Litigation Capital Management Stock

Good morning, ladies and gentlemen, and welcome to the Litigation Capital Management Limited Results Presentation. [Operator Instructions]. Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation.

I'd now like to hand over to the management team. David, Patrick. Good morning to you both.

Good morning, everybody, and good evening to those who are joining in Australia. Patrick Moloney is my name. Most of you will know me as the CEO, and I'm joined by David Collins, the CFO. I will deal with the first part of our presentation as to where we're up to, and David will present with respect to financials. Investors will probably observe that this will be a slightly shorter presentation than we're used to giving. That is principally because of the position the company is in currently. We are very much focused upon management of the existing portfolio, and we are not taking on any new investments at this time.

And I want to start with performance. And what we're really seeing flowing through the financials of LCM now is the result of 2 large losses, 2 large losses at trial, which have occurred in previous financial periods, but are really being taken up in the financial accounts now, which David will talk to, but have really sort of impacted pretty significantly upon net assets. And those 2 large and rather concentrated investments, which we were unsuccessful on, have really driven that outcome in this financial period.

And that's really detracted from what we look at with LCM on a longer-term basis, which is historically a very high end performance in terms of win-loss ratio and the underlying financial metrics, which came with that. And I'll talk a little bit about what maybe has interrupted that otherwise really strong performance.

And it's not really just LCM who's suffering in this market as well. I mean I don't want to detract from presenting LCM's position here, but this is really a symptom that is flowing right across the whole sector at present. You'll see one of our listed peers presently is suffering from a really concentrated position that it had invested in, which has recently been overturned on appeal. And if I look at some of the non-listed peers that we have in all the markets in which we operate, including the U.K. and -- Asia and into the United Kingdom, we are seeing quite a bit of contraction in this industry. And largely, that is a symptom of what LCM is really dealing with now.

I want to now turn to the proactive actions that we have taken as management. As investors will know, we launched a strategic review in September of last year. That strategic review continues. The strategic review has identified a couple of opportunities which we are currently working through. We are not at liberty due to confidentiality obligations really to go and delve into the detail of those opportunities. But there are 2 -- at least 2 real and tangible opportunities which we are working on together with our secured credit provider.

In addition to that, we have secured covenant waivers, and those covenant waivers have allowed us to continue to operate, to continue to manage and to continue to invest into the portfolios of investments that we currently manage. So not only have we secured covenant waivers, but we've secured an extension on our existing capital facility so that we can do that.

For my part, I've returned to a very hands-on position now in terms of case management. I'm working closely with our investment managers in respect of each and every investment that we have as part of our portfolio. And as a consequence of that, we've had to make some fairly tough investment decisions, and we've had to rewrite the entire portfolio in terms of risk and in terms of prospects of success. And in respect to undertaking that exercise, we have had to elect to not pursue certain investments, and we are working our way out of certain other of those investments.

So there's very much a rebalancing exercise going on. And that is not something that can be achieved quickly. It's something that is achieved over a period of time. And we've seen some of the consequences in relation to that. One of those is the Gladstone class action, which we had discontinued our funding in some time ago now, but that is now hitting our balance sheet, and David will talk more about that.

In addition to that, we've reduced our operating cost by about 50% so far, and we are really focused upon our core team of investment managers. And those -- that core team of investment managers was really responsible for our historic track record and performance.

In terms of progress to date of that strategic review, it might seem to investors from the outside that not a lot is happening in respect of that. There is an enormous amount of work going on behind the scenes and an enormous amount of activity and cooperation between ourselves, our capital provider in respect of endeavoring to strike a balance between the interest of parties, including equity, where we can seek to recapitalize LCM. And if not, we move into a process of runoff. And that process is taking more time than what we would like, but it is necessary. And we are pretty hopeful that, that is going to bring about a successful outcome, whereby we inject additional capital into LCM, and we're able to start to rebuild LCM's balance sheet and its portfolio more widely.

So when we talk about that strategic review process, it's at an advanced stage. We hope to be able to engage more fully with the interested parties and be in a position where we can report back hopefully, earlier than the end of the next quarter, but certainly by the end of the next quarter. And there's constructive dialogue and there's a significant degree of cooperation occurring between executives and the management team and our lenders throughout this process.

I've got to say that there's a range of outcomes that could eventuate in respect of this. And we are reliant upon debt covenant waivers and a continuation of the debt facility, and that is something that represents some risk. So far, we've been working very cooperatively, and there's no indication whatsoever at this stage that capital will still not be forthcoming and debt covenant waivers will not be forthcoming, but it does represent risk.

In the absence of being able to negotiate an outcome with the introduction of capital that is satisfactory not only to the Board, taking into account interest of equity participants, but also our lender, we will have to consider and probably move to a lean runoff model in respect of the existing portfolio.

So all of those options that we're looking at are not without risk. But I can say from my perspective and from the executive perspective that we are pretty positive about what the opportunities are.

We're now going to move to financials. And then beyond financials, we want to move as quickly as we can probably to Q&A, and I'll hand over now to David.

Good morning, everyone. So I'm going to start on Slide 7, which just gives a summary of the investment activity in the period and then that then filters through to the P&L balance sheet and cash flow. So I mean, as Patrick set out, the second half of the 2025 calendar year, which is our -- the first half of our financial year, was a very challenging period for LCM. On the left-hand side, you can see we had 4 investments concluded in the period. There's 1 small win and then 3 losses.

Additionally to that, we had an adverse cost order on the Queensland electricity claim that exceeded the level of ATE insurance protection that was in place. We announced that on the 24th of December. Furthermore, we had 2 other losses in the period, both of which are undergoing appeal. And then post period end, we've had 1 small win and 2 small losses as well. So it's been a very challenging period for LCM. In this period, we're focusing on the second half of last calendar year, which is the first half of our financial year. But really, the 2025 calendar year in total was a very challenging period. On the right-hand side, you can see the position of the book now in terms of ongoing investments, so 46 ongoing investments as at 31 December 2025.

If we move now to the P&L on Slide 8. Rather than talk through sort of line by line, if we just think at a high level. So if you look about halfway down the P&L, you see the total income or total loss for this period, which was minus $106 million. As Patrick mentioned, that was driven really by 2 large losses. They were announced, I think, on the 15th of September and the 1st of October last year. And then also the adverse cost loss, which we announced on the 24th of December. So of that $106 million, I think about $87 million or $88 million of that is coming from those 3 cases. We then had a number of smaller losses as well.

And then the only other item that I would draw to your attention on this -- on the P&L above the total income result is the second line. So concluded investments, performance fees on third-party capital. You'll see that number is negative $6.6 million in the period. That is the performance fees that we had accrued for on the large Polish case where we were anticipating earning performance fees on the Fund 1 capital that had been invested into that case. In light of the losses that we've suffered and the sort of deterioration in the performance of Fund 1, we've effectively reversed the performance fees that were previously recognized. So now we do not anticipate earning performance fees on that investment, but we still anticipate LCM receiving its 25% share, which can be -- still a very material amount.

As we go down the P&L, operating expenses, you'll see have reduced significantly, $6.1 million in the period. As you recall, so the operating expense run rate that LCM was on sort of prior to getting into this period of difficulty was around AUD 20 million per annum. And the actions that we took, which Patrick alluded to, in terms of reducing OpEx brought that down to an annualized run rate of $10 million per annum. And if I break out the operating expenses, the underlying expenses there are around $5 million for the first half, so in line with that $10 million prior guidance.

But we have had some exceptionals of $ 1.1 million in the period. About half of that relates to essentially the redundancies that we implemented in the summer of last year and most of that was simply paying people's notice periods. And then we've also incurred a little over AUD 300,000, and that's the adviser fees on the strategic review that we're running. So the underlying OpEx rate on an annualized basis is around AUD 10 million. And again, as Patrick mentioned, the backup plan, if the strategic review does not produce a deal, is that we will go into a runoff model and reduce the operating expenses further. And if that is implemented, then we think the annual OpEx rate will come down to $5 million. So effectively 1/4 of what the company was operating at, call it, 18 to 24 months ago.

So yes, looking down the P&L, a very challenging period, and that's produced a large net loss in the period of AUD 108 million.

If I move now to the balance sheet. So you can see the impact of that loss on net assets. And obviously, this is what's driven the very meaningful drop in the share price. So net assets have fallen to around AUD 6 million in the period. At the bottom of that -- of this slide, you can see the fair value multiple of invested capital, which is now 0.7x the cash invested. I think the impact on net assets for LCM has been somewhat exaggerated by our move to fair value accounting.

