalled US$73.9 million
and was transferred to the Company during the year ended 31
December 2014 (a portion of which was received by the Company on 30
December 2014 and a portion of which was received by the Company on
12 January 2015). In accordance with the terms of our facility
agreement (the "Facility") with Fields Law PLLC ("Fields Law"), as
revised during 2014, these proceeds were applied against accrued
interest and a repayment of principal on the Facility and payments
due under the swap agreement with Riverbend Investments Limited
("Riverbend"), a wholly-owned subsidiary of the Company.
Within our antitrust and competition portfolio during the year
ended 31 December 2014, one investment has been dismissed in favour
of the defendant. Within our commercial portfolio, two investments
continue to show indications of enhanced risk. Accordingly, our
Manager has further reduced the fair value of these investments.
The remaining investments in all our portfolios continue to make
progress with the majority of our older investments moving closer
to their ultimate conclusion.
Subsequent to 31 December 2014, proceeds of US$13.1 million were
received by the Company in relation to settlement of two
contractual interest investments.
New Investments and Pipeline
During the year ended 31 December 2014, the Company made one
additional investment which, as detailed above, was successfully
concluded subsequent to 31 December 2014. This new investment was
related to an existing patent investment whose underlying case
previously obtained a jury verdict in favour of the plaintiff but
the level of damages in the case was being appealed by the
plaintiff. Through this new investment, the Company purchased a
portion of the affirmed claim.
The Company also made three supplemental investments over the
course of 2014, each of which has a relationship to existing
investments in its portfolio. Two of these supplemental investments
were made with incremental funding while the third supplemental
investment was funded from money remaining in the original
investment facility.
The Company has also created additional patents designed to
support and enhance the enforceability and commercial relevance of
existing patents owned by it as well as funding one new patent
investment to develop and monetise a large portfolio of patents in
the technology and sports market. The National Football League
Players Association is a partner in this endeavour with the
Company.
The Manager continues to review and perform due diligence on a
large pipeline of potential investments.
Dividend
Based on the Company's expected results for the year ended 31
December 2014, the Company declared a dividend of 20 pence per
share (or approximately US$34.5 million in aggregate) which was
paid on 14 January 2015 to shareholders on the Register at 12
December 2014. Following this distribution, the Company has now
returned approximately US$98.8 million (58.6 pence per share).
Outlook
JIL was the first to enter the litigation finance market.
Litigation finance has become an established asset class, which is
especially attractive to investors because it is non-correlated and
profitable. JIL is well established and performing well in this
market as demonstrated by its results.
Litigation finance, particularly in the United States, is now at
the next stage where scale and diversity are the challenges. The
Board has been working closely with the Manager on the systems and
strategy required to meet these challenges and to advance our
position as a market leader in the business-to-business litigation
in which we specialise.
We look forward to the continued development of the fund and its
investments and thank our investors for their continued
support.
Lord Daniel Brennan QC
Chairman
16 March 2015
Investment Manager's report
Operating Highlights
During the year ended 31 December 2014, the Company's antitrust
and competition portfolio generated gross cash proceeds of US$105.7
million from five settlements and the release of case proceeds
generated in prior periods. After fulfilling contingency funding
obligations for remaining cases in the antitrust and competition
portfolio and tax and other required reserves, the net value of
these proceeds totalled US$73.9 million and was transferred to the
Company during the year ended 31 December 2014 (a portion of which
was received by the Company on 30 December 2014 and a portion of
which was received by the Company on 12 January 2015). These
settlements came from three different cases, two of which were
final settlements and one which was a partial settlement.
An additional US$1.3 million in proceeds was received from the
Company's forward currency contract held during 2014 to protect the
Company from currency fluctuations relating to the 2013 dividend
which was paid on 15 January 2014. Lastly, US$250,000 in proceeds
was generated from two small settlements and a patent sale in one
of our patent investments. These patent related proceeds were
retained in the investment entity to fund expansion of the patent
portfolio.
As a result of the expected cash generated from the portfolio,
the Company declared a dividend of 20 pence per share
(approximately US$34.5 million) to shareholders on the Register at
12 December 2014. This dividend was paid on 14 January 2015.
During 2014, the Company made two new and three supplemental
investments as follows:
-- On 31 December 2014, the Company purchased a portion of an
award that had been successfully appealed and was attributable to
an existing patent investment. Subsequent to 31 December 2014, this
new investment, along with the related patent investment, was
successfully concluded.
-- The Company funded one new patent investment in partnership
with the National Football League Players Association. As described
in more detail below, the special purpose vehicle will monetise
these intellectual property assets through sales, licensing and, if
necessary, litigation.
-- The Company's three supplemental investments were each
related to specific existing patent cases. Each of these
supplemental investments involves the development of new patents to
enhance and support the existing patent(s) in each investment. The
new patents are being created in conjunction with subject matter
experts.
Net asset value
JIL's net asset value ("NAV") decreased from US$2.02 per
ordinary share at 31 December 2013 to US$1.66 per ordinary share at
31 December 2014. This decrease in NAV per ordinary share was due
to the following:
-- 2014 dividend payable of US$34.5 million (approximately
US$0.31 per share); and
-- total comprehensive loss of US$5.0 million (approximately
US$0.05 per share).
Comprehensive loss
The Company's US$5.0 million in total comprehensive loss for the
year ended 31 December 2014 was due to the net of the
following:
-- A realised gain of US$28.8 million comprising:
-- US$27.5 million generated from the five settlements occurring
within our antitrust and competition portfolio during 2014; and
-- US$1.3 million generated by the settlement of a forward
currency contract that was purchased to protect the Company from
currency fluctuations after it declared its 2013 dividend.
-- A net unrealised loss generated from the change in valuation
of the Company's investments of approximately US$7.6 million.
-- An unrealised loss of US$690,000 associated with the change
in valuation of the Company's forward currency hedge held by the
Company at 31 December 2014 to protect the Company from currency
fluctuations relating to the 2014 dividend which was paid on 14
January 2015. This unrealised loss was predominately offset by a
lower US dollar denominated dividend payable at 31 December 2014
than that which was relevant at the date of declaration.
-- A performance fees payable of US$14.5 million.
-- Company operating expenses of US$9.9 million.
-- Intangible amortisation expense of US$1.1 million.
The performance fee payable was generated as a result of the
Company's cumulative through 31 December 2014 portfolio cash
profits, including cash profits paid to JIL, cash profits
reinvested directly into investments, and cash profits set aside as
reserves in special purpose entities used to fund particular
investments, exceeding the Hurdle. Under the terms of the
Investment Management Agreement with JCML, the Company's former
manager, JCML is entitled to 20% of the amount exceeding the
Hurdle.
Of the US$14.5 million performance fee liability, approximately
US$4.7 million will be returned to JIL as a dividend from JCML from
its 36.17% holding of JCML (and is included in the Company's
valuation of its interest in JCML). This return of cash will occur
in early 2015 when JCML declares a dividend and distributes the
performance fee to its shareholders.
Company operating expenses for 2014 were approximately US$2.0
million greater than it was in 2013 primarily due to higher
management fees, due diligence and transaction costs as well as
legal and professional fees. The increase in management fees
resulted from the settlement proceeds received during 2014.
Fair value of investments
The fair value of the Company's investments at 31 December 2014
was US$150.1 million. These investments are categorised as
contractual interests, debt securities, or equity investments. Also
included in this amount is the fair value attributable to the
Company's forward currency contract purchased to protect the
Company from currency fluctuations after it declared its 2013
dividend These categories reflect the following changes from the
carrying value as at 31 December 2013:
31 Dec 2013 Additions Net Realised Fair Value 31 December
Fair Value During Gains Attributable Change During 2014 Fair
to the Year the Year Value
Ended 31 Ended 31
December December
2014 2014
$USM Year Ended Proceeds $USM $USM $USM
31 December Attributable
2014 to the
$USM Year Ended
31 December
2014
$USM
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
Contractual
Interests 47.2 10.7 - - (3.3) 54.6
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
Debt Securities 129.3 1.0 (73.9) 27.5 (1.4) 82.5
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
Equity Investments 12.9 1.2 - - (1.1) 13.0
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
Forward Currency 1.8 - (1.3) 1.3 (1.8) -
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
Total 191.2 12.9 (75.2) 28.8 (7.6) 150.1
------------------- ------------ -------------- --------------- ------------------- --------------- ------------
In addition to the above changes, the Company is reflecting a
fair value adjustment of approximately US$(690,000) for its forward
currency contract purchased to protect the Company from currency
fluctuations after it declared its 2014 dividend. This fair value
adjustment is predominately offset by the reduction in the dividend
liability from the date of declaration due to foreign currency
translation.
Portfolio performance
During the year ended 31 December 2014, the Company's portfolio
realised US$105.7 million in gross cash proceeds from several
settlements and cost recoveries generated from cases in our
antitrust and competition portfolio. Our antitrust and competition
portfolio was funded to Fields Law Firm PLLC ("Fields Law") through
a debt facility (the "Facility"). In accordance with the terms of
the Facility and the related case funding agreements, reserves must
be set aside from settlement proceeds to satisfy deferred legal
fees and to fund future case obligations within the antitrust and
competition portfolio. In addition, Fields Law is required to set
aside certain reserves to satisfy US Federal and state tax
obligations related to the gross proceeds. The tax obligations on
the proceeds generated during 2014 from our antitrust and
competition portfolio have been estimated to not exceed US$16.5
million.
The net amount of proceeds from these settlements totalled
approximately US$73.9 million and was transferred to JIL during the
year ended 31 December 2014 (a portion of which was received by the
Company on 30 December 2014 and a portion of which was received by
the Company on 12 January 2015).
The Facility was amended in 2014 and in accordance with its
terms, US$10.0 million of these proceeds was applied as a repayment
of the Facility's principal with the balance of the proceeds being
applied against accrued interest and payments due to Riverbend, in
accordance with the swap agreement with Fields Law. The amended
Facility also provides for an additional commitment of US$17.0
million, a portion which may be funded out of proceeds.
Subsequent to 31 December 2014, and in accordance with the terms
of the swap agreement with Fields Law, a clawback of US$7.0 million
was made by Fields Law to Riverbend in order to ensure proper
funding for the remaining cases in the antitrust and competition
portfolio.
Approximately US$250,000 in additional proceeds was generated
from a patent investment. These proceeds are being held in the
entity that made the investment to fund further monetisation.
From inception to 31 December 2014, the Company's portfolio has
generated net cash proceeds of approximately US$198.4 million.
The portfolio since inception has performed as follows:
-- Ten investments have reached completion with proceeds from
the underlying cases delivering a total of US$44.4 million in gross
proceeds representing a blended internal rate of return of
approximately 66.67% (as calculated from the date of investment to
the date of return).
-- Four investments that have produced returns still remain
active even though some settlements have been reached. One such
investment is a large antitrust and competition investment which
consisted of six cases. Two of these cases reachedtheir completion
during the year ended 31 December2014. Two other cases in this
investment have had partial settlement or expense recoveries. The
other three investments with partial settlements are cases that are
multi-defendant in nature. Total net proceeds from active
investments with partial settlements are approximately US$154.0
million.
Investment Number Amount Invested Amount Recovered IRR
(includes related (net of fees, %
transaction costs) reserves and
$US taxes)
$US
--------------------------------- -------------------- ----------------- -------
Completed Investments:
0208-G 12,050,211 13,750,000 29.99
0308-R 9,294 3,500,000 -
0908-U 3,119,371 4,337,693 60.81
6308-F 1,522,802 2,487,749 60.91
0408-W 2,872,424 3,793,389 19.53
6509-A 2,476,681 4,500,000 54.76
6409-V 785,819 5,302,905 260.52
0210-M 1,526,040 2,478,220 45.05
2510 1,059,994 3,000,000 38.11
7608-A 2,141,121 1,239,032 -27.58
Total - Completed Investments 27,563,757 44,388,988 66.67
--------------------------------- -------------------- ----------------- -------
Investments With Partial
Recoveries:
7508-O 6,258,413 333,943
0708-B 7,040,873 1,618,500
3608-A 102,362,835 148,024,521
1610 4,217,948 4,000,000
Total - Investments With Partial
Recoveries 119,880,069 153,976,964
----------------------------------- -------------------- -----------------
Total Cash Recovered to 31 December 2014: 198,365,952
-----------------
New Investments Made During the Year Ended 31 December 2014
During the year ended 31 December 2014, JIL made two new
investments with total funding of US$6.3 million.
