Litigation Capital Management Ltd · LSE:LIT
Litigation Capital Management — Investor Day (December 2019)
35 slides from Litigation Capital Management's investor day presentation, Dec 10, 2019
Slide 1: Capital Markets Day 10 December 2019
CAPITAL MARKETS DAY 10 DECEMBER 2019
Slide 2: Important notices and disclaimer
Important notices and disclaimer Disclaimer The information in this presentation or on which this presentation is based has been obtained from sources that LIT believes to be reliable and accurate. However, none of LIT, LIT’s directors, officers, employees, its shareholders or any of their respectiv
Slide 3: Long-term, successful track record of LCM
01 LONG-TERM, SUCCESSFUL TRACK RECORD OF LCM Patrick Moloney - CEO
Slide 4: Introduction: 2019 has been a transformational year for LCM
INTRODUC TION 2019 has been a transformational year for LCM 01 02 03 04 05 The systems 2019 was a year LCM is originating LCM’s cost base Having built both and methodologies of investment an ever-growing book is steadily decreasing the management developed over LCM’s in both people and of quality in
Slide 5: Strong international player in highly attractive market
Strong International player in highly attrac tive market Overview Attractive Global Market Delivering outstanding Broad and deep results for management Uncorrelated Countercyclical 21 years capability returns business One of the first Growing player proponents of the with expanding litigation financ
Slide 6: Deep experience & proven investment track record
Deep experience & proven investment track record 205 87% 8-year cumulative portfolio IRR of 8-year Portfolio ROIC of cases completed of funded litigation 1 since inception projects are profitable 80% 135% Commitment to quality Commitment to transparency Resulting financial performance - Between 3-5%
Slide 7: Experienced & proven management team
Experienced & proven management team Investment Team Operations Australia and Asia Susanna Taylor Philip Lomax Justin Ward Siba Diqer Lina Kolomoitseva Roger Milburn Stephen Conrad Tiffany O’Brien Neil Kafer Senior Investment Investment Portfolio Investment Investment Investment Chief Financial Fina
Slide 8: Portfolio funding strategy
Portfolio funding strategy Existing balance sheet and organically generated revenue can support current investment commitments Currently maintain an unlevered balance sheet – no debt Pursuing pool of third party capital where LCM will act as fund manager to supplement capital resources Third party f
Slide 9: Current portfolio fully funded
Current portfolio fully funded Portfolio by industry sector Investment portfolio (estimated A$ capital commitment) ¹ (A$ millions) Balance $114 Balance sheet 12% as at 2 December 2019 6% Organically generated (A$ millions) capital $76 41% $147 million 14% investment portfolio Cash $38 & receivables
Slide 10: Investment commitments precede income generation
Investment commitments precede income generation Theoretical Last completed case Application of funds raised at ASX IPO investment FY19 Class Action LCM balance sheet investments Investment $1m Investment $3.1m Investment #1 $3.1m Investment #2 $3.3m Investment #3 $3.7m Months 0-12 12-24 Total cash
Slide 11: Portfolio growth with proportionally reduced Opex
Portfolio growth with proportionally reduced Opex A$ Millions 160 40% Portfolio under Millions management 34% 140 35% Operating expenses (Opex) 120 30% Portfolio under management 2 Opex as a % of current Opex as % of Current Portfolio portfolio 100 25% Estimated A$ capital commitment1 80 20% of curr
Slide 12: Demonstrated strong capital growth over investment cycle
Demonstrated strong capital growth over investment cycle A$ Millions 100 58% Cumulative total capital Millions Total capital deployed and generated 90 (completed investments) of organically A$90m 80 generated capital Cumulative capital 70 Excess capital deployed (completed investments) generated A$5
Slide 13: Capital growth model
Capital growth model A$ Millions 600 Investment life cycle Cumulative total capital, Millions Theoretical Capital including both deployed Generation on LCM’s and generated2 2.7x 500 Current Portfolio MOIC Cumulative capital 2.35x deployed (completed MOIC investments) 400 2x MOIC 300 200 LCM’s Curren
Slide 14: The key to achieving quality growth
T h e ke y t o a c h i e v i n g q u a l i t y g r o w t h Strong and innovative origination of investment opportunities Consistent and disciplined due diligence and risk management Sufficient and alternate capital to facilitate growth 14
Slide 15: Investment Origination
02 INVESTMENT ORIGINATION Matthew Denney Investment Manager and Head of Origination - EMEA
Slide 16: Origination Sources
Origination Sources Reactive Proactive Solicitors Leveraging specific firm-wide relationships Barristers Driving financing strategies: portfolios, debt recovery, asset finance Insolvency practitioners Finance play (CFO) vs Legal play (GC) Experts Sectoral focus: e.g. construction, Brokers infrastruc
Slide 17: Origination strategy
Origination strategy Increase quality and value Increase diversity Increase number Healthy split between of single-case of cases across type, sector of portfolios single cases opportunities and jurisdiction and portfolios - difference in value and volume New key Responding to – and creating – Sector