So when I joined the company about 18 to 24 months ago, the fair value MOIC of the assets at that point in time was around 2.5x cash invested. Now what we've experienced since is a lot of losses. And as you know, we now value cases that have lost and are under appeal at around 50% of cash invested. And therefore, the quantum of capital invested into cases that are now under appeal is the reason why the fair value MOIC across the book is 0.7x.

In general, we've evolved our fair value accounting approach where now the approach is essentially that we don't recognize fair value uplift on cases prior to judgment. If you think about it, fair value accounting is trying to approximate the market value. And while the secondary market for selling litigation funding assets is relatively thin, there isn't really much evidence out there that you can sell cases prior to trial at a premium to cash invested. And so we've sort of evolved our fair value accounting approach. And now we've got a significant quantum of capital that are cases that are under appeal. And so those are held at around 50% of cost. And then other prejudgment cases, the general rule is that they will not be marked up until you've got a positive outcome in the case. And so that's the reason why the fair value multiple of invested capital has came down quite significantly over, let's say, the last 18 months.

If I move now to the cash flow statement. So the last 12 months for LCM have been really challenging, right? So there's been a lot of cases that we were sort of hopeful and positive on that have lost. And as a consequence of that, we haven't had much cash coming into the business. So you can see in the first half of our current financial year that we had cash generated from concluded investments of AUD 1.4 million. That's that small single win I mentioned earlier on.

If you actually look over the calendar year, the 12 months, to 31 December, the cash generated from concluded investments was only AUD 5 million over that entire period. And so that lack of cash coming into the business, while there's still a lot of cash going out into funding the existing investments is the reason why the net debt of the company has grown so rapidly. So you can see net debt position is AUD 92.4 million. And if I was to give you that position as at today, 31 March, it's increased further to AUD 123 million.

And the balance sheet challenges that we are in simply reflect the equity and the debt position, right? So net assets is down to around AUD 6 million, while the net debt is now circa $120 million. And so that's what we are trying to solve for via the strategic review.

My last slide is the -- just to give you -- it's a slide I showed, I think 6 months ago and maybe even 12 months ago, to give you a view of the concentration risk that sits within our balance sheet. So this has been our main problem, large cases where a lot of capital was deployed that have unfortunately subsequently lost. So this shows you the top 10 largest concentrations.

And just so that you understand the 2 columns on the right, so the global capital invested, that is the sum of total capital invested being LCM shareholder capital, which is actually shown in the right-hand column, plus external fund capital where that's relevant. So GAR 1 and GAR 2 are our 2 funds. And so when those funds are co-investing alongside our balance sheet. Then the global capital invested will be greater than the shareholder capital invested.

For this audience, our shareholders, it's the right-hand column, which is of most interest because that identifies the shareholder capital invested into cases. And you can see that most of the large cases we've now sort of had a result on and several of them are under appeal. You can see after sort of #4, there's a real drop-off of concentration risk for shareholders. So a lot of the challenges are somewhat behind us.

I would say that the top 3 cases are all under appeal. And so there is still some value within our balance sheet attributed to those cases. It's around AUD 30 million. But hopefully, most of those large lumps are now sort of in the rearview mirror, if that makes sense.

With that, I'll hand back to Patrick for the outlook.

So if we look now at what management is focused on looking forward, it's really proactively looking at what happened in the last 12 months and making sure that we manage going forward to avoid the concentration risk that has perpetuated previously. We have increased the vigor with which we are managing these investments, and most of that is really done on a hands-on basis by me supervising that very closely.

We have continued to secure the support from our lender. And if we just think about what that relationship is, the lenders' collateral in respect of this is the portfolio which we are managing. So we really are sort of both looking at the same outcome here, which is continuing to manage these investments closely, continuing to fund these investments closely through to a successful outcome.

And then finally, we're very focused in respect of bringing the strategic review to a conclusion. There is meaningful interest in a capital transaction that could change the way the company looks and the way that the company operates through the injection of additional capital. And we are working sort of very closely with all interested parties to achieve that outcome.

And I think from there, what we'll do is we will sort of move on to questions, which investors might have, and that might be the best way to sort of work through specific issues that we might need to discuss.

That's great. Patrick, David, thank you very much indeed for updating investors. [Operator Instructions] Just while Patrick and David take a couple of moments to review your questions, I'd just like to remind you a recording will be available post today's call.

David, as you can see, you've had a number of questions from investors, both ahead of today's event and during the presentation. Thank you to everybody for your engagement. If I may just hand back to you, David, and we'll pick up from you there. If you rush through the questions, that would be great.

Yes. So we've got a number of pre-submitted questions, which we will start with. So the first 2 are from sort of long-term shareholders, but basically saying what's sort of gone wrong over the last 12 months with cases losing and drop off versus the historic win rate?

Patrick, I don't know if you want to respond to those.

Yes. So look, I think it's -- really, we had the outcome of a number of investments, which were unsuccessful over the last 12-month period. But really, that is a reflection of investing in concentrated investments, which were invested in many, many years before that. So I think it's probably not the right thing to say what has happened in the last 12 months. To use an expression, the die was in the water for a long time in respect of these investments. Some of those we had to make a tough decision in relation to such as the Gladstone class action. But we are genuinely sort of working very hard now and very focused upon the management of the existing portfolio through to conclusion. And I think that's the way that we look at the last 12-month period.

The next question is, is there a backup plan in case Northleaf withdraws support?

So what I'd say on that is Northleaf to date have continued to provide us funding. They've provided us with covenant waivers. And it's really not in their interest at all to withdraw support, right? They're interested in recovering the value of their debt. So to date, they've behaved in the way that we would expect. They've continued to provide funding.

In terms of the backup plan, if the strategic review does not produce new capital, then the plan is to, as we described earlier, move into what we call a lean runoff model where we will take the operating expenses down by another 50%. So the annual burn rate on OpEx will be around AUD 5 million. Again, in that scenario, we would -- can't speak for Northleaf, but we believe they would continue to provide funding to allow the cases to run off through to conclusion. The only point that we would need to reiterate is in that scenario, we would obviously still be reliant on securing future debt covenant waivers from Northleaf. So that's important to remember. But that would be that's our current position in terms of the backup plan.

The next question is what is, the value added stemming from the assistance of Luminis Partners? And what are the costs associated with their services?

Patrick, maybe you can take the value added. And then just on the costs, I think I mentioned in the slides earlier on that I think to date or in the period, we paid AUD 300,000, and that's essentially their fees for managing the strategic review.

Sorry, Patrick.

Yes. I think there's 2 issues there in relation to Luminis Partners. The first one is Luminis Partners have identified 2 prospective capital partners here who we are engaged with and who our lender is engaged with currently. So it's really about just moving that forward to consummate if we can, a transaction, which will be for the advantage of all stakeholders.

In relation to any retainer, we are not paying Luminis Partners a retainer in respect of this. We did in the early stages of this. So it's really just a success fee, which is determinative of a transaction occurring.

Yes. The next question is, what was the rationale for introducing fair value accounting? And basically, it sort of identifies the challenges of using that accounting approach to reflect economic reality.

So I think, look, the industry has moved to fair value accounting. And the difficulty that you need to sort of remember is the nature of our investments, right? So they are binary investments, which means they can either produce a 0 or a very big number. I mean LCM has made north of 8x capital on some of its capital invested on some of its historic investments. So it can produce a very wide range of outcomes. And the difficulty with any set of financial statements for a litigation funder is that for each investment, you have to put single value on that asset at the balance sheet date. And I think the challenges that come from that is, what we've experienced in the last 12 months, where you put what you believe may be a conservative value on the investment and certainly much lower than the potential win if the case is successful. But nonetheless, if you have a bad outcome, you have to write that investment off entirely.

So in my view, the use of fair value accounting in the sector is going to be this continuous evolution and honing the model over time. As I say, probably one of the big learnings for us over the last 12 months or so is really thinking about cases that are prejudgment or pretrial, should you really be marking those up really at all. I don't think there's much evidence in the secondary market of cases being sold at a premium to cash invested. There's one transaction that I can recall where a book of cases were sold at a premium, but there was a back-end guarantee associated with that deal. And therefore, the upfront price is, in my opinion, somewhat artificial.

So we have sort of learned and evolved the model, but -- and I think with fair value accounting, it's going to be something continuous.

