Burford Capital Regulatory News (BUR)

4 September 2014

BURFORD CAPITAL POSTS 89% PROFIT INCREASE IN HALF YEAR 2014 RESULTS

Strong returns and move to semi-annual dividend

Burford Capital Limited ("Burford" or "the Company"), the world's largest provider of investment capital and risk solutions for litigation, announces its financial results for the half year ended 30 June 2014.

· An 89% increase in Burford's profit before tax for the period to $18.2 million (June 2013: $9.7 million)*

· Burford's income for the six months was $27.4 million, a 40% increase on the prior year (June 2013: $19.5 million). The increase reflects:

- an 85% increase in income from the litigation portfolio amid continuing increases in activity levels;

- UK insurance income steady at $10.2 million (June 2013: $10.2 million)

· Continued strong investment returns: Since inception, 26 investments have generated $174 million in gross investment recoveries and $67 million net of invested capital, producing a 63% net return on invested capital. This represents a 67% increase, $27 million, over the net position at 30 June 2013**

· Material increase in cash generation: Burford generated $42 million of cash from the investment portfolio in the period, an increase of 93% over the comparable 2013 period

· Ongoing demand for Burford's capital reflected in $62 million of new capital committed in the period, a five-fold increase over the comparable 2013 period

· Completion of a successful issue of retail bonds on the main market of the London Stock Exchange post period end, raising $150 million (£90 million) of capital which will be deployed in litigation finance activities

· Introduction of a semi-annual dividend, with an interim dividend of 1.74¢ to be paid in December 2014***

* Excluding the accounting impact of the Burford UK acquisition, the 2012 Reorganisation and 2013 UK Restructuring costs

** Investment recoveries is a non-IFRS term defined in footnotes 2 and 3 to the Burford 2013 Annual Report. 

**\* The dividend will be paid to common shareholders on the register at close of 14 November 2014 and Burford's stock will trade ex-dividend on 13 November 2014

Sir Peter Middleton, Chairman of Burford, commented:

"This period has been a transformative one for the business with significant steps made in our continuing evolution to a more traditional corporate structure, reflected in our successful bond issue and our decision to introduce a semi-annual dividend. We are grateful for the continued support of our shareholders and our new bondholders and are committed to the further growth of the business in what is a rapidly developing market."

Christopher Bogart, Burford's CEO, commented: 

"Burford's strong financial performance reflects not only the inherent demand in the market, but also our proven ability to meet that demand. The innovative approach to the way in which we structure our investments enables us to recognise and capture the diversity of opportunities in corporate finance solutions, beyond traditional litigation funding. That same approach extends to the way we develop and grow the company itself, with the recent retail bond issue being an excellent example of that."

For further information, please contact:

Macquarie Capital (Europe) Limited - NOMAD and Joint Broker

Steve Baldwin +44 (0)20 3037 2000

Nicholas Harland

Espirito Santo Investment Bank - Joint Broker

John Llewellyn-Lloyd +44 (0)20 7456 9191

Harry Stockdale

RBC Capital Markets - Joint Broker

Oliver Hearsey +44 (0)20 7653 4000

FTI Consulting - PR for Burford Capital

Edward Berry +44 (0)20 3727 1046

Laura Ewart +44 (0)20 3727 1160

About Burford Capital

Burford Capital is the world's largest provider of investment capital and risk solutions for litigation with the largest and most experienced dedicated team in the industry. Burford is publicly traded on the London Stock Exchange's AIM market under the ticker symbol BUR. Burford provides a broad range of corporate finance and insurance solutions to lawyers and clients engaged in significant litigation and arbitration around the world.

For more information about Burford, visit www.burfordcapital.com

Financial Highlights

Unaudited consolidated condensed financial statements can be found in the following pages and a summary is set out below. The figures for taxation and profit after tax exclude the impact of the Burford UK acquisition, the 2012 Reorganisation and the one-off 2013 UK Restructuring costs and are shown to assist in understanding of the underlying performance of the Company. All other figures presented are derived directly from the unaudited consolidated condensed financial statements.

Report to Shareholders

In addition to posting strong financial results, this year has thus far seen significant progress towards Burford's long term strategic objectives.