Matter 0108-SD:
This new investment involved JIL paying US$3.0 million in
exchange for a minimum US$3.4 million return and up to 21% first
priority interest in the judgment or any settlement interest of the
claim. This investment is related to our investment 0108-S.
Subsequent to 31 December 2014, this matter was favourably resolved
and delivered US$4.6 million to the Company.
Matter 9713:
This investment was made in partnership with National Football
League Players Association to develop and monetise a large
portfolio of patents relevant to the sporting market. The patents
in this portfolio will cover such areas as wearable technology,
social media, fan experience and the use of wifi in sports stadiums
to solve bandwidth problems. This investment was made through a
special purpose vehicle.
JIL invested US$3.3 million for intellectual property ("IP")
development in exchange for a 65% share of the special purpose
vehicle. All 100 invention disclosures have been drafted and 100
provisional patent applications have been filed. We expect the
Company to monetise this investment through pre-litigation
opportunities in the form of sales, joint ventures, and
licensing.
Supplemental Patent Investments Made During the Year Ended 31
December 2014
During the year ended 31 December 2014, JIL funded three
supplemental patent investments, as described in more detail below.
Two of these supplemental patent investments were funded with a
combined incremental commitment of US$2.9 million. The third
supplemental patent investment was funded from US$2.4 million
remaining in the original investment facility.
Combining our internal capabilities in evaluating patent
litigation with our outside subject matter experts' skills in
patent development and monetisation enabled the expansion of three
existing patent investments through the creation of additional
patents in support of the existing patents in the existing deal
structure.
Matter 7508-O:
This investment was initiated in 2009 and was originally
structured with an interest in two related litigation cases and
patents that were being developed by a third party management team.
We have successfully sold two patents for a combined total of
US$525,000 and we believe that the value of the remaining portfolio
would best be realised through its expansion. The litigation
associated with this matter is ongoing, producing modest returns,
and is expected to complete in 2015.
The amplified deal structure involves supplemental funding of
US$600,000. These supplemental funds, coupled with the recent
returns from the litigation interests and patent sales, are being
used to enhance the remaining portfolio. In exchange for these
capital contributions, JIL will retain an 80% economic interest in
a new special purpose vehicle, which shall be assigned the
underlying litigation patents as well as the new complementary
intellectual property. Approximately US$750,000 of earmarked funds
have been deployed. Broadly, the project calls for the development
of 40 patent applications. To date, 29 US provisional patent
applications have been filed, of which 11 have advanced to
non-provisional filings. Three have already received a notice of
allowance.
Matter 0808-C:
Following a strategic review of the ongoing litigation
associated with this investment, it was determined that the
specific patent assets, notwithstanding a modest judgement in one
of two cases, have meaningful additional value that cannot easily
be unlocked through litigation.
The claimant has assigned patents related to the technology
involved in the litigation to a special purpose vehicle majority
owned by JIL. Our outside experts have been working with the
claimant to develop complimentary IP which, when taken with the
core technology, will comprise a robust patent portfolio in the 3D
printing and non-linear optimisation spaces.
The restructured deal involved a US$2.3 million investment in
exchange for three pronged exposure to the underlying IP. First,
JIL obtained a 64% interest in a special purpose vehicle tasked
with the development of 25 new patent applications. Second, JIL
obtained a 5% share in the common equity interest in AC Kinetics
Inc., an industrial motors company (an interest in this technology
was acquired as additional collateral at the time of financing of
the two litigation cases), as well as a US$6.3 million preference
to protect the original investment in the litigation. Finally, JIL
retains its interest in the original litigation.
In late 2014, the claimant began the marketing of the underlying
technology in AC Kinetics and received significant interest from a
major industrial conglomerate. The Company's economic interest
referred to above would be applicable to any sale or licensing of
the technology.
Matter 0708-B:
Despite reasonable settlement proceeds, it was determined that
additional litigation should not be pursued without first
exhausting pre-litigation monetisation opportunities. Moreover, it
has been determined that the core patent at the heart of the
dispute retains meaningful value that would best be captured
through the development of a complementary IP portfolio.
The claimant has assigned the core patent to a special purpose
vehicle which is majority owned by JIL. This vehicle has been
working to abstract the core patent into different, broader, and
commercially relevant areas with a particular focus on rich
media.
The restructuring called for the advancement of US$2.4 million,
to acquire a 71% stake in the special purpose vehicle. Funding for
this restructuring came from money remaining in the original
investment facility authorised when this investment was initiated
in 2008. The special purpose vehicle will file 60 patent
applications centred on rich media and multimedia.
Portfolio Update
The Company's current portfolio is diversified amongst three
primary groups: antitrust and competition, patent and other forms
of intellectual property, and commercial.
The cash summary at 31 December 2014 for each of these groups is
as noted on the following table:
Cumulative Amount Invested Commitment Available
Net Proceeds in Current Portfolio for Current Portfolio
Type of claim or litigation Generated(1) Holdings(2) Holdings(3)
------------------------------ ----------------- ---------------------- -----------------------
Antitrust and competition US$148.0 million US$83.8 million US$17.0 million
------------------------------ ----------------- ---------------------- -----------------------
Patents and intellectual US$13.5 million US$42.9 million US$400,000
property
------------------------------ ----------------- ---------------------- -----------------------
Commercial US$36.9 million US$21.0 million US$700,000
------------------------------ ----------------- ---------------------- -----------------------
Total US$198.4 million US$147.7 million US$18.1 million
------------------------------ ----------------- ---------------------- -----------------------
(1) Cumulative Net Proceeds Generated refers to partially
settled investments and completed investments from inception until
31 December 2014. Additional proceeds have been generated within
the antitrust and competition portfolio and the patent portfolio
and have been used to fulfil funding requirements for cases within
each portfolio.
(2) Amount Invested in Current Portfolio Holdings reflects cash
investment as at 31 December 2014 (excludes any related transaction
costs) by JIL for the current investment holdings in each
portfolio. Antitrust and competition portfolio reflects advances
under the Facility net of repayment totalling US$13.2 million.
(3) Commitment Available for Current Portfolio Holdings reflects
remaining funding commitment (as of 31 December 2014) by JIL for
the current investment holdings in each portfolio. A portion of the
commitment related to the antitrust and competition portfolio may
be fulfilled from portfolio returns.
Antitrust and competition portfolio
Five cases in the Company's antitrust and competition portfolio
involve violation of US or European antitrust law, three of which
also involve multi-defendant, price fixing cartels. Two of these
cases came to full completion during the year ended 31 December
2014. One case failed after its appeal was denied by the US Supreme
Court. Of the remaining two cases both have had a series of
settlements with further settlements expected. The sixth case in
this portfolio is a special situation involving statutory claims
and this case is presently in trial for some of its claims. All of
the active cases in this portfolio are reaching maturity.
Case summaries:
-- Case 1208-A has come to full completion and has generated
gross proceeds at the high end of our range.
-- Case 5608-N was dismissed in favour of the defendant and the
claimant subsequently lost its appeal. A writ of certiorari was
filed with the US Supreme Court and during the year ended 31
December 2014, was denied. As at 31 December 2014, the value of
this case is zero, with no chance of recovery.
-- Case 8008-L was scheduled for trial in first quarter 2014,
but, during the year ended 31 December 2014, it was announced that
the trial would be delayed following an adverse ruling on the scope
of the plaintiff's damage claim. This ruling was affirmed on appeal
and the plaintiff is seeking the review of the United States
Supreme Court. Uncertainty remains as to whether the requested
review by the United States Supreme Court will be accepted. Three
settlements with smaller defendants were reached during the year
ended 31 December 2014. This investment has thus far delivered
proceeds to the Company in excess of US$70 million.
-- Case 5208-E has come to full completion during the six-month
period ended 31 December 2014. Net proceeds delivered to the
Company met our expectations.
-- Case 5308-U is awaiting a trial date. Pre-trial merits
discovery was completed in 2014. Challenges to expert opinions are
pending decision by the trial court. All defendants, save one, have
previously settled. Trial on the merits may occur as early as
fourth quarter 2015.
-- Case 1008-A obtained a favourable liability verdict for a
portion of the claims and a damages trial relating to these claims
is scheduled for mid-2015. Other claims are awaiting further
appellate proceedings.
Patent portfolio
The Company's patent portfolio includes ten investments, some of
which involve infringement of one or more patents by one or more
defendants.
Case summaries:
-- Case 0108-S obtained a jury verdict in favour of the
plaintiff in the amount of US$20.0 million (including punitive
damages and interest). This was in line with our expectation for
the low end of the recovery range of this case and provides for the
Company to recover its investment (approximately US$8.5 million
including the Company's related investment in Case 0209-S). A
modest supplemental investment was made during 2013 to finance the
appeal and an appeal on damages. The damages award was successfully
affirmed on appeal. Subsequent to year end, proceeds of US$8.5
million was received as full settlement of this investment
resulting in minimal gain.
-- Case 0209-S is related to Case 0108-S and further proceedings
are being evaluated now that Case 0108-S has completed.
-- Investment 0108-SD, as described above, is related to Case
0108-S and provided for the Company to purchase a portion of the
award associated with 0108-S. Subsequent to year end, proceeds of
$4,620,000 million was received as full settlement on this
investment of US$3,000,000 million.
-- Case 0409-C obtained a jury verdict after trial in favour of
the plaintiff in the amount of US$50.0 million. The Company
invested US$4.8 million in this case and is entitled to receive the
first US$3.0 million of cash proceeds from settlement or judgment
plus 49% of remaining proceeds. Uncertainty remains until
post-trial proceedings are completed, judgment is entered and
appeals are completed unless the case is resolved earlier by
settlement. We believe this case has a high likelihood of
resolution during 2015.
-- Case 0808-C, as described in detail above, now involves
several components. The underlying litigation of a key patent was
subject to an adverse ruling which the plaintiff is appealing.
While the litigation has continued, the Company, through its
association with ipCreate, has been developing a portfolio of
patents related to the key patent involved in the litigation, as
described in more detail above. These patents have broad appeal
especially in the field of 3D printing.
-- Case 2709-E received a favourable ruling on one of two
patents that are subject to a re-examination proceeding. A third
patent was not subject to re-examination. Due to the lengthy
re-examination process, the plaintiff decided to abandon assertion
of the patent that remains in re-examination and restart the
litigation process with the remaining two patents. The case was
stayed pending the re-examination process but we believe the stay
will be lifted in early 2015 and legal proceedings will resume.
-- Case 0708-B, as described in detail above, has undergone a
restructuring. Although the Company has received proceeds from
previous litigation proceedings involving the underlying patent, we
believe that significant value can be unlocked by developing a
portfolio of related patents in the areas of rich media and
multimedia. The inventor of the patent that was the subject of the
original litigation, along with other subject matter experts, are
developing these patents.
-- Case 7508-O, as described in detail above, has undergone a
strategic restructuring. The Company engaged ipCreate to enhance
and expand the existing portfolio of patents in the vehicle and an
additional 40 patent applications have been filed, of which 11
proceeded to prioritised examination with three already being
issued. We believe that these additions to the patent portfolio
have the potential to significantly enhance the return on this
investment. A supplement funding arrangement has been established
to support the costs of expanding the existing portfolio of
patents.
-- Investment 7313 reflects the Company's 7.8% preferred
ownership in ipCreate.
