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RNS
Litigation Cap. Mgmt   -  LIT   

Half-year Report

Released 07:00 04-Mar-2019

RNS Number : 6788R
Litigation Capital Management Ltd
04 March 2019
 

4 March 2019

Litigation Capital Management Limited

("LCM" or the "Company")

 

Interim results for the six months ended 31 December 2018

 

Litigation Capital Management Limited (AIM:LIT), a leading international provider of litigation financing solutions, today announces its reviewed interim results for the six months ended 31 December 2018.

 

Figures in A$ million, unless otherwise stated1

 

Six months ended

31 December 2018

Six months ended

31 December 2017

Change

%

Statutory Revenue2

Adjusted Revenue3

 

18.50

11.71

6.59

0.10

181%

11498%

Gross profit2

 

5.67

0.03

18,521%

Adjusted profit before tax4

 

2.72

(1.62)

268%

Adjusted diluted EPS (cents per share)5

 

4.20

(2.88)

246%

Statutory profit before tax

 

1.05

(1.73)

160%

Diluted EPS (cents per share)

 

1.26

 (2.25)

156%

Net tangible assets per ordinary share (%/share)

0.44

 (0.13)

438%

Net cash

 

52.60

0.42

12,407%

Capital deployed on litigation investments6

Litigation investments7

 

12.83

 

20.70

6.56

 

18.96

96%

 

9%

Total equity

Cash receipts from the completion of litigation investments8

 

70.28

11.0

 

15.44

0.10

 

355%

10,786%

 

 

 

 

 

 

 

Notes:

¹ LCM reports on a cash accounting basis (historical cost), there are no fair value adjustments included in its financials

2 Refer Note 5 in the Notes to the Financial Statements for further detail on these items

3 Adjusted to exclude the impact of the adoption of AASB 15 Revenue from Contracts with Customers which grosses up the revenue line for capital deployed during the year on investments yet to be realised

4 Adjusted for foreign exchange loss, IPO expenses, share based payments expense, non-recurring legal fees on litigation, provision for employee entitlements, non-recurring consultancy fees

5 Adjusted diluted earnings per share is a calculation of adjusted profit after tax divided, excluding income tax expense as it wholly comprises movements in deferred taxes, by the weighted average number of shares ordinary shares and the effect of dilutive securities, being options and loan plan shares on issue which for H1 2019 equates to 64,900,962 shares

6 Capital deployed on litigation investments amount of $12.83 million (H1 2018: $6.56 million) is disclosed as Litigation Service Revenue in Note 5 of the Notes to the Financial Statements and Litigation Service Expense in the Consolidated Statement of Profit and Loss

7 Litigation investments equates to the total of current contracts assets and non-current contract assets on the Consolidated Statement of Financial Position

8 Cash revenue equates to cash proceeds in relation to the completion of litigation investments in the Consolidated Statement of Cashflows (Cash flows from operating activities). The cash amount of $11.0m is net of any direct outstanding accounts payables on those matters at time of completion, noting that on an accrual basis this amount, including payables, is $11.71m

 

 

Company highlights

§ Strong performance and significant operational expansion to achieve global platform covering Australia, EMEA and Asia Pacific

Establishment of London office and recruitment of highly experienced team led by Nick Rowles-Davies, Executive Vice Chairman, to service the EMEA region

Establishment of Singapore office and recruitment of highly experienced team leader to service the growth markets of Singapore and Hong Kong

§ LCM funded its first corporate portfolio transaction in October 2018; adding to the small number of corporate portfolio transactions that have been funded globally since 2016

§ Increased investment pool and achieved significant diversification in our portfolio and pipeline by geography and jurisdiction, as well as sector and capital commitment

§ Continued growth of pipeline of investment opportunities with noticeable increased levels of interest following AIM listing

§ Delisted from Australian Securities Exchange and listed on AIM in December 2018; raising circa A$35 million (£20 million) of primary equity, following a raise of A$10 million on the ASX in the period

 

Financial highlights

§ Adjusted profit before tax of A$2.72 million increase of 268% (H1 2018: Adjusted loss A$1.62 million)

§ Adjusted revenue from the completion of litigation investments of A$11.71 million (H1 2018: A$0.10 million)

§ Statutory profit before tax increased by 160% to A$1.05 million (H1 2018: loss of A$1.73 million)

§ Capital deployed into litigation investments increased by 96% in the period to A$12.83 million (H1 2018: $6.56 million)

§ Cash on balance sheet of $52.60 million and total litigation investments of $20.70 million

·     Significant capital available to expand LCM's portfolio of investment opportunities, including eight projects which are at an advanced stage of due diligence

§ Cumulative ROIC since FY12 of 117% (including losses) and portfolio IRR, since FY12, of 78% (including losses)

§ Interim dividend of 0.506 cents (Australian) per share; consistent with progressive, but measured dividend policy

 

Patrick Moloney, CEO of LCM, said:

"We are delighted to present our first set of financial results as an AIM-listed company. The strength of our performance is reflective of the consistent approach and focus we have ensuring that we continue to deliver strong returns across our existing portfolio. We have significantly expanded our operations to create a truly global platform for LCM.

 

"Our listing on the London Stock Exchange was a key milestone for the company and raised necessary capital to help fund future litigation projects and investments. Since LCM has become a London listed company, we have already seen a notable increase in the litigation funding products that we offer across the mix - including single case, portfolio and corporate transactions.

 

"Our geographical expansion, with new offices in both London and Singapore, has naturally seen the team grow and industry leading experienced individuals have been added to the Board and senior management team. This has created a strong foundation for LCM to continue to pursue exciting growth opportunities and maintain its position as a leader in the growing litigation finance market."

