TIDMLIT
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, Six months Six months Change
unless otherwise stated(1) ended ended %
31 December 31 December
2018 2017
-------------------------------- ---- ------------- ------------- ---------
Statutory Revenue(2) 18.50 6.59 181%
Adjusted Revenue(3) 11.71 0.10 11498%
Gross profit(2) 5.67 0.03 18,521%
Adjusted profit before
tax(4) 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 12.83 6.56 96%
investments(6)
Litigation investments(7) 20.70 18.96 9%
Total equity 70.28 15.44 355%
Cash receipts from the
completion of litigation
investments(8) 11.0 0.10 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 (GBP20 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 GBP20 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$0.03
million).
LITIGATION CAPITAL MANAGEMENT LIMITED
ABN 13 608 667 509
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE
INCOME
FOR THE HALF-YEARED 31 DECEMBER 2018
Consolidated Half-Year
---------------------------
Restated
Dec 2018 Dec 2017
A$ 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
---------------------------------------------------
Restated
Dec 2018 Jun 2018
A$ 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-YEARED 31 DECEMBER 2018
Share
based
Consolidated Issued Retained payments Non-controlling
(A$) capital Profits reserve Total 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-YEARED 31 DECEMBER 2018
Consolidated
Restated
Dec 2018 Dec 2017
A$ 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-YEARED 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 Adjustments Restated
A$ A$ 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 Adjustments Restated
A$ A$ 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 Adjustments Restated
A$ A$ 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 Dec 2017
A$ 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 Dec 2017
A$ 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 Dec 2017
A$ A$
Jurisdiction
Australia 18,500,625 6,590,393
18,500,625 6,590,393
================== =====================
Dec 2018 Dec 2017
A$ 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 Jun 2018
A$ 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 Dec 2017
A$ A$
Interest received 26,925 5,017
Other income 301,176 106,963
328,101 111,980
======================== =========
Note 7: Expenses
Consolidated
-----------------------------------
Dec 2018 Dec 2017
A$ 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 Dec 2017
A$ 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 Dec 2017
A$ 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 Dec 2017
A$ 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 Jun 2018
A$ 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 $0.17 per share.
(c) Ordinary shares - Loan Share Plan
The Board adopted the Loan Share Plan (LSP) to retain, motivate
and attract executives and to better align the interest of
employees with those of the Company and its shareholders by
providing an opportunity for eligible senior executives to acquire
shares subject to the terms and conditions of the LSP.
The Loan Plan Shares may be issued to the participant at market
value and the Group may provide a limited recourse loan to assist
the participant to purchase the Loan Plan Shares. Each Loan Plan
Share is one fully paid Ordinary Share and generally rank equally
with all existing shares from the date of issue however due to the
vesting conditions attached to them (e.g. continuous employment
conditions and share price hurdles) represent a share based payment
arrangement. For further details refer to Note 11.
Consolidated
---------------------------------------------------
Dec 2018 Jun 2018 Dec 2018 Jun 2018
Shares Shares A$ 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 Issue
share capital Date No of shares 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 (GBP20,000,000) Dec-18 38,461,540 GBP0.52 36,186,456
Issue under Employee Share Option
Scheme Nov-18 1,475,000 $0.47 737,500
Share issue transaction costs,
net of tax (2,959,006)
Balance at 31 December 2018 104,580,899 68,830,062
Movements in partly paid ordinary Issue
share capital Date No of shares price A$
-------- ----------------- -------- -------------------------
Opening balance at 1 July 2018 2,866,050 n/a -
Balance at 31 December 2018 2,866,050 -
================= =========================
Movements in ordinary share capital Issue
in relation to Loan Share Plan Date No of shares 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 Jun 2018
A$ 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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