Burford Capital Limited · LSE:BUR
Burford Capital — Investor Day (May 2016)
63 slides from Burford Capital's investor day presentation, May 2016
Slide 1: Capital Markets Day
Capital Markets Day Burford Capital Limited May 2016
Slide 2: Elizabeth O’Connell CFA, Managing Director
Elizabeth O’Connell CFA Managing Director 2
Slide 3: Burford stock performance
Burford stock performance More than trebled since IPO; annualized return to shareholders above 20% 3.50 3.00 2.50 Stock Price in GBP 2.00 1.50 1.00 0.50 Source: FACTSET 3
Slide 4: Sir Peter Middleton GCB, Chairman
Sir Peter Middleton GCB Chairman 4
Slide 5: Forbes quote on Burford results
“Burford has reported eye-catching results and profits aren’t correlated with the economy or stock market.” – Forbes, 8 February 2016
Slide 6: Board of Directors
Board of Directors Sir Peter Middleton GCB Hugh Steven Wilson David Lowe OBE Charles Parkinson Chairman Vice Chairman Director Director Sir Peter has served as UK Mr. Wilson is a Senior Advisor Mr. Lowe was until his 2011 Mr. Parkinson was the Minister Chairman of Marsh & at Tennenbaum Capital retir
Slide 7: Christopher Bogart, Chief Executive Officer
Christopher Bogart Chief Executive Officer 7
Slide 8: Financial Times quote: shares a Buy
“The increase in investments and potentially lucrative exposure to immature markets makes the shares a Buy.” – Financial Times, 2 April 2016, with share price at 290p
Slide 9: 2015 Highlights
2015 Highlights Operating Income 82.0 profit in millions 34.1 from litigation finance investments 2011 2012 ° [Burford
Slide 10: Reported use of litigation finance has grown significantly
Reported use of litigation finance has grown significantly—4 times as many lawyers say their firms have used litigation finance directly vs. 2013 28% 11% 7% 2013 2014 2016 Source: Burford’s 2016 Litigation Finance Survey 10
Slide 11: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 65 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 12: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 13: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 14: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 15: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 16: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 17: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 18: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 19: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 20: The leading team in the industry
The leading team in the industry Christopher P. Bogart Jonathan T. Molot Nick Rowles-Davies Aviva O. Will 60 people — Chief Executive Officer Chief Investment Officer Managing Director Managing Director Former EVP & General Counsel, Professor of Law, Author, Third Party Litigation Former Assistant G
Slide 21: Hugh Steven Wilson, Vice Chairman
Hugh Steven Wilson Vice Chairman 21
Slide 22: Freshfields quote on funding claims
“ To our ears, the concern sometimes expressed that funding breathes life into unmeritorious claims rings false.” – Freshfields
Slide 23: A growing number of lawyers are discussing financing
A growing number of lawyers are discussing financing—55% have talked to their clients about litigation finance 55% Source: Burford’s 2016 Litigation Finance Survey 23
Slide 24: Christopher Bogart, Chief Executive Officer
Christopher Bogart Chief Executive Officer 24
Slide 25: Law industry: a slumbering giant now awakening
Law industry A slumbering giant now awakening $800 billion Estimated global annual revenues 34 law firms With annual revenues over $1 billion 5 law firms Eligible for the FTSE 100 Profitable Average profit margin of AmLaw 50 = 41% Despite the size of the industry, little historical use of outside ca
Slide 26: Financing benefits market value
Financing benefits market value THE REAL COST OF LITIGATION CLIENT CASH PAY BURFORD FINANCING Avoiding the P&L Annual Cost to Litigate impact of ongoing $10 million Nothing—Burford’s capital replaces P&L expense litigation spending Market value impact #1 has substantial value At a 20x P/E, the By us
Slide 27: Investment Case
Investment Case Automatic exits result in medium duration portfolio • Litigation returns: fundamentally uncorrelated with automatic exits • Consistently cash generative – $140 million in cash receipts in 2015 alone – 40% of lifetime recoveries in 2015 from 16 different investments • Duration of conc
