Half-year Results

Highlights

(1 converted at 1.94 GBP to AUD)

Commenting on the results, Patrick Moloney, CEO of Litigation Capital Management, said: "These results demonstrate the opportunity that now presents itself for LCM. Having built a strong foundation for its fund management business, we are now seeing the benefits of it come to fruition. Fund I is already delivering strong returns, and we expect to fully commit Fund II as well as launch a new fund this year."

"At a time when demand for dispute finance is increasing, LCM is extremely well placed to take advantage of this opportunity. This set of results demonstrates that LCM has the knowledge and expertise to make sound investment decisions and deliver for shareholders and fund investors alike."

LCM will be hosting a webinar for investors today at 11.00 a.m. The presentation is open to all existing and potential shareholders. If you would like to attend this presentation, please register using the following link:

A webinar presentation for analysts will take place at 9.30am. Analysts wishing to attend should contact lcm@tavistock.co.uk to register.

The accompanying results presentation is available on LCM's website:

The Interim Financial Report is available at:

Chief Executive's Statement

Progress on Fund management business

2023 was the year in which our funds management business bedded down and for the first time showed the benefits, with Fund I investments generating cash and outsized returns. This has continued into the first half of the 2024 financial year, with the settlement of an Australian class action, part of Fund I, generating a ROIC after performance fees of 4.0 times. Following the period end, as previously announced, LCM's investment related to a portfolio of two separate construction related disputes in Fund I has had a successful award, with the financial performance expected to be in line with our historic performance metrics.

The success of this model is clear to see, underpinned by the same rigorous underwriting process which LCM is known for and has developed, and we expect to see further case settlements from Fund I in the second half of the year.

Following on from Fund I, we expect Fund II to be fully committed within the next 12 months (commitments as at 31 December 2023 within Fund II: A$162m) and have plans to launch a further fund as well.

The Funds Management Model enables LCM to leverage third party capital and co-invest in a larger pool of diversified investments. Our co-investment in cases aligns LCM's interests with third party investors and enhances returns to LCM, through performance fees.

Building out this model has been one of our key goals, AUM has increased to A$561m at the end of the period (FY23: A$484m), putting us on solid foundations from which to expand and continue to deliver on this model to provide sustainable growth.

Investment performance

The performance of the business, following LCM's best ever year on record in FY 2023 remains strong. As we have reiterated previously, our investments do not generate linear returns, so the performance of the business in any given six or twelve month period may not accurately reflect the underlying performance of the business. On a three-year basis (FY22-24), our returns remain strong, with a rolling IRR of 67.4% and ROIC of 2.0 x. Recovery times have lengthened from a historic average of 30 months over a 12.5 year period to 40 over the most recent three-year period, however we are hopeful that court delays as a result of the Covid pandemic, will continue to reduce.

Having moved to Fair Value accounting for FY23, investors can now get a clearer idea of the value of the portfolio, having previously valued all investments at cost. The value of all ongoing cases on our balance sheet was A$213m as at 31 Dec 23, valuing the cases at 2.0x cash invested compared to our long-term track record of achieving 2.8x cash invested. This demonstrates that despite the change in accounting methodology, we will continue to be prudent in our approach to valuation.

In the period, three cases concluded, generating A$28.4m of cash receipts for LCM, inclusive of $10.2m of performance fees with further recoveries due in H2. On these cases, a 3.3x multiple was achieved on A$8.7m cash invested.

Our underwriting team continue to see a strong pipeline of potential investments, with 242 applications for funding in the period, an increase of 50% on H1 2023. From these cases, we have so far committed A$90m to five cases, which again demonstrates our thorough due diligence and robust underwriting practices.

Outlook

LCM is well positioned to take advantage of the growing demands for disputes capital. Across our Asia, European and Australian operations, we have built out highly qualified teams of litigation finance professionals who have developed strong relationships in these markets. Across the globe, economic uncertainty and rising insolvencies means there is the expectation of an increase in disputes, which we believe will drive demand for LCM's capital. Alongside this, LCM finds itself in an improved competitive position, due to industry consolidation and in some cases contraction amongst existing litigation financiers.

Post year end, the UK Government has tabled legislation to end the uncertainty in litigation finance caused by the Supreme Court's ruling last July in PACCAR, which is a positive development for the industry.