But the main challenge just comes back to in this sector, particularly single case funding, the range of outcomes is so wide and yet at each balance sheet date, we're required to put a singular value on each investment. And I think in other sectors, where fair value accounting is used, you probably don't get anything like that range of outcomes. And therefore, the impact of fair value accounting can look more pronounced for a litigation funder if you have a bad run of case outcomes.

The next question is, do investment managers have personal stakes in the company? How high are those relative to their salaries?

I mean, as you know, I think Patrick has around a 10% shareholding in the company. The Chairman of the company has a 5% shareholding, which he's acquired with his own money in the market. So there was strong alignment. And then there are -- some of the longer-serving staff also have shareholdings that are meaningful relative to their salaries. So there has been a lot of sort of staff buy into LCM and therefore, staff also participating in the difficulties that shareholders have faced over the last 12 months.

The next one, I'll give this for you, Patrick. So the question is, given the company is trading at a low valuation, can the Board give shareholders comfort that transaction, capital raise or sale of the business will be conducted on terms that reflect the economic value of the litigation portfolio and that minority shareholders will be treated fairly?

Look, there's no doubt that we, as a Board at LCM are highly focused upon all of the stakeholders involved in the company, and that includes equity participants. When we start talking about valuation, this really sort of swings right back into what David was saying about ascribing a fair value to the book, and that's really what we're talking about here, is what is the true value of the underlying portfolio here. That is a very, very difficult thing to put one's finger on.

Now if you look at some of the transactions which are listed there and rolled up into that question, would a capital raise be done at a value? I mean a capital raise would now be done at what I think shareholders would perceive to be an undervalue of the book. But the reality is that the shares are trading on the public market and shareholders are making a decision about what they regard as being the value of this company.

So what assurance I can give is that the Board is highly focused upon making sure that equity participants and a larger part of the Board are equity holders as well will be treated fairly.

The next one is, can you confirm LCM still writing more cases such as Cadence Minerals?

We are not entering into any new financial commitments at present. So if we look at Cadence, Cadence was an investment that we entered into and signed a funding agreement more than 12 months ago. And we've just issued a funding confirmation notice in respect of that investment. So it's a Fund II investment, and it was entered into quite some time ago.

Yes. And so on Slide 7, where we said there's 46 ongoing investments as of 31 December 2025, Cadence is in there. It was sort of undergoing due diligence sort of at that period of time.

Next question is, with the sort of utilization of the credit facility, how long can LCM keep meeting its ongoing financial commitments?

So that's back to really what we were saying earlier on. So our lender, Northleaf has behaved very professionally with us during this challenging period. We announced that we upsized the facility from USD 75 million to USD 100 million, and they've also provided covenant waivers. Again, it's not in their interest to sort of stop. They're interested in preserving the value of their debt. And so while we can't speak for them, certainly my expectation is that the funding, as it's required, will continue to be provided. So we don't foresee any sort of hard stop. The only qualification I can put to that is that's not within our control. That is entirely their decision, but it's not in their interest to stop funding.

The next case is, during the recent earnings call, you mentioned the case that was lost on the 1st of October 2025, the so-called [ Doyce ] case. Can you tell us more about it? How do you evaluate the probability to overturn it historically such appeals were not largely successful.

So what I'd say on that. So yes, we announced that on the 1 of October. We are -- it probably doesn't make sense for us to publicly talk about our strategy in terms of pursuing that appeal. But we are following the procedures and seeking permission to appeal on that case. And therefore, rather than talk about it publicly, that's probably the most that we can say.

Regarding the losses under appeal, how are you feeling about the prospects for those appeals? Patrick?

Look, I've had [Technical Difficulty]

Sorry, David. There is a little bit of lag on Patrick's line. Just bear with us one second.

Yes. Patrick, can you hear us there? We're just getting a dip in your connection coming through. Just bear with us for 2 seconds. I'm just going to bring you back in. Thank you. Ladies and gentlemen, just bear with us for just 2 seconds. Thank you very much indeed.

Thank you, Patrick. I'll just request control there, and I'll just bring you back through. Okay. Can you hear us there, Patrick?

I certainly can hear you.

Yes. Thank you. Carry on, sir, thank you. I don't know if you want to just repeat that question, David. Thank you.

There was a question around appeals and how we're feeling about those appeals. Look, all appeals have their difficulties associated with them. It's always -- you're in a much better position if you can be successful at first instance. All that said, we recently concluded the appeal hearing in respect of one of those appeals very recently, and we felt pretty good about the way that, that was received by the court. So it's not particularly helpful for me to make predictions about what they will be just based upon feedback from the bench and the judges that heard that appeal, but we're still feeling pretty good about that.

Then the next case question is, looking at some of your larger case wins like GreenX or the 2 arbitration wins, have there been any recent developments?

Patrick?

I think [Technical Difficulty]

We are just -- yes, you've just got -- I'm going to keep your camera down, Patrick. Do bear with us 30 seconds, and we'll just bring you back in.

Thank you, Patrick. I'll just request control one more time, and then I might just keep your camera for the purposes of the Q&A. Thank you.

Patrick, can you hear us? I'm just going to keep your camera off for the time being, but can you hear us okay? I'm just going to take your camera, David, down as well just for uniformity, just bear me one second.

Patrick, can you hear us in the room?

Can you hear us there, Patrick?

Want me to take the question?

Yes, please, if you could just in the meantime, and I'll try and bring Patrick through. Thank you.

Yes. So there was a question on GreenX in terms of update on recent developments. So I think we put out an announcement fairly recently. I can't remember the exact date. So on the GreenX case, as many of you will recall, we have 2 awards. One is under the Energy Charter Treaty and one is under the Australia-Poland Bilateral Investment Treaty. That's important because to avoid payment, Poland needs to defeat the 2 awards via the set-aside proceedings, which is a bit like an appeal, but typically set-asides have a very low success rate.

So the ECT award set-aside took place, I think, it was September of last year in Singapore. The judgment, if you like, has been handed down on that, and we were successful or our plaintiff was -- our client was successful in that instance. They are seeking -- so Poland is seeking to appeal that decision. That will be the last stage of that procedure. And I think our expectation is that, that will conclude -- it's probably around Q3. And again, we're very confident that that will resolve favorably.

And then there is also a set-aside procedure for the Australia-Poland Bilateral Investment Treaty award, which I understand is taking place in London in October. Again, on our side, we are very confident that, that will resolve in our favor. So we have had positive developments there on that.

Patrick, are you back?

I can hear you. I've got -- my screen looks different, but if you can hear me, that's fine.

Taking the cameras off there, Patrick. So we can hear you now. So please go ahead. Thank you.

Yes. Did you want to add anything to that, Patrick, on GreenX?

Not really. I think you summed it up there. Look, we've got a very strong judgment in respect to the set-aside at first instance in Singapore. We would be confident that, that will be upheld when that is appealed. We expect that, that second appeal will be heard and probably the judgment delivered at or about the same time as the set-aside application will be heard for the first time in the London courts. And at that stage, we'll be in a position where we can start to enforce at least that side of the judgment, and hopefully, that will bring about a resolution.

Okay. The next question is, do you expect the case won on the 10th of March to be accretive to your historic MOIC? Patrick?

Look, I think if you look at our running MOIC, there is a slide in respect of this. I think we are running now at about 1.7x MOIC over the last 15 years. And if you look at -- if you go back about sort of 12 to 18 months, we were running a MOIC of about 2.4x -- 2.3x, 2.4x. So you can see that that's really a reflection of the losses that we've sustained in the last sort of 12 months or so.

And if you think about David's comments earlier in relation to fair value accounting and the current fair value uplift is 0.7x. That kind of coincides with our running track record over the last 15 years.

So the next question is, have you been required to present your grants for appeal on the cases that have lost to Northleaf? Does their leniency reflect their confidence in committing further money to those appeals.

So obviously, the discussions that we have with Northleaf, it's not just the cases that are under appeal. We're in discussions with them around the entire book, and we have their support. So there's nothing in terms of those specific cases that is going to influence Northleaf's behavior. We expect them to continue providing funding to all of the cases in the book.

Will shareholders be able to participate in any capital raise?

I would just say let's see where we get to. So the strategic review has been running since, I think, 15th of September. We're publishing our results today, the 31st of March. I think that's the last day as an unlisted business that we could publish our financial statements for the period. We were hoping -- we pushed it so late because we were hoping to be able to give you a meaningful update on the progress of the strategic review.