-- Investment 9713, as described above, is a new investment
established to develop and monetise a large portfolio of patents in
the technology and sports market. The Company has partnered with
the National Football League Players Association in this
endeavour.
Commercial portfolio
The Company's commercial portfolio consists of investments in
six cases that involve claims related to commercial disputes
including: theft of trade secret, breach of contract and insurance
subrogation.
Case summaries:
-- Case 1610 has resulted in a favourable arbitration award in
the amount of US$4.0 million. While JIL has recouped its US$4.0
million investment from the settlement, the Company is seeking to
recover further proceeds from its security interest in a US based
coal mine, which served as a cross collateral hedge against
unfavourable litigation results. While the Company had hoped that
the mine would have been sold by now, market conditions are
unfavourable and the timing for possible sale of the mine is
difficult to predict.
-- Case 0608-S is no longer being funded. In accordance with the
terms of the Company's funding agreement, the Company exercised its
option to cease funding. Subsequently, a claim against the Company
was filed and successfully defeated. The Company then pursued a
counterclaim in arbitration to recoup its investment amount. While
the arbitration panel disagreed on technical grounds, the Company
believes that it remains entitled under its investment agreement to
recover from the client any sums received by the client in
connection with ancillary claims made by the client against other
parties. The Company has demanded payment of approximately
US$800,000 which the client has already been awarded in a related
case. In addition, we believe that other cash assets may be
available to satisfy its entitlements and has filed an action to
pursue other contractual claims against the client and to foreclose
on the Company's security interest with respect to the
US$800,000.
-- Case 1608-T involves a judgment on behalf of insurance
clients against a foreign government. Although we believe the
collection efforts may ultimately be successful, timing and
collection risk have increased. The carrying value of this
investment has been reduced to reflect this increased risk.
-- Case 5009-S involves alleged theft of trade secrets and other
contractual claims. Claimed damages are in excess of US$500
million. Any settlement is expected to be for less than claimed
damages. The case has not been set for trial but trial is expected
to occur during 2015.
-- Case 1410 involves a theft of business claim. The trial court
ruling on liability resulted in a positive ruling. Cross-appeals on
liability and plaintiffs appeal on damages are underway for which
we expect decisions in mid-2015.
-- Case 6609-S involves a large, multi-party pre-litigation
settlement opportunity that we believe has the potential to
generate significant proceeds for the Company. Settlement
negotiations for a portion of the opportunity continue. This
investment is being accounted for partially as an intangible asset
and partially as a contractual interest.
Valuation
We value JIL's investments using valuation and accounting
methods that are applied in a manner that follows International
Financial Reporting Standards' ("IFRS") accounting principles. In
particular, we follow guidance provided by IFRS 13 in establishing
the method of applying fair value accounting. Under this guidance,
we develop a fair value of a case or investment by discounting its
expected terminal value from its expected completion date. We
determine our initial expectations on quantum and timing of case
results by assigning a probability of various scenarios coming to
fruition and applying risk factors that: i) are intrinsic to the
specific case; and ii) reflect general risks within and outside of
the legal process. Our assumptions behind fair value accounting are
revisited on a semi-annual basis. If needed, we will re-run the
investment's valuation model and revise its expected future cash
flow which we then discount to the reporting date. The discount
rate used for valuation purposes is the Company's cost of equity.
All due diligence and transaction costs related to an investment
are expensed.
As at 31 December 2014, we examined the valuation for all of
JIL's core investments. In doing so, the following adjustments were
made to their individual valuations:
-- Since the year ended 31 December 2013, valuation of the
Company's contractual interests increased by US$7.4 million
reflecting US$10.7 million in additional investment funding and a
US$3.3 million net decrease due to changes to the fair value of
investments categorised as contractual interests.
-- Since the year ended 31 December 2013, valuation of the
Company's debt securities decreased by US$46.8 million reflecting
the net of US$1.0 million in additional investment funding, US$73.9
million in net proceeds transferred to the Company during the year
ended 31 December 2014 (a portion of which was received by the
Company on 30 December 2014 and a portion of which was received by
the Company on 12 January 2015), US$27.5 million in realised gains,
and US$1.4 million decrease in the fair value.
-- Since the year ended 31 December 2013, valuation of the
Company's equity investments increased by US$100,000 reflecting
US$1.2 million in additional investment funding and US$1.1 million
net decrease due to changes to the fair value of investments
categorised as equity investments.
In addition to the above changes, since the year ended 31
December 2013:
-- the valuation of the Company's intangible assets decreased by
approximately US$800,000 reflecting the net impact of additional
investment funding and amortisation charges; and
-- the valuation of the Company's forward currency contract that
was purchased to protect the Company from currency fluctuations
after it declared its 2013 dividend decreased by US$1.8 million as
the dividend was paid in 2014.
Lastly, the Company purchased a forward currency contract to
protect the Company from currency fluctuations after it declared
its 2014 dividend. As at 31 December 2014, this forward currency
contract had decreased by US$690,000. This reduction in fair value
is predominately offset by a lower US dollar denominated dividend
payable at 31 December 2014 than that which was relevant at the
date of declaration. This forward currency contract is classified
as a financial liability.
New Co-Allocation Policy
The Manager has entered into an investment advisory agreement
with a third party client, which is a well-established
institutional investor, as permitted by the terms of the investment
management agreement between the Company and the Manager. JIL has
agreed to a co-allocation policy in respect of future investment
opportunities presented by the Manager. This advisory agreement
provides the Manager with significant capital to co-invest
alongside the Company.
The co-allocation policy came into effect on 5 November 2014 and
provides that where a follow-on investment in respect of an
existing JIL investment becomes available, JIL shall have a right
of first refusal in respect of the entire follow-on investment and
where new investment opportunities arise that fall within JIL's
investment policy, they will be offered to JIL and the new client
pro rata to each party's deployable capital.
The new third party mandate has a number of potential benefits
for JIL, including access to co-fund a broader, more diverse range
of investment opportunities.
Changes to the Manager's Investment Process and Procedures
Notwithstanding the successes of the Company's investment
portfolio to date, the Manager believes that further improvements
can be made to the implementation of the Company's investing policy
to further improve returns for shareholders going forwards.
Having reviewed the performance of the Company's investments,
the Manager has identified and implemented the following
operational enhancements that it believes will further increase
returns on the Company's investments.
Case selection and pricing
The Manager is working with third party experts to further
develop its proprietary systems which evaluate potential
investments by a number of different metrics including time to
completion of case types, win/loss metrics for both judges and
lawyers and the correlation of win/loss rates with claim size. This
data is then used by the Manager to establish the types of cases
with the best potential for generating returns and also provides
for the Manager to have a more informed basis when selecting and
pricing investment opportunities that are presented to it. Where
appropriate, the Manager will also seek to include IRR protection
clauses in the Company's investment agreements which seek to
enhance returns for long-running cases.
Portfolio diversification and expansion of the Manager's team
and expertise
In considering new investment opportunities for the Company, the
Manager will seek to diversify the portfolio of cases across a
broader range of case types than has historically been the
case.
When the Company launched in 2007, the litigation investments it
was making was a relatively new asset class and the Manager had
limited resources meaning that it concentrated its expertise on
particular types of investment, namely antitrust and competition,
patent and IP and commercial cases. Since launch, the Manager has
not only proven its underwriting process in respect of the
investments it has sourced on behalf of the Company but it has also
significantly expanded its own team and expertise to include more
risk management and a broader range of legal expertise.
The Manager intends to use this expertise to broaden the range
of cases that the Company may invest in going forward with the
intended aim being a portfolio that remains based on
business-to-business claims but is diversified across not only the
three existing asset classes but also law firm portfolio finance,
arbitrations, judgements and special situations. The Manager
believes that a more diversified portfolio will reduce the risk of
adverse judgements in a particular investment whilst reducing the
average time of investments, thus providing for more regular cash
proceeds to the Company and its shareholders.
Reducing costs of investment
The Company's and the Manager's profile in the litigation
funding market has improved access to potential investment
opportunities. Increasingly, investment opportunities are being
presented directly to the Manager (a process that is assisted by
the increasing size and experience of the Manager's team) and this
is expected to reduce the costs borne by the Company of sourcing
investments. The increase in opportunities presented directly to
the Manager should avoid the need to source investments through
more expensive structures, such as the Fields Law structure through
which the Company invested in the portfolio of antitrust and
competition cases, in the future.
The cost of investment for the Company is also expected to be
lowered by a number of other factors including cost benefits of
investing in shorter duration cases and reduced due diligence costs
as a result of making co-investments with other clients of the
Manager. The Manager believes that a combination of all of these
factors can lead to a material increase in the internal rate of
return attributable to the Company's future investments, as
compared to what has already been achieved by the Company through
its investment portfolio.
Notable Activities
The following activities reflect advancement in JIL's portfolio,
one or more of which may have a significant positive impact on the
Company's NAV as they may be concluded as a result of an award or
judgment or prior to conclusion of a case that could result in net
cash proceeds to the Company in excess of 10% of its current
NAV.
One antitrust case that comprises part of the security for the
loan facility made to Fields Law may complete or reach an advanced
stage during the next 12 to 18 months. This case has significant
damages claimed by their plaintiffs that, if awarded by a jury,
will be automatically trebled by the court. A judgment would, of
course, be subject to appeal and possible reversal by one or more
appellate courts and appeals could result in a delay of several
years prior to collection or settlement.
Another antitrust case, which had already delivered proceeds to
the Company in excess of US$70 million from prior settlements, was
scheduled for trial in first quarter 2014. During the year ended 31
December 2014, it was announced that the trial would be delayed
following an adverse ruling on the scope of the Plaintiff's damage
claim. This ruling was affirmed on appeal and the Plaintiff is
seeking the review of the United States Supreme Court. Uncertainty
remains as to whether the requested review by the United States
Supreme Court will be accepted. Should the United States Supreme
Court deny a review, the case will be deemed complete and any
remaining value associated with the case will be written off.
We expect that if any of these cases is resolved by settlement,
the amount of settlement will be substantially less than the
claimed damages and/or any judgment entered by the trial court for
each case. We also expect that if any of these cases is settled
prior to completion or a favourable jury verdict is rendered and
the trial court enters judgment, such a result will have a
significant positive impact on the Company's NAV.
Outlook
Given the uncertain nature of litigation in general, and the
quantum of damages that trial juries may award, the Company's
portfolio has the potential to produce a wide range of potential
returns. This does not detract from our belief that JIL has
invested in an excellent, high quality portfolio of cases.
We believe the Company's portfolio will continue to see
significant activity within the next 12 to 24 months. This
expectation is based on our knowledge from managing the Company's
investments which includes: confirmed trial dates; expected final
decisions following trial or arbitration; and various other
factors. Each of these milestones, if successful, creates real
incentives for defendants to seek settlements. In addition,
settlement discussions are on-going for certain investments.
We are optimistic that the portfolio will produce further
returns of capital over the next 12 to 24 months, and beyond. Our
robust pipeline of investments also presents excellent
opportunities for growing the capital base and income of the
Company.
We would like to thank investors for their continued support. As
always, we are committed to providing timely announcements and
accurate reporting with as much transparency as possible.
Disclaimer on Forward Looking Statements
This report contains forward looking statements, which are based
on the current expectations and assumptions of the Manager and
involve known and unknown risks and uncertainties that could cause
actual results or performance to differ materially from those
expressed or implied in such statements. It is believed that the
expectations reflected in these statements are reasonable but they
may be affected by a number of variables that could cause actual
results or trends to differ materially. Each forward looking
statement speaks only as of the date of this report. Except as
required by the AIM Rules or otherwise by law, the Company and the
Manager expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking
statements contained herein to reflect any change in the Company's
or Manager's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
Juridica Asset Management Limited
16 March 2015
Directors' report
The Directors present their report together with the audited
financial statements of Juridica Investments Limited (the
"Company") for the year ended 31 December 2014, with comparative
information for the year ended 31 December 2013.