 

CONTACTS

Litigation Capital Management

Patrick Moloney, Chief Executive Officer

Nick Rowles-Davies, Executive Vice Chairman

 

Canaccord (Nomad and Broker)                       Tel: 020 7523 8000

Sunil Duggal / Emma Gabriel

 

 

Hawthorn Advisors                                             lcm@hawthornadvisors.com

Lorna Cobbett / Zinka MacHale                           Tel: 020 3745 4960

 

NOTES TO EDITORS

 

About LCM:

Litigation Capital Management ("LCM") is a leading international provider of litigation financing solutions. This includes single-case and portfolio; across class actions, commercial claims, claims arising out of insolvency and international arbitration. LCM has an unparalleled track record, driven by effective project selection, active project management and robust risk management. Headquartered in Sydney, with offices in London, Singapore, Brisbane and Melbourne, LCM listed on AIM in December 2018, trading under the ticker LIT. www.lcmfinance.com

 

The Director's Report, which includes the Auditors Review Report, is available on the Company's website, at www.lcmfinance.com/shareholders/financial-statements/.

 

PROJECT AND PIPELINE UPDATE

 

As at 26 February 2019, LCM has a portfolio of 24 current projects under management. 17 litigation projects are unconditionally funded and seven projects conditionally signed. The balance of investment to be made in current portfolio is A$70.1 million; conditional and unconditional. At the time of listing on AIM in December 2018, LCM had a portfolio of 21 projects under management.

 

LCM is in advanced negotiations and has term sheets issued with respect to a further eight projects. Project and pipeline opportunities are well diversified by litigation type and geography; while maintaining a disciplined project selection. LCM has pre-qualified 64 pipeline projects with estimated investment of A$409 million.

 

LCM completed three litigation projects or investments during H1 2019. Two of the litigation projects completed during the financial period generated high return metrics predominately in line with LCM's ongoing performance. The project which completed in October 2018 generated revenue to LCM of A$9.7 million and contributed A$4.1 million to EBITDA. The project was for a single case in Australia and generated an IRR of 86%, ROIC of 88% and the total time to completion was 27.4 months.

 

The project which completed in December 2018 generated exceptional returns. It contributed revenue of A$2 million and A$1.6 million to EBITDA. The characteristics of this project to fund an international arbitration case were unremarkable and comparable to other projects previously funded by LCM. However, the project concluded within a very short period of time and is reflective of LCM's active project management approach in an opportunistic situation. LCM generated an exceptional return after making a modest investment and given these circumstances, it is not possible to disclose a meaningful IRR as the percentage is simply just too large. ROIC was 5613% with a total time to completion of 2.1 months.

 

The other project was not on LCM's balance sheet (it was funded by our International Funding Partner subject to the joint venture arrangement as previously disclosed) and did not contribute to financial performance. This project was the second last litigation project subject to the joint venture arrangement with LCM's international funding partner and the project resulted in a loss of A$0.15 million. The final litigation project in that joint venture is forecast to complete this financial year.

 

LCM funded its first corporate portfolio transaction in October 2018, comprising both litigation and arbitral disputes relating to building and construction for a single corporate entity. The provision of litigation finance products to large, sophisticated and well-capitalised corporate entities constitutes a significant opportunity for LCM and through the experience of Nick Rowles-Davies, Executive Vice Chairman, based in LCM's new London office, the Company is actively pursuing corporate portfolio transactions, and will continue to do so going forward.

LCM possesses one of the largest pools of experience in relation to corporate portfolio transactions globally and is presently considering eight significant corporate portfolio transactions as part of its pipeline of investment opportunities. The Company is confident that it will continue to invest further in opportunities to fund corporate portfolio transactions. 

 

The current pipeline demonstrates the very large and diverse pre-qualified investment opportunities within the Company. In addition to the eight corporate portfolio transactions, the current pipeline includes projects across the mix of litigation financing: commercial (27), international arbitration (17), insolvency (six), class actions (five) and law firm funding (one).

 

STRATEGIC UPDATE

 

During the half year period, LCM achieved significant growth in its operations, opening offices in both London and Singapore, establishing a global litigation finance platform across the Australia, EMEA and Asia Pacific regions. LCM launched an office in London to service the key growth region of EMEA. LCM secured a highly skilled and experienced team in London led by Nick Rowles-Davies, giving the Company a strong and immediate presence in the region. Nick brought to LCM a team of highly experienced practitioners in litigation finance and a wealth of experience in funding, not only in relation to single case funding but also corporate portfolio funding in London, Europe and the Middle East. LCM expects corporate funding to become a source of future growth and driven by the extensive expertise in this area of litigation finance that the Company now has through its London office.

 

In addition, legislation was passed in the jurisdictions of both Singapore and Hong Kong during the 2017 calendar year to permit litigation funding and finance products to be utilised in association with international arbitration projects. Ahead of the legislation being passed, LCM anticipated these changes and began its search for the appropriate team to represent LCM's interest in those jurisdictions. Roger Milburn was appointed to lead the Singapore office that was formally opened in November 2018, which services both Singapore and Hong Kong; which are viewed as key growth markets for the Company.

 

In December 2018, LCM was listed on AIM in London and delisted from the ASX, creating a new primary listing location for the Company amongst other listed litigation finance peers. Upon admission to trading on AIM, LCM raised capital by way of a primary equity offering of £20 million (c. A$35 million). This capital raise took place in extremely turbulent market conditions, demonstrating not only the strength of LCM's brand and offering, but a strong commitment by investors to the litigation finance asset class.

 

In expanding its operations, LCM has become a global provider of litigation funding and finance solutions to the legal profession and for disputes generally. LCM is proud to have been part of one of the pioneers of an industry which has grown exponentially in recent years.

 

Board and management changes

 

The Board and management team of LCM was expanded in December 2018, following the Company's listing on AIM and the expansion to create a global platform across Australia, EMEA and Asia Pacific.

 

Nick Rowles-Davies was appointed Executive Vice Chairman with responsibility for leading the newly formed EMEA team at LCM, based out of the London office. Nick is an industry pioneer and has been involved in the litigation finance and legal expenses insurance industries since 1999; he created and defined the concept of corporate portfolio litigation finance and is the global leader in identifying, creating and executing litigation finance portfolios. Nick was appointed to the Board in the period.

