Litigation Cap. Regulatory News (LIT)

10 July 2020

Litigation Capital Management Limited

(LCM or the Company)

Market Update

Litigation Capital Management Limited (AIM:LIT), a leading alternate asset manager of disputes financing solutions, is pleased to provide a market update for the period since announcement of its HY20 results to 30 June 2020.

Highlights

· Consistent performance reflected in 9-year portfolio ROIC of 134% and cumulative portfolio IRR of 78%

· Accelerated growth in commitments from the LCM Global Alternative Returns Fund (the "Fund") during the period. This translates to an overall capital commitment of $106m or 47% of US$150m since the Fund launch in March 2020, against an investment target period of 24 months

· Increased demand for funding with 522 applications (increase of 25%) received during the financial year ended 30 June 2020 ("FY20"). Consistent and disciplined project selection resulted in 3.5% of applications being converted into an active investment

· Increased applications and investments in the quarter reflecting the counter-cyclical nature of the industry

· Total portfolio capital commitment of $143m comprises $95m of direct investments alongside a further $48m of Fund co-investment resulting in greater diversity of investments

· COVID-19-related delays on court proceedings, particularly in Australia, defers imminent conclusion on a small number of cases. The Company expects this to impact revenue in the financial year ended June 2020, albeit the effect on earnings is minimal which reflects proportionate cost control. More recently, many litigation and arbitration proceedings are being conducted virtually and the UK, for example, has reported increases in Commercial Court filings.

LCM operates two distinct business models: direct balance sheet investments and asset management. Under those business models, LCM pursues three investment strategies: single-case funding, corporate portfolio funding and the acquisition of claims.

Direct Investments

LCM's direct investments fall into two categories:

· Direct balance sheet investments 100% funded by LCM; and

· Co-Investment funding alongside the Fund

LCM manages a direct investments portfolio with a current capital commitment of $95m, which now comprises 23 separate investments. Two of these are Corporate Portfolios, in which the Company has made significant headway in terms of this strategy for investments, achieving four resolutions in both its building and construction portfolio and its aviation portfolio in FY20, with both of those portfolios continuing to deliver strong metrics for LCM.

Asset Management  

Since closing its first third party Fund in March 2020, LCM has committed 47% of the US$150m Fund across 17 projects. The 17 projects are well balanced across commercial litigation, insolvency disputes, class actions and arbitration. This represents an enhanced speed of commitment noting that the Fund allows a period of 24 months to full commitment. This speed of committing to the Fund results from a combination of LCM's unique origination capabilities as well as the changing market conditions. LCM has achieved this level of commitment without sacrificing quality by strictly adhering to its high level of case selection - consistent with historical track record of 3-5% of applications.

Global economic conditions and industry forecasts suggest there will be a significant increase in insolvency events and LCM expects to see an increase in applications. This is further supported by the Company's long-standing and deep referral relationships which are scaling the opportunities LCM is seeing in insolvency and restructuring events.

There is now an almost evenly split portfolio between the APAC region and EMEA on both direct investments and the Fund portfolio.

Consistent Performance

Across the entire spectrum of investments, the Company has reached a nine-year period in terms of evaluating its rolling performance in which it has achieved a cumulative Return on Invested Capital (ROIC) of 134%, including losses, and in the same period has achieved a cumulative IRR of 78%, which highlights it is delivering clear growth. This performance sits within a tight parameter from period-to-period. It is a direct reflection of LCM's disciplined project selection and robust risk management processes and systems.

COVID-19

With employee and client health and wellbeing at the forefront of LCM's priorities, its team moved swiftly and efficiently to remote working across its Australia, London and Singapore offices prior to the implementation of lockdown measures.

With regards to LCM's existing investments, the immediate effect of COVID-19 has predominantly been felt in Australia where the Company's longest-running and most advanced investments are located. In relation to disputes which are approaching a final adjudication, the Australian courts have struggled with effective implementation of digital hearings, resulting in longer hearings as courts and practitioners grapple with new technology.

As a result of these challenges the courts have faced, a small number of Australian investments have now been pushed into the next financial period. It is important to note that this does not result in any lost revenue but rather defers the timing that LCM recognises its revenue from one financial reporting period to the next.

COVID-19 has led to the global financial markets experiencing high volatility, and there is a strong correlation historically that dispute levels rise during such periods of instability. As outlined, LCM is already observing the levels of insolvency events increase and corporates looking for alternatives to disputes spending and is well-positioned to respond to the resulting increase in applications accordingly.

Strategic Alliances

LCM's Strategic Alliance with an international law firm delivered material opportunities in the period with over 10 applications received during FY20, including both single cases and corporate portfolios.

LCM has initiated a second Strategic Alliance with an international law firm which has already generated corporate portfolio applications. That alliance has led to our largest ever corporate portfolio application which is in its final stages of due diligence and underwriting.

Board and management update

LCM is continuing to take steps to move its executive management function to London, including the pending relocation of Patrick Moloney as Chief Executive Officer, and further reinforced by the appointment of London-based Mary Gangemi as Chief Financial Officer in April 2020.

As announced on 2 July, Steve McLean, Non-Executive Director, stepped down from the Board and LCM is at an advanced stage in adding additional Non-Executive Directors to the Board.

Upon achieving the transition, the management functions, including finance, will both be much closer to LCM's growth markets and have significantly greater access to many existing equity investors, as well as sources of new capital.

To access the June 2020 Market Update investor presentation, please click here.

Patrick Moloney, CEO of LCM, commented: "I am pleased to report that LCM has continued to deliver a consistent performance, reflected in our nine-year portfolio ROIC of 134% and cumulative portfolio IRR of 78%. We have achieved significant headway in both our direct investments and asset management business with the launch of the US$150m LCM Global Alternative Returns Fund in March, providing the basis for continued growth. It is particularly encouraging to have already deployed almost half of the capital from the Fund across 17 projects in such a short period of time and across a diverse range of disputes. In keeping with the counter-cyclical nature of the industry, LCM has observed an increased demand in fund applications and investments throughout the final quarter, and we are well-placed to capitalise upon further increases going forward. With court and arbitration proceedings beginning to be run virtually, in line with new working conditions, we are confident in opportunities in both established and nascent markets that we operate in."

Enquiries

NOTES TO EDITORS

Litigation Capital Management (LCM) is a global provider of disputes finance which operates two business models. The first is direct investments made from LCM's permanent balance sheet capital and the second is fund and/or asset management. Under those two business models, LCM currently pursues three investment strategies: Single-case funding, Corporate portfolio funding and Acquisitions of claims. LCM generates its revenue from both its direct investments and also performance fees through asset management.

LCM has an unparalleled track record, driven by effective project selection, active project management and robust risk management.

Currently 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