I think in Patrick's slides, he said that we hope to be able to give you a further update in the second quarter. And at that point in time, we'll be able to set out more detail on whether or not there is an equity raise and shareholders' ability to participate in that. But again, as Patrick reiterated earlier, we are interested and focused as a Board on trying to protect minority shareholders' interests. We just need to keep qualifying that statement with -- we aren't entirely in control of the ball because of the situation with our lender and our reliance on them to continue providing debt covenant waivers

Let's see. Some of these questions are similar to what we've had before. There's a lot of hypothetical questions around an equity raise, which I think I would just refer you to my prior answer. Has LCM now fully concluded the re-underwrite of its existing case portfolio? Or is more work being done to reevaluate the prospects of its current cases?

Patrick, do you want to respond to that one?

Yes. So there's no question that we have undertaken a full re-underwriting of the entire portfolio. But I need to stress that, that is an ongoing process. So we do that on a quarterly basis. So we look and we look at developments, and we continue to underwrite the risk associated with these investments.

The second thing I would add to that is in circumstances where you change your view about prospects when you're underwriting/re-underwriting the risk associated with these, it doesn't mean that the only option you've got available to you is to cease funding and therefore, crystallize a balance sheet loss in respect of that investment. It's often the case that we will start to negotiate our way out of those. So in respect of some of those investments where we don't have sufficient commitment to want to invest for the full length right through to a contested hearing, we have engaged in a process of trying to manage our way out of that through a negotiated outcome.

The next question says, in my view, one of the biggest problems of LCM is limited disclosure, especially on the expected pipeline of future verdict. Are you planning to change anything in your communication in that regard?

So what I would say in terms of future verdict is we've gone through a period where a lot of capital invested has concluded and unfortunately, a lot of that capital has lost. If I look at the rest of the book, the rest of the book is relatively young. So I don't expect, certainly over the course of this calendar year, for there to be the level of conclusions that will be anything like what we experienced in the 2025 calendar year. That's probably the first point.

And then the second point I would say is one of the things that's really hard in this sector is predicting duration because the legal process is always -- I would say, always delayed. You always start out these investments and the lawyers tell you, "2 to 3 years and it will all be done, we'll be in a trial in 18 to 24 months." And that just never happens. The cases are always delayed. You always get trials being pushed back, et cetera. And duration is a common problem for funders to manage.

And therefore, it's very difficult for us to say to you exactly this is what's going to conclude in the period. I mean we revisit our financial assumptions every 6 months. And it's a continual process of the investment managers telling us, "Oh, that one has been delayed by another 6 months. That one has been delayed by another 12 months." So it's just -- it's a common issue in the litigation sector. And therefore, it is very difficult for us to give you an accurate sort of time line in terms of expectation of investments maturing.

I'd just add to that. If we were to give estimates, they would be persistently wrong because we are trying to predict 1 of 2 outcomes here, either a negotiated outcome between 2 commercial parties over which we don't have control or alternatively, we're trying to predict the period in which a judgment will be delivered on the assumption that, that judgment is successful. Now judges can take anywhere from 3 months to 2 years to deliver a judgment in respect to that, and we would get 2 days' notice or maybe only a day's notice in respect to that.

So if you look at our listed peers, none of our listed peers make forecasts in respect of individual investments for single case investments. And for the reasons we just described, it's very difficult, if not impossible, for us to do that in any sort of meaningful way.

Then I think the last -- there's some questions that are probably not appropriate for us to comment on. There's -- probably the last question is, how have discussions been with investors in Fund I and Fund II? And what's the hurdle rate before performance fees become payable again?

Patrick, do you want to pick up on the discussions and then I can pick up on the sort of hurdle rate point?

Yes. So look, we are in constant dialogue with the LPs who are investing in the funds. They have probably not been as impacted in the same way as equity investors because of concentration. That said, I think that our LP investors are pretty anxious in the same way that we are to try and negotiate a situation where fresh capital could be injected into this business such that we have the confidence that we can say with conviction that we will be able to meet our co-funding commitment with them.

So I think that they're very supportive of us, but at the same time, like equity investors, would like to see more progress in respect of the process that we're undertaking the strategic review, but we are really -- we're pushing that as hard as we can.

And then just on the performance fees. So to date, LCM has received USD 29 million of performance fees from Fund 1. We have disclosed as a contingent liability that there is a clawback on those performance fees. And therefore, we've disclosed a contingent liability of potentially, call it, USD 12 million to USD 17 million repayable of those performance fees. That will depend on how the remainder of the cases in Fund I play out.

So I would say, so for Fund I, I certainly wouldn't expect more performance fees from here. And then for Fund II, it's still relatively early days in Fund II. So we haven't received any performance fees to date or booked anything, and it will depend on how the cases in the book play out in terms of the potential performance fees. But just as a reminder, so the performance fees that we earn.

So LCM doesn't receive a management fee from the funds. It receives a 25% performance fee on the third-party profits, if you like, on fund asset profits, and that's up to a 20% IRR for the fund asset invested -- fund investor. And then above a 20% IRR, it's potentially a 35% performance fee. So that's the mechanism in terms of how it works. But for Fund II, it's still relatively early days.

Thanks.

That's great. David, Patrick, thank you very much indeed. And as we come up to the hour, thank you once again to everybody for your engagement as well this morning. David, Patrick, I'll shortly redirect investors on the call to provide you with their thoughts, their expectations and give you their feedback. But before doing so, I just wondered, Patrick, if I may just come back to you for a couple of closing comments.

Yes. Look, I think we are grateful to be through 2025 as a calendar year. It's been a very difficult year for LCM and LCM's performance. We, as a company and as a Board, are very focused upon bringing this strategic review to a conclusion. We feel optimistic about that. There is real opportunity there to really recapitalize LCM and allow it to go forward for the benefit of all shareholders. And we are as impatient as you are about that process, but we are seeing some tangible steps forward in respect of that.

And I just finally say, we are not reticent to update the market. We're just constrained by confidentiality obligations whilst that process is on foot. So it's been pretty difficult for us to actually update equity investors. But as soon as we're in a position to do so, we will.

That's great. David, Patrick, thank you once again for updating investors. If I could please ask investors not to close this session as we'll now redirect you for your feedback.

On behalf of the management team of LCM, we'd like to thank you very much indeed for attending today's presentation, and wish you all a good rest of the day.

Good afternoon, ladies and gentlemen, and welcome to the Litigation Capital Management Limited Full Year Results Investor Presentation. [Operator Instructions]

Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the team from Litigation Capital Management. Patrick, good afternoon, sir.

Good afternoon, and welcome, everybody, to LCM's full year results for the period ending 30 June 2025. My name is Patrick Moloney. I'm the CEO. I'm joined by David Collins, our CFO. And I think the way we will deal with this presentation is we will move relatively swiftly through the presentation section because we are cognizant of the fact that there's probably quite a few questions that investors have, and we will endeavor to canvass as many of those questions as we can.

And I want to start off by recognizing that it has been a disappointing period for LCM. We've had unprecedented losses of investments or cases that we have invested in during the 12-month period ending 30 June and indeed beyond that period. As investors know, LCM has enjoyed a very strong track record in terms of investing in disputes. And we will touch upon what that track record looks like at the 14-year mark.

Post period end, we've moved to terminate our investment in the Gladstone class action, and this is really the first step in terms of LCM focusing more closely upon active case management and really managing these investments with much closer retention bigger than what we have done in the past. The adverse outcomes obviously has a financial impact upon LCM's balance sheet and not only its performance.

If we look back across those resolutions, the unsuccessful investments that we've made, I think the part of LCM's business, which is managing these investments very closely, requires some immediate attention, and that is something that we are very focused on moving forward. So we really have consolidated LCM's resources. We'll touch upon the fact that we have downsized our team so that we can very much focus upon managing the existing portfolio through to a profitable conclusion without any distraction relating to entering into new investments and/or canvassing the market and seeking to identify new investment opportunities.

In terms of lessons learned, I think the largest one of those lessons is to focus upon actively managing these investments through to their conclusion. Secondly, we're really looking at the balance of the portfolio and ensuring that it's not attended with concentration risk. And we're seeking to move more quickly in respect of rectifying those investments, either through co-funding or exiting those investments when they're kind of feeling out of balance.