Principal activities
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, GY1 2PF.
Investment objective and policy
The investment objective of the Company is to build a
diversified portfolio of investments in claims and to provide
Shareholders with an attractive level of dividends and capital
growth through investing directly and indirectly in litigation and
arbitration cases, claims and disputes. These investments have been
made predominantly in the United States although the Company may
make investments outside of the United States in jurisdictions
where such investments are lawful and permitted under local law and
rules on professional ethics.
Results and dividend
The results for the year are shown in the Statement of
Comprehensive Income on page 23. The Company declared a dividend of
20 pence per share on 10 November 2014. Accordingly, this dividend
was paid on 14 January 2015 to shareholders on the register at 12
December 2014. The dividend was funded by the US$73.9 million in
cash proceeds from partial settlements that were transferred to the
Company on 31 December 2014 (a portion of which was received by the
Company on 30 December 2014 and a portion of which was received by
the Company on 12 January 2015). This declared dividend is
consistent with the Company's policy of returning actual net cash
profits to shareholders and follows the 14 pence per share in
dividends paid in January 2014.
Audit Committee
The Audit Committee consists of Richard Battey, Lord Daniel
Brennan and Kermit Birchfield. The Audit Committee is chaired by Mr
Battey, and meets at least once a year to review the annual
accounts, audit timetable, and other risk management and governance
matters.
Statement of Directors' responsibilities in respect of financial
statements
The Directors are responsible for preparing financial statements
for each financial year which give a true and fair view, in
accordance with applicable Guernsey law and International Financial
Reporting Standards, of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
those financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements and estimates that are reasonable and
prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements.
The Directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Statement of Directors' responsibilities in respect of financial
statements (continued)
So far as the Directors are aware, there is no relevant audit
information of which the Company's Auditor is unaware, and each
Director has taken all the steps that he or she ought to have taken
as a director in order to make himself or herself aware of any
relevant audit information and to establish that the Company's
Auditor is aware of that information.
The maintenance and integrity of the Company's website is the
responsibility of the Directors. The work carried out by the
Auditor does not involve consideration of these matters and,
accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the website. Legislation in the United
Kingdom and Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions. To the best of our knowledge, and in accordance with
the applicable reporting principles, the financial statements give
a true and fair view of the assets, liabilities, financial
position, comprehensive income and cash flows of the Company,
although there is uncertainty around valuation of the Company's
investments in the absence of an established market. The Investment
Manager's report includes a fair review of the development and
performance of the business and the position of the Company,
together
with a description of the principal opportunities and risks
associated with the expected development of the Company.
Furthermore, to the best of our knowledge and belief, this
annual report includes a fair review of the development and
performance of the business and the position of the Company as at
31 December 2014 together with a description of the principal risks
and uncertainties that the Company faces.
In accordance with The Companies (Guernsey) Law, 2008, each
Director confirms that there is no relevant audit information of
which the Company's Auditor is unaware. Each Director also confirms
that they have taken all steps they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's Auditor is aware of that
information.
Independent Auditor
The Auditor, PricewaterhouseCoopers CI LLP, have expressed their
willingness to continue in office and a resolution for their
re-appointment will be proposed at the forthcoming Annual General
Meeting.
Continuation and going concern
In accordance with the Company's Admission Document of 17
December 2007, the Directors convened an extraordinary general
meeting of the Company, on 14 November 2013, at which a resolution
was proposed that the Company be wound up voluntarily. The
resolution was not passed by the Company's members. The Directors
shall convene an extraordinary general meeting of the Company every
three years from the date of the original meeting at which the
winding-up proposal shall again be put to the Company's
members.
The Directors have given consideration to the maturity of the
Company's existing portfolio, the performance of the portfolio to
date, the prospects for future investments and expected future cash
flows, and the rejection of the resolution to voluntarily wind up
the Company by the shareholders. In addition, the Directors have
reviewed the Company's budgets and cash flows for the year ahead
and, accordingly, are satisfied on reasonable grounds that it is
appropriate to prepare these financial statements on a going
concern basis.
Approved by the Board of Directors on 16 March 2015 and signed
on their behalf:
RJ Battey
Director
Independent Auditor's Report to the Members of Juridica
Investments Limited
Report on the financial statements
We have audited the accompanying financial statements of
Juridica Investments Limited (the "Company") which comprise the
Statement of Financial Position as of 31 December 2014, the
Statement of Comprehensive Income, the Statement of Changes in
Equity and the Statement of Cash Flows for the year then ended and
a summary of significant accounting policies and other explanatory
information.
Directors' responsibility for the financial statements
The Directors are responsible for the preparation of financial
statements that give a true and fair view in accordance with
International Financial Reporting Standards and with the
requirements of Guernsey law. The Directors are also responsible
for such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with International Standards on Auditing. Those Standards require
that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor's judgement, including
the assessment of the risks of material misstatement of the
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the
financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting
estimates made by the Directors, as well as evaluating the overall
presentation of the financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements give a true and fair
view of the financial position of the Company as of 31 December
2014, and of its financial performance and its cash flows for the
year then ended in accordance with International Financial
Reporting Standards and have been properly prepared in accordance
with the requirements of The Companies (Guernsey) Law, 2008.
Emphasis of Matter
Without qualifying our opinion, we draw your attention to Notes
2(d), 3 and 15(a) to the financial statements surrounding the fair
value of non-current assets. The financial statements include
non-current assets stated at their fair value of US$152,709,726.
Due to the inherent uncertainty associated with the valuation of
such non-current assets and the absence of a liquid market, these
fair values may differ from their realisable values, and the
differences could be material.
Report on other legal and regulatory requirements
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the
financial statements. The other information comprises only the
Corporate Information, the Chairman's Statement, the Investment
Manager's report, the Directors' report, the Notice of Annual
General Meeting and the Form of Proxy.
In our opinion the information given in the Directors' report is
consistent with the financial statements.
This report, including the opinion, has been prepared for and
only for the Company's members as a body in accordance with Section
262 of The Companies (Guernsey) Law, 2008 and for no other purpose.
We do not, in giving this opinion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
16 March 2015
STATEMENT OF COMPREHENSIVE INCOME
2014 2013
------------ -----------
Notes US$ US$
INCOME
Finance income - 5,308
Foreign exchange gain - 143,868
- 149,176
------------ -----------
EXPENSES
Management fees 14(a) 5,872,475 5,153,580
Performance fees 14(c) 14,511,058 -
Due diligence and transaction costs 2(e) 905,687 313,509
Directors' fees and expenses 14(f) 681,153 651,381
Audit fees 234,735 321,444
Legal and professional expenses 1,063,460 617,350
Administration fees 14(e) 300,309 367,498
Foreign exchange loss 306,002 -
Other expenses 476,305 460,660
24,351,184 7,885,422
------------ -----------
INVESTMENT MOVEMENTS
Amortisation of intangible assets 4 (1,088,261) (952,546)
Realised gains on financial assets
at fair value through profit or
loss 5 28,809,543 2,508,995
Movement in unrealised (loss)/gain
on financial assets and financial
liabilities at fair value through
profit or loss 5 (8,365,538) 11,300,163
19,355,744 12,856,612
------------ -----------
(Loss)/profit for the year (4,995,440) 5,120,366
============ ===========
Total comprehensive (loss)/income
for the year (4,995,440) 5,120,366
============ ===========
(Deficit)/earnings per Ordinary
Share
Basic Cents (4.51) 4.88
Diluted Cents (4.49) 4.85
The notes on pages 27 to 48 form an integral part of these
financial statements.
STATEMENT OF FINANCIAL POSITION
2014 2013
------------ ------------
Notes US$ US$
ASSETS
Non-current assets
Intangible assets 4 2,647,866 3,496,127
Financial assets at fair value through
profit or loss 5 150,061,860 191,181,242
152,709,726 194,677,369
Current assets
Other receivables and prepayments 8 54,593,126 4,868,836
Cash and cash equivalents 27,962,963 49,972,981
82,556,089 54,841,817
TOTAL ASSETS 235,265,815 249,519,186
============ ============
EQUITY AND LIABILITIES
Equity
Reserves 13 184,158,780 223,646,120
Net assets attributable to ordinary shareholders 184,158,780 223,646,120
Total equity 184,158,780 223,646,120
------------ ------------
Current liabilities
Dividend payable 9 34,491,900 25,674,394
Financial liabilities at fair value
through profit or loss 5 686,903
Performance fee payable 14(c) 14,511,058 -
Other payables 10 1,417,174 198,672
Total liabilities 51,107,035 25,873,066
------------ ------------
TOTAL EQUITY AND LIABILITIES 235,265,815 249,519,186
============ ============
Number of ordinary shares 110,701,754 110,701,754
Net asset value per ordinary share $1.6636 $2.0203
These financial statements were approved and authorised for
issue by the Board of Directors on 16 March 2015 and signed on its
behalf by:
RJ Battey
Director
The notes on pages 27 to 48 form an integral part of these
financial statements.
STATEMENT OF CHANGES IN EQUITY
Reserves Treasury Total
Shares
------------- ------------ -------------
US$ US$ US$
Balance at 1 January 2013 240,366,932 (9,925,024) 230,441,908
Changes in equity for 2013
Profit for the year 5,120,366 - 5,120,366
Total comprehensive profit 5,120,366 - 5,120,366
Sale of treasury shares (9,925,024) 9,925,024 -
Shares issued during the
year 13,758,240 - 13,758,240
Dividends declared (25,674,394) - (25,674,394)
Balance at 31 December 2013 223,646,120 - 223,646,120
============= ============ =============
Changes in equity for 2014
Loss for the year (4,995,440) - (4,995,440)
Total comprehensive loss (4,995,440) - (4,995,440)
Dividends declared 9 (34,491,900) - (34,491,900)
Balance at 31 December 2014 184,158,780 - 184,158,780
============= ============ =============
The notes on pages 27 to 48 form an integral part of these
financial statements.
STATEMENT OF CASH FLOWS
2014 2013
------------- -------------
US$ US$
Cash flows from operating activities
(Loss)/profit for the year (4,995,440) 5,120,366
Adjusted for:
Realised gains on financial assets and
financial liabilities at fair value through
profit or loss (28,809,543) (2,508,995)
Movement in unrealised losses/(gains) on
financial assets and financial liabilities
at fair value through profit or loss 8,365,538 (11,300,163)
Amortisation of intangible assets 1,088,261 952,546
Finance income - (5,308)
Foreign exchange losses/(gains) 306,002 (143,868)
Changes in working capital
Purchases of non-current assets at fair
value through profit or loss (12,817,386) (9,098,624)
Settlement of non-current assets at fair
value through profit or loss 25,442,619 37,228,572
(Increase)/decrease in other receivables
and prepayments (12,446) 311,437
Increase/(decrease) in other payables and
performance fee 15,617,881 (501,822)
Net cash flow from operating activities 4,185,486 20,054,141
Cash flows from investing activities
Interest received 353 5,030
Net cash outflow from investing activities 353 5,030
------------- -------------
Cash flows from financing activities
Dividend paid (25,674,394) (22,105,995)
Proceeds from sale of treasury shares - 13,758,240
Net cash flow from financing activities (25,674,394) (8,347,755)
------------- -------------
Net (decrease)/increase in cash and cash
equivalents (21,488,555) 11,711,416
Cash and cash equivalents at the beginning
of the period 49,972,981 38,287,417
Effect of foreign exchange rate changes (521,463) (25,852)
Cash and cash equivalents at the end of
the period 27,962,963 49,972,981
============= =============
The notes on pages 27 to 48 form an integral part of these
financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. LEGAL FORM AND PRINCIPAL ACTIVITY
The Company is an authorised closed-ended investment company
incorporated under The Companies (Guernsey) Law, 2008 (the "Law").