We have spoken for some time about our desire to move to a more traditional capital structure befitting our status as a specialty finance company and also to have access to more capital to deploy. We achieved both of those objectives with a successful bond issue this summer. In the end, we raised more than $150 million (£90 million) through an issue of eight year bonds with a fixed 6.5% coupon on the London Stock Exchange's main market. The offering was very well received in the market and was oversubscribed, and we welcome all our new bondholders to the Burford family.

This influx of capital took Burford above the half-billion dollar level in assets, and was a transformative event for the business. With this capital, Burford is more than twice the size of any other listed litigation finance firm. We are hard at work making plans for the deployment of this new capital.

Another step towards Burford adopting a traditional corporate structure is to move to a semi-annual dividend. We will now follow the pattern of many London-listed firms in announcing an interim dividend at the time of the release of our interim results and a final dividend when we release our full year results. To move ourselves onto that cycle, we will pay a further dividend of 1.74¢ (one-third of the amount of our full year 2013 dividend of 5.23¢) in December. As stated at the full year, we continue to believe that a combination of attractive dividend income and the reinvestment of capital will maximise shareholder returns.

We published a comprehensive annual report a few months ago that expanded our disclosure about the business and its performance, and we intend to continue that approach with our next annual report. In keeping with our historical practice, this interim report is much shorter and addresses itself just to the key developments in the business.

Litigation finance business

The combination of strong demand for capital in the litigation finance business and significant cash receipts from existing investments late last year and this year led us to enter into new commitments of $62 million in the first half of 2014 - as much as in all of 2013. Those new commitments bring our total commitments presently outstanding to $281 million (and to $423 million since inception), in both cases excluding our insurance and lending activities, of which $104 million has yet to be advanced.

Of particular note was the diversity of that demand, continuing the trend we have discussed before of the expansion of our opportunity set from the basic funding of case expenses to a much broader range of corporate finance solutions related to litigation and arbitration matters.

That trend is well illustrated by our successful transaction with Rurelec PLC, a publicly-traded owner, operator and developer of power generation capacity internationally. (Burford is not usually permitted under the terms of its agreements with its counterparties to make any sort of public announcement or disclosure about individual investments. However, Rurelec's own disclosure obligations and its consent make this exception possible.)

In this case, Rurelec was pursuing an arbitration claim against Bolivia for the expropriation of one of Rurelec's power plants. Rurelec did not need capital to pay its lawyers - what is generally called "litigation funding". Rather, it needed capital to continue to grow its business - but lenders wanted very high interest rates because of the loss of its Bolivian assets. Unlike a traditional lender, Burford was able to evaluate the value of Rurelec's pending arbitration claim, and thus was able to provide the following facility:

§ A fully recourse, secured $15 million senior loan at a 12% capitalised interest rate

§ A contingent value right to receive a portion of the ultimate arbitration award, expressed on a sliding scale based on time and amount

Rurelec then won its claim, extracted payment from Bolivia, and paid off Burford.

The Rurelec transaction was profitable for Burford, which earned an $11 million net profit on a $15 million investment, generating a 73% return and a 34% IRR. However, what is truly noteworthy about this transaction is its innovative structure and its demonstration of the expanding market potential for litigation finance.

The public disclosure of this transaction also allows us to indicate the kind of law firms with which Burford often deals. Rurelec was represented by Freshfields Bruckhaus Deringer in the arbitration proceeding and by Skadden, Arps, Slate, Meagher & Flom in the financing transaction. Burford performed its own internal evaluation of the arbitration claim with its own experienced team, and was represented by Latham & Watkins in the financing transaction.

Long-time readers of our statements will note that we have not included in these accounts the segmentation of our portfolio into "short duration", "core" and "special situations". We have elected to discontinue the use of these labels and will instead begin providing actual information about portfolio duration, which is essentially what those labels were trying to approximate. In the Burford of today, we provide financing along a continuum of risk and duration and thereby build a widely diversified portfolio, and we had some time ago stopped using those labels internally.