Restoring active case management will involve me, in particular, having a far greater and hand -- far greater and more hands-on approach towards scrutinizing the progression of these investments through the court system or the arbitral process. We're going to move much more quickly in terms of identifying issues in respect of those and seeking to rectify those before we get to a position where we have to exit those investments. We're also going back and re-diligencing those investments that we've recently entered into to make sure that they really do continue to stack up against our criteria as they move through the process.

In terms of our financial repositioning, David will go into much more detail in respect of that. But we are very much focused upon managing the existing investments through to conclusion. In terms of operational efficiency, as I touched upon, we have moved to really focus the team that we have moving forward towards management. And those members of our team who were focused really more on origination and business development have moved on to other opportunities.

In terms of focus going forward, it is very much a focus upon the management of these opportunities, and in the immediate term, we're looking at a number of strategic options. As we've announced more recently into the market, we have engaged Luminis Partners to assist us in respect of identifying opportunities. This was an endeavor that we have embarked upon much earlier in the year, but we were hampered by the investigation, which was undertaken in Dubai in relation to both LCM and myself personally. In recent days, that investigation has come through to a conclusion, and any allegations that were made against LCM were dismissed entirely, including the ones made against myself. And that has really positioned us now that we can properly look at strategic alternatives together with Luminis.

If I look at our long-term track record over the last 14 years, this really does highlight what -- an unusual pattern of performance that we have seen in the last 12 months. So if we look at all of the investments that we have concluded in the last 14 years, the metrics are there and they really are still showing pretty healthy and strong returns.

I'll now move to the financials.

Okay. Good afternoon, everybody. So I'm sure there's going to be lots of questions, so I will try to canter through the financials, starting on Slide 9. So we've done this in the past, just set out a summary of the investment activity in the period because that then informs the P&L balance sheet and cash flow. So in summary, on the left, so 12 investments concluded in the period. That was 6 wins and 6 losses. In aggregate, that was a cumulative multiple of invested capital of 1.8x on those realizations, and that generated AUD 50 million of revenue for LCM. That result excludes 3 cases, which lost in our under appeal. We have taken a new accounting approach to how we deal with cases that have lost at first instance and are under appeal. I'll come on to that in the P&L to talk you through, but there's write-downs related to those 3 cases.

In the middle, new investments, so we added 13 new investments in the period with total commitments of AUD 79 million. That's obviously down a lot on the prior year. It's a consequence of the losses that we experienced in the second half, meant we became much more focused on reducing balance sheet strain and therefore, we wrote less new business.

On the right-hand side, so the balance sheet at the end of the period, so we've got 53 ongoing investments. 11 of those are funded by our balance sheet, and of those 11, there's 3 big ones. The others are relatively small. And the other 42 investments are co-funded by either Fund I or Fund II.

So if we move on to the P&L, so at the top, those 12 conclusions are what produced the net realized gain of AUD 22.2 million, which you can see on the fourth line down. So the revenue, that $50 million is the sum of the top 2. And if you divide by the cash invested into the cases, the $27.5 million, that's what gives you the 1.8x, and that produces $22.2 million of net realized gains in the period.

Underneath that, in the next section down, we've got a large negative fair value movement over AUD 100 million, and that's in 3 components. So the first component is minus AUD 49 million. So when cases conclude, we remove the fair value asset that's on the balance sheet and replace it with the realized gain at the top of the P&L.

One point to note is that AUD 49 million is bigger than the AUD 22.2 million because those cases that concluded were being held at 2.8x cash invested prior to conclusion, but they realized at 1.8x, which is a loss from a fair value perspective. The reason for that outcome is just we had much more losses than LCM has historically. So the business was still priced to deliver 3x, 4x type returns, but the large number of losses resulted in that larger negative. So that $49 million is the first negative component. And just note that number will always be negative because it's simply us removing the fair value asset and then replacing that with the actual results on the cases.

The next line down is the fair value write-down on cases that lost and are under appeal. Now there's 3 of those cases, and 2 of them are captured in here. I'll come back to the third one a little bit later on. But that $44.5 million, so you can break that down into 2 components: first of all, sort of what we used to do previously, which is where we would write them down to cost. So $29 million of that $44.5 million relates to what we would have done if we just held them at cost.

Because we've had a number of these losses, we've decided to take a new approach. So we're now holding cases that lost and are under appeal within a range of 50% to 60% of cost. And so that extra piece, writing it down below cost, is around $15 million. So that's the sort of 2 components, if you like, of the $44.5 million.

Then the final component of the minus $100 million is the net fair value movement on all other cases. And again, in light of the adverse performance that we've experienced, we've taken another look at the fair value model, and we've set it up to be more conservative, particularly from an expected profit and duration perspective to reflect our recent experience, and the net impact of that is a minus AUD 6 million impact. So in aggregate, that produces $100 million net fair value movement adverse.

Underneath that, you've got the litigation service revenue line. So some of you might remember that we account for almost all of our cases using fair value accounting, but there's 3 now left, which aren't accounted for under fair value accounting, and the results of those cases is captured in this line. So the minus $5.5 million, this is that third case that lost and is under appeal, and that impact there is the -- we've moved that 1 to 60% of cost. And so that's what that negative $5.5 million is. In the prior period, the positive $9.2 million was 1 of those cases concluded successfully and generated a $9.2 million gain. So that's what you see there. And for those of you looking at our results from last year, we previously used to show that line within the net realized gains, but we've separated it out this time.

Other income of $ 1.4 million, that's just fund management costs that we've been reimbursed. So that produces a total loss of AUD 82 million.

Operating expenses in the year, so they come in at $18 million versus $19 million last year. Now we entered FY '25 on a run rate of around AUD 20 million per year. In light of the adverse case outcomes, we've taken action to reduce that cost base, so we've reduced it to about half as the annual run rate. And so you will see the benefit of that flow through into FY '26.

One of the options that we're considering is moving to sort of a pure runoff model. And if we are to do that, we will reduce the OpEx even further, potentially halve it again. Again -- and that would be the scenario where we're focused on managing the investments to realize value for shareholders. And in that scenario, when we're not pursuing growth, we can significantly reduce the OpEx. Underneath that, you've got an FX gain of $5.6 million, so that relates to the weakening U.S. dollar. About half of our loan is outstanding in U.S. dollars, and so the weakening of the dollar over the period has produced a gain for us.

Reading down, so operating loss in the period of $94 million. Underneath that, you've got the finance costs. The lower finance costs compared to the prior period simply reflects the lower interest rate that we negotiated back in December of last year. I think the average loan balance over the period was around the same as the prior year, and so it's just that lower interest rate, the benefit of that, which is flowing through. All of that produces a loss before tax of around $100 million, and posttax, it's around AUD 73 million.

So if you move to the balance sheet, so cash, you can see, declined meaningfully in the period. That's because, as I'll show you on the cash flow statement, we were putting a lot of cash out into case funding, paying OpEx, paying our interest. But because we didn't have the sort of wins that we would have hoped for, the cash proceeds coming in failed to meet our expectations, frankly. And so if you take the cash and the borrowings line, which you can see in the total liabilities section, that put -- the sum of those 2 produces net debt at the end of the period of around AUD 69 million. Just for everyone's information, if we take that net debt position today, it's around AUD 80 million.

Again, if we move down the balance sheet, so debtors, there's essentially 2 components in those debtors. The big one is the case against Poland, which I'm sure we'll have questions on. So that's the vast majority of the debtor balance. Investments at fair value. So we've got 53 ongoing investments. 50 of them are valued using fair value accounting. And as I described earlier on, we've moved the fair value accounting to be more conservative. You'll see at the bottom of the page, we're now valuing those cases at 1.3x. That's a big drop versus the 2.4x, and there's a number of reasons for that.

First of all, it's the realizations. So remember, those cases that realized in the period were valued at 2.8x. And then you've also got -- I guess, a lot of our cases now, the outstanding cases moving forward are very young, and we tend to hold those cases at 1x cash invested until there's evidence of real progress being made in each of those individual investments. So that's the investments at fair value.

Then you have investments held at cost. So there's 3 of those cases there, which are held at cost. Remember, one of them is one of the cases that lost under appeal, and so that's been marked down. Probably worth flagging, the Gladstone Ports case that we mentioned as a loss -- highlighted as a loss post period end, so that is in that balance there at AUD 29.4 million. Just note that the total write-off on Gladstone was $30.8 million because we incurred an extra $1.4 million post period end.

[ That ] forward.