The Law does not make a distinction between private and public
companies. Shares in the Company were admitted to trading on AIM, a
market operated by the London Stock Exchange, on 21 December 2007.
The address of the Company's registered office is 11 New Street, St
Peter Port, Guernsey, Channel Islands, GY1 2PF.
The investment objective of the Company is to build a
diversified portfolio of investments in claims and to provide
Shareholders with an attractive level of dividends and capital
growth through investing directly and indirectly in litigation and
arbitration cases, claims and disputes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
(a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with International Financial Reporting Standards
("IFRS") and all applicable requirements of The Companies
(Guernsey) Law, 2008. They have been prepared on a going concern
basis, under the historical cost convention as modified by the
revaluation of financial assets and financial liabilities at fair
value through profit or loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the
process of applying the Company's accounting policies. The areas
involving a degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements are disclosed in Note 3.
There have been no new IFRS or IFRIC interpretations that are
effective for the first time for the financial year beginning 1
January 2014, which have not previously been adopted by the
Company.
For the financial year beginning 1 January 2013, the Company had
early adopted IFRS 9 'Financial instruments', effective for periods
beginning on or after 1 January 2018, and also early adopted the
Investment Entities amendments to IFRS 10, IFRS 12 and IAS 27,
effective for periods beginning on or after 1 January 2014.
In accordance with the Company's Admission Document of 17
December 2007 and its Articles of Incorporation, the Directors
convened an extraordinary general meeting of the Company, on 14
November 2013, at which a resolution was proposed that the Company
be wound up voluntarily. As recommended by the Directors, the
resolution was not passed by the Company's members. The Directors
shall convene an extraordinary general meeting of the Company every
three years from the date of this meeting at which the winding-up
proposal shall again be put to the Company's members.
The Directors have given consideration to the maturity of the
Company's existing portfolio, the performance of the portfolio to
date, the prospects for future investments and expected future cash
flows, and the rejection of the resolution to voluntarily wind up
the Company by the shareholders. In addition, the Directors have
reviewed the Company's budgets and cash flows for the year ahead
and, accordingly, are satisfied on reasonable grounds that it is
appropriate to prepare these financial statements on a going
concern basis.
(b) Investment entity
The Company has multiple unrelated investors and indirectly
holds multiple investments through the subsidiary companies.
Ownership interests in the Company are in the form of redeemable
shares which are classified as equity in accordance with IAS 32 and
which are exposed to variable returns from changes in the fair
value of the Company's net assets. The Company has been deemed to
meet the definition of an investment entity per IFRS 10 as the
following conditions exist:
(a) The Company has obtained funds for the purpose of providing
investors with investment management services.
(b) The Company's business purpose, which was communicated
directly to investors, is investing solely for returns from capital
appreciation and investment income.
(c) The performance of investments made through the Company are
measured and evaluated on a fair value basis.
(c) Geographical and segmental reporting
Since the Company is engaged in the provision of similar
products and services within a particular economic environment,
being subject to similar risks and returns, the management
considers that the Company has only one business segment and
geographical focus, being investments in legal claims primarily in
the United States (US), and accordingly does not present additional
business and geographical segment information. The Investment
Manager is responsible for the investment decisions for the
Company's entire portfolio and considers the business to have a
single operating segment. The Investment Manager's asset allocation
decisions are based on a single, integrated investment strategy,
and the Company's performance is evaluated on an overall basis.
(d) Financial assets at fair value through profit or loss
i) Contractual interests
Classification
Unless otherwise determined by the Company, investments in
claims will be categorised as contractual interests held at fair
value through profit or loss. These financial assets will initially
be measured as the cash sum provided to acquire an interest in a
plaintiff's claim or as the cash advanced to law firms under loan
agreements. Attributable due diligence costs are expensed when they
occur.
Recognition, derecognition and measurement
Subsequent measurement of contractual interests will be at fair
value utilising a fair value model developed by the Investment
Manager. The principal assumptions to be used in the fair value
model are as follows:
-- Estimated duration of each contractual interest; and
-- Best estimate of anticipated outcome.
Movement in fair value arising on all performing contractual
interests is recognised in the Statement of Comprehensive Income,
as determined by utilising the fair valuation model.
The fair valuation model is a way of calculating the fair value
of a financial asset or liability and of recognising the fair value
gains and losses in that period.
Fair value estimation
Fair value will be reviewed semi-annually on an individual case
basis. Events that will trigger changes to the fair value of each
contractual interest include the following:
-- Changes in general US dollar interest rate assumptions
(market assumption) and the time value of money;
-- Changes in any variable relating to a claim including:
assessment of probability of successful judgement; range of
settlement or award; expected timing until claim resolution; and
extrinsic risks related to a claim;
-- Successful judgement of a claim in which the Company has a
contractual interest;
-- Unsuccessful judgement of a claim in which the Company has a
contractual interest;
-- Outstanding appeals against both successful and unsuccessful
judgements;
-- A contractual interest to be sold at a discount or to be
settled out of Court by a binding agreement;
-- Legal impediments to collectability of claims (in the US
Chapter 7 Bankruptcy or Chapter 11 Court Protection from
Creditors); and
-- A case is dismissed with prejudice (meaning, it can never be
re-filed anywhere).
Partial settlement
Partial settlement of contractual interests occur when one or
more parties, but not all parties, involved in the matter agree to
terms on a settlement amount. Proceeds received by the Company are
allocated between return of original principal and any gain based
on the following process:
-- Proceeds are discounted at a rate equal to the Company's cost
of equity;
-- This discounted value represents the portion of proceeds
attributable to a return of investment with the remainder
representing a gain associated with the partial settlement; and
-- The amount representing the gain is then compared against any
prior gain recognised on the portion of the proceeds attributed to
a return of investment (calculated by using the fair valuation
model) with the difference reflected as current year realised gain
or loss.
Full settlement
Full settlement of contractual interests occur when all parties
involved in the matter agree to terms on a settlement amount or the
full legal process has concluded with either proceeds being awarded
or dismissal (no proceeds awarded). Proceeds received by the
Company are first allocated to the return of any remaining
principal with the remainder allocated to gain. The amount
representing the gain is then compared against any prior gain
recognised on the portion of the proceeds attributed to a return of
investment (calculated by using the fair valuation model) with the
difference reflected as current year realised gain or loss.
ii) Equity investments
Classification
The Company classifies its equity investments at fair value
through profit or loss at inception. These financial assets will
initially be measured as the cash sum provided to acquire the
investment. Attributable due diligence costs are expensed when they
occur.
Equity investments are intended to be held for an indefinite
period of time, and that may be sold in response to needs for
liquidity or changes in interest rates, exchange rates or equity
prices. The Company could be seen to have significant influence
over certain of its equity investments as a result of its stake in
each of those assets. If significant influence exists, that
investment, under IFRS, should be accounted for as an 'Associate'
and hence the equity accounting method should be applied. However,
the Board has taken the view that (a) there is no material
difference in accounting for these investments as associates and
accounting for them as financial assets at fair value; (b) there is
no material difference in the disclosure; and (c) the strategy of
the Company is to hold investments as part of an investment
portfolio with a view to the ultimate realisation of capital gains
rather than as a medium to carry out its own business, hence
accounting for these investments as non-current assets is the most
appropriate method.
Recognition, derecognition and measurement
Equity investments will initially be measured at cost and are
subsequently carried at fair value. Gains and losses arising from
changes in the fair value are recognised in the Statement of
Comprehensive Income.
Fair value estimation
The assessment of fair value is determined by the level of
assets of the investments (including intellectual property), the
quality of income and earnings and the present value of future cash
flows of the equity investments, discounted at the cost of
equity.
Settlement
When equity investments are sold or impaired, the movement in
fair value will be recognised in the Statement of Comprehensive
Income. The estimates and assumptions made by the Investment
Manager in determining this fair value have been outlined in Note
3.
iii) Debt securities
Classification
Debt security investments are classified at fair value through
profit or loss at inception. These financial assets will initially
be measured as the cash sum advanced to the law firm.
Recognition, derecognition and measurement
The debt security investments will initially be measured at cost
and are subsequently carried at fair value. Gains and losses
arising from changes in the fair value are recognised in the
Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the present value of future cash
flows, at the discount rate of the Company.
Settlement
When debt security investments are sold, the movement in fair
value will be recognised in the Statement of Comprehensive Income.
The estimates and assumptions made by the investment manager in
determining this fair value have been outlined in Note 3.
iv) Forward foreign currency contracts
Classification, recognition, derecognition and measurement
Forward foreign currency contracts are classified as financial
instruments at fair value through profit or loss at inception. They
will initially be measured at the contractual amount at the date
the contract is entered in to. Accordingly, only gains and losses
arising from changes in the fair value are recognised in the
Statement of Comprehensive Income.
Fair value estimation
Fair value is determined by the foreign currency exchange rate
prevailing at that date.
Settlement
Settlement will occur at the date the contract is due to expire.
Gains and losses on the settlement of the contracts will be
recognised as realised gains or losses at this time in the
Statement of Comprehensive Income.
(e) Due diligence and transaction costs
The due diligence and transaction costs attributable to
investments in contractual interests, equity investments and debt
securities, and any other due diligence and transaction costs not
directly relating to an investment, have been expensed immediately
in the Statement of Comprehensive Income.
Due diligence and transaction costs associated with investments
characterised as intangible assets are expensed until such time as
the following has been affirmed: i) the technical feasibility of
completing the intangible so that it will be available for use or
sale; ii) the intention to complete the intangible asset and use or
sell it; iii) the ability to use or sell the intangible asset; iv)
how the intangible asset will generate probable future economic
benefits; v) the availability of adequate technical, financial and
other resources to complete the development and to use or sell the
asset; and vi) the ability to measure reliably the expenditure
attributable to the intangible asset during its development, at
which time they are capitalised as an intangible asset and held at
cost less accumulated amortisation and any impairment loss.
(f) Foreign currency
Functional and presentation currency
Items included in the financial statements are measured using
the currency of the primary economic environment in which the
entity operates (the "functional currency"). The functional
currency of the Company as determined in accordance with IFRS is
the United States Dollar ("US Dollar") because this is the currency
that best reflects the economic substance of the underlying events
and circumstances of the Company. The financial statements are
presented in US Dollars, the presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rate prevailing at the date of the
transaction. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income.
(g) Finance income
Finance income arising on cash and cash equivalents is
recognised in the Statement of Comprehensive Income on the
effective interest basis.
(h) Cash and cash equivalents
Cash and cash equivalents comprise of cash balances and deposits
held at banks with a maturity profile of 3 months or less.
(i) Taxation
The Company has obtained exempt company status in Guernsey. The
Company is, therefore, only liable to an annual exemption fee of
GBP600. The Company's subsidiaries are subject to income tax in
their respective jurisdictions.
To the extent that any foreign withholding taxes or any form of
profits taxes become payable, these will be accrued on the basis of
the event that created the liability to taxation.
(j) Expenses
Expenses are accounted for on an accruals basis. Expenses for
monitoring claims will generally be paid by the Investment Manager
except in extraordinary circumstances approved by the Board of
Directors of the Company.
(k) Dividends
Dividends declared during the period will be disclosed directly
in equity via the Statement of Changes in Equity. A final dividend
proposed by the Board and approved by the shareholders prior to the
year end will be disclosed as a liability. Dividends proposed and
not approved will be disclosed in the Notes.
(l) Other receivables and prepayments
Other receivables and prepayments are recognised initially at
fair value and subsequently measured at cost less provision for
impairment.
(m) Other payables
Other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
(n) Capital and reserves
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in
equity via the reserves as a deduction from the issue proceeds.
Where any group company purchases the Company's equity share
capital (treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes) is
deducted from equity attributable to the Company's equity holders
until the shares are cancelled or reissued. Where such ordinary
shares are subsequently reissued, any consideration received, net
of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to
the Company's equity holders.