At 30 June 2014, the investment portfolio stands at total commitments of $281 million across 40 investments, with 26 further investments having concluded for total commitments since inception of $423 million. Those numbers do not include the insurance and lending commitments that we have historically reported as "Other" in our commitments summary. The weighted average duration of our concluded investments is presently 1.9 years. (That is probably somewhat lower than it should be given the impact of a single large and extremely rapid investment in 2010; removing that investment would take the number to 2.1 years for concluded investments.) The current weighted average duration of the outstanding investment portfolio is, coincidentally, also 1.9 years.

Duration is not everything, of course. Our portfolio includes - deliberately - some matters as to which we expect quite long durations. However, we have in those matters negotiated time-based or other returns that make us entirely content with their longer expected duration.

Finally, we have discussed before the accounting imperative of fair valuing our investments before they have concluded, and we have continued to comply with IFRS by engaging in such valuation changes, albeit at a very moderate level. At 30 June 2014, our litigation assets on the balance sheet included only $41.5 million of unrealised gain, approximately 11% of our total asset value and less than 20% of the balance sheet value of our litigation investment portfolio. We do not use these write-ups as a way of expressing our prediction about the ultimate outcome of investments. We do want to point out to readers of our financial statements the treatment of unrealised fair values under IFRS. When an investment that had some unrealised fair value gain added to its value in a prior accounting period concludes, the previously recognised unrealised gain is actually reversed and reclassified as a realised gain. Thus, a period with low or even negative movement in unrealised fair value movements could well be the impact of this IFRS approach.

Overall, we are well pleased with the status of our investment portfolio and the vibrancy of the litigation finance marketplace.

UK insurance business

For a business that was supposed to be already in decline, our insurance business is performing well. Its financial performance did not in fact decline year-on-year but remained steady, contributing another $7.5 million in operating profit to Burford's bottom line in the first half of 2014. We are now well past the point of having the entire purchase price of the business repaid from earnings, so every dollar of this is incremental profit.

Moreover, we are seeing some signs of life in the demand for new insurance coverage. While after the event insurance may have lost the straightforward marketing proposition of being "free" to buyers (because in the pre-Jackson world a win would result in the defendant paying the plaintiff's premium and a loss would result in the insurer paying the claim), the fact remains that in a fee-shifting environment such as exists in English litigation, there will always be categories of plaintiffs who cannot or chose not to bear the risk of an adverse costs award against them and seek insurance against that risk. As a result, while still small compared to historical levels, we are seeing increasing demand for coverage as 2014 develops.

It remains too early to tell what even the medium term future holds, and we will continue to watch, wait and write sensible business. We are declining to follow some of our competitors, who in their attempt to retain volume are reducing prices and writing new policies at premium levels we consider inevitably loss-making. In the meantime, we have seen a sharp uptick in demand for our UK litigation finance products.

# # #

Burford has grown to the point where some degree of staff turnover is inevitable. In June, with a seamless transition, we said good-bye to Andrew Langhoff as our Chief Operating Officer and welcomed Jeremy Garber into that role. Continuing our desire to integrate law and finance, Jeremy comes to Burford not only with a law degree but more than two decades of experience in the financial services world, most recently as the COO of TrilogyLWP, a credit-focused hedge fund, and before that as the COO of Longacre Fund Management, a distressed debt and special situations equities hedge fund manager.

We were also happy to welcome to Burford a new Managing Director, Nick Rowles-Davies, who is based in London and runs our market-facing activities in the UK. Nick, an experienced solicitor, represents one of the first executive moves within the litigation finance industry; he most recently performed a similar role for Vannin Capital, a UK-focused family office-backed litigation funder.

We are pleased with Burford's significant progress thus far in 2014 and its longer-term strides towards corporate maturity.

We thank our shareholders - and our new bondholders - for their continued support for Burford.

Sir Peter Middleton GCB Christopher Bogart Jonathan Molot

Chairman Chief Executive Officer Chief Investment Officer

3 September 2014

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Messrs. Bogart and Molot, like all of Burford's people other than our four directors, are employees and officers of subsidiaries of Burford Capital Limited.