 

Stephen Conrad was appointed to the Board at the Company's AGM in November 2018 and is responsible for finance, operations, compliance and risk. He has 25 years' Investment Banking experience, specialising in risk management, governance and capital optimisation across a wide variety of industry sectors working for global banks in Singapore, Hong Kong and Sydney. Stephen is an Executive Director and Chief Financial Officer.

 

LCM appointed Jonathan Moulds as Non-Executive Director in December 2018. Jonathan is currently Non-Executive Director of IG Group Holdings Plc and recently served as the Chief Operating Officer of Barclays PLC. Prior to his role at Barclays, he was head of Bank of America's European business until 2013 and became Chief Executive Officer of Merrill Lynch International following the merger of the two institutions in 2008.

 

Additionally, Roger Milburn was appointed in November 2018 to lead LCM's Singapore office, which opened in November 2018 and will service the Singapore and Hong Kong markets. Roger is an arbitration specialist who for over 10 years has been conducting a broad range of high value, complex, cross-border disputes with a focus in the energy, natural resources, financial and technology sectors.

 

FINANCIAL REVIEW

 

In the half year period, LCM generated statutory revenue of A$18.50 million which amounted to an increase of 181% compared to the prior year. LCM's adjusted revenue was A$11.71 million (H1 2018: $0.10 million). Of this revenue, a contribution of A$5.67 million (before overheads) was made to LCM's EBITDA; which also compared favourably to the same period last year (H1 2018: $30,428).

 

As at 31 December 2018, LCM had net cash of A$52.60 million (H1 2018: A$0.42 million) and deployed capital of $12.83 million during the period, representing an increase of 96% on capital deployed (H1 2018: A$6.56 million). Total investment in litigation projects was A$20.70 million as at 31 December 2018 (H1 2018: A$18.96 million).

 

At the end of the financial period, LCM's running IRR calculated over the past 7.5 years (inclusive of losses) was 78%. Similarly, LCM's running ROIC was 117%. Both the IRR and ROIC are exceptional figures for the industry and are testament to the consistent quality of LCM's approach to funding litigation projects and investments. There will be inevitable fluctuations in these metrics, but LCM will continue to provide strong returns over a reasonable investment period. The average time to completion remains 27 months.

 

The significant changes that have occurred during the financial period are the establishment of offices in both London and Singapore and the associated expansion of headcount, together with an enlarged board consistent with the AIM listing. The opening of these offices and the resulting increase in employees will increase LCM's base operational expenditure on an ongoing basis but will also yield significant revenue growth opportunities. The underlying operating cost base for LCM is anticipated to be A$9.5-10 million for the year. This will include supporting a revised and refreshed new business approach to maximise the growth opportunities available to LCM. A point that has been already reinforced by the level of inbound queries resulting from LCM now being a London listed entity.

 

The operation of a global litigation finance business is capital-intensive. The listing of LCM on AIM provides access to capital to match the current and future pipeline. The Company continually reviews its capital sources and allocation into investments. LCM is currently in the process of raising a third-party fund, which will be managed by the Company in return for a management fee and performance fee. The third-party fund is expected to complete during the calendar year 2019 and will provide new capital to prosecute new financing opportunities.

 

Dividend

 

LCM announces an interim dividend of 0.506 cents (Australian) per share, or A$550,000 based on the current issued share capital of the Company, that will be paid in respect of the financial period ending 31 December 2018.

 

The ex-dividend date is 23 May 2019 with a record date of 24 May 2019. The associated payment date is 21 June 2019. The Board anticipates establishing a dividend reinvestment plan such that shareholders who receive their dividend in GBP or AUD can choose to elect to participate in such a plan in relation to any future dividends.

 

Shareholders on the Australian Register

·     The dividend will be paid on 21 June 2019 in Australian dollars to holders on the Australian share register as at 24 May 2019. 

 

Shareholders on the Guernsey Register and Depositary Interest holders

·     The dividend will be paid on 21 June 2019 in Sterling to holders on the Guernsey share register and within the Depositary Interest facility as at 24 May 2019.  The Sterling rate will be announced in due course.

·     The dividend is capable of being paid in Australian dollars, provided that the relevant shareholder has registered to receive their dividend in Australian dollars under the Company's Dividend Currency Election form by the close of business on 31 May 2019.

·     A copy of the Dividend Currency Election form, which when completed should be sent to Link Asset Services, The Registry, Beckenham Road, Beckenham, Kent, BR3 4TU, can be found on the Company's website at https://www.lcmfinance.com/.

 

In keeping with the dividend policy set out in the Company's Admission document, the Board looks to adopt the appropriate balance between capital investment and dividend payment by implementing a progressive, but measured, dividend policy going forward.

 

Forecasting and guidance

LCM has long experience in the provision of litigation funding and finance products to the market. Indeed that experience extends right back to the inception of the industry in the late 1990's.  That experience enables LCM to observe, with some confidence, that accurate forward forecasting is exceptionally difficult to achieve.  It requires the financier to accurately predict when a particular project, or portfolio of projects will come to a conclusion either through a negotiated settlement of the dispute or an adjudication by a court or tribunal.  Secondly, it requires the financier to predict what the quantum of such a resolution might be either as a negotiated settlement or as an award by the court.  Given the myriad of outcomes that one might have in respect of such an investment into litigation, it is simply not reasonable or responsible for us to provide forward forecasting.  That is an approach and position which is shared with our listed peers.

LCM acknowledges with gratitude the invaluable assistance provided by analysts who diligently prepare research on its business.  Having regard to the observations made above concerning the fragility of accurate forward forecasting, investors should take that into account when considering forward forecasting contained in research reports or research notes.