(o) Intangible asset
Where the Company has entered into an agency agreement involving
licensing of intellectual property, the resulting transaction will
be categorised as an intangible asset (see Note 4). The cost of the
intangible asset will be capitalised once it is possible to
demonstrate that the intangible asset will generate probable future
economic benefit. Intangible assets will be held at cost less any
accumulated amortisation and any accumulated impairment losses.
Amortisation will be on a systematic basis over the asset's useful
life.
(p) Impairment of intangible assets
The carrying amounts of intangible assets are assessed on a
semi-annual basis to determine whether there is any indication of
impairment. If such indication exists, the Company estimates the
recoverable amount of the asset, being the higher of the asset's
net selling price and its value in use. Any impairment loss is
recognised for the amount which the asset's recoverable amount is
lower than its carrying value and the difference being taken to the
Statement of Comprehensive Income.
The Company first assesses whether objective evidence of
impairment exists. In assessing value in use, the estimated future
cash flows are discounted to their present value using the discount
rate that reflects current assessment of the time value of money
and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
The amount of the loss is measured as the difference between the
asset's carrying amount and the present value of estimated future
cash flows. The carrying amount of the asset is reduced and the
amount of the loss is recognised in the Statement of Comprehensive
Income.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the reversal of the
previously recognised impairment loss is recognised in the
Statement of Comprehensive Income. In the year ended 31 December
2014 there were no impairments (2013: US$Nil).
(q) Share-based payments transactions
The Company engages in equity settled share-based payment
transactions in respect of the services received from one of its
Directors and from Cenkos Securities PLC ("Nominated Adviser and
Broker") as set out in the Company's Admission Document. The fair
value of the services received is measured by reference to the fair
value of the shares or share options granted on the date of the
grant. The fair value of the share options is recognised in the
Statement of Comprehensive Income over the period that the services
are received, which is the vesting period.
The fair value of the options granted is determined using the
Black-Scholes option pricing model, which takes into account the
exercise price of the option, the current share price, the risk
free interest rate, the expected volatility of the share price over
the life of the option and other relevant factors. Except for those
which include terms relating to market conditions, vesting
conditions included in the terms of the grant are not taken into
account in estimating the fair value.
Non-market vesting conditions are taken into account by
adjusting the number of shares or share options included in the
measurement of the cost of the services so that, ultimately, the
amount recognised in the Statement of Comprehensive Income reflects
the number of vested shares or share options. Where vesting
conditions are related to market conditions, the charges for the
services received are recognised regardless of whether or not the
market conditions-related vesting condition is met, provided that
the non-market vesting conditions are met.
(r) Earnings per share
The basic earnings per share value is calculated by taking the
total comprehensive income/loss for the period and dividing it by
the weighted average number of ordinary shares in issue over the
period. The diluted earnings per share figure is calculated by
adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary
shares (see Note 14(f)).
(s) Net asset value per share
Net asset value per share is calculated by taking the net assets
attributable to ordinary shareholders and dividing it by the number
of shares in issue at the year end.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The Investment Manager makes estimates and assumptions
concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities are
outlined below.
Critical accounting judgements in applying the Company's
accounting policies
The Company makes investments in claims that may involve
litigation. The nature of the investments made by the Company
reduces by some predetermined amount the cost of litigating a
matter to a plaintiff and/or a law firm. A typical investment by
the Company will include cash and may also include cash commitments
subject to certain restrictions. In most arrangements, the Company
is paid only from proceeds generated from the litigation and any
related settlement or award. If a lawsuit fails to generate any
proceeds and all legal remedies are exhausted, the Company will
often not be entitled to reimbursement of the facility they
advanced to the counterparty for the specific claim. In these cases
the Company will write off their investment in the claim as a loss.
The Company is compensated for this risk through the return
structure built into the investment. The Company mitigates this
risk through the use of their Investment Manager which is
experienced in evaluating the investment worthiness of a particular
opportunity.
In the process of applying the Company's accounting policies,
which are described in Note 2, the Directors have relied upon the
Investment Manager's assessment of the fair value of contractual
interests including the probability of success on the merits of
each claim, likelihood of settlement and claim duration. This is
most evident in the assessment of the fair value applied to
contracts entered into by the Company, as disclosed in Note 5.
To determine the appropriate fair value to apply to each
contract, the Investment Manager follows a formal process of
developing a set of scenarios for each case and assigns
probabilities to each potential outcome. The probabilities are
phased based on the expected progression path of each particular
case. In addition, each potential successful scenario has a range
of likely settlement proceeds assigned to it as well as a most
likely resolution or settlement date. The scenarios not only
incorporate the merits of each particular case but also consider
known risks intrinsic to the particular matter, as well as general
risks found in any litigation matter.
The Investment Manager then runs a Monte-Carlo method analysis
which dictates that the Investment Manager runs algorithms that
rely on random sampling based on the variables within each scenario
and their related probabilities. The results of the analysis
provide expected outcomes and other statistical data which is used
to calculate the future valuation of each particular contractual
interest. A discount rate is then applied to the future value to
determine the current fair value.
Determining whether intangible assets are impaired requires an
estimation of the future cash flows of the intangible assets, and
the use of a suitable discount rate in order to calculate present
value. The carrying amount of the intangible assets is shown in
Note 4. As at 31 December 2014, no impairment has been
recognised.
4. INTANGIBLE ASSET
31 December 31 December
2014 2013
------------ ------------
US$ US$
Balance at start
of the year 3,496,127 2,703,118
Additions 240,000 1,745,555
Amortisation (1,088,261) (952,546)
Balance at end of
the year 2,647,866 3,496,127
============ ============
The Company's intangible asset comprises an investment
structured as an agency agreement. Additions to the intangible
asset during the first half of the year are deemed to have occurred
at 30 June 2014 and additions during the second half of the year
are deemed to have occurred at 31 December 2014. The Company
amortises the intangible asset on a diminishing balance basis at a
rate of 16.7 per cent every 6 months. The Directors consider that
the diminishing balance basis of amortisation most accurately
reflects the pattern in which the asset's future economic benefits
are expected to be consumed by the Company.
In addition, the Company purchased common and preferred stock
related to the intangible asset in 2012, which has been classified
as a financial asset at fair value through profit or loss (Note 5).
As at 31 December 2014 a cost of US$1,602,510 is deemed an
appropriate approximation of fair value (31 December 2013:
US$1,602,510) for the financial asset. No provision for impairment
is deemed to be required.
5. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT AND LOSS
31 December 2014
---------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at 1 Jan proceeds in fair gains at 31 Dec
2014 value 2014
------------ ----------- ------------- ------------ ----------- ------------
Financial assets US$ US$ US$ US$ US$
Contractual
interests 47,153,900 10,679,065 - (3,279,106) - 54,553,859
Equity investments 12,855,971 1,250,000 - (1,142,893) - 12,963,078
Debt securities 129,337,700 1,000,000 (73,850,029) (1,422,965) 27,480,217 82,544,923
Forward FX 1,833,671 - (1,329,326) (1,833,671) 1,329,326 -
Total 191,181,242 12,929,065 (75,179,355) (7,678,635) 28,809,543 150,061,860
============ =========== ============= ============ =========== ============
Financial liabilities
Forward FX - - - (686,903) - (686,903)
Total - - - (686,903) - (686,903)
============ =========== ============= ============ =========== ============
31 December 2013
---------------------------------------------------------------------------------
Balance Additions Disposal Movement Realised Balance
at 1 Jan proceeds in fair gains at 31 Dec
2013 value 2013
------------ ----------- ------------- ------------ ----------- ------------
Financial assets US$ US$ US$ US$ US$
Contractual
interests 43,103,722 3,523,067 (3,228,572) 2,588,438 1,167,245 47,153,900
Equity investments 10,380,608 2,000,000 (4,000,000) 3,133,613 1,341,750 12,855,971
Debt securities 153,593,259 2,000,000 (30,000,000) 3,744,441 - 129,337,700
Forward FX - - - 1,833,671 - 1,833,671
Total 207,077,589 7,523,067 (37,228,572) 11,300,163 2,508,995 191,181,242
============ =========== ============= ============ =========== ============
a) Contractual interests
Contractual interests have been accounted for using the fair
value model. At 31 December 2014, the Company had investments in 12
contractual interests (31 December 2013: 11 contractual
interests).
Fair value movements of contractual interests are due to
amendments in estimated cash flows arising from changes in
expectations surrounding each case. The valuation of the Company's
contractual interests increased by approximately US$7.4 million
reflecting the net of US$10.7 million in additional investment
funding, and US$3.3 million net decrease due to each investment's
individual change in fair value. The valuation of the Company's
contractual interest investments includes a new investment through
the Company's new subsidiary Juridica Sports Technology LLC, as
disclosed in Note 7.
b) Equity investments
The Company's equity investments include a holding in JCML 2007
Limited ("JCML"). The fair value of the Company's investment in
JCML was assessed as at 31 December 2014 to be US$6,113,741 (31
December 2013: US$5,501,158). This assessment of fair value is
deemed appropriate given the investment in the company, the level
of assets (including intellectual property), and the quality of
income and earnings and the projection of future cash flows. The
valuation of the Company's equity investments increased by
approximately US$0.1 million reflecting the net of US$1.2 million
in additional investment funding, and US$1.1 million net decrease
in each investment's individual change in fair value.
c) Debt securities
Note 14(d) details arrangements between the Company and Fields
Law PLLC ("Fields Law"). The Loan and the Swap have been aggregated
and treated as a single claim asset. Returns on the Loan and the
Swap are dependent on returns in claims financed by Fields Law.
During the year, the Company was due settlement and other
revenue related activity totalling US$73.9 million (31 December
2013: US$30.0 million) from its debt securities. Approximately
US$36.4 million of this revenue was previously recognised as
unrealised income in current and prior years through fair value
movements, approximately US$27.5 million was recognised during the
current year as a realised gain, and US$10.0 million was applied as
a reduction in the principal balance of the loan.
Fair value movements of debt securities are due to amendments in
estimated cash flows arising from changes in expectations
surrounding each investment. The valuation of the Company's debt
securities decreased by approximately US$46.8 million reflecting
the net of US$1.0 million in additional investment funding, US$73.9
million in proceeds transferred to the Company (a portion of which
was received by the Company on 30 December 2014 and a portion of
which was received by the Company on 12 January 2015), a US$1.4
million decrease in the fair value and realised gains of US$27.5
million.
d) Forward foreign currency contracts
The company held one forward foreign currency contract at 31
December 2014 (31 December 2013: two). The contracts held at 31
December 2014 and 31 December 2013 were in place to settle declared
dividend distributions in Sterling, and were settled prior to
payment of the distributions in January 2015 and January 2014
respectively. The contract is matched to a Sterling dividend
liability of the same value (Note 9). On settlement of the two
contracts during 2014 the Company received proceeds of
approximately US$1.3 million, which is included as a realised gain
on the Statement of Comprehensive Income.
2014
--------------
Sell US$ Buy GBP Contract date Maturity Unrealised
loss (US$)
------------- ------------- -------------- ------------ ------------
35,178,803 22,140,351 10 Nov 2014 14 Jan 2015 (686,903)
(686,903)
============
2013
--------------
Sell US$ Buy GBP Contract date Maturity Unrealised
profit
(US$)
------------- ------------- -------------- ------------ ------------
15,591,138 10,470,175 05 July 2013 08 Jan 2014 1,754,502
6,850,927 4,183,006 05 Dec 2013 08 Jan 2014 79,169
1,833,671
============
6. FAIR VALUE ESTIMATION
For instruments for which there is no active market and for
which reliable pricing sources cannot be obtained, the Company may
use internally developed models, which are usually based on
valuation methods and techniques generally recognised as standard
within the industry. Valuation models are used primarily to value
unlisted equity, debt securities and other debt instruments for
which markets are or have been inactive during the financial year.