Independent review report to Burford Capital Limited

Introduction

We have been engaged by Burford Capital Limited to review the condensed set of financial statements in the Interim Report for the six months ended 30 June 2014 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity and the related notes 1 to 20. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The interim financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim financial report in accordance with International Accounting Standard 34, "Interim Financial Reporting".

As disclosed in note 1, the annual financial statements of the Company will be prepared in accordance with IFRS. The condensed set of financial statements included in this Interim Report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the Interim Report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Interim Report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34.

Ernst & Young LLP

Guernsey, Channel Islands

3 September 2014

Notes:

1. The maintenance and integrity of the Burford Capital Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site.

2. Legislation in Guernsey governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions

Consolidated Statement of Comprehensive Income for the period ended 30 June 2014

The notes form an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position as at 30 June 2014

The notes form an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors on 3 September 2014 and were signed on its behalf by:

Charles Parkinson

Director

3 September 2014

Consolidated Statement of Cash Flows for the period ended 30 June 2014

* Reclassifications to comparative information have been made in accordance with IAS 1 paragraph 38, in order to provide more relevant information

Consolidated Statement of Cash Flows for the period ended 30 June 2014 (continued)

The notes form an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity for the period to 30 June 2014

30 June 2014

30 June 2013

The notes form an integral part of these consolidated financial statements.

1. Legal form and principal activity

Burford Capital Limited (the "Company") and its subsidiaries (the "Subsidiaries") (together the "Group") provide investment capital, financing and risk solutions with a focus on the litigation and arbitration sector and the provision of litigation expense insurance.

The Company was incorporated under The Companies (Guernsey) Law, 2008 (the "Law") on 11 September 2009. Shares in the Company were admitted to trading on AIM, a market operated by the London Stock Exchange, on 21 October 2009.

These financial statements cover the period from 1 January 2014 to 30 June 2014.

2. Principal accounting policies

These consolidated condensed interim financial statements have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" and using the going concern basis of preparation. These financial statements do not contain all the information and disclosures as presented in the annual financial statements. The consolidated condensed interim financial statements are presented in United States Dollars, and are rounded to the nearest $'000 unless otherwise indicated.

New standards, interpretations and amendments

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2013.

Several new standards and amendments apply for the first time in 2014, including:

No material change has resulted from the implementation of the above standards

Basis of consolidation

The consolidated financial statements comprise the financial statements of Burford Capital Limited and the Subsidiaries. All the Subsidiaries are consolidated in full from the date of acquisition.

All intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated in full.

The Subsidiaries' accounting policies and financial year end are consistent with those of the Company.

3. Material agreements

During 2014 there were not any material agreements in place between Group entities and third parties. The administration agreement with International Administration Group (Guernsey) Limited was amended, effective 1 January 2014, with responsibilities for maintaining the Group's accounting records now being transferred to the Group's internal finance function.

4. Taxation

The Company is exempt from tax in Guernsey. In certain cases, a subsidiary of the Company may elect to make use of investment structures that are subject to income tax in a country related to the investment. Burford UK and its subsidiaries are subject to UK taxation based on profits and income for the period as determined in accordance with relevant tax legislation. Certain Burford US subsidiaries are subject to US taxation as determined in accordance with relevant tax legislation.

The taxation charge for the period ended 30 June 2014 of $1,597,000 (30 June 2013: $1,303,000) includes Burford UK's current taxation of $1,563,000 (30 June 2013: $1,225,000) and US subsidiaries' current taxation of $34,000 (30 June 2013: $78,000).

During the period ending 30 June 2014, the Group also has a deferred taxation credit of $1,467,000 (2013: $1,482,000) relating to the amortisation of the embedded value intangible asset.

5. Embedded value intangible asset

Burford UK was acquired on 29 February 2012. The intangible asset represents the value of Burford UK's book of business at the date of acquisition, and is being amortised in accordance with the expected maturity of the business.

