TIDMLIT
RNS Number : 3370S
Litigation Capital Management Ltd
16 March 2021
16 March 2021
Litigation Capital Management Limited
("LCM" or the "Company")
Interim results for the half year ended 31 December 2020
Litigation Capital Management Limited (AIM:LIT), an alternative
asset manager specialising in dispute financing solutions
internationally, announces its interim results for the half year
ended 31 December 2020.
Commenting on the results, Patrick Moloney, CEO of Litigation
Capital Management, said: "LCM has made significant progress in
building scale across the business in the first half of the year.
As our strategic alliances with global law firms strengthen, we are
receiving an increased flow of quality applications. In addition,
the market conditions are increasing the demand for disputes
finance.
"The US$50m credit facility, which we secured in February,
increases the flexibility of our capital structure allowing us to
both increase our portfolio of direct investments in addition to
increasing our asset management business.
"LCM now manages a mature portfolio of direct investments, a
significant proportion of which is 100% balance sheet funded. We
are moving into the period where those investments will reach
maturity and are very pleased with the way that the portfolio is
maturing into realisation.
"The nature of our business is reliant on parties agreeing to
settle a dispute or reaching a court resolution. Consequently, and
in line with our conservative revenue recognition, income will flow
through at irregular intervals, in line with the timing of these
resolutions. That said, LCM continues to deliver consistent returns
commensurate with our long-term track record. We expect over time
as our portfolio of investments increases for our revenue line to
smooth somewhat."
Building scale across all KPIs
-- Total assets under management increased by 92% to A$322m by 8
March 2021
-- 266 applications received, a 5% increase on the same prior year
period
-- Investment commitment increased by $67m, inclusive of third party
funds
-- Total invested capital during the period was A$39.7m, bringing
total invested capital to A$99.4m, an increase of 189% on the
same prior year period, inclusive of third party funds
-- Cumulative 135% ROIC and IRR of 78% over the past 9 and a half
years
Operations
-- US$150m Global Alternative Returns Fund ("GAR"') - now 70% committed
-- Good progress in Portfolio financing with 12 resolutions across
the Aviation and Construction Corporate Portfolios - both are
tracking in line with management expectations
-- Established tailored disputes finance facility with DLA Piper
("DLA"), significantly expanding reach into major global disputes
hubs and strengthening presence in markets that are currently
under-penetrated
-- First resolution in Fund demonstrates the strength of LCMs rigorous
investment selection process
Financials
-- Gross profit of A$5.4m
-- Adjusted loss before tax A$0.2m impacted by delayed resolutions
currently expected in H2
-- Statutory loss before tax of A$1.4m includes A$0.5m of additional
cost associated with GAR
-- Cash of A$15.4m at 31 December 2020 having deployed A$38.9m (inclusive
of third party funds) into litigation investments and demonstrating
LCMs focus on growing its investment portfolio
-- A$56m third party capital available (currently uncommitted)
-- Cash receipts from the completion of litigation investments of
A$10.6m, up 15% on the prior year*
-- Total equity of A$80.6m*
*exclusive of third party fund consolidation
Post period events and Outlook
-- Secured a US$50m credit facility providing additional capital
to grow the Group and to accelerate growth in invested capital,
providing a more flexible capital structure and a greater opportunity
to consider larger investments while also supporting ongoing
working capital requirements
-- Increased demand for LCMs capital from corporate clients resulting
from the instability and uncertainty caused by COVID. Applications
from corporate clients up 68% from the equivalent prior period
-- Increased applications for insolvency and restructuring disputes
as moratorium against appointments are relaxed in global markets
An overview of the interim results from Patrick Moloney, CEO is
available to view on this link: http://bit.ly/LCM_H1_overview
The accompanying results presentation is available on LCM's
website:
https://www.lcmfinance.com/shareholders/investor-presentations-results/
The Interim Financial Report is available on
https://www.lcmfinance.com/shareholders/annual-reports-financial-reports/
Enquiries
Litigation Capital Management c/o Alma PR
Patrick Moloney, Chief Executive
Officer
Canaccord (Nomad and Joint Tel: 020 7523 8000
Broker)
Bobbie Hilliam
Investec Bank plc (Joint Broker) Tel: 020 7597 5970
David Anderson
Alma PR Tel: 020 3405 0205
Justine James LCM@almapr.co.uk
Susie Hudson
Kieran Breheny
Molly Gretton
Chief Executives Statement
Market and environment
The last twelve months have, of course, been dominated by the
effect of the COVID-19 pandemic and lockdowns in various countries.
There has been extraordinary instability in global markets and
economies and these conditions are driving increased demand for
LCM's capital. In recent months, in all jurisdictions in which we
operate and through all offices, we have continued to see an uplift
in applications. There is no doubt such uncertainty and instability
will continue until the pandemic is brought under control and
economies return to a sense of normality.
The challenge of adapting to the new, unprecedented and unusual
circumstances has been met and the steady state in the 'new normal'
world of disputes is healthy and encouraging. Certain quarters of
the legal profession may post very good results this year, despite
the pandemic, but the realisation by most law firms that their
clients are thinking differently about legal spend and legal
budgets has been addressed and disputes finance has been one way to
deal with the challenge.
Against the current backdrop of economic pressure caused by the
pandemic, industry forecasts suggest there will be a significant
increase in insolvency events which is likely to persist for many
years. LCM has both significant experience and long-standing and
deep referral relationships with insolvency practitioners which
presents the Company with a significant opportunity.
Revenue profile
The business of litigation finance involves a series of
investments into disputes which historically take, on average 25-27
months to complete. Those investments may mature before or after
that monthly average and we expect that the investment cycle will
lengthen slightly as we invest in larger and more profitable
disputes. Consequently, it is exceptionally difficult to predict
the timing of when such realisations take place. They are largely
controlled by the underlying parties to the dispute and the court
or tribunal adjudicating their dispute. LCM's investments vary in
size and through industry sector and jurisdiction, therefore, the
revenue recognised can be infrequent and often does not fall within
the half or full year results, which results in profit fluctuations
from one period to the next rather than an even and smooth increase
in profits from period to period.
Portfolio by maturity
LCM's entire portfolio comprises a range of maturities with the
direct investments, where LCM is funding 100% from balance sheet,
being the most mature portion . In the past nine and a half years,
LCM's average time to completion is 27 months.
Months <6 7-12 13-24 25-36 37-48
No. of
investments 5 9 17 7 2
=== ===== ====== ====== ======
Maturity is based on the length of time lapsed from execution of
the Litigation Funding Agreement ("LFA") to 28 February 2021. The
number of investments included are only those with an executed
LFA.
Portfolio by claim size
LCM's entire portfolio comprising both direct and asset
management investment is well balance by individual claim size:
Claim size <$10m $11-20m $20-50m $51-100m $100-200m $201m-500m $501m>
No. of investments 6 3 7 10 6 7 4
====== ======== ======== ========= ========== =========== =======
Review of H1
Gross revenue of A$8.10m includes the resolution of two single
case investments as well as two investments in our acquisitions of
claims strategy.