Slide 18: Corporate relationship origination strategy
Corporate relationship origination strategy Responding to – and creating – Moving from necessity Efficiency and accounting Asset finance market trends and demands to choice benefits of moving legal spend /monetisation within corporate finance off balance sheet Sustainable evergreen model; Originatio
Slide 19: Single case v Portfolio
Single case v Portfolio Single case Case study High returns - 4x International Arbitration Returns reflect binary outcome Claim value US$80-120m One hit wonders Investment amount US$6.5m Large number of sources for matters Longer duration of investment (25 months) Pricing starting at 2x rising to 4x
Slide 20: Single case v Portfolio
Single case v Portfolio Portfolio Case study Lower returns - 2x Construction industry Much lower risk of capital loss - reduced pricing Book of 7 claimant cases Claim values ranged from US$5m to US$30m Sustainable business model; corporates use again Investment amount US$6m across the book, investme
Slide 21: Target metrics
Target metrics ROIC (135%) Single Cases 3 x Difference between single cases and Pricing depends on risk Protecting investment over time – MOIC portfolios and duration looking at IRR over time; aiming (235%) 2x multiple for single cases to keep above 80% 4x multiple for portfolios at all times Single
Slide 22: Investment Strategy and Process
03 INVESTMENT STRATEGY AND PROCESS Susanna Taylor - Senior Investment Manager
Slide 23: LCM's disciplined project selection: Investment criteria
LCM’s disciplined project selection Investment criteria Clear Legal Principles Proportionality The claim must be based on clear There must be proportionality between legal principles and not any novel the size of the claim and the funding points of law commitment. Many applications for funding are q
Slide 24: Investment process
Investment process LCM only enters into funding agreements in relation to approximately 3-5% of the applications it receives 01 Preliminary due diligence 02 Investment peer review 03 Executive review and investment Investment Manager considers applications for financing against committee approval Re
Slide 25: Investment management: Active project management (APM)
Investment management Active project management (APM) Delivering material What is APM? APM in Practice Benefit for funded parties value add and solutions It is a unique process undertaken by LCM which has been a driver In practice, APM involves: LCM shares insights with the funded party on strategie
Slide 26: Achieving a balanced portfolio
Achieving a balanced portfolio Like any investment manager, LCM seeks to manage the risk of its investments by seeking Portfolio by Type / Industry Sector diversification within its portfolio (number of projects)1 Diversification of investments is sought in terms of: - The size of capital commitment
Slide 27: Capital recovery and protections
Capital recover y and protections Each investment is allocated to an Investment LCM’s Investment Managers are all qualified senior Manager to manage. legal practitioners with significant experience in commercial litigation. 01 02 03 04 05 Continuous Accessing Quarterly update of Monitoring the If th
Slide 28: The Future
04 THE FUTURE Nick Rowles-Davies Executive Vice Chairman
Slide 29: Essentials for success in litigation finance
3 Essentials for success in litigation finance Origination Innovative business development leading to good quality deal flow Capital Underwriting Access to capital Disciplined and rigorous case assessment 29
Slide 30: Origination – A comparison with selected peers FY19
Origination – A comparison with selected peers FY19 Qualified Leads Per Avg IM Qualified Leads By Opex (A$) Applications Per Avg Employee 28 34 335,449 10 15 11 57,380 N/A N/A LCM #1 #2 LCM #1 #2 LCM #1 #2 Applications Per Avg IM Opex Divided By Applications (A$) 64 104,057 73,959 31 18 25,198 LCM #
Slide 31: Diversified current project portfolio
Diversified current project portfolio Portfolio by Type / Industry Sector Portfolio by Type / Industry Sector Portfolio by Region (estimated A$ capital commitment) 1 (number of projects) 2 (estimated A$ capital commitment) 1 Portfolio diversification achieved through 5% - Industry sector 12% 2 - Cap
Slide 32: Investment portfolio opportunities
Investment portfolio opportunities Large and diverse pre -qualified pipeline of investment opportunities Pipeline by Type / Industry Sector Pipeline by Type / Industry Sector (number of projects) (estimated A$ capital commitment) 5 10% 01 Pipeline demonstrates exhibits natural variation 12 41% 22% 0
Slide 33: Geographical expansion of litigation funding
Geographical expansion of litigation funding LEGEND Where funding is happening LCM offices 33
Slide 34: Future outlook
Future outlook Third party fund Geographical expansion of LCM New routes to market Target areas Evolution of litigation funding into a corporate finance vehicle 34
Slide 35: LCM Presenter Bios
LCM Presenter Bios Patrick Moloney Matthew Denney Susanna Taylor Nick Rowles-Davies Chief Executive Investment Senior Investment Executive Officer Manager and Head Manager Vice Chairman of Origination - EMEA Appointed to the LCM board in 2003. Joined as an Investment Manager at LCM’s Susanna joined
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