We announced in the FY23 results that the business was exploring a sterling retail eligible bond listed on the ORB at the London Stock Exchange to optimise cost of capital and allow us to take advantage of opportunities we see in the market, as well as other alternative debt financing. These discussions are at an advanced stage and an update will be provided in due course.

Patrick Moloney

Chief Executive Officer

Directors' Report

The Directors of Litigation Capital Management Limited (LCM) present their report together with the half-year financial report of the consolidated entity consisting of LCM and its subsidiaries (collectively LCM Group or the Group) for the six month period ended 31 December 2023 and the auditors' review report thereon.

Directors

The Directors of LCM at any time during or since the end of the financial period are set out below:

Jonathan Moulds

Patrick Moloney

Dr David King

Gerhard Seebacher

Mary Gangemi

Company Secretary

Anna Sandham was appointed Company Secretary of LCM in September 2016. Anna is an experienced company secretary and governance professional with over 20 years' experience in various large and small, public and private, listed and unlisted companies. Anna has previously worked for companies including AMP Financial Services, Westpac Banking Corporation, BT Financial Group and NRMA Limited. Anna holds a Bachelor of Economics (University of Sydney), Graduate Diploma of Applied Corporate Governance (Governance Institute of Australia) and is a Chartered Secretary.

Principal activities

LCM is a global provider of disputes finance and risk management services.

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.

Operating and financial review

Overview of the LCM Group

LCM is a company limited by shares and was incorporated on 9 October 2015. LCM was admitted to trade on the Alternative Investment Market (AIM) of the London Stock Exchange on 19 December 2018 under the ticker LIT. LCM was formerly listed on the Australian Securities Exchange (ASX) between 13 December 2016 and 21 December 2018.

Its registered office and principal place of business is Level 12, The Chifley Tower, 2 Chifley Square, Sydney NSW 2000, Australia.

Operations

LCM operates its business through a series of wholly owned subsidiaries. The principal activity of those subsidiaries is the provision of litigation finance and risk management associated with individual and portfolios of disputes. LCM currently operates two business models. The first is direct investments made from LCM's balance sheet capital. The second is funds and/or asset management. Under those two business models, LCM currently pursues three investment strategies. Those strategies are as follows:

Single‐case funding: The first and currently largest strategy, is single‐case funding. That is, the investment in a single dispute. This is a strategy that LCM has maintained since its inception (through its predecessor company) 25 years ago. Currently, a large proportion of LCM's investments are in single‐case investments.

Portfolio funding: The second strategy pursued by LCM is portfolio funding. That is, the provision of a portfolio based funding solution to law firms, insolvency practitioners or corporates. It involves the provision of a financing solution and risk management tools for a bundle of separate disputes. LCM's particular focus with respect to that strategy is the provision of corporate portfolio financing.

Acquisitions of Claims: The third strategy, in its early stages of evolution, is the investment in smaller disputes (typically insolvency‐based) through the acquisition or assignment of the underlying cause of action. LCM generates its revenue through acquiring a cause of action and pursuing a recovery or award as principal.

Review of financial performance

The statutory profit for the Group after adjusting for income tax amounted to $7,293,000 (31 December 2022: loss $2,266,000). Adjusted profit before tax is $15,998,000 (31 December 2022: $1,324,000).

Cash on balance sheet was $87,701,000 as at 31 December 2023 (30 June 2023: $104,457,000). Of this, $17,450,000 relates to third-party cash which is restricted cash as it relates to balances held within the fund investment vehicles which have been consolidated with the Group numbers (30 June 2023: $21,484,000). Cash generated during the period from the resolution of investments was $72,772,000 (31 December 2022: $19,615,000).

The Directors do not recommend a dividend in respect of the period ended 31 December 2023.

Matters subsequent to the end of the financial period

In the Directors' opinion, no matter or circumstance has arisen since the end of the financial year, 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.

Lead Auditor's independence declaration

The Auditor's independence declaration as required under section 307C of the Corporations Act 2001 is included in LCM's financial statements.