The statutory loss for the Group after adjusting for income tax
and non-controlling interest amounted to A$1.17m (31 December 2019:
Profit A$4.81m). Adjusted loss before tax was A$0.18m (31 December
2019: Profit A$6.91m). While there are still some delays resulting
from the impact of COVID, these simply shift the expected
completion date and consequently revenue, into the following
period. This has not led to any impairments.
Cash on balance sheet was A$15.41m as at 31 December 2020 (30
June 2020: A$31.75m). Of this, A$9.57m relates to third-party cash
which is restricted cash as it relates to balances held within the
fund investment vehicles which have been consolidated with the
Group numbers (30 June 2020: A$6.81m). The Group continues to
deploy capital into its direct investments as part of its growing
portfolio.
Cash generated during the period increased by 15% to A$10.61m
(31 December 2019: A$9.20m), including the resolution of two
completed matters in addition to resolutions in our two corporate
portfolios.
Total invested capital as at 31 December 2020 was A$99.45m
inclusive of A$28.04m of third party fund investments (30 June
2020: A$62.52m inclusive of $10.69m third party fund
investments).
With A$56m third party capital available (currently uncommitted)
in addition to our balance sheet capital and a steady flow of
quality investment opportunities, we expect to have the third party
fund fully committed by the end of the current financial year.
Direct Investments
Current capital commitment of $171m reflects LCMs direct
investments portfolio under management, which now comprises 30
separate investments following the resolution of two matters in H1.
We continue to see significant progress with a further four
resolutions in the aviation portfolio and one in construction. Both
portfolios continue to deliver metrics in line with management
expectations.
Asset Management
At 31 December LCM committed 64% of the US$150m Fund across 18
projects since closing its first third party Fund in March 2020.
This is now 70% committed following the addition of two conditional
investments. The portfolio remains well balanced across commercial
litigation (A$27m), insolvency disputes (A$26m), class actions
(A$54m) and arbitration (A$38m), evenly split between the APAC
(A$88m) and EMEA ($83m) regions. Management expects the Fund will
be fully deployed well within the investment period. This reflects
LCMs unique solutions based approach to origination which continues
to attract a large number of good quality applications. We continue
to invest only in a small percentage of the applications that we
receive by strictly adhering to high level case selection.
Returns
Across the entire spectrum of investments, LCM has reached a
nine and a half year period in terms of evaluating its rolling
performance in which it has achieved a cumulative Return on
Invested Capital (ROIC) of 135%, including losses, and in the same
period has achieved a cumulative IRR of 78%, which highlights it is
delivering clear growth. This performance sits within a tight
parameter from period-to-period. It is a direct reflection of LCM's
disciplined project selection and robust risk management processes
and systems.
Strategic Alliances
LCMs approach to origination has been to work closely with
certain global law firms and their clients. These relationships are
very important both to LCM and to the global law firms. The legal
market is extremely competitive. In the current financial climate,
law firms not only have to address the requirements of those
commercial and corporate clients, but they need to set themselves
apart from the competition. The firms that have made arrangements
with us are benefitting from the ability to do this and are gaining
more work from existing clients and winning new clients with the
benefit of their associations with litigation funders. Used
appropriately, litigation finance is an excellent business
development tool for law firms.
These alliances go much further than simply being a response to
in house corporate demands or the business development needs of law
firms. Whilst the regular referral of cases is a benefit to LCM,
there is also real value both to us and to law firms in the
knowledge and experience gained by working closely together,
understanding the methodology and then adopting the processes and
the thinking that we undertake, even using similar terminology and
document precedents.
This exchange of information means the law firms better
understand our investment criteria for funding disputes. That leads
to a better result for their clients. There is no time and money
wasted in non-compliant applications and disputes that can be
funded are executed more swiftly whilst those that cannot be funded
rejected swiftly, or do not make it past the law firm's triage
process.
This is a significant benefit to LCM in terms of efficiency. The
task of an Investment Manager within LCM comprises three specific
roles; origination, underwriting of potential investment and
monitoring of investments. As outlined above, over time our
relationships with our strategic law firm partners mean that many
hundreds of disputes lawyers, in many jurisdictions, are acting as
outsourced Investment Managers to LCM, thus extending our reach and
influence around the international disputes world.
Management update
As COVID continues to cause disruption globally, Australia has
enforced some of the toughest travel restrictions since the start
of the pandemic. As a result I have had to defer my relocation
until there is more clarity on when restrictions are likely to be
lifted and we continue to monitor the situation closely.
Across all territories, the LCM team works through a cloud-based
solution, therefore retain the flexibility to continue to provide
high levels of service should they need to work remotely. The
safety and wellbeing of our staff is paramount to us.
In August 2020, LCM appointed Gerhard Seebacher as a
non-executive, whose experience in global financial services and
his breadth of financial relationships will be extremely valuable
as LCM continues to expand its global portfolio.
Current trading and outlook
Update on near term strategies
At the year end, we identified the following priorities on which
we expect to focus and achieve in the near term:
-- In light of the uncertainty of global markets and the impact
COVID is having on economies globally and the changing investment
landscape, we are considering either an upsize of the existing
third-party fund or a new second fund. We are well advanced in
those considerations and in discussions with relevant
stakeholders
-- Following the recently observed growth in opportunities and
portfolio investments, we identified at the year end the
possibility of supplementing LCM's balance sheet capital to meet
the increasing demand. In February 2021 we secured a US$50 million
credit facility which enables us to accelerate growth and provide
us with a flexible capital structure for the foreseeable future in
order to meet our most conservative needs while giving us the
opportunity to consider larger investments
-- The expected increase in insolvency and restructuring
disputes over the next 12 to 18 months, presents LCM with a
significant opportunity as we have both significant experience and
long-standing and deep referral relationships with insolvency
practitioners.
-- Increased resolution of investments in the near term as LCM
is moving into a period where a significant number of matters are
nearing the 27 month average time to completion.
We continue to focus on our longer-term goals and evolve them in
line with current market conditions to ensure we maintain our
innovative approach to growth.