Items excluded from adjusted profit figures

 

Certain items not directly related to the trading business or regarded as exception in nature have been removed from the adjusted profit figure to provide greater understanding of the Company's underlying performance. The main adjustments are as follows:

 

Profit before tax

§ Foreign exchange loss - A$0.10 million of foreign exchange losses were primarily unrealised losses from movements in accounts payable relating to litigation projects

§ IPO expenses - A$0.23 million relates to the Group's delisting from the ASX and admission to AIM and therefore non-recurring

§ Share based payments expense - A$0.12 million of expense relate to grants of loan plan shares to directors and senior management in 2017, 2018 and H1 2019

§ Legal fees on litigation - A$0.53 million in legal fees relates to costs of litigation which are non-recurring in nature

§ Provision for employee entitlements - A$0.11 million relates to the provision for holiday leave and long service leave which is incurred only once paid however this movement also includes an adjustment for wage increases

§ Consultancy fees - A$0.58 million relates to consultants engaged during the IPO process which are non-recurring

 

Profit after tax

§ Income tax expense - the company reports metrics on profit before tax, as opposed to profit after tax, as at this time the reported income tax expense wholly comprises movements in deferred taxes which primarily relates to the derecognition of tax losses from prior years which is a non-cash item. Deferred tax movement represented as the income tax expense for H1 2019 is A$0.23 million

 

Impact of IFRS 15 (Revenue from Contracts with Customers)

 

LCM adopted AASB 15 "Revenue from Contracts with Customers" with effect from 1 July 2018 and has adopted the new requirements retrospectively and has restated comparatives. The impact on gross revenue and the litigation service expense is an increase on both of A$12.83 million (ultimately nets off to $nil) for the six months to 31 December 2018, which represents capital deployed LCM on litigation investments during the period (H1 2018: A$6.56 million). Under the accounting policy before the adoption of AASB 15, the income on litigation projects, net of capital previously deployed on those projects, would have been A$5.67 million (H1 2018: A$0.03 million).

 

 

 

LITIGATION CAPITAL MANAGEMENT LIMITED

ABN 13 608 667 509

 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

 

 

 

Consolidated Half-Year

 

 

Dec 2018

A$

 

Restated

Dec 2017

A$

 

Note

 

 

 

Revenue

5

18,500,625

 

6,590,393

Litigation service expense

 

(12,834,491)

 

(6,559,965)

Gross profit

 

5,666,134

 

30,428

Other Income

6

328,101

 

111,980

Expenses

 

 

 

 

Corporate and Office Expenses

7

1,805,999

 

613,765

Legal and Professional Fees

7

545,677

 

59,257

Depreciation

 

12,958

 

8,029

IPO Listing Expense

 

232,856

 

 

Employment Expenses

7

2,247,496

 

972,818

Foreign exchange loss

 

102,841

 

 

Finance Costs

 

-                        

 

221,184

 

 

4,947,827

 

1,875,053

Profit/(Loss) Before Income Tax

 

1,046,408

 

(1,732,645)

Income tax expense / (benefit)

8

226,862

 

(462,835)

Net Profit/(Loss) For the Half-Year

 

819,546

 

(1,269,810)

Other comprehensive income

 

 

 

 

Total comprehensive income for the half-year

 

819,546

 

(1,269,810)

 

 

 

 

 

Profit/(Loss) for the half-year and total comprehensive income attributable to:

 

 

 

 

Owners of the company

 

823,494

 

(1,262,178)

Non-controlling interest

 

(3,948)

 

(7,632)

 

 

819,546

 

(1,269,810)

 

 

 

 

 

Earnings Per Share for profit attributable to the owners of the parent entity during the half-year (cents per share):

 

 

 

 

 

Consolidated Half-Year

 

 

Dec 2018

 

Dec 2017

Basic (cents per share)

 

1.30

 

(2.25)

Diluted (cents per share)

 

1.26

 

(2.25)

 

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 2018

 

 

Consolidated

 

 

Dec 2018

A$

Restated
Jun 2018

A$

CURRENT ASSETS

Note

 

 

Cash and cash equivalents

 

52,604,656

             13,786,949

Other receivables

 

                 256,773

                  638,891

Contract assets - litigation contracts

5

              8,680,037

             11,048,971

TOTAL CURRENT ASSETS

 

          61,541,466

           25,474,811

NON-CURRENT ASSETS

 

 

 

Property, plant and equipment

 

                 219,004

                  175,114

Contract assets - litigation contracts

5

            12,021,259

               2,865,675

Deferred tax asset

9

              8,262,991

               4,837,848

TOTAL NON-CURRENT ASSETS

 

          20,503,254

             7,878,637

TOTAL ASSETS

 

          82,044,720

           33,353,448

 

 

 

 

CURRENT LIABILITIES

 

 

 

Trade and other payables

 

              5,251,585

               3,816,048

Employee Benefits

 

                 235,790

                  254,481

TOTAL CURRENT LIABILITIES

 

            5,487,375

             4,070,529

NON-CURRENT LIABILITIES

 

 

 

Deferred tax liability

9

              6,210,389

               3,826,528

Employee Benefits

 

                  63,562

                   34,358

TOTAL NON-CURRENT LIABILITIES

 

            6,273,951

             3,860,886

TOTAL LIABILITIES

 

          11,761,326

             7,931,415

 

 

 

 

NET ASSETS

 

          70,283,394

           25,422,033

 

 

 

 

EQUITY

 

 

 

Issued Capital

10

            68,830,062

             24,865,111

Share Based Payments Reserve

11

                 369,348

                  292,484

Retained Earnings

 

              1,062,066

                  238,572

Parent interest

 

            70,261,476

             25,396,167

Non-controlling interest

 

                  21,918

                   25,866

TOTAL EQUITY

 

          70,283,394

           25,422,033

 

The above Consolidated Statement of Financial Position should be read in conjunction with accompanying Notes to the Financial Statements.