Sorry, one should be on the balance sheet, yes. Yes. So covered there, the assets. Deferred tax -- so we've spoken about borrowings and the net debt. The deferred tax, you'll see liability. You'll see that came down a lot. That's largely because of the significant reduction in the investments at fair value. So when we hold fair value expected profit against investments, we also hold on the liability side the expected tax. And just to be clear, that says deferred tax liability and tax payable. Unsurprisingly, given that we've had a large loss, there is no outstanding tax payable as things stand today.

All of that produces net assets in the period of AUD 114 million. That's around 50p per share. And then if I was to update that for the Gladstone loss, that would fall to around 41p per share. I think some of you may be interested in also with the case that we've announced earlier today, which I'm sure we will also talk about. If we were to adjust for that, net assets per share is probably going to be in the 25p to 30p per share range.

Just move on to the cash flow statement on Slide 12. So again, you can see the decline in the cash that I spoke about on the balance sheet from $53 million at the beginning of the year to $8.9 million at the end of the year. You can see that is as a consequence of the cash generated from concluded investments being down compared to the prior year. But then also as we've scaled the business, a lot of cash was put into case investments, the $59.8 million during the period. You'll also see operating expenses and net finance costs. There is very marginal differences between those 2 lines in the cash flow statement versus the P&L.

For the operating expenses, those differences relate to primarily share-based payments and reimbursement of fund management expenses, which are captured in the other income line in the P&L. And the difference for the finance costs versus the P&L is simply the P&L captures accrued interest. Underneath that, you'll see the cost of the AUD 8 million for the dividend that was declared at the end of last year that was paid this year plus the completion of the share buyback. And then we've drawn down somewhat more on the facility in the year. So all of that, again, produces, call it, AUD 69 million of net debt at the end of the period, which is around $80 million today.

Just move on to the next slide. So this is the slide last time around 6 months ago, I showed a slide, there's a sort of pie chart highlighting the concentration risk that is within the LCM portfolio. This isn't the same information but shown in tabular form, and you can see how much of our AUD 153.6 million of invested capital is concentrated among a small number of cases, largely legacy cases that are more than 5 years old. And frankly, the reason why our results have been so poor this year is because many of those large investments have been unsuccessful. And indeed, the case that we announced earlier today after the results release is the 1 that shows #3 on the table. Now many of the initiatives that Patrick mentioned earlier on are to ensure that the risk of having these large, concentrated positions in perhaps challenged investments. We want to make sure that, that risk is mitigated in the future.

Slide 14. So this is a slide that we've used in the past to sort of show the progress of the book over the last few years. Given that our focus is now on managing existing investments, essentially runoff, and we aim to use the proceeds of successful investments to pay down the debt, we expect new commitments in the near term to be modest, and that should then flow through with committed capital and the invested capital also trending downwards over time.

So I'll finish there and hand back to Patrick.

So just before we move to outlook, I want to touch upon 2 things. First of all, the case that we announced during the course of this morning here, which was the handing down of a decision by the high court here in London, known in our investment portfolio as [ Trans World ], now that is the outcome or the unsuccessful outcome for our funded party came as a surprise to us. And it came as a surprise to us, particularly in circumstances where we have put an enormous amount of focus in undertaking a really rigorous due diligence process of this particular investment as it came up for its hearing. It was heard earlier this year.

Because of the nature of the business and the losses that we had sustained to that point, we wanted to ensure that we had given this particular investment as much independent review as we possibly could. And some of the things that we did in respect of that claim as it went through hearing was to ensure that we've got independent advice from a KC here in the London market in relation to the evidence as the evidence was actually served in advance of the hearing.

Secondly, as we approach the hearing, we got that independent KC to review the submissions that were made on each party, the outline of submissions as they went into the hearing and then as the hearing progressed, how that was progressing. And all of those indications were that we were -- we would succeed in respect of this investment and that we had a very, very strong claim that we were pursuing through the courts.

As a consequence, this has come as a shock to us. The decision was handed down at approximately 10:30 a.m. this morning. So we've had an opportunity to review that in a very cursory way before we attended this presentation. I think our reaction to that based upon the decision itself and in particular, the rigor with which we have diligenced that in recent times coming up to the hearing would indicate to us that it's very likely that we would support appealing that decision. So I think that's where we stand in respect to that. No doubt, we will get some specific questions, which we'll be happy to answer as we move forward.

The other issue that I wanted to touch on in perhaps a little bit more detail is what the consequences were for LCM when we were investigated in Dubai. Now we've been completely exonerated from any wrongdoing in respect of that, and that investigation is now being brought to an end. But if we think of the time line in respect of that, we learned about that investigation many, many months after we had commenced in Dubai. We learned about it through the press about May of this year. And we scrambled and worked very hard to try and get our heads around precisely what investigation was being undertaken and how LCM and indeed myself personally interacted with that.

And after going through that process and coming to the conclusion that we always thought would be the outcome, which was we were completely exonerated, it really highlighted to me the inadequacies of the process that was undertaken, and there's -- we could talk for quite a long time about that. But what I wanted to really focus upon is the impact that had in respect of LCM and the existence of that inquiry, how that hampered us been advancing strategic options that are very much early at the time.

So one example of that really is that we were -- we had engaged to participate in a strategic review of LCM and its options as far back as May but really couldn't advance that any further because we were facing this investigation, and that hampered any ability that we had to really think about mergers, acquisitions and/or sale, trade sales. So that really has -- the existence of that inquiry and the manner in which that inquiry was undertaken by the Dubai authorities has really represented and caused an erosion of value and loss in respect of LCM and its share price.

And that was brought to a conclusion yesterday, so it's still very fresh whilst we were anticipating that, that would be the outcome. What we want to explore now is whether we have any redress in respect of that and the manner in which that investigation was undertaken with respect to LCM and whether that's actionable in any sort of meaningful way, where we could actually recover some of the lost value that was -- that we suffered and LCM shareholders suffered as a consequence of that investigation.

So moving on now to looking forward. We're really moving into a period -- we have been in a period of introspection, really looking at LCM, looking at the way we're managing our book and making any changes to that. So we're really moving into a period now where we are wholly focused upon managing our existing investments through to a profitable outcome.

Secondly, we've made an announcement, we have engaged Luminis to assist us with respect to strategic options. We now have the ability to engage properly in respect of that and engage properly with the market having had the Dubai investigation conclude yesterday. Any of the options that we are considering together with Luminis will be benchmarked against a runoff of the existing portfolio and the existing book. We are very much focused now on reducing our debt, so our main focus in the immediate term is bringing investments through to a conclusion and applying the proceeds of that in reduction of our debt.

We have engaged with our capital provider for a period now of sort of 3 or a bit more than 3 months. So we very much got ahead of the position that we find ourselves in today. We have a good ongoing working relationship with our capital provider. Our capital provider has indicated to us that they are going to provide us with as much support as they can over the next 12 months. So we're very much working with them in a very productive way. So just to close in respect to that, we're very much dedicated towards restoring shareholder value and really delivering to shareholders the benefit of a closely managed portfolio of assets.

And so I think at this point, we're going to move on to questions. I suspect that there will be a number of those. The 2 that I can see, which have come up already in respect to this, are questions in or around the GreenX award and where that might be up to and timing in respect of that. So those are the first 2 questions.

So I think we updated the market in or about March earlier this year. We indicated to the market that we thought that there was a process ahead of us of about 18 months, during which time there will be challenges to that award. Those challenges will be brought in 2 separate courts and both under separate regimes. So there has been -- there's a challenge brought before the Singapore courts, and there's a challenge brought between the London courts. And investors will recollect that we actually got 2 awards here based upon the same fact pattern, 1 in relation to the Australia-Poland investment treaty and the other 1 in relation to the Energy Charter. They both are for very similar amounts. LCM's recovery would engage against either of those. Either 1 of those 2 awards is sufficient to pay LCMR.

Just in terms of an update, I think we are still pretty confident that the time scale of 18 months is an accurate 1. So where they're up to now, we have had a first hearing in respect of the challenge, which has been brought in Singapore. We're awaiting a judgment in respect of that challenge, and we would expect that first judgment to be delivered probably sometime in the next quarter.

Under Singapore law in that jurisdiction, there's a second right for an appeal, and we would expect that to move pretty quickly and move through to not only hearing but an award early next year. So we're still sort of within that time frame that we expected it would take in respect to the challenge, which is being brought in the London market -- or the London Court, that's moving much slower. So there's a hearing date allocated in respect of that for October of next year, and then we would expect a period where the court will consider its position delivery judgment. So very much, we can see the efficiencies of the Singapore court, and it's very much more likely that we will reach a position where we can commence enforcement action against Poland in respect of the award, which has been challenged in Singapore before we get even the first judgment from the London court.