Patrick Moloney
Chief Executive Officer
Consolidated Statement of Profit or Loss and other Comprehensive
Income
For the six months ended 31 December 2020
Unaudited six months
ended 31 December
------------------------------------------------ ---- ----------------------
2020 2019
Note $'000 $'000
------------------------------------------------ ---- ---------- ----------
Revenue from contracts with customers
------------------------------------------------ ---- ---------- ----------
Litigation service revenue 3 7,524 24,064
------------------------------------------------ ---- ---------- ----------
Portfolio revenue 3 563 -
------------------------------------------------ ---- ---------- ----------
Performance fees 3 16 -
------------------------------------------------ ---- ---------- ----------
8,103 24,064
------------------------------------------------ ---- ---------- ----------
Litigation service expense (2,721) (11,828)
------------------------------------------------ ---- ---------- ----------
Gross profit 5,382 12,236
------------------------------------------------ ---- ---------- ----------
Other income - 634
------------------------------------------------ ---- ---------- ----------
Interest income 4 19
------------------------------------------------ ---- ---------- ----------
Expenses
------------------------------------------------ ---- ---------- ----------
Employee benefits expense 5 (4,512) (3,751)
------------------------------------------------ ---- ---------- ----------
Depreciation expense 5 (28) (37)
------------------------------------------------ ---- ---------- ----------
Corporate expenses (1,575) (1,928)
------------------------------------------------ ---- ---------- ----------
Litigation fees 5 (87) (446)
------------------------------------------------ ---- ---------- ----------
Fund administration expense 5 (554) -
------------------------------------------------ ---- ---------- ----------
Total expenses (6,756) (6,162)
------------------------------------------------ ---- ---------- ----------
(Loss)/profit before income tax expense (1,370) 6,727
------------------------------------------------ ---- ---------- ----------
Analysed as:
------------------------------------------------ ---- ---------- ----------
Adjusted operating (loss)/profit (175) 6,908
------------------------------------------------ ---- ---------- ----------
Non-operating expenses 5 (1,195) (181)
------------------------------------------------ ---- ---------- ----------
(Loss)/profit before income tax expense (1,370) 6,727
------------------------------------------------ ---- ---------- ----------
Income tax (expense)/benefit 6 200 (1,895)
------------------------------------------------ ---- ---------- ----------
(Loss)/profit after income tax expense for
the period (1,170) 4,832
------------------------------------------------ ---- ---------- ----------
Other comprehensive income
------------------------------------------------ ---- ---------- ----------
Foreign currency translation reserve (706) -
------------------------------------------------ ---- ---------- ----------
Total other comprehensive income for the
period (706) -
------------------------------------------------ ---- ---------- ----------
Total comprehensive income for the period (1,876) 4,832
------------------------------------------------ ---- ---------- ----------
Profit for the period is attributable to:
------------------------------------------------ ---- ---------- ----------
Owners of Litigation Capital Management Limited (1,170) 4,810
------------------------------------------------ ---- ---------- ----------
Non-controlling interest - 22
------------------------------------------------ ---- ---------- ----------
(1,170) 4,832
------------------------------------------------ ---- ---------- ----------
Total comprehensive income for the period
is attributable to:
------------------------------------------------ ---- ---------- ----------
Owners of Litigation Capital Management Limited (1,876) 4,810
------------------------------------------------ ---- ---------- ----------
Non-controlling interest - 22
------------------------------------------------ ---- ---------- ----------
(1,876) 4,832
------------------------------------------------ ---- ---------- ----------
Cents Cents
---------------------------------- ------- -----
Basic (loss)/earnings per share 15 (1.12) 4.60
---------------------------------- ------- -----
Diluted (loss)/earnings per share 15 (1.12) 4.29
---------------------------------- ------- -----
The above Consolidated Statement of Profit or Loss and Other
Comprehensive Income should be read in conjunction with
accompanying notes to the Financial Statements.
Consolidated Statement of Financial Position
As at 31 December 2020
Consolidated
----------------------------------------------- ---- ----------------------
Unaudited Audited
31 December 30 June
2020 2020
Note $'000 $'000
----------------------------------------------- ---- ------------ --------
Assets
----------------------------------------------- ---- ------------ --------
Current assets
----------------------------------------------- ---- ------------ --------
Cash and cash equivalents 7 15,410 31,754
----------------------------------------------- ---- ------------ --------
Trade and other receivables 8 11,641 15,298
----------------------------------------------- ---- ------------ --------
Contract costs 9 20,845 15,671
----------------------------------------------- ---- ------------ --------
Portfolio costs 10 5,414 -
----------------------------------------------- ---- ------------ --------
Other assets 557 439
----------------------------------------------- ---- ------------ --------
Total current assets 53,867 63,162
----------------------------------------------- ---- ------------ --------
Non-current assets
----------------------------------------------- ---- ------------ --------
Contract costs 9 73,190 46,847
----------------------------------------------- ---- ------------ --------
Property, plant and equipment 194 204
----------------------------------------------- ---- ------------ --------
Intangible assets 343 336
----------------------------------------------- ---- ------------ --------
Other assets 280 280
----------------------------------------------- ---- ------------ --------
Total non-current assets 74,007 47,667
----------------------------------------------- ---- ------------ --------
Total assets 127,874 110,829
----------------------------------------------- ---- ------------ --------
Liabilities
----------------------------------------------- ---- ------------ --------
Current liabilities
----------------------------------------------- ---- ------------ --------
Trade and other payables 13,057 13,162
----------------------------------------------- ---- ------------ --------
Employee benefits 421 376
----------------------------------------------- ---- ------------ --------
Total current liabilities 13,478 13,538
----------------------------------------------- ---- ------------ --------
Non-current liabilities
----------------------------------------------- ---- ------------ --------
Deferred tax liability 6 3,359 3,559
----------------------------------------------- ---- ------------ --------
Employee benefits 126 117
----------------------------------------------- ---- ------------ --------
Third-party interests in consolidated entities 31,532 12,600
----------------------------------------------- ---- ------------ --------
Total non-current liabilities 35,017 16,276
----------------------------------------------- ---- ------------ --------
Total liabilities 48,495 29,814
----------------------------------------------- ---- ------------ --------
Net assets 79,379 81,015
----------------------------------------------- ---- ------------ --------
Equity
----------------------------------------------- ---- ------------ --------
Issued capital 68,830 68,830
----------------------------------------------- ---- ------------ --------
Reserves 535 1,001
----------------------------------------------- ---- ------------ --------
Retained earnings 9,995 11,165
----------------------------------------------- ---- ------------ --------
Parent interest 79,360 80,996
----------------------------------------------- ---- ------------ --------
Non-controlling interest 19 19
----------------------------------------------- ---- ------------ --------
Total equity 79,379 81,015
----------------------------------------------- ---- ------------ --------
The above Consolidated Statement of Financial Position should be
read in conjunction with accompanying notes to the Financial
Statements.
Consolidated Statements of Changes in Equity
For the period ended 31 December 2020
Foreign
Share-based currency
Issued Retained payments translation Non-controlling Total
capital earnings reserve reserve Total interests equity
Consolidated $'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Balance at 1 July 2020 68,830 11,165 1,001 - 80,996 19 81,015
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Loss after income tax expense
for the period - (1,170) - - (1,170) - (1,170)
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Other comprehensive income
for the period - - - (706) (706) - (706)
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Total comprehensive income
for the period - (1,170) - (706) (1,876) - (1,876)
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Transactions with owners
in their capacity as owners:
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Share-based payments - - 240 - 240 - 240
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
- - 240 - 240 - 240
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Balance at 31 December 2020 68,830 9,995 1,241 (706) 79,360 19 79,379
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Foreign
Share-based currency
Issued Retained payments translation Non-controlling Total
capital earnings reserve reserve Total interests equity
Consolidated $'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Balance at 1 July 2019 68,830 6,818 569 - 76,217 22 76,239
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Profit after income tax expense
for the period - 4,810 - - 4,810 22 4,832
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Other comprehensive income - - - - - - -
for the period
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Total comprehensive income
for the period - 4,810 - - 4,810 22 4,832
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Transactions with owners
in their capacity as owners:
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Share-based payments - - 210 - 210 - 210
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Dividends paid - (886) - - (886) - (886)
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
- (886) 210 - (676) - (676)
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
Balance at 31 December 2019 68,830 10,742 779 - 80,351 44 80,395
-------------------------------- -------- --------- ----------- ------------ -------- --------------- --------
The above Consolidated Statement of Changes in Equity should be
read in conjunction with accompanying notes to the Financial
Statements.