Some of the inputs to these models may not be market observable and
are therefore estimated based on assumptions.
The carrying value less impairment provision of other
receivables and payables are assumed to approximate their fair
values.
IFRS 13 requires the Company to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
has the following levels:
-- Quoted prices (unadjusted) in active markets for identical
assets or liabilities (level 1).
-- Inputs other than quoted prices included within level 1 that
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices) (level
2).
-- Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs) (level
3).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
Investments classified within level 3 have significant
unobservable inputs, as they trade infrequently. Level 3
instruments include equity securities. As observable prices are not
available for these securities, the Company has used valuation
techniques to derive their fair value.
The Company's investment in forward exchange contracts are
classified as level 2, all of the Company's other financial assets
and liabilities are classified as level 3.
There were no transfers between levels for the year ended 31
December 2014 (31 December 2013: Nil). Note 5 outlines the movement
within levels during the year.
The Company has identified three key unobservable inputs to the
valuation model used in the valuation of investments held at fair
value through profit or loss: expected quantum, expected duration,
and cost of equity.
Expected quantum
The greater the quantum expected at conclusion, the greater the
valuation at any point in time, other than at conclusion. The
reduction of the quantum expected at conclusion, will reduce the
valuation at any point in time, other than at conclusion.
Expected duration
The greater the expected duration of an investment, the lower
the valuation at any point in time, other than at conclusion. The
reduction of the expected duration of an investment will increase
the valuation at any point in time, other than at conclusion.
Cost of equity
The Company's cost of equity is 11%. As the Company's cost of
equity decreases, the valuations at any point in time will
increase, other than at conclusion. As the Company's cost of equity
increases, the valuations at any point in time will decrease, other
than at conclusion.
The following table summarises the sensitivities:
Unobservable Reasonable possible Change in valuation
input shift (+/-) (due to +/- change
in input)
--------------- -------------------- --------------------
Quantum 10% 11.32% / (6.24%)
Timing 1 year (7.97%) / 3.54%
Cost of equity 3% (3.36%) / 3.57%
7. UNCONSOLIDATED SUBSIDIARY INVESTMENTS
The following subsidiary investments are held by the Company but
have not been consolidated, following the Investment Entities
exemption per IFRS 10 (see Note 2 (b)):
% Share holdings
Date Country 31 December 31 December
incorporated of incorporation 2014 2013
-------------------- ------------ ------------
Riverbend Investments
Limited 08-Oct-08 Guernsey 100% 100%
GrandiOs Technologies,
LLC 25-Feb-09 United States 100% 85%
(since 26-Aug-14, formerly OTO Technologies
LLC)
Juridica Ventures
KFT 02-Mar-09 Hungary 100% 100%
Juridica Ventures
(US) Inc. 31-May-09 United States 100% 100%
Spinal Spot LLC 28-Feb-11 United States 52% 52%
Spinal Ventures LLC 25-Mar-11 United States 100% 100%
Juridica Sports Technology 22-Apr-14 United States 100% -
LLC
ProSports Technologies, 22-Apr-14 United States 65% -
LLC
Juridica Kinetics, 13-May-14 United States 100% -
LLC
Smooth 3D IP, LLC 13-May-14 United States 64% -
Rich Media Ventures, 31-Jul-14 United States 100% -
LLC
There are no outstanding commitments with these unconsolidated
subsidiaries at the year end, other than those disclosed in Note
11.
8. OTHER RECEIVABLES AND PREPAYMENTS
31 December 31 December
2014 2013
------------ ------------
US$ US$
Settlement proceeds 54,513,112 4,776,376
Prepayments and accrued bank
interest 80,014 92,460
54,593,126 4,868,836
============ ============
9. DIVIDENDS
The following dividends were declared during the year:
Declaration Payment Dividend Total dividends
date date per share US$
10 November
2014 14 January 2015 20 pence 34,491,900
----------------
34,491,900
================
At 31 December 2014, dividends totalling US$34,491,900 (31
December 2013: US$25,674,394) had been declared and were
payable.
One forward currency exchange contract was taken out at the date
of declaration of dividends to manage the exposure to fluctuations
in foreign currency exchange rates, as detailed in Note 5(d).
10. OTHER PAYABLES
31 December 31 December
2014 2013
------------ ------------
US$ US$
Payable on investment purchases 111,679 -
Audit fees 99,679 182,240
Management fees 1,114,196 -
Other creditors 91,620 16,432
1,417,174 198,672
============ ============
11. COMMITMENTS & GUARANTEES
Under the terms of some of its contracts, the Company provides a
line of credit to counterparties. As at 31 December 2014, the
maximum commitment under these lines of credit was US$18.1 million
(31 December 2013: US$5.8 million).
12. FUNCTIONAL AND PRESENTATION CURRENCY / EXCHANGE RATES
The financial statements are presented in United States Dollar
("US$") which is also the Company's functional currency. The
following rate was applicable as at 31 December:
Closing rate
--------------------------
31 December 31 December
2014 2013
------------ ------------
US$ US$
British pounds (GBP) 1.5579 1.6566
============ ============
13. CAPITAL AND RESERVES
Authorised share capital: Unlimited number of ordinary shares of
no par value ("shares").
Issued share capital: 110,701,754 shares as of 31 December 2014
(31 December 2013: 110,701,754 shares), of which 80,000,000 shares
were issued at a premium of GBP1 per share on admission, and a
further 30,701,754 shares issued at a premium of GBP1.14 on 6 April
2009. Under a Share Buyback Programme, the Company acquired
6,000,000 shares at a price of GBP1.02 per share on 3 November
2010, and the Company also received 126,607 of its own shares
subsequent to an in-specie dividend received from the previous
Investment Manager, JCML, on 27 November 2013. These shares were
held in treasury, however were subsequently sold for a premium at
GBP1.39. As at 31 December 2014, the number of shares held in
treasury was nil (31 December 2013: nil).
The Company's capital is represented by ordinary shares of no
par value and share premium. Each share carries one vote and is
entitled to dividends when declared. The relevant movements in
capital are shown on the statement of changes in equity through
reserves.
The Company has authority to make market purchases of up to
14.99 per cent of its own issued ordinary shares. This authority
was renewed at the annual general meeting of the Company held on 30
April 2014. A renewal of the authority to make purchases of
ordinary shares will be sought from Shareholders at each annual
general meeting of the Company. The timing of any purchases will be
decided by the Board.
14. RELATED PARTY TRANSACTIONS
Richard Battey, as investor representative and non-executive
director of the Company, is also a non-executive director of JCML.
The principal of JCML is Richard Fields, who owns 257,545 Ordinary
Shares in the Company (0.233 per cent equity interest) (2013:
232,545), which include 50,000 Ordinary Shares in the Company as
reimbursement of GBP100,000 of pre-IPO costs. JCML owns 1,118,254
Ordinary Shares in the Company (1.010 per cent equity interest) (31
December 2013: 1,118,254 shares). Mr Fields is also sole beneficial
owner of Juridica Asset Management Limited ("JAML").
a) Management fee
JAML replaced JCML as Investment Manager, effective 1 January
2014. From this date, JAML is entitled to a management fee of 2 per
cent of the adjusted net asset value of the Company. Prior to this
date, all management fees were payable to JCML.
The adjusted net asset value is the net asset value of the
Company at the relevant time will be calculated, after accruing for
the annual management fee but not taking into account any liability
of the Company for accrued performance fees and after:
(i) deducting any unrealised gains on non-current assets; and
(ii) adding the amount of any write downs with respect to
contractual interests which have not been written off.
In the year ended 31 December 2014, JAML was entitled to
investment management fees totalling US$5,768,668 (31 December
2013: US$Nil) of which US$1,114,196 remained payable as at 31
December 2014 (31 December 2013: US$Nil). In the year ended 31
December 2014, JCML received investment management fees of
US$103,807 in relation to services provided in the year ended 31
December 2013 (31 December 2013: US$5,153,580) of which US$Nil
remained payable as at 31 December 2014 (31 December 2013:
US$18,506 receivable by the Company).
b) Investment in JCML 2007 Limited
The Company acquired 15 per cent of JCML on Admission, which was
subsequently diluted to 13.6 per cent by the exercise of share
options by certain of JCML's employees. In 2012, the Company
acquired a further holding in JCML, taking the Company's overall
holding in JCML to 36.17 per cent. An impairment review of JCML has
been performed as part of the fair value assessment and continues
to be carried out on a semi-annual basis.
c) Performance fee
Under the terms of the Management Agreement, JCML, as Investment
Manager, was entitled to a performance fee based on the adjusted
net asset value ("ANAV") (being the NAV of the Company before
taking into account any performance fee payable less any unrealised
gains on investments plus the value of any write downs in any
investments that have been written down but not written off) of the
Company. The performance fee payable was for an amount equal to the
sum of: (i) 20 per cent of the amount by which the ANAV exceeded a
8 per cent annually compounding hurdle but was less than an amount
equal to a 20 per cent annually compounding hurdle; (ii) 35 per
cent of the amount by which the ANAV exceeded a 20 per cent
annually compounding hurdle but was less than an amount equal to a
40 per cent annually compounding hurdle; and (iii) 50 per cent of
the amount by which the ANAV exceeded a 40 per cent annually
compounding hurdle.
The performance fee was subject to a high water mark such that
no performance fee will be paid if the performance of the Company
does not exceed the NAV at the end of the previous year in which
the performance fee was paid.
As at 31 December 2014, the minimum hurdle rate (which is based
on the adjusted net asset value) had been achieved on investments
attributable to JCML. A performance fee was payable to JCML of
US$14,511,058 for the year ended 31 December 2014 (31 December
2013: US$Nil), of which US$14,511,058 remained payable at the year
end (31 December 2013: US$Nil). JCML will continue to be entitled
to a performance fee in the future in respect of investments made
prior to the termination of its appointment on 31 December
2013.
JAML replaced JCML as Investment Manager with effect from 1
January 2014. For financial periods following this date, any
performance fee payable on investments will be calculated based on
the date on which investments were made, and attributable to JCML
for investments held at 31 December 2013, and to JAML for all new
investments. JAML will become entitled to a performance fee of 20
per cent of the annualised increase in the adjusted net asset value
over the hurdle rate. As at 31 December 2014, this hurdle rate had
not been achieved on investments attributable to JAML.
d) Facility agreement and collateral account
The Company has entered into a facility agreement (the
"Facility") with which it agrees to loan to Fields Law, a law firm
in which Richard Fields is a partner, money for funding cases in
which Fields Law is to act under a Co-counsel Agreement. The
Company expects to enter into loan arrangements with other law
firms (which may include other law firms established by the
Principal of the Company) on terms and conditions similar to those
contained in the Facility. The Facility available to Fields Law
will be for up to approximately 50 per cent of the net proceeds of
the capital raised by the Company less any loans made to other law
firms.
The Facility will remain outstanding and available until the
earlier of (i) the termination of the Management Agreement with
JAML, (ii) the date on which Richard Fields ceases to own a
controlling interest in Fields Law, (iii) the winding up of the
Company, (iv) an event of default of the Facility documents, or (v)
ten years from Admission. Under the Facility, drawdowns may be
requested by Fields Law from time to time up to the maximum
principal amount but subject always to approval by the Company in
its sole discretion.
No more than US$10 million may be drawn down in respect of the
same case investment, unless otherwise approved by the Company.
e) Administration fees
The Company entered into an administration agreement with Legis
Fund Services Limited (the "Administrator"), now Orangefield Legis
Fund Services Limited. Fees payable to the Administrator for the
year were US$300,309 (31 December 2013: $60,038), of which
US$33,920 remained payable as at 31 December 2014 (31 December
2013: US$16,214).
f) Directors' fees and expenses
31 December 31 December
2014 2013
------------ ------------
US$ US$
Directors' remuneration
Lord Daniel Brennan (GBP187,500
per annum) 299,156 292,791
Richard Battey (GBP75,000
per annum) 119,663 117,117
Kermit Birchfield 125,000 125,000
------------ ------------
543,819 534,908
Director expenses 137,334 116,473
681,153 651,381
============ ============
No pension contributions were paid or were payable on behalf of
the Directors.
