The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
AJP: ITX had cash and cash equivalents of $10.9m at 30 June 2023 and $10.0m at 31 Dec. As far as I'm aware, money market and T-bill rates over the H2 period were consistently above 5%, so interest income ought to be significantly higher in the second half.
However, this assumes that the CFO isn't indulging in period-end window dressing and that the cash wasn't being used for working capital purposes in the interim.
In LCM's Investor Meet Company presentation on 14 March, the following question was asked:
"It has been reported that Britain’s litigation funding industry faces “seismic consequences” if an appeal over funding agreements is allowed by the United Kingdom’s Supreme Court - what are the risks to LCM’s UK investments both directly funded and via either fund? Have you reported any information on how this case may affect LCM's business to private investors and/or other investors who participate in the funds?"
Patrick Moloney's response was as follows (my audio transcription):
"In answer to that question, there has been a challenge in the high court here in the United Kingdom with respect to whether litigation funding arrangements constitute damages based fee arrangements and are therefore caught by the legislation which governs solicitors providing those types of services. Now, the advice that we have received in and around that challenge is that it relates to that portion of the underlying funding agreement whereby the litigation financier is paid a percentage of the outcome of the pool of capital that is created as distinct from being remunerated on a multiple of invested capital. Therefore, the majority if not all of our litigation funding arrangements which have been entered into in the UK market are all based around a remuneration and return mechanism for LCM based on a multiple of invested capital. So, we're not concerned in relation to this challenge. The challenge is yet to be determined and is in early stage in terms of going through the court system, but as I say, we're not concerned about that because it really doesn't reflect the way that LCM structures its underlying litigation funding agreements. So, in answer to the final part of that question - have we reported that to the market or those who have invested in our funds management business - the answer is no because we don't perceive that as a risk."
The 2023 Statistical Review of World Energy has been released this morning. Formerly published by BP, the 72nd edition has been compiled by the Energy Institute in partnership with KPMG and Kearney. Data compilation continues to be undertaken by Heriot-Watt University.
According to the report, global primary energy consumption grew by 1.1% in 2022, taking it to almost 3% above the 2019 pre-Covid level. Global energy-related emissions grew by 0.8%.
The share of primary consumption accounted for by fossil fuels fell only marginally, down from 82.3% in 2021 to 81.8% in 2022. The split was oil 31.6% (2021 = 30.9%), natural gas 23.5% (24.5%), coal 26.7% (26.9%).
With non-fossil sources, renewables accounted for 7.5% (6.7%), hydro 6.7% (6.8%), and nuclear 4.0% (4.2%).
https://www.energyinst.org/statistical-review
From the Energy Taxes Factsheet published by HM Treasury today:
"To continue encouraging companies to reinvest their profits in the UK, we will maintain the existing cash value of the levy’s investment allowance, ensuring there is still a significant increase in relief compared to the permanent system. To achieve this, the rate of the allowance will be reduced from 80% to 29% for all investment expenditure besides decarbonisation expenditure. The allowance will remain at 80% for decarbonisation expenditure (defined as investment in carbon emissions reducing technology) such as installing bespoke wind turbines to power the production installation."
"To me it almost feels like they are buying time and want to keep the shares cheap at present. Why I can’t figure out."
A reminder that we have an unusual deferred consideration scheme in place at present which rewards CEO John Shaw, CTO Yvon Durant and other original Itaconix investors based on growth in turnover.
We are in the final year of this scheme, and under its terms the beneficiaries will receive an award equal to 50% of any increase in revenue above a current base level of $3.0m. So, let's suppose for example that H2 performance roughly matches that of H1 and final 2022 turnover comes in at $6m. The deferred consideration award will therefore be ($6m – $3m) * 0.5 = $1.5m.
The key point here is that the award is not paid in CASH, it is paid in SHARES. So, if the share price is 5p and the USD/GBP exchange rate is 1.20 when the award is granted, JS et al will receive (1.5m / 1.2) / 0.05 = 25,000,000 newly issued Itaconix shares, which would be approx 5% of the enlarged share capital of the company. If on the other hand the share price is 10p at the time of the award, then the beneficiaries will only receive 12.5m shares, some 2.5% of the company.
This bonus scheme therefore puts JS in a highly conflicted position. Sure, he wants the company to be successful and for the share price to grow in the long term, but until this year's bonus is finalised (which won't happen until the final results for 2022 are released next year) there is a strong incentive for him to keep the share price subdued so he can maximise his personal gain from the share award and receive increased control of the company.
If you're wondering why ITX didn't increase full year revenue guidance for 2022 after such a strong first half, then I would posit that this could well be the reason. For the next ten months or so, I suspect John Shaw wants to keep a lid on the share price.
This is my understanding of the damages being claimed.