Consolidated Statements of Cash Flows
For the period ended 31 December 2020
Unaudited six months
ended 31 December
Consolidated
-------------------------------------------------- ---- ----------------------
2020 2019
Note $'000 $'000
-------------------------------------------------- ---- ---------- ----------
Cash flows from operating activities
-------------------------------------------------- ---- ---------- ----------
Proceeds from litigation contracts - resolutions,
fees and reimbursements 10,610 9,201
-------------------------------------------------- ---- ---------- ----------
Payments to suppliers and employees (28,355) (22,702)
-------------------------------------------------- ---- ---------- ----------
Net payments made by third-party interests (17,132) -
in consolidated entities
-------------------------------------------------- ---- ---------- ----------
Non-operating items paid (350) (535)
-------------------------------------------------- ---- ---------- ----------
Interest received 4 19
-------------------------------------------------- ---- ---------- ----------
Net cash used in operating activities (35,223) (14,017)
-------------------------------------------------- ---- ---------- ----------
Cash flows from investing activities
-------------------------------------------------- ---- ---------- ----------
Payments for property, plant and equipment (9) (40)
-------------------------------------------------- ---- ---------- ----------
Payments for intangibles (16) (12)
-------------------------------------------------- ---- ---------- ----------
Refund of security deposits 10 (1)
-------------------------------------------------- ---- ---------- ----------
Net cash used in investing activities (15) (53)
-------------------------------------------------- ---- ---------- ----------
Cash flows from financing activities
-------------------------------------------------- ---- ---------- ----------
Transaction costs related to third-party (888) -
interests
-------------------------------------------------- ---- ---------- ----------
Dividends paid - (874)
-------------------------------------------------- ---- ---------- ----------
Contributions from third-party interests 21,357 -
in consolidated entities
-------------------------------------------------- ---- ---------- ----------
Payments for fund establishment & administration
costs (668) (296)
-------------------------------------------------- ---- ---------- ----------
Net cash from financing activities 19,801 (1,170)
-------------------------------------------------- ---- ---------- ----------
Net decrease in cash and cash equivalents (15,437) (15,240)
-------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at the beginning
of the period 31,754 49,119
-------------------------------------------------- ---- ---------- ----------
Effects of exchange rate changes on cash
and cash equivalents (907) 862
-------------------------------------------------- ---- ---------- ----------
Cash and cash equivalents at the end of the
period 7 15,410 34,741
-------------------------------------------------- ---- ---------- ----------
The above Consolidated Statement of Cash Flows should be read in
conjunction with accompanying notes to the Financial
Statements.
Note 1 General information
The financial statements cover Litigation Capital Management
Limited (the 'Company') as a Group consisting of Litigation Capital
Management Limited and the entities it controlled at the end of, or
during, the period (referred to as the 'Group'). The financial
statements are presented in Australian dollars, which is Litigation
Capital Management Limited's functional and presentation
currency.
Litigation Capital Management Limited was admitted onto the
Alternative Investment Market ('AIM') on 19 December 2018.
Litigation Capital Management Limited is a listed public company
limited by shares, incorporated and domiciled in Australia. Its
registered office and principal place of business is:
Level 12, The Chifley Tower
2 Chifley Square
Sydney NSW 2000
A description of the nature of the Group's operations and its
principal activities are included in the Directors' report, which
is not part of the financial statements.
The financial statements were authorised for issue, in
accordance with a resolution of Directors, on 16 March 2021. The
Directors have the power to amend and reissue the financial
statements.
Note 2 Significant accounting policies
These consolidated financial statements are general purpose
financial statements for the interim reporting period ended 31
December 2020 have been prepared in accordance with the
Corporations Act 2001 and Australian Accounting Standard AASB 134
Interim Financial Reporting.
These interim financial statements do not include all the notes
of the type normally included in annual financial statements.
Accordingly, these financial statements are to be read in
conjunction with the annual report for the year ended 30 June 2020
and any public announcements made by the Company during the interim
reporting period.
In addition to the accounting policies outlined in the Group's
annual report for the year ended 30 June 2020, the following policy
has been adopted during the half year ended 31 December 2020:
Financial assets and liabilities at amortised cost
Financial assets and liabilities held at amortised cost includes
third party interests in consolidated entities and portfolio costs.
Financial assets and liabilities are initially recognised at fair
value, net of transaction costs. They are subsequently measured at
amortised cost using the effective interest method, less any
allowances for expected credit losses.
Basis of preparation
Historical cost convention
The financial statements have been prepared under the historical
cost convention.
Critical accounting estimates
The critical accounting judgements, estimates and assumptions
that have been applied in the preparation of the interim
consolidated financial statements are consistent with those
followed in the preparation of the Group's annual report for the
year ended 30 June 2020.
Operating segments
Operating segments are presented using the 'management
approach', where the information presented is on the same basis as
the internal reports provided to the Chief Operating Decision
Makers ('CODM'). The CODM is responsible for the allocation of
resources to operating segments and assessing their
performance.
Note 3 Revenue
Unaudited six months
ended 31 December
Consolidated
------------------------------------------ ----------------------
2020 2019
$'000 $'000
------------------------------------------ ---------- ----------
Major service lines
------------------------------------------ ---------- ----------
Litigation service revenue 7,524 24,064
------------------------------------------ ---------- ----------
Portfolio revenue 136 -
------------------------------------------ ---------- ----------
Portfolio revenue - third party interests 427 -
------------------------------------------ ---------- ----------
Performance fees 16 -
------------------------------------------ ---------- ----------
8,103 24,064
------------------------------------------ ---------- ----------
Geographical regions
------------------------------------------ ---------- ----------
Australia 5,565 14,878
------------------------------------------ ---------- ----------
United Kingdom 2,538 9,186
------------------------------------------ ---------- ----------
8,103 24,064
------------------------------------------ ---------- ----------
Contract duration
------------------------------------------ ---------- ----------
Less than 1 year 563 631
------------------------------------------ ---------- ----------
1-4 years 7,540 19,381
------------------------------------------ ---------- ----------
More than 4 years - 4,052
------------------------------------------ ---------- ----------
8,103 24,064
------------------------------------------ ---------- ----------
Note 4 Segment information
The Group's operating segments are based on the internal reports
that are reviewed and used by the Board of Directors (who are
identified as the Chief Operating Decision Makers ('CODM')) in
assessing performance and in determining the allocation of
resources.
The Directors have determined that there is one operating
segment. The information reported to the CODM is the consolidated
results of the Group. The segment result is as shown in the
statement of profit or loss and other comprehensive income. Refer
to statement of financial position for assets and liabilities.