Rounding of amounts

LCM is of a kind referred to the Australian Securities and Investments Commission Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, relating to 'rounding-off'. Amounts in this report have been rounded off in accordance with that Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Mr Jonathan Moulds

Chairman

Consolidated statement of profit or loss and other comprehensive income

For the period ended 31 December 2023

Restated

Other comprehensive income

Items that may be subsequently reclassified to profit and loss:

Where applicable, comparative information has been restated to reflect a change in accounting for litigation funding agreements. Refer to Note 3.

Consolidated statement of financial position

As at 31 December 2023

Where applicable, comparative information has been restated to reflect a change in accounting for litigation funding agreements. Refer to Note 3.

Consolidated statement of changes in equity

For the period ended 31 December 2023

Where applicable, comparative information has been restated to reflect a change in accounting for litigation funding agreements. Refer to Note 3.

Consolidated statement of cash flows

For the period ended 31 December 2023

Restated

Where applicable, comparative information has been restated to reflect a change in accounting for litigation funding agreements. Refer to Note 3.

Notes to the financial statements

For the period ended 31 December 2023

Note 1 General Information

The financial statements cover Litigation Capital Management Limited (the 'Company') as a Group consisting of Litigation Capital Management Limited and the entities it controlled at the end of, or during, the period (referred to as the 'Group'). The financial statements are presented in Australian dollars, which is Litigation Capital Management Limited's functional and presentation currency.

Litigation Capital Management Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is:

Level 12, The Chifley Tower

2 Chifley Square

Sydney NSW 2000

The financial statements were authorised for issue, in accordance with a resolution of Directors, on 19 March 2024. The Directors have the power to amend and reissue the financial statements.

Note 2 Significant accounting policies

These consolidated financial statements are general purpose financial statements for the interim reporting period ended 31 December 2023 and have been prepared in accordance with the Corporations Act 2001 and Australian Accounting Standard AASB 134 Interim Financial Reporting. Compliance with AASB 134 ensures compliance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting'.

These interim financial statements do not include all the notes of the type normally included in annual financial statements. Accordingly, these financial statements are to be read in conjunction with the annual report for the year ended 30 June 2023 and any public announcements made by the Company during the interim reporting period.

Basis of preparation

The principal accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, unless otherwise stated.

New or amended Accounting Standards and Interpretations adopted

The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current period.

Historical cost convention

The financial statements have been prepared under the historical cost convention.

Critical accounting estimates

The critical accounting judgements, estimates and assumptions that have been applied in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual report for the year ended 30 June 2023.

Operating segments

Note 3 Restatement of comparative

As disclosed in the 30 June 2023 Annual Report, the Group reassessed its classification of the funding of its litigation funding agreements, which resulted in the majority of the Group's litigation funding assets now being recognised under AASB 9. Under this change, litigation funding agreements and third-party interest in consolidated entities are accounted for as financial instruments under AASB 9 Financial Instruments.

As a result of implementing this accounting for litigation funding agreements for relevant contracts, the Group has restated the Consolidated statement of profit or loss and other comprehensive income for the period ended 31 December 2022 for comparative purposes.

The restatement of each of the affected financial statement line items for the prior periods, as follows:

Impact on consolidated statement of profit and loss and other comprehensive income (increase/(decrease) in profit)

31-Dec-23

$'000

Income

Impact on basic and diluted earnings per share (EPS) (increase/(decrease) in EPS)

Consolidated statement of cashflows

The change did not have a net impact on the Group's operating, investing and financing cash flows but did require some change to components within each cash flow class.

Note 4 Income

Restated

Total income from litigation assets attributable to LCM represents realised and unrealised gains that relate to LCM's funded proportion of litigation contracts. The gain and loss related to third party interests in consolidated entities represents realised and unrealised gains and losses that relate to third party funded proportions from LCM controlled entities. Realised gains relate to amounts where litigation risk has concluded and amounts are expected to be received by LCM. Unrealised gains or losses relate to the fair value movement of assets and liabilities associated with litigation contracts.

Note 5 Segment Information

The Group's operating segments are based on the internal reports that are reviewed and used by the Board of Directors (who are identified as the Chief Operating Decision Makers ('CODM')) in assessing performance and in determining the allocation of resources.

The Directors have determined that there is one operating segment. The information reported to the CODM is the consolidated results of the Group. The segment result is as shown in the statement of profit or loss and other comprehensive income. Refer to statement of financial position for assets and liabilities.