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

 

Consolidated (A$)

 

 

 

Issued capital

Retained Profits

Share based payments reserve

Total

Non-controlling interests

Total equity

Balance at 1 July 2017

 

 

24,865,111

(8,357,591)

165,903

16,673,423

 (15,325)

16,658,098

Profit / (Loss) for the half-year

-

 (1,262,178)

                 -

 (1,262,178)

         (7,632)

   (1,269,810)

Other comprehensive income

-

                  -

                 -

                  -

                   -

                     -

Total comprehensive income for the half-year

-

         (1,262,178)

                        -

           (1,262,178)

                  (7,632)

              (1,269,810)

Equity Transactions:

 

 

 

 

 

 

 

 

Share based payment movements

-

                 -

       51,512

        51,512

                   -

         51,512

 

 

 

 

 

-

                -

       51,512

       51,512

                  -

       51,512

Balance at 31 December 2017

  24,865,111

(9,619,769)

217,415

15,462,757

(22,957)

15,439,800

Balance at 1 July 2018

 

 

        24,865,111

             238,572

               292,484

           25,396,167

                  25,866

             25,422,033

Profit / (Loss) for the half-year

                -

823,494

           -

   823,494

  (3,948)

  819,546

Other comprehensive income

                 -

                 -

              -

                -

                 -

                   -

Total comprehensive income for the half-year

                      -

           823,494

                        -

             823,494

                 (3,948)

                819,546

 

 

 

 

 

 

 

 

 

 

 

Equity Transactions:

 

 

 

 

 

 

 

 

Contributions of equity (note 10)

        46,923,957

                      -

                        -

           46,923,957

                          -

             46,923,957

Transaction costs

 

 

         (2,959,006)

                      -

                        -

           (2,959,006)

                          -

              (2,959,006)

Share based payments

 

 

-

              -

     76,864

     76,864

                  -

       76,864

 

 

 

 

 

  43,964,951

               -

     76,864

44,041,815

                -

44,041,815

Balance at 31 December 2018

68,830,062

1,062,066

369,348

70,261,476

21,918

70,283,394

 

The above Consolidated Statement of Changes in Equity should be read in conjunction with accompanying Notes to the Financial Statements.

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

 

Dec 2018

A$

Restated

Dec 2017

A$

Cash flows from operating activities

 

 

 

 

 

 

 

Payments to suppliers and employees

 

 

 

 

 

    (16,258,871)

     (5,358,764)

Interest received

 

 

 

 

 

 

            26,925

               5,017

 

Proceeds from litigation contracts - settlements, fees and reimbursements

 

     10,994,735

           101,000

Net cash (used in)/from operating activities

 

 

 

 

     (5,237,211)

   (5,252,747)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

 

         (56,848)

           (189,301)

Net cash (used in)/from investing activities

 

 

 

 

         (56,848)

         (189,301)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issue of shares

 

 

 

 

 

 

    46,879,707

                           -

Proceeds from borrowings

 

 

 

 

 

 

                       -

       4,000,000

Share issue transaction costs

 

 

 

 

 

 

      (2,767,941)

                           -

Net cash (used in)/from financing activities

 

 

 

 

          44,111,766

     4,000,000

Net increase/(decrease) in cash and cash equivalents

 

 

 

 

      38,817,707

         (1,442,048)

Cash and cash equivalents at the beginning of the period

 

 

 

 

     13,786,949

        1,862,645

Cash and cash equivalents at the end of the half-year

 

 

 

 

   52,604,656

          420,597

 

The above Consolidated Statement of Cash Flows should be read in conjunction with accompanying Notes to the Financial Statements.

 

NOTES TO AND FORMING PART OF THE ACCOUNTS

FOR THE HALF-YEAR ENDED 31 DECEMBER 2018

 

Note 1:             Corporate Information

 

The financial statements and interim report of Litigation Capital Management Limited for the half-year ended 31 December 2018 were authorised for issue in accordance with a resolution of the directors and covers the consolidated entity consisting of Litigation Capital Management Limited and its subsidiaries. Litigation Capital Management Limited is a for-profit entity for the purpose of preparing these financial statements.

 

Litigation Capital Management Limited is incorporated and domiciled in Australia. The principal activities of the consolidated entity are the investigation, management and funding of litigation.

 

The financial statements are presented in Australian dollars ($AUD), which is the functional currency of the Parent Company.

 

Note 2:             Basis of preparation

 

a) Basis of preparation

 

The consolidated financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standard AASB 134 Interim Financial Reporting.

 

These half-year financial statements do not include all the notes of the type normally included in annual financial statements and therefore cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial statements. Accordingly, these half-year financial statements are to be read in conjunction with the annual financial statements for the year ended 30 June 2018 of Litigation Capital Management Limited.

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the adoption of new and amended standards as set out below.

 

AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments became mandatorily effective for reporting periods beginning on or after 1 January 2018. Accordingly, these standards apply for the first time to this set of interim financial statements. The nature and effect of changes arising from these standards are summarised below and in Note 3. The other standards did not have any impact on the group's accounting policies and did not require retrospective adjustments.

 

New standards adopted as at 1 July 2018

 

AASB 15 Revenue from Contracts with Customers

 

AASB 15 replaces AASB 118 Revenue, AASB 111 Construction Contracts and several revenue-related Interpretations. AASB 15 contains new requirements for the recognition and disclosure of revenue, which the Group has assessed as the standard applicable to its litigation funding services. The Group has applied the new Standard from 1 July 2018. In accordance with the transition provisions in AASB 15, the Group has adopted the new requirements retrospectively and has restated comparatives. The adoption of AASB 15 has mainly affected the following areas:

 

Litigation service revenue and expense

 

The performance of a litigation service contract by the Group entails the management and progression of the litigation project during which costs are incurred by the Group over the life of the litigation project.

 

As these costs are incurred and the services are rendered by the Group, the client receives a benefit from the services and the service is transferred to the client on the basis that another litigation funder would not need to substantially re-perform the work completed to date by the Group.

 

Costs incurred are recoverable from the client only upon a successful outcome. As the total consideration is variable, the recognition of revenue over time is limited to the costs incurred. Furthermore, as a successful outcome is probable based on the Group's historical experience with similar arrangements, the anticipated recovery is reasonable despite being limited to costs incurred. Previously, under AASB 138 Intangible Assets, these costs were capitalised as incurred as an intangible asset. Under AASB 15 these costs are recognised as a contract asset. When a judgement has been awarded or an agreed settlement between the parties to the litigation, the total consideration is recognised and the contract asset is reclassified as receivables.