Major customers
During the period ended 31 December 2020 there were 4 major
external customers (2019: 4 customers, unrelated to those in 2020)
where revenue exceeded 10% of the consolidated revenue. Revenue
from each customer for the period ended 31 December 2020 amounted
to $2,520,000, $1,796,000, $1,259,000 and $1,108,000 (2019
$8,560,000, $6,500,000 $4,052,000 and $3,426,000).
Note 5 (Loss)/profit before tax
Unaudited six months
ended 31 December
Consolidated
----------------------------------------------- ----------------------
2020 2019
$'000 $'000
----------------------------------------------- ---------- ----------
Loss/profit before income tax expense includes
the following specific expenses:
----------------------------------------------- ---------- ----------
Depreciation & amortisation
----------------------------------------------- ---------- ----------
Plant and equipment 18 30
----------------------------------------------- ---------- ----------
Intangible assets 10 7
----------------------------------------------- ---------- ----------
Total depreciation and amortisation 28 37
----------------------------------------------- ---------- ----------
Leases
----------------------------------------------- ---------- ----------
Short-term lease payments 298 383
----------------------------------------------- ---------- ----------
Employee benefits expense
----------------------------------------------- ---------- ----------
Salaries and wages 3,897 3,054
----------------------------------------------- ---------- ----------
Directors' fees 129 204
----------------------------------------------- ---------- ----------
Defined contribution superannuation expense1 162 126
----------------------------------------------- ---------- ----------
Share based payments expense 240 210
----------------------------------------------- ---------- ----------
Other employee benefits and costs 84 157
----------------------------------------------- ---------- ----------
Total employee benefits expense 4,512 3,751
----------------------------------------------- ---------- ----------
1 Includes employers pension contributions for UK staff
Adjusted operating (loss)/profit
Adjusted operating (loss)/profit excludes non-operating expenses
which includes items which are considered unusual, non-cash or
one-off in nature.
Non-operating expenses
Management have opted to separately present these items as it
better reflects the Groups underlying performance. Non-operating
expenses includes the following items:
Unaudited six months
ended 31 December
Consolidated
---------------------------------------- ----------------------
2020 2019
$'000 $'000
---------------------------------------- ---------- ----------
Share-based payments expense 240 210
---------------------------------------- ---------- ----------
Consultancy 263 89
---------------------------------------- ---------- ----------
Litigation fees 87 446
---------------------------------------- ---------- ----------
Other expenses 51 -
---------------------------------------- ---------- ----------
Unrealised foreign exchange (gain)/loss - (564)
---------------------------------------- ---------- ----------
Fund administration expenses 554 -
---------------------------------------- ---------- ----------
Total non-operating expenses 1,195 181
---------------------------------------- ---------- ----------
Fund administration expense
Fund administration expenses relate to costs associated with the
setup and administration of the LCM Global Alternative Returns Fund
which are wholly attributable to the third party interest in
consolidated entities.
Note 6 Income tax expense
Unaudited six months
ended 31 December
Consolidated
------------------------------------------------------ ----------------------
2020 2019
$'000 $'000
------------------------------------------------------ ----------- ---------
Numerical reconciliation of income tax expense
and tax at the statutory rate
------------------------------------------------------ ----------- ---------
(Loss)/profit before income tax expense (1,370) 6,727
------------------------------------------------------ ----------- ---------
At the Group's statutory income tax rate of 26%
(2019: 27.5%) (356) 1,850
------------------------------------------------------ ----------- ---------
Tax effect amounts which are not deductible/(taxable)
in calculating taxable income:
------------------------------------------------------ ----------- ---------
Share-based payments 62 58
------------------------------------------------------ ----------- ---------
Other non-deductible expenses - (171)
------------------------------------------------------ ----------- ---------
Adjustment for tax effect of loss attributable 34 -
to third party interests
------------------------------------------------------ ----------- ---------
(260) 1,738
------------------------------------------------------ ----------- ---------
Adjustment to deferred tax balances as a result
of change in statutory tax rate 60 157
------------------------------------------------------ ----------- ---------
Income tax (benefit)/expense (200) 1,895
------------------------------------------------------ ----------- ---------
Statutory tax rate of 26% is applicable to Australian entities
with aggregated turnover below $50 million for the period ended 30
June 2021. The Group's turnover is expected to be above the
threshold of $50 million in the future reporting periods which will
attract a statutory tax rate of 30%. As a result, recognition of
deferred tax asset is made by applying a 30% statutory rate instead
of the lower 26% tax rate.
Consolidated
--------------------------------------------------- ----------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
--------------------------------------------------- ----------- ---------
Deferred tax asset/(liability)
--------------------------------------------------- ----------- ---------
Deferred tax asset/(liability) comprises temporary
differences attributable to:
--------------------------------------------------- ----------- ---------
Tax losses 17,130 10,851
--------------------------------------------------- ----------- ---------
Employee benefits 164 154
--------------------------------------------------- ----------- ---------
Accrued expenses 26 30
--------------------------------------------------- ----------- ---------
Contract costs - litigation contracts (21,423) (15,547)
--------------------------------------------------- ----------- ---------
Transaction costs on share issue 744 953
--------------------------------------------------- ----------- ---------
Deferred tax liability (3,359) (3,559)
--------------------------------------------------- ----------- ---------
Movements:
--------------------------------------------------- ----------- ---------
Opening balance (3,559) (760)
--------------------------------------------------- ----------- ---------
Charged to profit or loss 200 (2,799)
--------------------------------------------------- ----------- ---------
Closing balance (3,359) (3,559)
--------------------------------------------------- ----------- ---------
Note 7 Cash and cash equivalents
Consolidated
------------------------------------------------------- ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
------------------------------------------------------- ----------- --------
Cash at bank 5,836 24,942
------------------------------------------------------- ----------- --------
Cash of third-party interests in consolidated entities 9,574 6,812
------------------------------------------------------- ----------- --------
15,410 31,754
------------------------------------------------------- ----------- --------
Cash of third-party interests in consolidated entities is
restricted as it is held within the fund investment vehicles on
behalf of the third-party investors in these vehicles. The cash is
restricted to use cashflows in the litigation contracts made on
their behalf and costs of administering the fund.
Note 8 Trade and other receivables
Consolidated
------------------------------------------ ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
------------------------------------------ ----------- --------
Due from completion of litigation service 11,641 15,298
------------------------------------------ ----------- --------
Amounts due from completion of litigation service relate to the
recovery of litigation projects that have successfully
completed.
Allowance for expected credit losses
The Group has recognised a loss of $nil (June 2020: $nil) in
profit or loss in respect of the expected credit losses for the
year ended 31 December 2020.
