Burford Capital Limited · LSE:BUR
Burford Capital — FY2016 Earnings Presentation
25 slides from Burford Capital's earnings presentation, March 2017
Slide 1: Investor Presentation: 2016 Results
Investor Presentation: 2016 Results Burford Capital Limited March 2017 This presentation is for the use of Burford’s public shareholders and is not an offering of any Burford private fund.
Slide 2: Press quote on the Burford-Gerchen Keller deal
“ It is doubtful the market has yet appreciated the benefits of the [Burford- Gerchen Keller] deal, in a market that can only continue to grow.” – The Times, 2 January 2017
Slide 3: 2016 Business highlights
2016 Business highlights Income Profit after tax1 Cash receipts $ in millions $ in millions $ in millions 163.4 115.1 216.1 146.4 103.0 65.7 82.0 54.2 54.2 60.7 40.2 31.5 65.5 31.9 17.7 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Total assets New litigation investment
Slide 4: Equity highlights
Equity highlights • $1.9 billion market capitalisation (£1.5 billion) • Total shareholder return – Since January 2016: 284% – Since 2009 IPO: 754%; 34% annualised • 24 members of management team own 14.4% of shares outstanding – Share-based LTIP launched this month for all employees • Liquid, tradea
Slide 5: Law is an enormous market
Law is an enormous market Despite the size of the legal industry, there is little use of outside risk capital We believe the litigation finance market remains at the early-adopter stage • Law firms – Globally, annual revenues from law firms are enormous – in the hundreds of billions of dollars – The
Slide 6: Legal finance: Desirable for all stakeholders
Legal finance: Desirable for all stakeholders For investors For law firms For corporate clients • Uncorrelated, desirable • Preserves traditional • Budget and liquidity returns driven by business model while management; ability to structural advantages of enabling firms to meet prioritise business l
Slide 7: Burford: Global leader in finance for law
Burford: Global leader in finance for law Burford acquired Gerchen Keller Capital, an investment manager with $1.3 billion AUM, on 14 December 2016, combining the world’s largest public direct investor and the world’s largest private fund manager in the sector • Combined firm has $2.3 billion invest
Slide 8: Continued strong portfolio results …
Continued strong portfolio results … Concluded litigation Cash receipts from litigation investments investment performance $ in millions 70 190.3 57 60 60 52 140.2 26 28 27 22 24 63.0 31.9 17.7 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 ROIC (percent) IRR (percent) Unrealised gains in litigat
Slide 9: … driving earnings growth
… driving earnings growth Litigation investment income and operating profit $ in millions 140.2 114.2 87.9 72.2 48.1 38.8 32.5 36.1 29.8 21.3 2012 2013 2014 2015 2016 Litigation investment income Litigation investment operating profit 9
Slide 10: Growth in new business seeds future results
Growth in new business seeds future results New litigation investment Composition of new litigation investment commitments by year commitments made in 2016 $ in millions 378 206 Portfolio & Single complex 12% 153 88% 72 46 2012 2013 2014 2015 2016 10
Slide 11: Large, growing litigation investment portfolio
Large, growing litigation investment portfolio Continuing global expansion: 20% of total commitments non-USD $290m $839m $549m Current Undrawn Litigation investments commitments investment portfolio 11
Slide 12: Secondary market transaction: Petersen claims
Secondary market transaction: Petersen claims Burgeoning secondary market showing development potential • Petersen claims: classic asymmetrical litigation investment, with moderate invested cost and significant potential upside • Positive developments in 2016: US federal court rejected motion to dis
Slide 13: GKC acquisition – merger of two leading firms
GKC acquisition – merger of two leading firms • Captures benefits of scale by combining the complementary operations of the two largest legal finance firms – Portfolio diversification, market coverage and a deep bench – Potential for increased capital deployment for both public and private investors
Slide 14: Early demonstration of multi-source potential
Early demonstration of multi-source potential A rapid win on a matter shows the benefit of multiple capital sources • Monetisation of an insolvency appellate matter – MagCorp – $26 million in capital sought for binary risk investment – Too large an investment for any single pool of capital given the
Slide 15: Public and private capital combined: Greater versatility, profitability and stability
Public and private capital combined: Greater versatility, profitability and stability Management fees: 1 – 2% Annually Investment returns Burford Capital Performance fees: 15 – 50% Carry (1) Burford Capital Gerchen Keller Capital Pre-Settlement Post- Other “Litigation Finance” Settlement Investments
Slide 16: Investment funds: Diversified fee income
Investment funds: Diversified fee income The funds can be expected to earn considerable management and performance fees on $1.3 billion in AUM Pre-Settlement Post-Settlement Other Investments “Litigation Finance” Investor commitments $787 million (1) $416 million $300 million (2) Weighted average ma
Slide 17: Performance fees: Significant potential earnings
Performance fees: Significant potential earnings European structure delays recognition of performance fees Key Inputs Illustrative Financial Impact A Amount of capital invested $100 Yearly Management Fee B Weighted average management fee 1.4% A B C Historical pre-settlement ROIC 52% $1.40 $100 1.4%
Slide 18: Judgment enforcement / Asset recovery
Judgment enforcement / Asset recovery • 2016 saw the successful Judgment enforcement income $ in millions conclusion of an investment that showcased our ability to $6.4 integrate litigation finance and judgment enforcement to generate a net profit of $12.1 million; details in the annual report $0.6
Slide 19: Insurance business: Continuing returns
Insurance business: Continuing returns Strong 2016 results: Operating profit up 10% in USD terms and 25% in GBP terms Cumulative income and operating profit show acquisition success given $18.75m purchase price $ in millions 87.1 74.2 64.4 61.4 53.2 43.0 37.1 24.0 16.2 11.1 2012 2013 2014 2015 2016
Slide 20: Capital and risk management
Capital and risk management • $144 million second bond issue raised in 2016 – 8½ year term with 6.125% coupon • Total debt now $274 million vs. total assets of $968 million • Balance sheet continues low leverage – 0.3x leverage – Further debt capital possible to finance growth • Sterling decline has
Slide 21: Well-controlled operating expenses
Well-controlled operating expenses Operating expenses as a percent of income have steadily declined 163.4 37.1% 103.0 29.9% 82.0 60.7 54.2 26.0% 25.1% 23.9% 2012 2013 2014 2015 2016 Total income Operating expense $ in millions as a % of income 21
Slide 22: Summary income statement
Summary income statement ($’000) 2016 2015 Litigation investment income 140,187 87,877 Insurance income 12,923 12,763 New initiatives income 8,849 2,510 Investment management income 647 – Cash management income and bank interest 555 671 Foreign exchange gains/(losses) 242 (814) Total income 163,403
Slide 23: Summary balance sheet
Summary balance sheet 2016 2015 $‘000 $‘000 Non-current assets Litigation investments 559,687 334,212 New initiatives investments 2,337 3,509 Due from settlement of litigation investments 29,814 30,421 Goodwill 133,932 1,109 Intangible asset 39,395 - Other non-current assets 11,654 2,533 776,819 371
Slide 24: Investment performance
Investment performance # of Total Total Total $ in millions ROIC IRR investments commitment invested recovered Concluded 3 11.5 11.5 40.1 251% 32% Partial realisation - - - - Ongoing - - - - 2009 VINTAGE TOTAL 3 11.5 11.5 40.1 251% 32% Concluded 11 66.6 55.0 67.0 22% 9% Partial realisation - - - - O
Slide 25: 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 Ca