 

The tables below highlight the impact of AASB 15 on the Group's statement of profit or loss and other comprehensive income, statement of financial position and the statement of cash flows for the comparative amounts.

 

 

 

Statement of profit or loss and other comprehensive income for the half year ended 31 December 2017 (extract)

 

 

Previously presented

A$

Adjustments

A$

Restated

A$

 

Revenue

                  5,017

     6,585,376

6,590,393

 

Litigation service expense

                      -  

      (6,559,965)

   (6,559,965)

 

Other income

               137,391

           (25,411)

      111,980

 

Profit/(loss) before income tax

         (1,732,645)

                 -  

    (1,732,645)

 

Net profit/(loss) for the half-year

         (1,269,810)

                   -  

    (1,269,810)

 

 

 

Statement of financial position at 30 June 2018 (extract)

 

 

Previously presented

A$

Adjustments

A$

Restated

A$

 

Current assets

 

 

 

 

Intangible assets - litigation contracts

          11,048,971

         (11,048,971)

                        -  

 

Contract assets - litigation contracts

                      -  

           11,048,971

            11,048,971

 

Non-current assets

 

 

 

 

Intangible assets - litigation contracts

            2,865,675

           (2,865,675)

                        -  

 

Contract assets - litigation contracts

                      -  

            2,865,675

              2,865,675

 

Total assets

        33,353,448

                      -  

          33,353,448

 

 

 

Statement of cash flows for the half-year ended 31 December 2017 (extract)

 

 

Previously presented

A$

Adjustments

A$

Restated

A$

 

Cash flows from operating activities

 

 

 

 

Payments to suppliers and employees

(1,521,886)

(3,836,878)

(5,358,764)

 

Proceeds from litigation contracts -

settlements, fees and reimbursements

-  

101,000

101,000

 

Net cash (used in)/from operating activities

(1,516,869)

(3,735,878)

(5,252,747)

 

Cash flows from investing activities

 

 

 

 

Proceeds from litigation funding -

settlements, fees and reimbursements

101,000

 (101,000)

-  

 

Payments for litigation funding and

capitalised supplier costs

(3,836,878)

3,836,878

-  

 

Net cash (used in)/from investing activities

(3,925,179)

3,735,878

(189,301)

 

Net increase/(decrease) in cash and

cash equivalents

(1,442,048)

-  

(1,442,048)

 

 

 

 

Note 5 provides additional disclosures disaggregating revenue by geographical market, major products and services and the timing of revenue recognition.

 

AASB 9 Financial Instruments

 

AASB 9 replaces AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 includes new requirements for the classification and measurement of financial assets. The new impairment requirements are now based on an 'expected loss' model rather than an 'incurred loss' model. The Group has applied the new Standard from 1 July 2018. In accordance with the transition provisions in AASB 9, the Group has adopted the new requirements without restating comparatives. The adoption of AASB 9 has changed the method of assessing impairment of receivables and contract assets, but had no effect on 1 July 2018 retained earnings.

 

Note 3:             Changes in significant accounting policies

 

The interim financial statements have been prepared in accordance with the same accounting policies adopted in the Group's last annual financial statements for the year ended 30 June 2018, except as described below.

 

AASB 15 Revenue from Contracts with Customers and AASB 9 Financial Instruments became effective for periods beginning on or after 1 January 2018. Accordingly, the Group applied these standards for the interim period ended 31 December 2018. Changes to the Group's accounting policies arising from this standard is summarised below:

 

3.1     Revenue recognition

 

The Group's litigation contracts principally generate revenue on the successful management and financing of litigation projects. The Group assists clients in determining the appropriate specialist team to pursue the litigation claim for clients and works with that team to ensure that the case is being appropriately progressed. The selection of litigation claims to manage and fund is critical to the Group's success. The types of litigation projects funded by the Group are insolvency claims, commercial claims and class actions however contract terms for each type of litigation project do not vary materially nor does it change the service provided or the price.

 

As consideration for providing litigation management services and financing of litigation projects, the Group receives either a percentage of the gross proceeds of any award or settlement of the litigation, or a multiple of capital deployed, and is reimbursed for all invested capital. The amount of any award or settlement received by the Group is variable consideration.

 

The Group only receives payment upon successful completion of a litigation project and when the litigation project is finalised and payment of the claim by the defendant has been paid to the client. On average litigation projects take a period of 27 months from inception to settlement, although this varies depending upon the specific litigation project

 

Revenue is recognised as litigation service revenue to the extent of costs incurred by the Group over time, being the life of the litigation project, as the client receives a benefit from the Group's management of the litigation project (ie, the services rendered by the Group) and as third party lawyers and professionals work on the case.

 

Revenue in excess of costs incurred is only recognised as revenue on the successful completion of the litigation project, which is generally once a judgement has been awarded or on an agreed settlement between the parties to the litigation, and therefore when the outcome is considered highly probable.

 

3.2     Financial instruments

 

AASB 9 Financial Instruments became effective for periods beginning on or after 1 January 2018. Accordingly, the Group applied AASB 9 for the interim period ended 31 December 2018. Changes to The Group's new accounting policies arising from this standard are summarised below:

 

The new impairment requirements apply to the Group's trade receivables (zero at 31 December 2018) and contract assets. The Group applies a simplified approach of recognising lifetime expected credit losses using a provision matrix. Trade receivables and contract assets are written off when there is no reasonable expectation of recovery. No impairment allowance was recognised at 1 July 2018 or 31 December 2018.

 

Note 4:             Segment information

 

Management has determined the operating segments based on internal reports reviewed by chief operating decision maker, being the Chief Executive Officer and other members of the Board. The Board provide strategic director and management oversight of the entity in terms of monitoring results and approving strategic planning of the business.

 

Each litigation project is an operating segment. However, based on the similarity of the services provided and the nature of the risks and returns associated with each litigation project, the Board consider the business as one reportable segment. The Group's customers are all commercial litigants with specific information disclosed within the Operating and Financial Review of the Directors Report.

