Litigation Capital Mgmt : Full Year Results 2023 Year ended 30 June 2023

Full Year

Financial

Report

2023

Litigation Capital

Management Limited

ACN 608 667 509

Chairman's Statement

The year under review was LCM's most successful 12 months since inception. This is a testament to the hard work of our management team and staff, and the foundations that have been laid by the team over the past few years.

The Financial review details an income statement prepared under the historical accounting standard and the newly adopted AASB 9 to provide readers with a bridge of financial performance through this period of transition. Realised income for the year compared to revenue as previously disclosed in the prior year was AUD$181m, A$84m of which was attributable to the shareholders of LCM (FY22 AUD$47m), an increase of 285% on a consolidated basis and 78% attributable to LCM. Adjusted operating profit of AUD$54m was in line with the prior year (FY22 adjusted operating profit AUD$54m), and basic earnings per share of 29.5 cents (FY22 32.7 cents). These record results meant that the company ended the period with AUD$104.5m of cash (A$83m attributable to LCM) compared with FY22 AUD$50.0m of which A$29m was attributable to LCM. More information on the restatement of the Group's results following the adoption of Fair Value accounting can be found in the CFO report and the notes to the financial statements.

As a result of the above performance, the Board was pleased to declare a final dividend to shareholders for the financial year ending 30 June 2023 of 2.25p per share. The dividend will be paid on 27 October 2023 to shareholders on the register on 29 September 2023 being the record date. The ordinary shares will be marked ex-dividend on 28 September 2023. As we have set out, the Board is always looking at ways to return value to shareholders and will continue to do so.

LCM's experience in the sector has enabled it to navigate the uncertain economic and political environment which has been in place since the emergence of the Covid pandemic, and which continues today due to high levels of inflation and the ongoing war in Ukraine.

As the year progressed, we began to see courts and tribunals in jurisdictions across the globe begin to tackle the case backlogs associated with Covid 19, which has seen more cases settle, a trend we hope to see continue and accelerate during the next 12 months. As ever, the timing of resolutions of disputes is out of our hands, but we will continue to provide market updates to investors in a timely manner and when it is possible to do so.

During the year LCM has seen the benefits of its move to its third-party asset management business model, with the first case investments from Fund I reaching their conclusion, leading to above average returns for the LCM balance sheet. The Board is confident that this is the right business model for the Company and will allow LCM to leverage our capital extremely effectively and build scale.

In March 2023, Fund II was closed following US$291m of committed funds and we have already begun to deploy capital within this structure. We expect this to be a strong driver of growth in the business in the years to come, and continue to receive interest from investors looking to commit further.

As the numbers bear out, the performance this year has been extremely strong, which as ever has been led by strong case selection and the experience within the Company of originating high quality deals. We have bolstered our origination business with key hires in APAC and EMEA, highlighting the increasingly global nature of our business.

This was CEO Patrick Moloney's first full year based in the UK, a move driven by our belief in the opportunity for growth in the UK and Europe. Coupled with the building out of our London team, we continue to believe that the litigation financing market in EMEA is set for expansion. This is notwithstanding the recent UK Supreme Court decision which will have very limited or no impact on LCM's portfolios of dispute investments in terms of future value. Additionally, our presence in Singapore has continued to grow, and we are seeing more and more opportunities in the jurisdiction. We see these locations as natural complements to each other, diversifying and de-risking our investment portfolio.

As a business LCM has always been conservative in the way it apportions value to its portfolio of investments. We will maintain this conservative approach. However, the Group has reassessed its classification of the funding of its litigation funding agreements. This involved a detailed review which resulted in a significant change to the way in which we report results this year. The change provides more relevant information on the value of the litigation funding agreements and reflects the evolution of the primary business model and changing geographic split of business. This is a significant change which follows a third-party review and lengthy and thorough board discussions. We are confident this is the right

move for the business as it continues its shift towards a third-party asset management business model and will enable investors more easily to compare us with our peers. More information about the change to Fair Value Accounting can be found in the CEO and CFO reports.

In conclusion, this has been an excellent period for LCM, and can act as a platform from which to continue to expand our asset management business and develop scale. The litigation funding market continues to grow, and we expect the quality of opportunities presented us to expand in line with this.

Jonathan Moulds

Non-Executive Chairman

CEO Review

Introduction

The year to 30 June 2023 was transformational for LCM as we started to realise the benefits of the asset management business model and the successful execution of our strategy to grow a third-party fund management business. The resolution of a number of Fund I investments has translated into enhanced organic cash generation, allowing us to scale the business through further investment into Fund II.

We welcomed an expanded team in London by recruiting additional, highly experienced litigation finance professionals and have selectively enhanced our already strong teams in Australia and in Singapore, which is increasingly a strong hub of opportunities for the Company. In London and the APAC region our enhanced teams will help us to continue to take full advantage of the current favourable market conditions.

As noted in the Chairman's Statement and as set out in more detail in the Financial Review, the Board evaluated and considered the appropriate accounting framework with respect to our portfolio of investments given the business' evolution over recent years. The outcome being the transition to fair value accounting for litigation funding assets, which we believe will provide relevant information on the value of the underlying portfolio and better reflects our business model.

Operational Review

During the year LCM delivered its strongest set of results to date, both in terms of financial performance and commitments, supported by a strong cash position. As a result, we are pleased to be able to recommend a 2.25p dividend per ordinary share for shareholders.