6. Non-cash, non-NAV charge associated with the 2012 Reorganisation

On 21 November 2012, the Company entered into a reorganisation transaction (the "2012 Reorganisation") the ultimate effect of which was to internalise the management of the Company and acquire the Investment Adviser. The consideration for the acquisition was 24,545,454 shares of the Company's stock. The Reorganisation was completed on 12 December 2012, and the Company issued the aforementioned shares on that date to the Investment Adviser's principals, Christopher Bogart and Jonathan Molot. As a result of the Reorganisation, the Group has, inter alia, become the owner of Burford Capital LLC, the US operating entity that employs what are now the Group's US employees and which has built a substantial market leading position in the litigation finance market, and the Company is also no longer obliged to make payments of management and performance fees to the Investment Adviser.

The legal form of the Reorganisation transaction was a reverse triangular merger pursuant to section 351 of the US Internal Revenue Code whereby the Company created a subsidiary that merged with and into the Investment Adviser in a reverse subsidiary merger, and all of the equity interests in the surviving entity (Burford Capital LLC) were issued to the Company, which in turn issued the aforementioned shares which were then transferred to Messrs. Bogart and Molot. As a result and as disclosed in the Company's November 2012 RNS announcement, Messrs. Bogart and Molot became owners of those shares immediately and unconditionally, although the shares are subject to a two year lock-up period.

From a corporate law and corporate structure perspective, the Reorganisation is a sale of a business for stock and does not contain any employment component (in that Messrs. Bogart and Molot were employees of Burford Capital LLC both before and after the Reorganisation), and the transaction was entirely concluded within 2012. However, because Messrs. Bogart & Molot are continuing as employees of Burford Capital LLC, IFRS treats the Reorganisation as falling under both IFRS 2 and IFRS 3, notwithstanding the potential for inconsistency between the actual legal form of the transaction and the accounting treatment. This accounting position was solidified in January 2013 (with retroactive effect) following release of general guidance by the IFRS Interpretations Committee.

Thus, for accounting purposes only, the Company has determined a fair value for the Reorganisation transaction by using the implied market value of the shares issued based on their bid price converted to US dollars and without considering their illiquidity or certain contractual restrictions on their transfer, yielding total consideration of $38,373,111. Of that amount, $518,534 relating to tangible assets acquired and a non-cash charge computed pursuant to IFRS 3 of $11,315,080 reflecting the internalisation referred to above were recognised in the Group's 2012 Annual Report.

In February 2013, the accounting review of the application of IFRS 2 (as influenced by the IFRS Interpretations Committee's January 2013 action) reached the conclusion that the remaining $26,539,497 in deemed value would be appropriately recognised as a non-cash charge to income (with a corresponding increase in equity thus having no NAV impact) over a three year period in light of certain pre-existing provisions in the principals' employment arrangements for liquidated damages in the event of employment termination. The Company took the view that sustained recognition of non-cash charges of this sort was not advisable and thus, with the consent of the principals, eliminated those provisions nunc pro tunc, following which the appropriate IFRS 2 treatment was determined to be the full recognition of the remaining deemed value in 2013.

7. Segmental information

Management consider that there are two operating business segments, being (i) provision of litigation investment (reflecting litigation and arbitration-related investment activities anywhere in the world) and (ii) provision of litigation insurance (reflecting UK litigation insurance activities).

Segment revenue and results

Segment assets

8. Cash management investments at fair value through profit or loss

During the period ended 30 June 2014, the bulk of the cash management investments at fair value through profit or loss were in fixed income and investment funds.

9. Litigation portfolio financing

The litigation portfolio financing balance was measured at amortised cost and attracted interest at 13.5% per annum, payable monthly. The asset had a maturity date of 31 July 2016, with repayments due to commence on 31 January 2014, but was repaid early in full on 3 October 2013. An early repayment fee of $300,000 was also received in addition to monthly interest payments up to the date of repayment. The interest income from litigation financing assets was included in "Interest and other income from litigation-related activities" in the Consolidated Statement of Comprehensive Income.

10. Litigation-related investments at fair value through profit or loss

The net gains on litigation-related investments included at fair value through profit or loss included on the face of the Consolidated Statement of Comprehensive Income comprise:

11. Due from settlement of litigation-related investments

Amounts due from settlement of litigation-related investments relate to the recovery of litigation-related investments that have successfully concluded and where there is no longer any litigation risk remaining. The settlement terms and duration vary by investment. The carrying value of these assets approximates the fair value of the assets at the balance sheet date.