Slide 28: Burford Milestones
Burford Milestones 22 May 2010 19 Aug 2014 28 Oct 2015 First return First bond Hausfeld on investment issued German Venture 29 Feb 2012 30 Jul 2015 Acquisition Chilmark of FirstAssist insolvency JV 21 Oct 2009 27 Jun 2013 Jan 2016 IPO First UK $100m Portfolio funding return Financing 2009 2016 Nov 2
Slide 29: Jonathan Molot, Chief Investment Officer
Jonathan Molot Chief Investment Officer 29
Slide 30: Rio Tinto counsel quote on litigation funding
“ We run large claims in the same way as other projects. Litigation funding is highly relevant, just like funding for any other investment or project.” Cameron Ford, Corporate Counsel, Rio Tinto
Slide 31: Clients are feeling the squeeze
Clients are feeling the squeeze—94% of clients say increased pressure on legal budgets, staffing and spending is a challenge. 94% Source: Burford’s 2016 Litigation Finance Survey 31
Slide 32: Portfolio: scale and diversification
Portfolio: scale and diversification Current portfolio has 54 investments and more than 500 cases Lifetime capital to litigation investments at the $1 billion mark $100+ $627+ $207 $320 Outstanding Undrawn Early 2016 Current Investments Commitments Investments Portfolio ($ in millions) 32
Slide 33: Why portfolio deals?
Why portfolio deals? Burford has led the dramatic evolution in litigation finance Current portfolio commitments New commitments made in 2015 Complex Complex 24% 23% Multi-case Portfolio 44% Single Case Multi-Case 13% Portfolio 64% Single Case 32% 33
Slide 34: Case study: Reducing legal spend
Case study: Reducing legal spend Provided portfolio financing covering half of legal costs • Investment was across 11 separate matters – Burford agreed to cover half the legal fees in return for 17.5% of the recoveries • Ultimately invested $10 million (with a commitment of $30 million) • Burford ge
Slide 35: Case study: US bank portfolio
Case study: US bank portfolio Financed portfolio of claims being pursued by US bank • Even large businesses with low cost of capital find litigation finance appealing for budget and P&L reasons • Claims were against a number of defendants but all related to same matter – This is unlike many of our p
Slide 36: Case study: Major global law firm
Case study: Major global law firm Provided portfolio financing to a major global law firm • $100 million transaction in January 2016 • Large, widely diversified portfolio of matters – Further details confidential of this ongoing investment • Illustrative of evolution of the litigation finance market
Slide 37: Aviva Will, Managing Director
Aviva Will Managing Director 37
Slide 38: Rigorous investment process
Rigorous investment process • Thorough in-house investment process with progressive diligence: – Assess legal merits – Evaluate settlement prospects, values, adjudication outcomes – Financial diligence of claimant and defendant – Industry and situational diligence – Assess counsel, case strategy – D
Slide 39: Investment management
Investment management Outlay of investment Case progresses through Resolution capital litigation process • Terms typically include first dollar return of capital and preferred Trial or other adjudication: Win, return, followed by varying damages awarded and collected. shares of proceeds from Burford
Slide 40: Jonathan Molot, Chief Investment Officer
Jonathan Molot Chief Investment Officer 40
Slide 41: Strong portfolio returns
Strong portfolio returns Burford has the industry’s largest diversified portfolio • Through the end of December 2015 the investment portfolio has had: – 42 investments conclude, generating – $348 million in gross investment recoveries and – $143 million net of invested capital • Generated 70% ROIC a
Slide 42: Performance: benefits from diversification
Performance: benefits from diversification 42
Slide 43: Q&A and Break
Q&A and Break 43
Slide 44: Christopher Bogart, Chief Executive Officer
Christopher Bogart Chief Executive Officer 44
Slide 45: American Lawyer quote on litigation funding
“ Big Law Warms Up to Litigation Funding, Burford Survey Finds… The survey’s findings are hardly a surprise, given the recent explosive growth of Burford” American Lawyer, 4 May 2016
Slide 46: Nick Rowles-Davies, Managing Director