We continue to operate against a backdrop of ongoing disruption caused by high inflation, rising interest rates, geo-political tension and wider economic uncertainty. Our strong cash position will enable us to meet the ever growing demand for funding, arising from the increased level of disputes globally as a consequence of these external factors. In the current environment, this means increased demand for capital allocation to fund disputes. This market demand, together with our ability to deliver superior uncorrelated returns, places us well for future growth.

We continue to grow and scale our fund management business which aligns the interests of LCM with our third-party investors through our co-investment model. Each matter selected for investment will see us invest our own capital alongside that of the managed funds - normally on a 25:75 basis. Supported by our track record and underwriting capabilities, this model allows Fund investors to benefit from our ability to deliver high returns while LCM shareholders benefit from performance fees and capital leverage.

Investment Portfolios and Performance

In terms of investment performance metrics, LCM continues to deliver outstanding returns. With respect to every investment completed during the past 12 years, inclusive of losses, LCM has generated a return on invested capital (ROIC) of 1.78x. On a three year rolling basis, LCM's investment performance, again including every completed investment inclusive of losses, has generated an IRR of 76% and a ROIC of 2.09x. These performance metrics underpin the high calibre of our investment managers and their underwriting capabilities with respect to investment selection. LCM has consistently provided amongst the highest returns in our industry over a long period of time.

As previously announced, LCM achieved a final close on its second fund (Global Alternative Returns Fund II) ("Fund II") in March 2023. Progress in terms of commitments entered into for Fund II has been strong and we currently enjoy an advanced pipeline of significant disputes, which we expect to sign into investments in the near future. Given current demand and levels of enquiry, we expect we will reach full commitment within the next 12 months. As with our historical approach, as evidenced by our investment performance metrics, we continue to build our portfolios of dispute investments in a manner that maintains diversity across claim type, industry sector and jurisdiction whilst avoiding concentration risk. We are at all times focused upon the quality of the investments that we make, rather than the quantity.

People

Since relocating to the London market in late 2021, I have focused on both building out the skillset and experience of our London team, as well as expanding our origination function. LCM now has the benefit of six highly experienced investment managers in London, the majority of whom have a deep understanding of the litigation funding industry both in the UK and Europe. LCM now boasts the most experienced London team of investment managers which positions us exceptionally well given the level of enquiry for our capital being received from the London market.

In terms of the Australian market, we will always consider adding to our team on an opportunistic basis, however we are satisfied that the current team is capable of meeting the demands to perform in that market. We also take a very practical approach towards our level of operating expenses in each region, ensuring that in markets where we are not seeing an expansion in the level of enquiry, that we meet that demand with an appropriate level of personnel and operating expenses generally. We constantly monitor market conditions and are in a position to react swiftly to any changes.

In terms of the Asian markets, we are pleased to report an increase in activity. Whilst LCM has invested in the Asian market for many years, we first established a permanent presence with our Singapore office in 2018. In accordance with LCM's disciplined approach, we commenced that office with a single experienced investment manager. Since that time, we have expanded those operations, such that we now have four investment managers operating in Singapore. Most recently, we have employed an investment manager with a focus on insolvency disputes with experience in the UK, Cayman Islands and Asia. We expect to see increased activity in the insolvency and restructuring space as markets continue in a higher interest rate environment and with continuing economic uncertainty.

Market Environment

Market conditions across the various jurisdictions in which we operate continue to develop favourably. The economies in which we operate are seeing central banks continuing with their policy of increasing official rates in an effort to bring inflation under control. We continue to see disruption across many industries, some resulting from Covid hangover, some from geopolitical instability and some from economic issues. What is clear right across the markets that we service is that the economic conditions and the general uncertainty is increasing the number of quality investment opportunities we see. At one end of the spectrum, we see very significant increases in the number of liquidations, both voluntary and court appointed, whereby an insolvency practitioner is appointed to an insolvent corporation. That dynamic over time will see an increase in opportunities from that sector. That is of particular interest to LCM given its extensive experience in insolvency related disputes and our deep relationships with insolvency practitioners. At the other end of the market we service, we have large sophisticated and well capitalised corporates. Those within the corporates who manage finance, and in particular disputes budgets, as well as risk, have a more sympathetic disposition toward exploring litigation finance as a tool to manage capital and risk in current markets.

Having now worked directly in the UK market for almost two years, I can make some informed observation regarding opportunity. I came to the London market with 18 years' experience in the litigation finance industry, predominantly in the Australian and Asian markets. The litigation finance market has developed quite differently in the Australian market than elsewhere in the world. That experience gives me particular insight into parts of the market which remain either undeveloped or underserviced in the United Kingdom. Having now had the opportunity to obtain a direct insight from referral sources, in particular the dominant dispute lawyers, I can say that there remains significant opportunity for LCM in this region. LCM is now very well placed to address the UK market with a highly experienced London team and an exceptional working culture.

I have also observed, particularly in the past 12 months, a contraction in available capital within the litigation financers operating in this region. There is certainly less competition with respect to applications than there was two years ago when I arrived. This leverages this great opportunity for us.

In July of this year and post year end, the Supreme Court of the United Kingdom delivered a judgment which resulted in certain litigation funding arrangements being subject to the Damages-Based Agreement Regulations 2013 in the UK. The Damages-Based Agreement Regulations 2013 prescribe certain requirements for fee arrangements between solicitors and their client whereby their remuneration for the provision of legal services is determined as a percentage of the financial benefit comprising the outcome of the dispute. Whilst most commentators accept that the Regulations were passed to regulate the