Note 6 Profit before tax

Restated

Profit before income tax expense includes the following specific expenses:

Employee benefits expense

Fund administration expenses relates to costs associated with the setup and administration of the LCM Global Alternative Returns Funds which are wholly attributable to the third party interest in consolidated entities.

Leases

Adjusted operating profit

Adjusted operating profit excludes non-operating expenses which includes items which are considered unusual, non-cash or one-off in nature.

Non-operating expenses

Management have opted to separately present these items as it better reflects the Groups underlying performance. Non-operating expenses includes the following items:

Numerical reconciliation of income tax expense and tax at the statutory rate

Tax effect amounts which are not deductible/(taxable) in calculating taxable income:

Statutory tax rate of 25% is applicable to Australian entities with aggregated turnover below $50 million for the period ended 31 December 2023. The Group's turnover is expected to be above the threshold of $50 million in the future reporting periods which will attract a statutory tax rate of 30%. As a result, recognition of deferred tax asset is made by applying a 30% statutory rate instead of the lower 25% tax rate.

Note 8 Cash and cash equivalents

Note 10 Litigation Funding assets at fair value through profit or loss

Litigation Funding assets are financial instruments that relate to the provision of capital in connection with legal finance. The Group fund through both direct investments as well as using third party funders via a Fund model. The table above sets forth the changes in LFA assets at the beginning and end of the relevant reporting periods.

Note 11 Contract costs - litigation contracts

There are a small number of legacy investments which are still being recorded under AASB 15 Revenue from Contract with Customers due to the timing the contracts were entered into. These are expected to resolve in the short to medium term.

Reconciliation of litigation contract costs

The Group has recognised impairment losses of $nil (2022: $nil) in profit or loss on contract costs for the period ended 31 December 2023.

Note 12 Trade and other payables

On 22 February 2021, LCM entered into a credit facility with Northleaf Capital Partners for an aggregate amount of US$50,000,000, AUD equivalent of $75,017,5171 (the "Facility"). The Facility carries interest together with a profit participation, capped at 13% per annum. The Facility has an overall term of four years and is secured against LCM's assets. As at 31 December 2023, LCM has nil outstanding utilisation. Borrowings have a maturity date of February 2025.

LCM agreed to various debt covenants including a minimum effective net tangible worth, borrowings as a percentage of effective net tangible worth, minimum liquidity, a minimum consolidated EBIT and a minimum multiple of invested capital on concluded contract assets over a specified period. There have been no defaults or breaches related to the Facility during the year ended 31 December 2023. Should LCM not satisfy any of these covenants, the outstanding balance of the Facility may become due and payable.

LCM incurred costs in relation to arranging the Facility of $1,649,000 which were reflected transactions costs and will be amortised over the 4 year term of the borrowings. As at 31 December 2023, $622,000 of the loan arrangement fees remained outstanding.

1 Converted at the functional currency spot rates of exchange at the reporting date

Note 15 Financial liabilities related to third-party interests in consolidated entities

As announced on 5 October 2023, the Group commenced a share buyback programme in respect of its ordinary shares up to a maximum consideration of A$10.0 million from the date of this announcement.

Ordinary shares

Ordinary shares - under loan share plan ('LSP')

Ordinary shares - partly paid

As at 31 December 2023, there are currently 1,433,022 partly paid shares issued at an issue price of $0.17 per share. No amount has been paid up and the shares will become fully paid upon payment to the Company of $0.17 per share. As per the terms of issue, the partly paid shares have no maturity date and the amount is payable at the option of the holder.

Treasury shares

As at 31 December 2023, there were 423,796 treasury shares (December 2022: nil). Treasury shares comprises shares bought back from shareholders which are held by Canaccord on behalf of the Company and classified as treasury shares.

Capital risk management

Capital is regarded as total equity as recognised in the statement of financial position.

The capital risk management policy remains unchanged from the 30 June 2023 Annual Report.

Note 17 Equity - dividends

Franking credits

The franking credits available to the Group as at 31 December 2023 are estimated to be $338,000 (December 2022: $338,000).

Note 18 Fair value assessment

Refer note 10 for movements in level 3 assets. There were no transfers into or out of level 3 during the period ended 31 December 2023.