 

Geographically, the Group operates in Australia, and more recently opened offices in London and Singapore. The Group operates in one geographical segment, being Australia, on the basis that the new offices in London and Singapore are not currently operating as independent segments. Accordingly, all segment disclosures are based upon analysis of the group as one reportable segment.

 

Note 5:             Revenue

 

 

Dec 2018

A$

Dec 2017

A$

Litigation service revenue

12,834,491

6,559,965

Revenue on completion of litigation projects

5,666,134

30,428

 

18,500,625

6,590,393

 

(a) Revenue on completion of litigation projects

 

The Group's revenue on the completion of litigation projects consists of amounts recognised on a successful judgement or settlement; and/or; write offs, if any, on contracts which have been lost by the Group or where the Group has decided not to pursue the contract further; which is detailed as follows:

 

 

Dec 2018

A$

Dec 2017

A$

Settlements and judgements

11,713,975

101,000

Less litigation service revenue previously recognised as expenditure incurred

(5,965,217)

 (35,847)

Litigation contracts - written down

(82,624)

 (34,725)

 

5,666,134

30,428

(b) Segments

 

The Group's litigation contract revenue segments principally generate revenue from actively managing and financing litigation projects. The types of litigation projects funded by the Group are insolvency claims, commercial claims and class actions however the contract terms for each type of litigation project does not vary materially nor does it change the service provided or the price. On this basis, the Group does not segment litigation contract revenue based on the type of litigation project.

 

(c) Disaggregation of revenue

 

In the following tables, revenue is disaggregated by jurisdiction and contract duration.

 

 

Dec 2018

A$

Dec 2017

A$

Jurisdiction

 

 

Australia

        18,500,625

            6,590,393

 

      18,500,625

          6,590,393

 

 

Dec 2018

A$

Dec 2017

A$

Contract duration

 

 

< 1 year

          7,328,699

            1,011,311

2-3 years

        10,407,132

            5,395,050

> 4 years

             671,118

               184,031

 

      18,406,948

          6,590,392

 

(d) Contract balances

 

The following table provides information about contract assets:

 

(a) Reconciliation of carrying amounts at the beginning and end of the period

 

 

 

A$

Balance at 1 July 2017

 

             12,470,549

Additions

 

               6,559,965

Litigation contracts in progress - expenses

 

                  (35,847)

Litigation contracts in progress - written down

 

                  (34,725)

Balance at 31 December 2017

 

           18,959,942

Additions

 

               8,057,781

Litigation contracts in progress - expenses

 

            (13,099,997)

Litigation contracts in progress - written down

 

                    (3,080)

Balance at 30 June 2018

 

           13,914,646

Balance at 1 July 2018

 

             13,914,646

Additions

 

             12,834,491

Litigation contracts in progress - expenses

 

              (5,965,217)

Litigation contracts in progress - written down

 

                  (82,624)

Balance at 31 December 2018

 

           20,701,296

 

 

Consolidated

 

Dec 2018

A$

Jun 2018

A$

Current

              8,680,037

             11,048,971

Non-current

            12,021,259

               2,865,675

 

          20,701,296

           13,914,646

 

Note 6:             Other income

 

 

Consolidated

 

Dec 2018

A$

Dec 2017

A$

Interest received

                  26,925

5,017

Other income

                 301,176

106,963

 

               328,101

111,980

 

Note 7:             Expenses

 

 

Consolidated

 

Dec 2018

A$

Dec 2017

A$

a) Corporate and Office Expenses

 

 

Consultancy fees

                 760,206

81,764

Insurance

                  45,480

3,952

Listing and company secretarial

                 124,322

92,865

Staff recruitment

                 160,686

-

Travel and entertainment

                 277,469

154,234

Rent

                 321,227

200,066

General office

                 116,610

80,884

 

            1,805,999

613,765

 

Consultancy fees, which increased significantly on the prior period, relates to the establishment and expansion of the Group's Global operations.

 

 

Consolidated

 

Dec 2018

A$

Dec 2017

A$

b) Employment expenses

 

 

Employee Benefits Expense

              1,847,215

796,187

Superannuation

96,160

77,099

Provision for employee entitlements

                 115,513

22,218

Payroll tax

67,494

     25,802

Share based payments expense

                 121,114

                   51,512

 

2,247,496

972,818

 

 

Consolidated

 

Dec 2018

A$

Dec 2017

A$

c) Legal fees - litigation

               526,278

                  34,060

 

Legal fees relate to the costs of litigation commenced by Australian Insolvency Group Pty Limited (AIG) against the Group, and subsequent cross claim by the Group in these proceedings against Vannin Capital Limited and Mr Patrick Coope, a director of AIG and former employee of the Group. The proceedings are likely to be heard and determined around the middle of the 2019 calendar year subject to the court's availability. The potential economic impact for the Group is limited.

 

Note 8:             Income tax expense

 

 

Consolidated

 

Dec 2018

A$

Dec 2017

A$

The components of tax expense comprise:

 

 

Current tax expense

                        -  

                         -  

Deferred tax expense

 (226,862)

462,835

 

 (226,862)

462,835

 

Note 9:             Deferred taxes

 

 

Consolidated

 

Dec 2018

A$

Jun 2018

A$

Deferred tax asset comprises temporary differences attributable to:

 

 

Property, plant and equipment

                       571

                        523

Employee benefits

                  89,806

                   50,556

Accrued expenses

                    9,454

                   14,591

Tax losses carried forward

              6,568,023

               4,331,692

Transaction costs on share issue

              1,595,137

                  440,486

 

            8,262,991

             4,837,848

Deferred tax liability comprises temporary differences attributable to:

 

 

Contract assets

        6,210,389

   3,826,528

 

            6,210,389

 3,826,528

 

Note 10:                       Equity - issued capital

 

(a) Ordinary shares

 

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital.

 

On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote.

