Burford Capital Limited · LSE:BUR
Burford Capital — FY2018 Earnings Presentation
42 slides from Burford Capital's earnings presentation, Mar 13, 2019
Slide 1: Investor Presentation: 2018 Results
INVESTOR PRESENTATION 2018 RESULTS 13 MARCH 2019 This presentation is for the use of Burford’s public shareholders and is not an offering of any Burford private fund.
Slide 2: Burford's equity performance
Burford’s equity performance Source: Bloomberg LP, as of 31 December 2018 2
Slide 3: Financial and investment highlights
Financial and investment highlights Increase in income Increase in PAT ROE ROIC $1 billion in investment recoveries IRR Full-year dividend Figures for income, operating profit, profit before tax and profit after tax exclude the impact of amortization of the intangible, non-recurring investment banki
Slide 4: New investment commitments and deployments
New investment commitments and deployments • Burford committed more than twice as much capital in 2017 and 2018 ($2.6 billion) than in Burford’s entire prior lifetime • 2018 commitments more diversified than 2017, which contained two large investments totalling $350 million • On the balance sheet Bu
Slide 5: Burford's evolution
Burford’s evolution LEGAL RISK MANAGEMENT CORE LITIGATION FINANCE • Burford Worldwide Insurance Limited • Financing to corporate clients and law created to provide global, large dollar firms against value of legal claims adverse cost coverage • Client has ultimate decision-making • Substantial reins
Slide 6: Burford invests broadly across the legal industry
Burford invests broadly across the legal industry located around the world qualified in US, UK, Australia, Germany, Switzerland, Hong Kong and Israel New York, London, Chicago, Washington, Singapore and Sydney with a cumulative 250 years of legal experience 6
Slide 7: Burford's broad-based capital structure
Burford’s broad-based capital structure Traditional litigation finance • 25% balance sheet, 50% SWF partnership, 25% BOF investments now allocated: • Between direct allocation and SWF allocation the balance sheet ends up with 42% BALANCE SHEET SWF STRATEGIC CAPITAL PRIVATE FUNDS $1.9 billion investm
Slide 8: Burford's opportunity: the legal industry is being transformed
Burford’s opportunity The legal industry is being transformed Clients are rebelling Increases in legal Law firms Evolution is Capital is against the billable expenses are driving generally do not mandatory entering the hour model the need for financial have balance sheet industry alternatives capita
Slide 9: Why is litigation finance growing?
Why is litigation finance growing? 9
Slide 10: Why is litigation finance growing?
Why is litigation finance growing? • 63% of lawyers interviewed named Burford first or solely in answer to the question: “What providers of litigation finance are you most familiar with?” 10 Source: Burford 2018 Litigation Finance Survey
Slide 11: Size and penetration of the addressable market
Size and penetration of the addressable market Law firm fees Value of settlements, Assets affected by legal and judgments and awards regulatory processes 11
Slide 12: Size and penetration of the addressable market: law firm fees
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES LAW FIRM FEES • Fees paid to law firms are the first step to defining • In 2016, Thomson Reuters estimated that an addressable market the US alone
Slide 13: Size and penetration of the addressable market: settlements and judgments
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES VALUE OF SETTLEMENTS, JUDGMENTS AND AWARDS • No one knows, but very large indeed estimated annual US tort costs by • US tort actions alone are est
Slide 14: Size and penetration of the addressable market: assets affected
Size and penetration of the addressable market LAW FIRM FEES VALUE OF SETTLEMENTS, ASSETS AFFECTED BY LEGAL JUDGMENTS AND AWARDS AND REGULATORY PROCESSES ASSETS AFFECTED BY LEGAL AND REGULATORY PROCESSES • Another giant area annual value of US public company assets which are • As just one example, 8
Slide 15: The global commercial litigation finance industry
The global commercial litigation finance industry Note: This information, which is current as of 31 December 2018 has been compiled from public filings with regulatory agencies and other public information that is believed to be reliable, but Burford cannot warrant its accuracy. Firms that invest in
Slide 16: Barriers to entry and unique advantages
Barriers to entry and unique advantages Significant scale and Deep, sticky law firm Portfolio diversification Resources to spend on capital with an relationships and lowers investment risk entrenching position institutional-quality dominant brand name business Large, experienced team Investment comm
Slide 17: Sustainability of legal returns
Sustainability of legal returns • Law firm margins have remained relatively constant • As one example, fee awards in certain antitrust cases have not varied over time 17
Slide 18: Burford's progressive investment process
Burford’s progressive investment process • Built law-focused 15-person dedicated business development team supported by seven-person marketing group • Continue to foster and enhance relationships with lawyers and corporate clients • Increased productivity: BD new Closed business leads are 3.5x more
Slide 19: Investment commitments across the business
Investment commitments across the business • Not only repeating 2017’ break-out success 2018 commitments were across a diversified portfolio of investments with a higher level of deployment • Volume in single case commitments rose sharply, by 175%, with a significant number of those single cases fro
Slide 20: Deployment performance remains consistent
Deployment performance remains consistent = • Total deployments as a percentage of commitments on concluded matters stayed relatively constant at 84% (2017: 83%) • However, we saw more robust deployments in 2018 • The red line shows the percentage of each vintage’s litigation finance commitments tha
Slide 21: Geographic diversification in investments on the balance sheet