I would just add to that. So the key thing here is that we have 2 awards: 1 under the Energy Charter Treaty, 1 under the Australia-Poland Bilateral Investment Treaty. There's lots of statistics on the success of set-aside proceedings. And whichever set you look at, these are these set-aside proceedings over the last few decades. The success rate of those tends to be in the single-digit percentages. So if you think about it, Poland has got to win 2, so therefore, that is implying a single-digit percentage multiplied by single-digit percentage is less than 1%. So that would imply it's really hard for them to win both of those set-aside proceedings and overturn the award.

And also remember, the Prime Minister of Poland, Donald Tusk, is on the record publicly essentially saying we're going to have to pay this claim. So he made a statement around October of last year after that claim, the award was announced. He was on the record saying the Polish people will -- may ultimately have to pay this. So we feel pretty good about that. It's just it's a matter of now proceeding through the set asides and then moving to enforcement if we need to.

The next question that we can see here is a question which relates to support from our capital provider and was the expression of support given prior to the judgment, which was delivered at about 10:30 a.m. this morning London time.

The answer is no. That was obviously not known over the past 3 months when we'll be discussing these things. I would not expect that to change things. And the reason I say that is that if you think about the capital facility that we have, it's an asset-backed land, and the asset is the portfolio of investments and disputes that we have. And if you think about the nature of those assets, they require maintenance. They require continued support and continued capital investment. Otherwise, they don't have a value. So not only do we have a good relationship with our capital provider, but we're very much working together to create value out of these investments.

So I'll do the next one. So how much is the balance sheet value of the 3 lost cases under appeal?

I think the capital invested into those 3 is around AUD 45 million. Now as I said, we're now holding those in a range of 50% to 60%, so you can sort of work that out. It's going to be between AUD 22.5 million and a smidge higher. So it's sort of in that range. Effectively, we've taken, call it, AUD 20 million, AUD 25 million -- AUD 20 million to AUD 25 million write-down versus cost on those cases.

Next question really relates to the suitability of LCM's business on the public markets and are we giving consideration to whether LCM should be taken private.

What I can say in answer to that is we are looking and the Board is looking at a full range of opportunities, and we are seeking advice with respect to those. And they run the full gamut from really going into a mode of debt reduction until we've paid our debt off and then thinking about where we move from there right through to another end, which is a merger and acquisition, a trade sale and/or a go private. Now we're not in a position to -- we're at the commencement or halfway through that process now, but what I can say is that we are benchmarking any of these options really against what we see as the intrinsic value or the rundown value in relation to the existing portfolio.

So we've then got 2 questions on today's judgment, so feedback about the judgment and then I think can -- another question asking for a bit more detail.

So you can see as per the RNS that we invested, call it, GBP 16 million into that case. Had it been successful -- I think you're all aware of the sort of multiples that we generate on successful investments. So the GreenX case is 1 example where we're on a 6x multiple. Had that case been successful, we would have been talking about that sort of value, 5, 6x type multiple of the capital invested. So there was considerable value in that case.

Importantly for LCM, you can see we funded GBP 10 million and the fund funded GBP 6 million. So that would have meant even more value for LCM's balance sheet. We are just now reviewing the judgment. It came out around between 10:30 and 11 a.m. this morning. So we've got to go through that in detail, and we will update you on what our plans are for appealing. My first read is that there's definitely aspects that are there that we can pursue, so we'll come back to you with more detail on that in due course.

I mean as I mentioned before, we've done an enormous and really rigorous diligence in respect to this, and that was not a diligence at the beginning but a continuous process. As I mentioned, it really did come as a surprise to us that we weren't successful because all of the independent views that were given to us and sought by us as we progress through that hearing were very positive.

So there's another question saying, has the company bridged debt covenants. Does management expect the company can access new debt financing? Or will equity injections be required? What concrete steps is management taking to restore the company's status as a going concern?

So let me step through those. So you'll see in the annual report that we've secured covenant waivers from our lender through to 30 of December of this year. So we have not yet reached our debt covenants. But the reality is there's a reason why you go and get those waivers. So we are -- the lender has been supportive to date. Obviously, they -- I think we put in the annual report that current intention is to support us for the next 12 months as we complete the strategic review, but obviously, they have the right to change their mind at any point in time. So we'll be working with the lender closely over the coming weeks and months.

Does management expect new debt financing or will equity injections be required?

So we are looking at strategic options that could include refinancing as part of that. And also equity injections, I wouldn't take that off the table at this stage. Clearly, you've all seen the results that we've published, and all options need to be kept on the table in terms of the concrete steps that management is taking to restore the company's status as a going concern. So again, we're looking at those strategic transactions, but we're also doing, I think, the right internal things significantly reducing the OpEx. And also, those are the options that we will look at as well in terms of reducing future balance sheet strain.

the next question is do we have -- are we in a position where we can revert back to the previous accounting standard.

And David will be able to answer this in more authority than me. There are a couple of observations that I would make, is all of the listed peers apply the same accounting standard. I think it's really a question of not a matter of choice, but it is what is the appropriate standard to be applying to a business like this.

Yes. So I'll answer this question very honestly. So the decision to move to fair value accounting was taken before I joined the company. My view is LCM had the high ground previously by not using fair value accounting. Anyway, so we're now on fair value accounting. It's probably difficult to go back.

But I would say if you look in the balance sheet, we highlighted on that slide that cases are valued at 1.3x cash invested. Most of that fair value uplift relates to the case that we announced as a loss at first instance today. So if you take that out, essentially, most of the other cases are now being valued at or around cost in aggregate. That in part reflects the fact that the remaining cases are relatively young and so they're not that far progressed.

But essentially, we've -- by setting the thing up more conservatively, we're now close to where the fair value is similar to the cash invested. So that sort of uncertainty, if you like, and that perhaps that premium, which is -- which may be somewhat at risk has essentially been taken out. So I think what we've done on the fair value positions it much more conservatively for shareholders.

The next question relates to adverse cost risk and cover by ATE insurance. And the question is what does that mean?

So I'll try and explain that as simply as I can. In most of the jurisdictions in which we invest in disputes, the successful party is entitled to what's called a cost order, which is a way that they can recover a portion of the legal fees that they had incurred in defending the claim that was funded by our funded party. Now that risk is something that we typically lay off through a policy of ATE insurance, which is after-the-event insurance. And most of the cases that we would fund would be -- the adverse cost risk would be covered by ATE insurance.

Yes. So next question is around would shareholder value be best realized by runoff by being part of a larger litigation finance company or by refocusing on the business.

Okay. I would just say, clearly, where we are, all options remain on the table. And so we will look -- we've got various discussions underway, but we would look at essentially all options.

The next question says, given the current win-loss ratio, does management see 2x MOIC as sufficient to cover losses, operating costs and overhead or is the target to increase the average MOIC closer to 3x.

What I would say there is the business is priced exactly the same as it's been priced probably for the last 10, 15 years in that a lot of our business, if it's successful, we will win 3x, 4x, 5x plus. The problem has just been the losses. It's -- the business is there, and it's priced appropriately. I mean if you look at the wins, the cumulative wins in the period, so we said 6 wins, 6 losses, and in aggregate, they produced a 1.8x average result. Those 6 wins, I think, delivered an average MOIC of over 5x.

So again, if you win and the -- all of the in-force business, it's priced for those higher multiples. The problem has just been this run of losses. So I would say the key thing is just getting that win ratio back. We don't think that what we've experienced over the last 6 months is now reflective of what the rest of the book is going to play out. In reality, over the last 6 to 9 months, we've had a lot of these legacy cases, which have -- came through. And my sort of view as relative newcomer to this sector is that when you have these sort of legacy investments, they're often problematic. You've had to put more capital into them for a reason.

Now a lot of those have sort of washed through. We are appealing some of them, but a lot of that wood has been chopped effectively. If you look at the concentration risk slide, you'll see that we're moving towards a point where there is less concentration. We're not fully there yet. There's a few more to go, but hopefully, that sort of gives you a feel in responding to that question.

Next question is what does the future of LCM look like. And I think, really the answer that needs to be broken down. In the near term, it's very much a focus upon a very focused management of these particular investments and reducing debt. And then if we look a little bit further out beyond that, really the future of LCM will depend upon all of the consideration that Board is giving to the strategic review. So we ought to be in a position where, when we conclude that review, we'll be able to come back and share some of those determinations with equity participants.