 

(b) Partly paid shares

 

Partly paid shares entitle the holder to participate in dividends and the proceeds of the company in proportion to the number of and amounts paid on the shares held. The partly paid shares do not carry the right to participate in new issues of securities. As at 31 December 2018, there are currently 2,866,050 partly paid shares issued at an issue price of $0.17 and will become fully paid upon payment to LCM of $0.17 per share.

 

(c) Ordinary shares - Loan Share Plan

 

The Board adopted the Loan Share Plan (LSP) to retain, motivate and attract executives and to better align the interest of employees with those of the Company and its shareholders by providing an opportunity for eligible senior executives to acquire shares subject to the terms and conditions of the LSP.

 

The Loan Plan Shares may be issued to the participant at market value and the Group may provide a limited recourse loan to assist the participant to purchase the Loan Plan Shares. Each Loan Plan Share is one fully paid Ordinary Share and generally rank equally with all existing shares from the date of issue however due to the vesting conditions attached to them (e.g. continuous employment conditions and share price hurdles) represent a share based payment arrangement. For further details refer to Note 11.

 

Consolidated

 

Dec 2018

Shares

Jun 2018

Shares

Dec 2018

A$

Jun 2018

A$

Ordinary shares - fully paid

104,580,899

53,533,247

68,830,062

24,865,111

Partly paid shares

2,866,050

2,866,050

-

-

Ordinary shares - Loan Plan Shares

4,107,030

2,000,000

-

-

 

Movements in fully paid ordinary share capital

Date

 No of shares

 Issue price

A$

Opening balance at 1 July 2018

 

53,533,247

 n/a

24,865,111

Issue of ordinary shares - fully paid

Oct-18

11,111,112

$0.90

10,000,001

Issue of ordinary shares - fully paid (£20,000,000)

Dec-18

38,461,540

£0.52

36,186,456

Issue under Employee Share Option Scheme

Nov-18

1,475,000

$0.47

737,500

Share issue transaction costs, net of tax

 

 

 

(2,959,006)

Balance at 31 December 2018

 

104,580,899

 

68,830,062

 

 

 

 

 

Movements in partly paid ordinary share capital

Date

 No of shares

 Issue price

 A$

Opening balance at 1 July 2018

 

       2,866,050

 n/a

                        -

Balance at 31 December 2018

 

    2,866,050

 

                     -

 

 

 

 

 

Movements in ordinary share capital in relation to Loan Share Plan

Date

 No of shares

 Issue price

 A$

Opening balance at 1 July 2018

 

  2,000,000

 

-

Issue of shares (Refer to Note 11)

Aug-18

          411,972

 n/a

 n/a

Issue of shares (Refer to Note 11)

Nov-18

1,595,058

 n/a

 n/a

Issue of shares (Refer to Note 11)

Dec-18

100,000

 n/a

 n/a

Balance at 31 December 2018

 

4,107,030

 

                  -

 

 

 

Note 11:                       Share based payments reserve

 

The share-based payments reserve is used to recognise the fair value of shares and options issued to employees under the Employee Share Option Scheme and Loan Share Plan.

 

 

Consolidated

 

Dec 2018

A$

Jun 2018

A$

Share based payments reserve

369,348

292,484

Movements in share based payments reserve

 

 

Opening balance

292,484

165,903

Movements arising from share-based payments transactions during the period:

 

 

Employee Share Option Scheme

(6,001)

93,600

Loan Share Plan

82,865

32,981

Closing balance

369,348

292,484

 

The share-based payment movements comprise the following:

 

a) Employee share options for which the following amounts were recognised:

- $31,200 expensed for 1,500,000 options already on issue;

- $44,250 transferred from the reserve to share capital on 1,475,000 options being exercised during the half-year;

- $7,049 expense relating to the fair value adjustment when the expiry date on 1,598,058 options was extended from 1 December 2018 to 1 December 2028 (refer Note 13).

 

b) Employee Loan Plan Shares on issue which due to the vesting conditions attached to them (e.g. continuous employment conditions and share price hurdles) represent a share based payment arrangement. During the half-year, $28,269 has been expensed for loan shares already on issue, and $54,596 has been expensed for 511,972 loan shares which were issued during the period. The fair value of the shares granted during the period is $144,987. The remainder will be expensed over vesting period.

 

Note 12:                       Dividends proposed

 

The directors have determined to pay a fully franked interim dividend of 0.506 cents (Australian) per share in respect of the period ended 31 December 2018, totalling $550,000. The ex-dividend date is 23 May 2019, record date is 24 May 2019 and the payment date is 21 June 2019.

 

Note 13:                       Related party transaction

 

Significant transactions with Director's and their associates

(a) Patrick Moloney was granted a limited recourse interest free loan of $749,677.26 for the exercise of 1,595,058 options on 19 November 2018 which due to the terms of the loan represents extension of the expiry date on the options to 1 December 2028. The expiry date is in line with the loan term, being 10 years.

 

(b) Patrick Moloney was granted a gross cash bonus of $550,000, which was awarded in November 2018 in respect of the financial year ended 30 June 2018.

 

(c) Stephen Conrad was provided with 100,000 ordinary shares in Litigation Capital Management Limited under the Loan Share Plan.

 

The loan is provided under a limited recourse borrowing arrangement and has a term of 10 years. The loan value is $89,000 and is calculated at the issue price of the Plan Shares, being $0.89, on the issue date of the shares.

 

The fair value of these shares granted during the period is $11,920. An amount of $788 has been expensed during the period, with the remainder to be expensed over the vesting period.

 

(d) Stephen Conrad is a shareholder and director of Thedoc Pty Ltd, which carries out advisory services. During the half-year, Thedoc Pty Ltd has earned fees of $130,625 (2017: nil). The services provided by Thedoc Pty Ltd ceased once Mr. Conrad became an employee of the Group. As at 31 December 2018 there were no amounts owing to Thedoc Pty Ltd (2017: $nil).

 

Note 14:                       Events after the reporting period

 

In the Directors' opinion, no matter or circumstance has arisen since the end of the reporting period, that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future years.

 

 


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Half-year Report - RNS