Geographic diversification in investments on the balance sheet • Burford’s increasing global presence is twofold - We are present in more locations with full-time people on the ground in a number of US cities (New York, Chicago, Washington, Los Angeles, Wilmington DE and San Diego) and in London, Si
Slide 22: Large and widely diversified litigation finance portfolio
Large and widely diversified litigation finance portfolio • No single case capital loss would amount to more than 3% of total • Largest law firm relationship accounts for 17% of investments across commitments more than 50 different partners • More than 1,100 claims underlie 100 separate investments
Slide 23: Strong performance from concluded balance sheet portfolio
Strong performance from concluded balanced sheet portfolio • $1.03 billion of recoveries on investments • Investment portfolio since inception has produced an 85% ROIC and 30% IRR • Weighted average duration of the portfolio remains below 2 years 23
Slide 24: Balance sheet: Concluded core litigation investments
Balance sheet: Concluded core litigation investments 24
Slide 25: Investment results by vintage show depth of performance
Investment results by vintage show depth of performance • The portfolio through 2015 has generated gross proceeds of $787 million from concluded investments. The portfolio has deployed $557 million of which $366 million has concluded and $191 million remains deployed in ongoing investments. Investme
Slide 26: Investment results show different return profiles based on path to conclusion
Investment results show different return profiles based on path to conclusion • When matters settle, they typically conclude more rapidly, and for less than total damages – so IRRs are higher than the portfolio overall and ROIC is lower. Matters that proceed to adjudication are more profitable but t
Slide 27: Duration, deployment, predictability and absolute risk
Duration, deployment, predictability and absolute risk • Burford continues to invest across the spectrum of legal assets with a wide variety of duration, risk and return characteristics in pursuit of aggregate desirable risk-adjusted returns 27
Slide 28: Complex strategies: concluded balance sheet investment performance
Complex strategies: concluded balance sheet investment performance 28
Slide 29: Asset recovery business
Asset recovery business [Burford | 2018 was a break-out year with $62.3 million in new asset recovery investment commitments Sin millions Concluded Partial realisation Ongoing 2015 vintage total Concluded Partial realisation Ongoing 2016 vintage total Concluded Partial realisation Ongoing 2018 vinta
Slide 30: Investment management business
Investment management business Assets under management New $300 million litigation $1 billion strategic relationship grew to $2.5 billion from $1.7 finance fund raised in December with Sovereign Wealth Fund billion in 2017 (Burford Opportunity Fund, “BOF”) $14 million in management fees Presently in
Slide 31: Fair value accounting
Fair value accounting • Investments are initially recorded on the balance sheet at cost • Burford adjusts asset values and thus experiences unrealised gains (or losses) only when there is some objective basis in the underlying litigation, such as a court ruling, a settlement offer or a secondary sal
Slide 32: Fair value accounting case studies
Fair value accounting case studies Initial Further Affirmance Matter Funding Funding of liability Settled ● ● ● ● 2012 2013 2014 2014 2015 - $10.0m gross proceeds Deployment $2.9m - $1.0m $6.1m investment profit Fair value adjustment - - - $1.8m (unrealised P&L event) Carrying value of $4.3m realise
Slide 33: Cash availability for deployments
Cash availability for deployments 2018 cash waterfall ($ in millions) $277 $131 33 * Investment deployments in 2018 include $20.7 million warehousing for sovereign wealth fund. This warehousing is shown as a receivable at year-end.
Slide 34: Operating expenses
Operating expenses • Continued investment in the business will continue to see operating expense increase • Principal strategies costs often expensed as operating expense instead of being treated as investments Operating costs to income ($ in millions) 450 $420 30% 26% 25% 400 24% $341 25% 350 300 2
Slide 35: Capital management: Summary balance sheet
Capital management Summary balance sheet ($ in millions) 31 December 2018 31 December 2017 31 December 2016 Assets Investments $1,502 $992 $562 Investment receivables $58 $3 $39 Cash & cash equivalents $277 $131 $169 Other $219 $192 $198 Total assets $2,056 $1,318 $968 Liabilities Loan capital $648
Slide 36: Conservative use of leverage to capture growth opportunity
Conservative use of leverage to capture growth opportunity Long-dated debt maturity (1) Net Debt / Equity Principal Coupon Maturity £90 million 6.500% August 2022 0.45x £100 million 6.125% October 2024 $180 million 6.125% August 2025 0.28x 0.27x £175 million 5.000% December 2026 Current weighted ave
Slide 37: Environmental, social and governance factors
Environmental, social and governance factors Wendy J. Miles QC Brenda Horrigan Tara Lee Faith Gay Sophie Nappert Domitille Baizeau Sue Prevezer QC Partner Head of International Chair Founding Partner International Arbitrator Partner Chair Debevoise & Plimpton Arbitration (Australia) Transnational Li
Slide 38: Appendix
38 Appendix [Burford
Slide 39: Appendix
Appendix * Elimination of third-party interests is the net of the entities and adjustments and eliminations figures shown in Note 21 to the consolidated financial statements. 39 ** Other adjustments exclude the impact of amortisation of the intangible asset and non-recurring investment banking and b
Slide 40: Appendix
Appendix * Elimination of third-party interests is the net of the entities and adjustments and eliminations figures shown in Note 21 to the consolidated financial statements. 40 ** Other adjustment excludes investments that are being warehoused by a wholly-owned group subsidiary company under a forw
Slide 41: Notice and disclaimer
Notice and disclaimer This presentation (“Presentation”) does not constitute or form part of, and should not be construed as, an issue for sale or subscription of, or solicitation of any offer or invitation to subscribe for, underwrite or otherwise acquire or dispose of any securities of Burford Cap
Slide 42: | Burford
| Burford