Sensitivity of Level 3 Valuations

At each reporting period, the Group reviews the fair value of each litigation funding asset in connection with the preparation of the consolidated financial statements. A fair value of 10% higher or lower, while all other variables remain constant, in financial assets at fair value through profit or loss would have increased or decreased the Group's income and net assets by $39,101,000 as at 31 December 2023 (30 June 2023: $39,141,000). Similarly, a fair value of 10% higher or lower, while all other variables remain constant, in financial liabilities at fair value through profit or loss would have increased or decreased the Group's income and net assets by $24,473,000 as at 31 December 2023 (30 June 2023: $24,399,000).

Note 19 Contingent liabilities

The majority of the Group's funding agreements contain a contractual indemnity from the Group to the funded party that the Group will pay adverse costs awarded to the successful party in respect of costs incurred during the period of funding, should the client's litigation be unsuccessful. The Group's position is that for the majority of litigation projects which are subject to funding, the Group enters insurance arrangements which lessen or eliminate the impact of such awards and therefore any adverse costs order exposure.

Note 20 Third-party interests in consolidated entities

AASB 10 Consolidated Financial Statements requires the Group to consolidate fund investment vehicles over which it has exposure to variable returns from the fund investment vehicles. As a result, third party interests in relation to the Funds have been consolidated in the financial statements.

As at 31 December 2023, the financial liability due to third-party interests is $244,726,000 (June 2023: $243,990,000), recorded at fair value as represented per Note 3. Amounts included in the consolidated statement of financial position represent the fair value of the third-party interests in the related financial assets and the amounts included in the consolidated statement of profit or loss and other comprehensive income represent the third-party share of any gain or loss during the period. Third-party interests exclude the 25% co-investment made by Litigation Capital Management Limited and its wholly owned subsidiaries ("LCM"). The third-party interests in the Funds carry an entitlement to receive an 8% soft return hurdle. Upon satisfaction of the third-party interests soft return hurdle, LCM is entitled to performance fees as fund manager on the basis of a deal by deal waterfall. The residual net cash flows are to be distributed 25% to LCM and 75% to the third-party interests until a IRR of 20% is achieved by the third-party interests, thereafter the net residual cash flows are distributed 35% to LCM and 65% to the third-party interests.

The following tables reflect the impact of consolidating the results of the Funds with the results for LCM to arrive at the totals reported in the consolidated statement of profit or loss and other comprehensive income, consolidated statement of financial position and consolidated statement of cash flows. The Fund column in the table below presents the interests of third-party investors comprising both the investment in the litigation funding assets made on their behalf and costs of administering the funds. The LCM column includes the 25% co-investment in these litigation contracts.

Restated

A financial liability at fair value through the income statement is recognised in the parent entity in relation to the transactions entered into with certain Fund structures to support the financing of LFAs. These arrangements fail the derecognition principles in IFRS 9 and represents the net share of the overall LFA at fair value apportioned to the Funds.

Restated

Dilutive potential shares which are contingently issuable are only included in the calculation of diluted earnings per share where the conditions are met.

Note 22 Share-based payments

The share-based payment expense for the period was $463,000 (December 2022: $308,000).

Loan Funded Share Plans ('LSP')

During the period the Group granted nil (December 2022: nil) shares under the LSP.

Set out below are summaries of shares/options granted under the LSP:

December 2023

Deferred Bonus Share Plan ('DBSP')

During the period the Group granted 771,911 (December 2022: 1,132,692) options under the DBSP.

Set out below are summaries of options granted under the DBSP:

December 23

Executive Long Term Incentive Plan ('LTIP')

• 50% vesting on reaching a minimum of FuM of US$750m; and
• 100% vesting on reaching FuM of US$1bn.

The vesting date of options granted is the later of:

• the third anniversary of the Grant Date;
• the satisfaction of the Performance Condition; or
• the date of any adjustment under the Plan rules of the Plan at the Boards discretion.

During the period the Group granted nil (December 2022: 5,671,516) options under the LTIP.

Set out below are summaries of shares/options granted under the LTIP:

December 2023

1 AUD amount. GBP equivalent £0.952

Note 23 Events after the reporting period

In the Directors' opinion, no matter or circumstance has arisen since the end of the financial year, 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.