Lord Daniel Brennan has an interest in 447,817 shares (31
December 2013: 447,817 shares) under a Share Option Agreement,
details of which were disclosed in the Admission Document. Lord
Brennan can exercise these share options at any time up until 17
December 2017.
The other Directors have no beneficial interest in the share
capital of the Company.
g) Eleven Engineering Game Control LLC
The Company has provided a loan of US$575,000 to Eleven
Engineering Game Control LLC, a company ultimately owned and
controlled by JCML (31 December 2013: US$575,000). As at 31
December 2014 no further facility remains available to be drawn (31
December 2013: US$Nil). Interest will be accrued at a rate of 10%
per annum, and the loan and interest are repayable on Eleven
Engineering Game Control LLC's receipt of net recoveries.
h) Escon Capital Inc.
The Company has an interest in 38% (31 December 2013: 38%) of
the voting common stock and 100% of the issued preference shares of
Escon Capital, Inc. ("Escon"), a Delaware corporation of which
Kermit Birchfield and Richard Fields are directors.
Kermit Birchfield and Richard Fields each receive a fee from
Escon. Mr Birchfield receives a director's fee of US$50,000 per
annum, and Mr Fields receives an employment fee of US$12,000.
During the year to 31 December 2013, Juridica Asset Management US
Inc ("JAMUS") received a fee from Escon for overhead support of
US$260,000.The overhead support agreement was terminated with
effect from 30 June 2013 and no payments were made during this
year. JAMUS is a company ultimately owned by Richard Fields (from 1
January 2014, formerly owned by JCML).
15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
a) Investment risk
There is no established market for the Company's assets. The
Investment Manager's assessment of the quantum and timing of
returns is subjective and based on the Investment Manager's
experience and due diligence. The estimates of the outcome and
financial effect on the Company of the assets are determined by the
judgement of the Investment Manager. In coming to its best estimate
of fair value, the Investment Manager has estimated the
probability, timing and quantum of particular outcomes.
b) Cash flow and fair value interest rate risk
Interest rate risk arises from the effects of fluctuations in
the prevailing levels of market interest rate on the fair value of
financial assets and liabilities and future cash flows. The Company
holds fixed and variable rate interest securities that expose the
Company to fair value interest rate risk. For 2014, debt securities
were fixed at a regular interest rate of 13.5%, until 15 December
2014 when the relevant interest rate was increased to 15.0%.
The Company is exposed to interest rate risk related to its cash
balances. The Company does not actively manage this risk.
2014
Fixed interest Variable Non-interest Total
interest bearing
--------------- ----------- -------------- --------------
US$ US$ US$ US$
Assets
Intangible assets - - 2,647,866 2,647,866
Contractual interests - - 54,553,859 54,553,859
Equity investments - - 12,963,078 12,963,078
Debt securities 82,544,923 - - 82,544,923
Other receivables and prepayments - - 54,593,126 54,593,126
Cash and cash equivalents - 27,962,963 - 27,962,963
Total assets 82,544,923 27,962,963 124,757,929 235,265,815
--------------- ----------- -------------- --------------
Liabilities
Dividend payable - - (34,491,900) (34,491,900)
Forward FX contract - - (686,903) (686,903)
Other payables - - (1,417,174) (1,417,174)
Performance fee - - (14,511,058) (14,511,058)
Total liabilities - - (51,107,035) (51,107,035)
--------------- ----------- -------------- --------------
Total exposure to interest
sensitivity 82,544,923 27,962,963 73,650,894 184,158,780
=============== =========== ============== ==============
2013
----------------------------------------------------------
Fixed interest Variable Non-interest Total
interest bearing
--------------- ----------- ------------- -------------
US$ US$ US$ US$
Assets
Intangible assets - - 3,496,127 3,496,127
Contractual interests - - 47,153,900 47,153,900
Equity investments - - 12,855,971 12,855,971
Debt securities 129,337,700 - - 129,337,700
Forward FX contract - - 1,833,671 1,833,671
Other receivables and prepayments - - 4,868,836 4,868,836
Cash and cash equivalents 1,600,000 48,372,981 - 49,972,981
Total assets 130,937,700 48,372,981 70,208,505 249,519,186
--------------- ----------- ------------- -------------
Liabilities
Dividend payable - - (25,674,394) (25,674,394)
Other payables - - (198,672) (198,672)
Total liabilities - - (25,873,066) (25,873,066)
--------------- ----------- ------------- -------------
Total exposure to interest
sensitivity 130,937,700 48,372,981 44,335,439 223,646,120
=============== =========== ============= =============
At 31 December 2014, if variable interest rates had moved by 75
basis points with all other variables remaining constant, the
change in net assets attributable to holders of ordinary shares for
the year would amount to approximately +/- US$209,722 (31 December
2013: +/- US$362,797), arising substantially from the cash and cash
equivalents. No interest was receivable on the collateral cash
deposit.
c) Credit risk
The Company is exposed to credit risk, which is the risk that a
counterparty will be unable to pay amounts in full when they fall
due.
The Company has in place various policies and procedures to
guide the Investment Manager's evaluation and management of
investment opportunities and, particularly, the credit risk
associated with investment counterparties (law firms and claim
interest holders) and investments. The policies include Investment
Restrictions (which contain prohibitions on pursuing investments
with certain kinds of claims and claim holders, those being
prosecuted by certain law firms, and those where collection,
counterparty or compliance risk is significant), Investment
Policies (which contain guidelines for diversification of the
Company's portfolio based on certain claimholder characteristics,
jurisdiction(s) involved, prosecuting law firm, claim size and
investment structure), and Investment Process Guidelines (which
define the due diligence, investment and investment monitoring
processes to be followed by the Investment Manager in claim
evaluation, valuation and investment completion). Collectively,
these Investment Parameters are designed to guide the investment
opportunity analysis so to limit credit, collection and portfolio
concentration risks associated with Company investments. In
addition, the
Investment Manager has, pursuant to its own Underwriting
Guidelines, developed and implemented systems and procedures to
analyse and (pursuant to investment contracts) manage credit risk
associated with Company investments.
The main concentration to which the Company is exposed arises
from the Company's loan to Fields Law. The Company is also exposed
to counterparty credit risk on trading contractual interests, cash
and cash equivalents and other receivables.
In accordance with the Company's policy, the Investment Manager
monitors the Company's credit position on a daily basis, and the
Board of Directors reviews it on a quarterly basis.
The Company is also exposed to material credit risk in respect
of the contractual interests and cash and cash equivalents. The
credit risk of the cash and cash equivalents is mitigated as all
cash is placed with reputable banking institutions with a sound
credit rating. The maximum credit risk exposure represented by
total assets is as stated in the Statement of Financial Position
which amounted to US$235,265,815 (31 December 2013:
US$249,519,186).
d) Concentration risk
The Company seeks to minimise concentration risk by investing in
a diverse portfolio of contractual interests through a number of
different law firms, including interests in antitrust, patent,
property damage, insurance subrogation, shareholder dispute,
contract claim and arbitration cases.
The Company further seeks to minimise concentration risk by
utilising a variety of Investment Parameters which are designed to
guide the investment opportunity analysis so as to minimise,
amongst other things, concentration risk. These Investment
Parameters are further detailed in Note 15(c).
e) Liquidity risk
The Company is exposed to liquidity risk. The contractual
interests are acquisition of claims, as well as loans to lawyers to
fund participation in claims on a contingency fee basis, and
therefore require significant capital contribution with little or
no immediate return and no guarantee of return or repayment. The
market for such contractual interests is not active. In the opinion
of the Directors the current liquidity risk at 31 December 2014 is
low as cash and cash equivalents exceed unmatched liabilities or
other contractual commitments.
Maturity analysis 2014
---------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- ----------- ------------ -----------
US$ US$ US$ US$
Dividends payable 34,491,900 - - 34,491,900
Performance fee payable 14,511,058 - - 14,511,058
Other payables
Management fee payable 1,114,196 - - 1,114,196
Investment purchases
payable 111,679 - - 111,679
Audit fees 99,679 - - 99,679
Sundry creditors 91,620 - - 91,620
1,417,174 - - 1,417,174
----------- ----------- ------------ -----------
50,420,132 - - 50,420,132
=========== =========== ============ ===========
Maturity analysis 2013
---------------------------------------------------
< 3 months < 6 months < 12 months Total
----------- ----------- ------------ -----------
US$ US$ US$ US$
Dividends payable 25,674,394 - - 25,674,394
Performance fee payable - - - -
Other payables
Audit fees 182,240 - - 182,240
Sundry creditors 16,432 - - 16,432
302,978 - - 198,672
----------- ----------- ------------ -----------
25,873,066 - - 25,873,066
=========== =========== ============ ===========
f) Capital risk management
The capital of the Company is represented by the net assets
attributable to holders of ordinary shares. The Company's
objectives when managing this risk are to safeguard the Company's
ability to continue as a going concern in order to provide returns
for shareholders and benefits for other stakeholders and to
maintain a strong capital base to support the development of the
investment activities of the Company.
The Company is closed-ended and therefore the capital risk is
reduced as shareholder funds are locked in until the closure of the
Company. The level of capital funding is monitored by the Board of
Directors, who will ensure adequate solvency is in place prior to
making distributions.
g) Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign exchange
rates.
The Company's policy, generally, is not to manage exposure to
foreign exchange movements (both monetary and non-monetary) by
entering into any foreign exchange hedging transactions. However,
the Company did enter into a forward currency contract, maturing 14
January 2015, to lock in the US dollar equivalent of the dividends
declared during the year, which were paid to shareholders on 14
January 2015. The Directors considered that this was a prudent step
in order to mitigate the cash flow impact of adverse exchange rate
fluctuations on the amount of the dividends, which were declared in
GBP.
The Company holds assets denominated in currencies other than
the US dollar, the functional currency. It is therefore exposed to
currency risk, as values of the assets denominated in other
currencies will fluctuate due to changes in exchange rates. The
Company may hedge future investment opportunities in the functional
currency.
As at 31 December 2014, a proportion of the net financial assets
of the Company are denominated in currencies as follows:
2014 2013
------------ ------------
US$ US$
USD 171,286,979 203,719,701
GBP 12,871,801 19,926,419
184,158,780 223,646,120
============ ============
At 31 December 2014, if exchanges rates had moved by 5% with all
other variables remaining constant, the change in net assets
attributable to holders of ordinary shares for the year would
amount to approximately +/- US$611,121 (31 December 2013: +/-
US$996,321). Management assesses the risk of exposure to the
general banking system, and specific banks, and invests cash in US
government securities when there is perceived risk to
principal.
h) Fair value estimation
The fair value of financial assets and liabilities that are not
traded in an active market is determined by using valuation
techniques. See Note 6 for further details.
The carrying value less impairment provision of other
receivables and payables is assumed to approximate their fair
value. The fair value of financial liabilities for disclosure
purposes is not discounted as the Company does not expect there to
be any material differences.
16. NET ASSET VALUE ATTRIBUTABLE TO EACH ORDINARY SHARE
The net asset value attributable to each ordinary share is
calculated by dividing the net asset value attributable to ordinary
shareholders of US$184,158,780 (31 December 2013: US$223,646,120)
by the 110,701,754 ordinary shares in issue at 31 December 2014 (31
December 2013: 110,701,754).
17. SUBSEQUENT EVENTS
Following the year end, proceeds of US$13,082,726 were received
by the Company in relation to settlement of two contractual
interest investments. Of this amount US$8,462,726 was received as a
return of capital and US$4,620,000 million was received on an
investment of US$3,000,000 million in a legal fee receivable made
at year end 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAEDKFASSEAF
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