The ageing of the receivables and allowance for expected credit
losses provided for above are as follows:
Expected
credit Carrying
Allowance
for expected
loss rate amount credit losses
2020 2020 2020
% $'000 $'000
------------ ----------- -------- --------------
Consolidated
------------ ----------- -------- --------------
Not overdue - 11,641 -
------------ ----------- -------- --------------
11,641 -
------------ ----------- -------- --------------
Note 9 Contract costs - litigation contracts
Consolidated
-------------------------------------- ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
-------------------------------------- ----------- --------
Contract costs - litigation contracts 94,035 62,518
-------------------------------------- ----------- --------
Reconciliation of litigation contract costs
Reconciliation of the contract costs (current and non-current)
at the beginning and end of the current period and previous
financial year are set out below:
Consolidated
-------------------------------------------------- ----------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
-------------------------------------------------- ----------- ---------
Opening balance 62,518 27,386
-------------------------------------------------- ----------- ---------
Additions during the period 20,958 41,330
-------------------------------------------------- ----------- ---------
Additions during the period made by third-party
interests 13,312 10,694
-------------------------------------------------- ----------- ---------
Litigation service expense - successful contracts
1 (2,721) (16,723)
-------------------------------------------------- ----------- ---------
Litigation service expense - write down 2 (32) (3)
-------------------------------------------------- ----------- ---------
Foreign exchange losses - (166)
-------------------------------------------------- ----------- ---------
Closing balance 94,035 62,518
-------------------------------------------------- ----------- ---------
1 Contract costs amortised upon the successful resolution of the litigation contract
2 Due diligence costs written off upon determining that the
litigation contract would not be pursued further
Third-party interests in contract costs
Contract costs (current and non-current) associated with
interests of third parties in the entities which are consolidated
in the consolidated statement of financial position is set out
below:
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
------------------------------ ----------- --------
Attributable to owners of LCM 70,057 51,824
------------------------------ ----------- --------
Third-party interests 23,978 10,694
------------------------------ ----------- --------
Consolidated total 94,035 62,518
------------------------------ ----------- --------
Consolidated
------------ ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
------------ ----------- --------
Current 20,845 15,671
------------ ----------- --------
Non-current 73,190 46,847
------------ ----------- --------
94,035 62,518
------------ ----------- --------
Impairment considerations
The recoverable amount of the Group's contract costs has been
determined by a value in use calculation using a discounted cash
flow model, based on cash flow projections and financial budgets as
approved by management for the life of each litigation
contract.
Key assumptions were used in the discounted cash flow model for
determining the value in use of litigation contracts:
-- The estimated cost to complete a litigation contract is
budgeted, based on estimates provided by the external legal
advisors handling the litigation;
-- The value to the Group of the litigation contract, once
completed, is estimated based on the expected settlement or
judgement amount of the litigation and the fees due to the Group
under the litigation contract;
-- The discount rate applied to the cash flow projections is
based on the Group's weighted average cost of capital and other
factors relevant to the particular litigation contract. The
discount rate applied was 15% (June 2020: 15%).
Based on the above, the Group has recognised impairment losses
of $nil (June 2020: $nil) in profit or loss on contract costs for
the year ended 31 December 2020.
Note 10 Portfolio costs - litigation contracts
Consolidated
--------------------------------------- ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
--------------------------------------- ----------- --------
Portfolio costs - litigation contracts 5,414 -
--------------------------------------- ----------- --------
Consolidated
----------------------------------------------- ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
----------------------------------------------- ----------- --------
Opening balance - -
----------------------------------------------- ----------- --------
Additions during the period 1,354 -
----------------------------------------------- ----------- --------
Additions during the period made by third-party 4,060 -
interests
----------------------------------------------- ----------- --------
Closing balance 5,414 -
----------------------------------------------- ----------- --------
Portfolio costs
Portfolio costs are assets measured at amortised cost that
relate to the provision of law firm funding.
Note 11 Equity - issued capital
Consolidated
----------------------------- ------------------------------------------------
30 June 31 December
31 December 2020
Shares 2020 30 June
2020 2020
Shares $'000 $'000
----------------------------- ------------ ------------ ----------- -------
Ordinary shares - fully paid 104,580,899 104,580,899 68,830 68,830
----------------------------- ------------ ------------ ----------- -------
Ordinary shares - under loan
share plan 11,073,767 10,457,247 - -
----------------------------- ------------ ------------ ----------- -------
115,654,666 115,038,146 68,830 68,830
----------------------------- ------------ ------------ ----------- -------
Movements in ordinary share capital Date Shares $'000
-------------------------------------- ------------- ----------- ------
Balance 30 June 2020 104,580,899 68,830
-------------------------------------- ------------- ----------- ------
31 December
Balance 2020 104,580,899 68,830
-------------------------------------- ------------- ----------- ------
Movements in ordinary shares issued Date Shares $'000
under loan share plan
-------------------------------------- ------------- ----------- ------
Balance 30 June 2019 8,454,547 -
-------------------------------------- ------------- ----------- ------
1 November
Issue of shares under loan share plan 2019 1,432,753 -
-------------------------------------- ------------- ----------- ------
4 November
Issue of shares under loan share plan 2019 569,947 -
-------------------------------------- ------------- ----------- ------
Balance 30 June 2020 10,457,247 -
-------------------------------------- ------------- ----------- ------
13 October
Issue of shares under loan share plan 2020 616,520 -
-------------------------------------- ------------- ----------- ------
Balance 31 December 11,073,767 -
2020
-------------------------------------- ------------- ----------- ------
Note 12 Equity - Share-based payments reserve
Consolidated
----------------------------- ---------------------
Unaudited
six months
ended 31
December Audited
30 June
2020 2020
$'000 $'000
----------------------------- ----------- --------
Share-based payments reserve 1,241 1,001
----------------------------- ----------- --------
Share-based payments reserve
The reserve is used to recognise the value of equity benefits
provided to employees and Directors as part of their remuneration,
and other parties as part of their compensation for services.
Movements in reserves
Movements in each class of reserve during the current and
previous financial year are set out below:
Consolidated $'000
----------------------------- ------
Balance at 1 July 2019 569
----------------------------- ------
Share-based payments expense 432
----------------------------- ------
Balance at 30 June 2020 1,001
----------------------------- ------
Share-based payments expense 240
----------------------------- ------
Balance at 31 December 2020 1,241
----------------------------- ------
Note 13 Contingent liabilities
The majority of the Group's funding agreements contain a
contractual indemnity from the Group to the funded party that the
Group will pay adverse costs awarded to the successful party in
respect of costs incurred during the period of funding, should the
client's litigation be unsuccessful. The Group's position is that
for the majority of litigation projects which are subject to
funding, the Group enters insurance arrangements which lessen or
eliminate the impact of such awards and therefore any adverse costs
order exposure.
Note 14 Third-party interests in consolidated entities
AASB requires the Group to consolidate fund investment vehicles
over which it has exposure to variable returns from the fund
investment vehicles. As a result, third party interests in relation
to the Fund have been consolidated in the financial statements.
As at 31 December 2020, the financial liability due to
third-party interests is $31,532,000 (June 2020: $12,600,000),
recorded at amortised cost and net of transaction costs. The net
amount due comprises cash and cash equivalents, contract costs and
trade payables. Third-party interests exclude the 25% co-investment
made by Litigation Capital Management Limited and its wholly owned
subsidiaries ("LCM"). The third-party interests in the Fund carry
an entitlement to receive an 8% soft return hurdle. Upon
satisfaction of the third-party interests soft return hurdle, LCM
is entitled to performance fees as fund manager on the basis of a
deal by deal waterfall. The residual net cash flows are to be
distributed 25% to LCM and 75% to the third-party interests until a
IRR of 20% is achieved by the third-party interests, thereafter the
net residual cash flows are distributed 35% to LCM and 65% to the
third-party interests.