Direct damages (compensation as calculated under the YPF Bylaws):
Petersen: $7.533b
Eton Park: $898m
Total: $8.431b
Indirect damages:
Petersen: $6.405b (prejudgment interest to 24/09/21)
Eton Park: $763m (prejudgment interest to 24/09/21)
Petersen: $156m (loss of value in YPF shares between 16/04/12 and lender foreclosure)
Petersen: $133m (prejudgment interest on the above to 24/09/21)
Total: $7.457b
Total claim: $15.888b
To this should be added prejudgment interest from 25/09/21 until date of judgment.
[Note: the plaintiffs argue: "Because Argentina should have launched a tender offer in New York on the NYSE for Plaintiffs' ADRs, the relevant prejudgment interest rate is New York's 9%"]
Page 64 of Burford's 2019 Annual Report suggests BUR's entitlement (taking into account the part sale of the Petersen claim) would be around 45% of the gross claim value.
Re the bonus scheme:
The share price for the bonus award is based on the volume-weighted average closing mid-market share price over the 30 trading days immediately preceding the first day on which the financial results are publicly released.
Last year the final results for 2020 were released on 30 March 2021, and when the RNS for the bonus award came out a few days later (9 April) I immediately checked that the awarded shares complied with the above stated protocol. Unsurprisingly, the calculation was correct.
This methodology does regrettably mean that John Shaw has a personal incentive to time the release of the final results to his best advantage (i.e. when the share price for the preceding 30 days has been weak so that he will receive more shares). I'm not expecting that to be much of an issue with the award for this year, but it could be a significant factor for the 2022 award if ITX's sales growth next year is as strong as projected by the contingent liability reserve in the accounts.
@1N: I bought a large number of shares between May and August last year when I felt the lowly market cap of the company didn't reflect its potential. I was also encouraged by John Shaw's ability to slash costs and keep the company running when there were only fumes remaining in the tank before the fundraise in late June 2020.
I've since sold the majority of my holding into the rise, but only because I thought the share price had got ahead of itself and would be susceptible to a retrace if this year's revenues roughly matched the company's projection that I had calculated from the Annual Report.
I'm still holding well over a million shares and at today's price I'll just let these run, with future transactions based on news flow and any insights that are uncovered by the product sleuths on this board (for which I'm very grateful I should add).
@pedrolancaster: I think of the bonus scheme as purely deferred consideration rather than as a cost against revenues, and as far as I'm concerned the higher the bonus achieved the better. It's not a cash cost for the company and instead results in some dilution for shareholders, who should be amply rewarded if revenue growth is strong. It also grants more shares to Dr Durant, and I'd like to see him with a greater holding in the company.
What I'm not so happy with is the potential (and I must stress potential) incentive it gives for John Shaw to keep the share price subdued and for him to time the release of ITX's final results to his advantage (the share price for the bonus award is based on the volume-weighted average closing mid-market share price over the 30 trading days immediately preceding the first day on which the financial results are publicly released).
uallmakeitup wrote: "Why would he play it down.? Does he want the share price to drop as the last two updates have been very lacklustre."
John Shaw would arguably play it down because he is entitled to a performance bonus based on revenue growth, and this performance bonus is settled by awarding him newly issued shares in the company. The lower the share price, the more shares he receives. As a consequence, he is incentivised to grow the company's revenues as much as possible while keeping a lid on the share price until the bonus scheme ends at the end of 2022.
The deferred consideration bonus scheme was put in place when Itaconix merged with Revolymer. The scheme was originally due to expire in 2020, but it was extended to the end of 2022 as part of the 2018 fund raise.
Note 17 in the Annual Report (page 62) explains how the scheme works. In 2020, scheme members were entitled to a bonus of 50% of incremental sales above $3m. Sales for the year were $3.292m, so the bonus was (3,292m – 3m) * 0.5 = $146,000. The bonus was paid through the issuance of 1,923,389 new shares in the company as per the RNS of 9 April. John Shaw received 884,953 of the shares (46.0%) and Dr Yvon Durant received 205,802 (10.7%).
2020's sales of $3.292m now becomes the base figure for the 2021 bonus.
What's interesting about this deferred consideration is that it's a contingent liability for the company and it must therefore be reserved for in the accounts under fair value accounting. This in turn leads to the company having to project what its sales will be in 2021 and 2022 to compute the liability. Note 17 in the AR gives a gross value of $2.853m for this liability at 31 Dec 2020, of which $146,000 has now been settled. There is no breakdown of liability by year, so in theory we can only make guesses as to what is expected for revenue this year and next.
However, there's a crucial bit of extra info in note 17: we're told that a 1% increase in the discount rate reduces the fair value liability by $46K. If you play around in a spreadsheet with different sales combinations and the cited discount rates for 2021 and 2022, you'll quickly see that high revenue growth for this year was never on the cards, but that management is forecasting revenues to surge in 2022. I make the numbers $3.9m for 2021 revenues and $9.9m for 2022, so revenue growth for next year is projected to be over 150%.