So we've got a couple of questions from [ Michael ]. I -- in the short term, cash insolvency will be vital. What is short- and medium-term cash flow forecast, taking into account revised cost base and cash realization measures?

So the hardest thing in this business is predicting cash flow because it's entirely based on we only get cash in when we win, right? So we don't have management fees or anything like that, that other investment managers have. We only get cash in when cases conclude successfully. So we can look at our expectation of case conclusions. And we have had significant conclusions over the last 6 to 9 months. It's just that the results have gone the wrong way.

In terms of answering the question, I think the key thing is having continued lender support because of the difficulty of forecasting when the next case may win, and it's very common in this sector for judgments and so on to be delayed. So I think the best way I can answer that question is to say, look, we're being very proactive with the lender. We've been encouraged by the support that they've provided us to date. And we're trying to move to a model which will work for them, lean runoff if the strategic options fall away but also work for our shareholders. So that is the plan, and hopefully, [ Michael ], that also answers your second question on describing runoff. So I hope I have addressed that one as well.

There's another question just in relation to timing of GreenX.

I think we've dealt with that. I think as we've said, we are still looking at a time horizon with respect to that of 18 months from March. And I think we're sort of tracking in relation to that.

So there's other debt covenants questions. Again, I think we've answered that.

Why no separate announcement of the Dubai outcome?

So that one came in yesterday, which was the 30th, but the -- everything had been basically dismissed, and we understand the verdict there was really quite scathing. Yes, it -- because it came in so late, we've just included it in the results released this morning rather than issuing a separate RNS.

Okay. So there's a question on why Luminis, an Australian firm, rather than a recognized European specialist adviser.

I think in the first instance, we need to recognize the fact that we are an Australian public company, so we are subject to Australian corporations law regulation. So it's natural for us to seek an adviser who's very familiar with transactions in the Australian market and pursuant to our Australian Corporations Act.

Now there's no doubt, depending upon the nature of a transaction that we might do, it would involve us seeking advice probably here in the London market. So I don't think we've combined ourselves to Luminis in Australia, but I think it's important that we recognize the fact that we would be subject to Australian law.

So will the Board consider reducing directors rem in order to reduce OpEx?

I think, yes, it's a reality. So we've sort of indicated we think we were 1 of the more lean funders coming into this with our AUD 20 million annual OpEx at the beginning of the year. When you think about what we're saying, that's potentially falling to, call it, $5 million. So we are being very disciplined to try and reduce costs for shareholders. And if that means compensation for directors being reduced, then, yes, it's absolutely on the table.

The next one is do we have visibility on the balance sheet you'll take between terminating existing cases and continuing to fund.

I think that's something that we are continuing to look at, we're continuing to monitor. At this point, we do not feel we're in a situation where we need to seek to fund or terminate funding in respect of any claims, which we see as viable, but that is something that we are talking to our capital provider about. It's something that we're considering at all times.

So there's a question from [ Max ] on what are your thoughts on the timing of the AUD 88 million due from the resolution of investments.

So [ Max ], that's in the consolidated balance sheet. So what I've put up the slide, those are the LCM-only balance sheet. We do -- we're required -- because we've got external funds, we're required to consolidate the external funds into the consolidated balance sheet that you find in our financial statements. That $88 million, if we put it on to an LCM-only basis, the LCM share of that is $30 million, of which the vast majority of it is that GreenX debtor. And I think Patrick spoke earlier on around our expected timings in terms of the Singapore set-aside proceedings and then the London set-aside proceeding. So hopefully, we've answered that one.

The next question is, is a delisting part of the options that are being considered.

So take private. I think we've touched upon this before in respect of the strategic review that we are undertaking. I think all options are on the table, and we are measuring all of those options against the benchmark of what do we see as the value of the portfolio, the intrinsic value of the portfolio on a runoff basis.

And there's a question from [ Albert ] around the NAV. So as of 30th of June, NAV per share was 50p. He's saying you announced a loss of 15p and then today, a loss of 25p. So how do we reconcile with estimated NAV of 25p to 30p?

I think it's just tax, [ Albert ], is the difference. So the tax losses will reduce the gross impact.

Next. So we're seeing a lot of questions, which I think we've already sort of answered. Question from [ Edward ] on the LPs. So do you think that LPs to Fund I and Fund II will pay their cash commitments when called upon to do so?

Sure. Absolutely. And we'll be engaging with our LPs post these results coming out. The performance for LPs has been considerably better, unfortunately, than it has been for shareholders. And that's largely because shareholders have borne the old balance sheet cases where we've had a few issues and then also much more concentration risk. And that's been mitigated for LPs because, for LPs, there's a limit such that we can't invest more than 5% of their capital into any 1 case.

So the -- if you look at the performance of Fund I, even in light of recent outcomes, it still stacks up pretty well. I think we believe we can deliver to Fund I LPs even in light of recent losses, something like a 1.5x return, which is in line with what was the initial objective of the fund when the fund was first launched in 2020. So it's very important for us to manage all of our key external stakeholder relationships, and we'll be engaging proactively with LPs in the coming weeks. But we have good relationships there, so we expect that they will absolutely continue to meet their commitments.

Next question relates to a Fund III and what are our thoughts around the Fund III.

As equity investors would be aware, coming up to sort of June of this year, we're positioning ourselves to do a first close in respect to Fund III. We had done a number of roadshows in respect of that, and we were positioning to do that. What -- the reason why we were unable to affect the first closing in relation to that was not through lack of demand. It was really the intervention of the Dubai investigation, which made it very, very difficult, if not, impossible under those circumstances to really do any sort of close or any capital until that was finally resolved. That was resolved late yesterday.

I think as we have said, we are wholly focused upon close and focused management of the existing portfolio and paying down debt. And once we achieve and strike a sensible balance, we will then consider whether Fund III is the appropriate way to move forward. And we'll obviously bear upon the strategic analysis that we're undertaking.

So there's a question from [ NW ]. What is the rundown value as of today that you are benchmarking every option against?

I would say that we're not going to put a number out there. We have a view internally, but our performance over the last 6 months has been rubbish. And I don't think anybody would really put much value on a number if we put it out there. The key thing for LCM is to get back to actually do what it used to do in the 13 years prior to 12 months ago. So rather than putting a number out there, if it's okay, we're going to focus on hopefully converting existing investments into wins and sort of getting our credibility back with investors that way.

Next question is around what LCM's entitlements are in respect of the GreenX/Poland award.

As we know, we were sort of working towards positioning ourselves to enforce those favorable awards. There's 2 aspects to that. Obviously, there's a fund component of that. And then there's an LCM component of that award. And the question is does this give your capital provider some comfort. Undoubtedly, that is the case, yes.

So a lot of these questions, I think, we've answered.

I think we're sort of coming up to the 1-hour mark as well. So I think what we will do is endeavor to respond to as many of these as we can afterwards, but I think we're kind of running short on time now.

I mean just last question from [ Stuart B. ]. Very generous. Thank you, [ Stuart ]. You've had a tough run of luck. What positives within the business are perhaps not visible on first glance at the results?

I would -- the judgment that we announced today, which has crashed the share price, we are going to review that overnight, and you will hear more from us on that. That's all I would say. There's potentially a lot of value on that, and there's one key aspect of that judgment, which we've been totally surprised by. But a lot of the other aspects of that judgment, which relate to the potential value had we been successful, we cleared the hurdles on those. So I would just say you will -- you can expect to hear more from us once we've had the full chance to digest that judgment and also run through with the lawyers what the best strategy may be from here.

Patrick, David, if I may just jump back in at this point, and thank you very much indeed for addressing all of those questions that came in from investors this afternoon. And of course, we will give you back all of the questions that came in just for you to review after the presentation, and we'll publish those responses on the platform where it's appropriate.

But Patrick, perhaps before really now just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with, that would be great.

Look, I would say to investors that LCM and our team are very much focused upon realizing as much value as we possibly can from the existing investments and paying down debt as quickly as we can and at the same time, sort of undertaking a strategic review so that we can sort of look forward and what the optimum business model is for us into the future.

Perfect. Patrick, David, thank you once again for updating investors this afternoon. Can I please ask investors not to close this session, as you'll now be automatically redirected for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company.

On behalf of management team of Litigation Capital Management Limited, we would like to thank you for attending today's presentation. That now concludes today's session, so good afternoon to you all.