The following tables reflect the impact of consolidating the
results of the Fund with the results for LCM to arrive at the
totals reported in the consolidated statement of comprehensive
income and consolidated statement of financial position. The Fund
column in the table below presents the interests of third-party
investors comprising both the investment in the litigation
contracts made on their behalf and costs of administering the fund.
The LCM column includes the 25% co-investment in these litigation
contracts.
31 December 31 December
2020 2019
-------- --------------------- ------------ ------------
Consolidated Statement LCM-only Fund Consolidated Consolidated
of Comprehensive Income $'000 $'000 $'000 $'000
---------------------------------------- -------- --------------------- ------------ ------------
Revenue from contracts with customers
---------------------------------------- -------- --------------------- ------------ ------------
Litigation service revenue 7,524 - 7,524 24,064
---------------------------------------- -------- --------------------- ------------ ------------
Portfolio revenue 136 427 563 -
---------------------------------------- -------- --------------------- ------------ ------------
Performance fees 16 - 16 -
---------------------------------------- -------- --------------------- ------------ ------------
7,676 427 8,103 24,064
---------------------------------------- -------- --------------------- ------------ ------------
Litigation service expense (2,721) - (2,721) (11,828)
---------------------------------------- -------- --------------------- ------------ ------------
Gross profit 4,955 427 5,382 12,236
---------------------------------------- -------- --------------------- ------------ ------------
Other income - - - 634
---------------------------------------- -------- --------------------- ------------ ------------
Interest income 4 - 4 19
---------------------------------------- -------- --------------------- ------------ ------------
Expenses
---------------------------------------- -------- --------------------- ------------ ------------
Employee benefits expense (4,512) - (4,512) (3,751)
---------------------------------------- -------- --------------------- ------------ ------------
Depreciation expense (28) - (28) (37)
---------------------------------------- -------- --------------------- ------------ ------------
Corporate expenses (1,575) - (1,575) (1,928)
---------------------------------------- -------- --------------------- ------------ ------------
Litigation fees (87) - (87) (446)
---------------------------------------- -------- --------------------- ------------ ------------
Fund administration expense - (554) (554) -
---------------------------------------- -------- --------------------- ------------ ------------
Total expenses (6,202) (554) (6,756) (6,162)
---------------------------------------- -------- --------------------- ------------ ------------
(Loss)/profit before income tax
expense (1,243) (127) (1,370) 6,727
---------------------------------------- -------- --------------------- ------------ ------------
Analysed as:
---------------------------------------- -------- --------------------- ------------ ------------
Adjusted operating (loss)/profit (602) 427 (175) 6,908
---------------------------------------- -------- --------------------- ------------ ------------
Non-operating expenses (641) (554) (1,195) (181)
---------------------------------------- -------- --------------------- ------------ ------------
(Loss)/profit before income tax
expense (1,243) (127) (1,370) 6,727
---------------------------------------- -------- --------------------- ------------ ------------
Income tax expense 200 - 200 (1,895)
---------------------------------------- -------- --------------------- ------------ ------------
(Loss)/profit after income tax
expense for the period (1,043) (127) (1,170) 4,832
---------------------------------------- -------- --------------------- ------------ ------------
(Loss)/profit for the period is
attributable to:
---------------------------------------- -------- --------------------- ------------ ------------
Owners of Litigation Capital Management
Limited (1,043) - (1,043) 4,810
---------------------------------------- -------- --------------------- ------------ ------------
Third party interests in the Fund - (127) (127) -
---------------------------------------- -------- --------------------- ------------ ------------
Non-controlling interest - - - 22
---------------------------------------- -------- --------------------- ------------ ------------
(1,043) (127) (1,170) 4,832
---------------------------------------- -------- --------------------- ------------ ------------
31 December 30 June
2020 2020
-------- -------- ------------ -------- -------- ------------
Consolidated Statement LCM-only Fund Consolidated LCM-only Fund Consolidated
of Financial Position $'000 $'000 $'000 $'000 $'000 $'000
----------------------------- -------- -------- ------------ -------- -------- ------------
Assets
----------------------------- -------- -------- ------------ -------- -------- ------------
Current assets
----------------------------- -------- -------- ------------ -------- -------- ------------
Cash and cash equivalents 5,836 9,574 15,410 24,942 6,812 31,754
----------------------------- -------- -------- ------------ -------- -------- ------------
Trade and other receivables 11,641 - 11,641 15,298 - 15,298
----------------------------- -------- -------- ------------ -------- -------- ------------
Contract costs 20,845 - 20,845 15,671 - 15,671
----------------------------- -------- -------- ------------ -------- -------- ------------
Portfolio costs 1,354 4,060 5,414 - - -
----------------------------- -------- -------- ------------ -------- -------- ------------
Other assets 556 - 556 439 - 439
----------------------------- -------- -------- ------------ -------- -------- ------------
Total current assets 40,233 13,634 53,867 56,350 6,812 63,162
----------------------------- -------- -------- ------------ -------- -------- ------------
Non-current assets
----------------------------- -------- -------- ------------ -------- -------- ------------
Contract costs 49,212 23,978 73,190 36,153 10,694 46,847
----------------------------- -------- -------- ------------ -------- -------- ------------
Property, plant and
equipment 194 - 194 204 - 204
----------------------------- -------- -------- ------------ -------- -------- ------------
Intangible assets 343 - 343 336 - 336
----------------------------- -------- -------- ------------ -------- -------- ------------
Other assets 280 - 280 280 - 280
----------------------------- -------- -------- ------------ -------- -------- ------------
Total non-current
assets 50,029 23,978 74,007 36,973 10,694 47,667
----------------------------- -------- -------- ------------ -------- -------- ------------
Total assets 90,262 37,612 127,874 93,323 17,506 110,829
----------------------------- -------- -------- ------------ -------- -------- ------------
Liabilities
----------------------------- -------- -------- ------------ -------- -------- ------------
Current liabilities
----------------------------- -------- -------- ------------ -------- -------- ------------
Trade and other payables 8,878 4,179 13,057 9,268 3,894 13,162
----------------------------- -------- -------- ------------ -------- -------- ------------
Employee benefits 421 - 421 376 - 376
----------------------------- -------- -------- ------------ -------- -------- ------------
Total current liabilities 9,299 4,179 13,478 9,644 3,894 13,538
----------------------------- -------- -------- ------------ -------- -------- ------------
Non-current liabilities
----------------------------- -------- -------- ------------ -------- -------- ------------
Deferred tax liability 3,359 - 3,359 3,559 - 3,559
----------------------------- -------- -------- ------------ -------- -------- ------------
Employee benefits 126 - 126 117 - 117
----------------------------- -------- -------- ------------ -------- -------- ------------
Third-party interests
in consolidated entities(1) (3,083) 34,615 31,532 (2,195) 14,795 12,600
----------------------------- -------- -------- ------------ -------- -------- ------------
Total non-current
liabilities 402 34,615 35,017 1,481 14,795 16,276
----------------------------- -------- -------- ------------ -------- -------- ------------
Total liabilities 9,701 38,794 48,495 11,125 18,689 29,814
----------------------------- -------- -------- ------------ -------- -------- ------------
Net assets 80,561 (1,182) 79,379 82,198 (1,183) 81,015
----------------------------- -------- -------- ------------ -------- -------- ------------
1 During the period LCM incurred placement fees and other costs
in relation to the LCM Global Alternative Returns Fund. The amounts
are reflected as transaction costs and reflected in the LCM
statement of financial position above.