Nick Rowles-Davies Managing Director 46
Slide 47: Awareness and use of litigation funding among UK corporates is high
Awareness and use of litigation funding among UK corporates is high 58% have heard of litigation funding 22% discussed the use of litigation funding 9% used litigation funding Source: Burford’s 2016 Litigation Finance Survey 47
Slide 48: Case study: UK corporate client
Case study: UK corporate client Transforming how a FTSE 20 company finances litigation • Burford committed $45 million in financing to help a FTSE 20 company transform how it manages litigation expense • Instead of continuing to pay for the significant legal fees and expenses associated with litigat
Slide 49: Case study: Innovative insolvency
Case study: Innovative insolvency Meeting the needs of professionals like Grant Thornton • Burford provided a £9 million facility to Grant Thornton for its use in administering a complex estate • Facility available for claim prosecution but more significantly for the defense and adjudication of clai
Slide 50: Geographic expansion to meet global demand
Geographic expansion to meet global demand Burford continues to expand to respond to client demand Investments: Parties Inquiries and Jurisdictions 50
Slide 51: Daniel Hall and Michael Redman, Directors
Daniel Hall Director Michael Redman Director 51
Slide 52: Judgment enforcement
Judgment enforcement Asset tracing, enforcement expertise to monetize “legal paper” • Companies worldwide face the challenge of collecting on litigation and arbitration awards from fraudsters and judgment debtors who won’t pay • Clients face significant hurdles in locating funds and enforcing judgme
Slide 53: 58% of corporates have not been paid full value of a judgment
58% of corporates surveyed have not been paid the full value of a litigation or arbitration judgment in the last five years 58% Source: Burford’s 2016 Litigation Finance Survey 53
Slide 54: Judgment enforcement
Judgment enforcement Asset tracing, enforcement expertise to monetize “legal paper” • Capabilities include: – Asset-tracing – Dispute and counterparty intelligence – Recoverability risk assessment – Enforcement – Strategic case management • Burford is uniquely positioned in the 94% of clients say in
Slide 55: Ross Clark, Chief Risk Officer
Ross Clark Chief Risk Officer 55
Slide 56: Insurance: A successful investment
Insurance: A successful investment Burford acquired the insurance business in February 2012 for an effective cash price of $18.75 million • Since the acquisition, the insurance business has produced income of $74 million and operating profit of $54 million • Still has a significant contribution to m
Slide 57: Risk management
Risk management Disciplined management of business and systemic risk • Investment assessments – Disciplined and multi-staged evaluation process • Investment portfolio monitoring – Internal proprietary risk-based tool that monitors risk of the entire portfolio in addition to changes in the risk profi
Slide 58: Christopher Bogart, Chief Executive Officer
Christopher Bogart Chief Executive Officer 58
Slide 59: Regulation and public policy
Regulation and public policy • Burford is subject to formal regulation from the following – The insurance business is regulated by the Financial Conduct Authority (FCA) – The fledgling UK legal business is regulated by the UK’s Solicitors Regulation Authority – As an issuer of public securities Burf
Slide 60: Christopher Bogart and Jonathan Molot
Christopher Bogart Chief Executive Officer Jonathan Molot Chief Investment Officer 60
Slide 61: American Lawyer on record earnings
For the fourth year running, litigation funding giant Burford Capital has reported record earnings. And the company is deploying its investments in increasingly audacious ways, marking a bold scaling up for the New York-based company as they move away from underwriting riskier one- off suits towards
Slide 62: Significant profit growth
Significant profit growth Growth in profits underpins dividend increase • $77.2 million operating profit – 27% increase over 2014 ($60.7m) – 75% operating margin 10.5pt Arial • EPS increased 42% to 31.52¢ XX% • 16% book ROE and 20% cash ROE • 8¢ dividend per share fueled by increased profitability –
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