Note 15 (Loss)/earnings per share
Unaudited six months
ended 31 December
Consolidated
----------------------------------------------------- --------------------------
2020 2019
$'000 $'000
----------------------------------------------------- ------------ ------------
(Loss)/ profit after income tax (1,170) 4,832
----------------------------------------------------- ------------ ------------
Non-controlling interest - (22)
----------------------------------------------------- ------------ ------------
(Loss)/profit after income tax attributable to
the owners of Litigation Capital Management Limited (1,170) 4,810
----------------------------------------------------- ------------ ------------
Number Number
----------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares used
in calculating basic earnings per share 104,580,899 104,580,899
----------------------------------------------------- ------------ ------------
Adjustments for calculation of diluted earnings
per share:
----------------------------------------------------- ------------ ------------
Amounts uncalled on partly paid shares and calls
in arrears - 2,559,326
----------------------------------------------------- ------------ ------------
Options over ordinary shares - 4,951,124
----------------------------------------------------- ------------ ------------
Weighted average number of ordinary shares used
in calculating diluted earnings per share 104,580,899 112,091,349
----------------------------------------------------- ------------ ------------
Cents Cents
----------------------------------------------------- ------------ ------------
Basic (loss)/earnings per share (1.12) 4.60
----------------------------------------------------- ------------ ------------
Diluted (loss)/earnings per share (1.12) 4.29
----------------------------------------------------- ------------ ------------
Dilutive potential shares which are contingently issuable are
only included in the calculation of diluted earnings per share
where the conditions are met. As at 31 December 2020, there were
5,284,501 shares calculated for inclusion in diluted earnings per
share, however these were not included due to their anti-dilutive
effect.
Note 16 Share-based payments
The share-based payment expense for the year was $240,000 (2019:
$210,000).
Employee share option scheme
A share option plan has been established by the Group and
approved by shareholders at a general meeting, whereby the Group
may, at the discretion of the Nomination and Remuneration
Committees, grant options over ordinary shares in the Company to
certain key management personnel of the Group. The options are
issued for nil consideration and are granted in accordance with
performance guidelines established by the Nomination and
Remuneration Committees.
Set out below are summaries of options granted under the
employee share option plan:
2020
Balance
Balance at the
Exercise at the start Expired/ end of the
Grant date Expiry date Price of the year Granted Exercised forfeited/other year
----------- ------------ -------- ------------- ------- --------- ---------------- -----------
20/09/2016 01/11/2021 $1.00 1,500,000 - - - 1,500,000
----------- ------------ -------- ------------- ------- --------- ---------------- -----------
1,500,000 - - - 1,500,000
------------------------ -------- ------------- ------- --------- ---------------- -----------
Loan Funded Share Plans (LSP)
The Group has an equity scheme pursuant to which certain
employees may access a LSP. The shares under LSP are issued at the
exercise price by granting a limited recourse loan. The LSP shares
are restricted until the loan is repaid. These shares are recorded
as treasury shares representing a deduction against issued capital.
Accordingly, the underlying options have been accounted for as a
share-based payments. The options are issued over a 1-3 year
vesting period. Vesting conditions include satisfaction of
customary continuous employment with the Group and may include a
share price hurdle.
During the period the Group granted 616,520 (2019: 2,002,700)
shares under the LSP.
Set out below are summaries of shares/options granted under the
LSP:
2020
Balance
Balance at the
Exercise at the start Expired/ end of the
Grant date Expiry date Price of the year Granted Exercised forfeited/other year
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
04/12/2017 04/12/2027 $0.60 2,000,000 2,000,000
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
31/08/2018 31/08/2028 $0.77 411,972 411,972
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
19/11/2018 25/11/2028 $0.47 1,595,058 1,595,058
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
03/12/2018 03/12/2028 $0.89 100,000 100,000
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
06/03/2019 06/03/2029 GBP0.5200 4,528,664 4,528,664
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
01/11/2019 01/11/2029 GBP0.7394 1,432,753 1,432,753
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
01/11/2019 01/11/2029 GBP0.7730 66,137 66,137
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
04/11/2019 04/11/2029 GBP0.7394 388,800 388,800
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
13/10/2020 13/10/2030 GBP0.6655 - 616,520 616,520
----------- ------------ --------- ------------- ------- --------- ---------------- -----------
10,523,384 616,520 - - 11,139,904
------------------------ --------- ------------- ------- --------- ---------------- -----------
For the options under LSP granted during the period, the
valuation model inputs used in the Black-Scholes option pricing
model to determine the fair value at the grant date, are as
follows:
Grant date Expiry date Share price Exercise Expected Dividend Risk-free Fair value
at grant price volatility yield interest at grant
date rate date(1)
----------- ------------ ------------ ---------- ----------- -------- --------- ----------
13/10/2020 13/10/2030 GBP0.6655 GBP0.6655 35.00% 1.20% -0.09% $0.259
----------- ------------ ------------ ---------- ----------- -------- --------- ----------
1 AUD amount. GBP equivalent GBP0.14356.
The expected volatility reflects the assumption that the
historical volatility over a period similar to the life of the
options is indicative of future trends, which may not necessarily
be the actual outcome.
Note 17 Events after the reporting period
On 22 February 2021, the Company entered into a credit facility
with Northleaf Capital Partners to provide the Company with
additional investment capital. Northleaf is a global private
markets investment firm, with experience in the litigation finance
sector. The Credit Facility, which is secured against LCM's assets,
is available for general corporate purposes, and has an overall
term of four years. The coupon comprises a LIBOR based rate of 8%
per annum together with a profit participation calculated by
reference to the profitability of LCM's direct investments. In all
circumstances, the overall cost of the facility is capped at 13%
per annum. The Credit Facility can be drawn down during the first
two years of the facility. The facility otherwise contains the
usual financial covenants and reporting conditions of a facility of
this nature.
Directors' Declaration
31 December 2020
In the Directors' opinion:
1. the attached financial statements and notes comply with the
Corporations Act 2001, Australian Accounting Standards and other
mandatory professional reporting requirements;
a. complying with Accounting Standard AASB 134: Interim
Financial Reporting; and
b. the attached financial statements and notes give a true and
fair view of the consolidated entity's financial position as at 31
December 2020 and of its performance for the period ended on that
date;
2. there are reasonable grounds to believe that the company will
be able to pay its debts as and when they become due and
payable.
Signed in accordance with a resolution of Directors.
On behalf of the Directors
Patrick Moloney
Chief Executive Officer
Director
16 March 2021
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